As filed with the Securities and Exchange Commission on
May 28, 2010
Registration
No. 333-165557
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 2
to
FORM S-1
REGISTRATION
STATEMENT
Under
The Securities Act of
1933
IRONPLANET, INC.
(Exact Name of Corporation as
Specified in Its Charter)
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Delaware
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7389
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04-3450136
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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4695 Chabot Drive,
Suite 102
Pleasanton, California
94588
(925) 225-8800
(Address, including zip code and
telephone number, including area code, of Registrants
principal executive offices)
Gregory J. Owens
Chairman and Chief Executive
Officer
IronPlanet, Inc.
4695 Chabot Drive,
Suite 102
Pleasanton, California
94588
(925) 225-8800
(Name, address, including zip code
and telephone number, including area code, of agent for service)
Copies to:
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John V. Bautista, Esq.
Karen A. Dempsey, Esq.
Orrick Herrington & Sutcliffe LLP
1000 Marsh Road
Menlo Park, California 94025
Telephone: (650) 614-7400
Facsimile: (650) 614-7401
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Jeffrey D. Saper, Esq.
Robert G. Day, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
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Approximate date of commencement of proposed sale to the
public: As soon as practicable following the effectiveness
of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box: o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act
of 1933, please check the following box and list the Securities
Act registration number of the earlier effective registration
statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act of 1933, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act of 1933, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering. 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. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer x
(Do not check if a smaller reporting company)
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Smaller reporting company o
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act or until the Registration Statement shall
become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be
changed. We and the selling stockholders may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
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SUBJECT TO COMPLETION, DATED
MAY 28, 2010
Preliminary Prospectus
shares
Common Stock
This is the initial public offering of shares of common stock of
IronPlanet, Inc. Prior to this offering, there has been no
public market for our common stock. We are
offering shares,
and the selling stockholders identified in this prospectus, are
offering shares
of our common stock. We will not receive any proceeds from the
sale of shares of common stock by the selling stockholders. The
initial public offering price is expected to be between
$ and
$ per share.
We have applied to list our common stock on The NASDAQ Global
Market under the symbol IRON.
Investing in our common stock involves a high degree of
risk. See Risk Factors beginning on
page 9.
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Per share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds to IronPlanet, before expenses
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$
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$
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Proceeds to the selling stockholders, before expenses
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$
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$
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To the extent the underwriters sell more
than shares
of common stock, the selling stockholders have granted the
underwriters an option to purchase up
to additional
shares of common stock, at the initial public offering price
less the underwriting discounts and commissions, to cover over
allotments. The underwriters can exercise this option at any
time within 30 days of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares of common stock to
purchasers
on ,
2010.
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J.P.
Morgan |
Deutsche Bank Securities |
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Cowen
and Company |
Piper Jaffray |
Needham & Company, LLC |
, 2010
TABLE OF
CONTENTS
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Page
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1
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9
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23
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24
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24
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25
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27
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29
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33
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61
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75
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81
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90
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101
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104
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106
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111
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113
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116
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120
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120
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120
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F-1
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EX-1.1 |
EX-23.1 |
EX-99.1 |
You should rely only on the information contained in this
prospectus or in any free writing prospectus prepared by or on
behalf of us and delivered or made available to you. Neither we,
the selling stockholders nor the underwriters have authorized
anyone to provide you with information that is different from
that contained in this prospectus or contained in any free
writing prospectus prepared by or on behalf of us and delivered
or made available to you. We and the selling stockholders are
offering to sell, and seeking offers to buy, shares of common
stock only in jurisdictions where offers and sales are
permitted. The information in this prospectus is accurate only
as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock.
Our business, financial condition, results of operations and
prospects may have changed since that date.
No action is being taken in any jurisdiction outside the United
States to permit a public offering of our common stock or
possession or distribution of this prospectus in that
jurisdiction. Persons who come into possession of this
prospectus in a jurisdiction outside the United States are
required to inform themselves about and to observe any
restrictions as to this offering and the distribution of this
prospectus applicable to that jurisdiction.
Until ,
2010, all dealers that buy, sell or trade in our common stock,
whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to a dealers
obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotment or subscriptions.
PROSPECTUS
SUMMARY
The following summary highlights information contained
elsewhere in this prospectus. It does not contain all of the
information that may be important to your investment decision.
Before deciding whether to buy shares of our common stock, you
should read this summary and the more detailed information in
this prospectus, including the sections captioned Risk
Factors and Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and related notes.
Overview
We are a leading online marketplace for used heavy equipment. We
believe that the online channel is increasingly becoming a
preferred method for used heavy equipment transactions, and our
long-term goal is to be the leading global marketplace for used
heavy equipment and other capital assets. Our exclusively online
model allows us to match supply and demand globally for used
heavy equipment, while achieving greater reach, price
performance and efficiency relative to the fragmented network of
brokers, dealers and physical auction houses that have
traditionally served this market. In 2009, our online
marketplace connected over 1,600 unique sellers to over 7,600
unique buyers, from among 14,500 unique bidders located across
92 countries, who bought approximately 30,000 individual pieces
of equipment.
As a marketplace, our customers are both sellers and buyers of
used heavy equipment. Sellers and buyers include a broad mix of
equipment owners ranging from large multi-national corporations
to sole proprietors. These include original equipment
manufacturers, or OEMs, re-marketing and finance organizations,
construction and contracting companies, equipment rental
companies, farming and mining companies and equipment dealers.
Today, equipment sold through our marketplace is used primarily
in the construction, mining and agriculture industries.
For sellers, our solutions are designed to maximize price
performance, minimize time requirements and reduce sales-related
expenses as compared to traditional methods. For buyers, we
believe that our marketplace increases selection and market
transparency, while reducing the time and investment required to
search for, identify, evaluate and procure equipment. A key
element of our online marketplace is our proprietary inspection
and report process, which we refer to as our IronClad
Assurance. Our IronClad Assurance provides buyers
with confidence and trust in the condition of the equipment
listed in our marketplace. To increase supply in our
marketplace, we employ a direct salesforce to assist existing
and prospective equipment sellers. To increase demand in our
marketplace, we use our technology along with our marketplace
operations group to attract buyers to our online marketplace,
stimulate bidding activity and assist them in their buying
process.
We generate revenue principally from sellers through
commissions, as well as listing and inspection fees. We also
generate revenue from buyers through transaction fees. Our
revenue is dependent on the total gross merchandise volume, or
GMV, of equipment sold through our marketplace. We grew GMV from
$342 million in 2008 to $458 million in 2009, an
increase of 34%. We grew our revenue from $35.0 million in
2008 to $54.7 million in 2009, an increase of 56%. Over the
same period, we grew Adjusted EBITDA from $2.6 million in
2008 to $7.3 million in 2009, an increase of 181%. Compared
to the first quarter of 2009, in the first quarter of 2010 we
grew GMV from $92 million to $130 million, or 41%, and
revenue from $10.3 million to $16.2 million, or 57%,
and Adjusted EBITDA changed from negative $0.2 million to
$1.6 million. For a discussion of Adjusted EBITDA and a
reconciliation of net income to Adjusted EBITDA, see note 4
to Selected Consolidated Financial and Other Data.
Industry
Background
The market for heavy equipment is large, established and global.
Demand for heavy equipment is driven by worldwide economic
development, government stimulus and spending on infrastructure,
and a continual need by equipment operators to replace and
upgrade their equipment. This equipment is used in key sectors
of the economy, such as the construction, mining and agriculture
industries. Heavy equipment assets generally have long useful
lives, driven by manufacturing durability, generally limited
product changes and broad industry application. This longevity
and durability gives rise to a large global stock of functional
used equipment. According to research we commissioned by
Manfredi & Associates, a market research firm that
specializes in the heavy equipment industry, the average value
of the worldwide fleet of used heavy equipment
1
was estimated to be more than $500 billion between 2006 and
2008, of which over $100 billion was resold annually. The
market for secondary sales of heavy equipment has been
characterized by disparate sellers and buyers and, as a result,
local brokers and OEM-branded dealers have controlled much of
the market historically. While these businesses serve a
necessary function, their limited geographic footprint, narrow
service offering and lack of scale and transparency create
inefficiencies for both sellers and buyers.
The development of the Internet and
e-commerce
has given rise to the online marketplace as a more efficient
channel for buying and selling used heavy equipment. The online
channel matches supply with demand across geographies, reduces
the time and costs for sellers and buyers to transact and avoids
the limitations of physical proximity. We believe that the
online channel will become the preferred platform for buying and
selling used heavy equipment throughout the world.
Market
Opportunity
Sellers and buyers of used heavy equipment are burdened with
significant challenges and inefficiencies using traditional
channels. We believe that there is a significant opportunity for
an online marketplace for used heavy equipment that better
matches supply and demand, and reduces the cost, time and
friction associated with buying and selling equipment. To be
successful, a company with this model must ensure the integrity
of its marketplace and build trust on the part of both sellers
and buyers as to the accuracy, legitimacy and certainty of
transactions. Moreover, the marketplace must provide sufficient
liquidity to ensure enough demand for sellers and supply for
buyers.
Our
Solution
Our online marketplace is designed to meet the needs of used
heavy equipment sellers and buyers globally. We believe that our
online marketplace solutions and processes offer distinct
benefits to both sellers and buyers of used heavy equipment,
providing substantial advantages compared to traditional used
heavy equipment sales channels. Key advantages of our online
model include the following.
Key
Benefits for Sellers
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Global Reach. We provide sellers access to our
global pool of active buyers, increasing marketplace
transparency, liquidity and price realization. During 2009, our
North American Featured Marketplace events, which are scheduled
public online auction events typically held once a week,
attracted on average more than 800 unique bidders based in 28
countries.
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Flexible, Turn-Key Solutions. We provide sellers the
flexibility to choose from a number of marketplace solutions,
which enables sellers to choose the format that best suits their
business, liquidity and inventory needs.
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Continuous Market Access. We provide sellers with
regular market access regardless of where their equipment is
located. Our Featured Marketplace is held typically once a week
and our Daily Marketplace operates 365 days a year.
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Cost Efficiency. Our field-based sales and
inspections teams help limit the time and resources required of
sellers to prepare items for sale. Our process also allows
sellers to avoid unnecessary sales-related transportation and
make-ready costs.
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Transaction Speed and Certainty. We have designed
our marketplace offering to minimize the
end-to-end
sales process time. In particular, our online solution
eliminates the need for sellers to transport equipment to
physical sites for sale, and our field inspection reports and
our IronClad Assurance reduce the time buyers require to
evaluate equipment.
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Key
Benefits for Buyers
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Broad Selection. We provide buyers with a broad
selection of equipment across multiple geographies, industries,
manufacturers, price points and equipment condition. During
2009, our North American Featured Marketplace events on average
included over 600 items across a range of industrial uses, price
points, OEM brands and product quality parameters.
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Quality Assurance. We have created a proprietary
inspection process to provide buyers with confidence in the
condition of the equipment listed in our marketplace. Buyers can
access and evaluate our detailed inspection reports online, and
our IronClad Assurance instills trust in the accuracy of
these inspection reports.
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Convenience. Buyers are able to search, identify,
evaluate and procure equipment at any time through our
convenient, user friendly website. Our model is designed to
minimize the need for involvement throughout the process, as
well as reduce the total time necessary to successfully procure
equipment.
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Cost-Efficient Process. We enable buyers to search,
identify, evaluate and bid for equipment online, reducing costs
required to search for and bid on equipment located in
physically disparate locations.
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Market Fairness and Transparency. We enforce strict
rules among sellers and buyers that provide for open and
transparent bidding activity. We believe that these rules
encourage buyers to participate with greater confidence in the
process.
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IronPlanet
Competitive Advantages
We believe that our business model provides us a number of
competitive advantages that enhance our ability to continue to
grow our business and expand our profitability, including our:
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scale, network effect and marketplace liquidity;
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proprietary inspection process and IronClad Assurance;
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capital-efficient business model;
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direct relationships with sellers; and
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portable and flexible business model.
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Our
Strategy
We seek to become the leading platform for buying and selling
used heavy equipment by expanding our market coverage and
offering a superior service. Key elements of our strategy
include the following:
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increase penetration in our key North American market;
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integrate into the business processes of large, regular sellers;
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continue our expansion into international markets;
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strengthen our brand and enhance the user experience; and
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invest in technology and infrastructure to improve services and
operating efficiency.
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Risks
Associated with our Business
Our business, financial and operating performance and growth
prospects are subject to a number of risks, which you should
understand before making an investment decision. These risks are
discussed more fully in the section entitled Risk
Factors following this prospectus summary. These risks
include, among others:
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our ability to increase the supply of and demand for used heavy
equipment for sale in our marketplace;
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our ability to grow, integrate, manage and retain our salesforce
and inspection services personnel;
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our ability to continue to establish and expand the IronPlanet
brand and the acceptance of our IronClad Assurance;
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competition, particularly from larger, established companies
with greater financial resources and name recognition;
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our ability to retain our high volume sellers;
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a decline in the global economy or in used heavy equipment
prices;
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volatility in our annual and quarterly results of operations;
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our performance on guarantee and purchase arrangements; and
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risks associated with international operations and emerging
markets.
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Corporate
Information
We were incorporated in Delaware on January 6, 1999, under
the name Federal Sales Corp. We changed our name to
IronPlanet.com, Inc. on November 2, 1999, and changed our
name to IronPlanet, Inc. on November 18, 2009. Our
principal executive offices are located at 4695 Chabot Drive,
Suite 102, Pleasanton, California 94588, and our telephone
number is
(925) 225-8800.
Our website is www.ironplanet.com. The information on, or that
can be accessed through, our website is not part of this
prospectus.
In this prospectus, the terms we, us,
our, and IronPlanet refer to IronPlanet,
Inc. and its subsidiaries.
The marks
IronPlanet®,
IronClad
Assurance®,
and our logo are our registered trademarks. All other trademarks
and trade names appearing in this prospectus are the property of
their respective owners.
4
The
Offering
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Common stock offered: |
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By us |
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shares |
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By the selling stockholders |
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shares |
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Total |
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shares |
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Overallotment option
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The underwriters have an option to
purchase
additional shares of common stock from the selling stockholders
to cover overallotments. The underwriters can exercise this
option at any time within 30 days from the date of this
prospectus. |
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Common stock to be outstanding after this offering
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shares |
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Use of proceeds
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We intend to use the proceeds from this offering for general
corporate purposes. We will not receive any of the proceeds from
the sale of shares by the selling stockholders. See Use of
Proceeds. |
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Proposed NASDAQ Global Market symbol
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IRON |
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Risk factors
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See Risk Factors beginning on page 9 of this
prospectus and the other information in this prospectus for a
discussion of the risks you should consider before deciding to
invest. |
The number of shares of our common stock outstanding after this
offering is based on 22,225,368 shares of our common stock
outstanding as of March 31, 2010, and excludes, as of
March 31, 2010:
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an aggregate of 6,735 shares of common stock available for
issuance under our 1999 Stock Plan;
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1,632,500 additional shares of common stock, subject to increase
on an annual basis, reserved for issuance under our 2010 Equity
Incentive Plan, which will become effective upon completion of
this offering;
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3,994,154 shares of common stock issuable upon the exercise
of outstanding options to purchase our common stock granted
pursuant to our 1999 Stock Plan at a weighted average exercise
price of $2.05 per share; and
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360,943 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of
$8.00 per share.
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Unless otherwise noted, all information in this prospectus
reflects or assumes the following:
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a 1-for-2 reverse stock split of our common stock and preferred
stock to be effected immediately prior to the effectiveness of
the registration statement of which this prospectus forms a part;
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no exercise of the overallotment option by the underwriters;
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no exercise of options or warrants outstanding as of
March 31, 2010;
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the conversion of all of our outstanding preferred stock into an
aggregate of 17,523,274 shares of our common stock upon
completion of this offering (which will occur automatically
pursuant to the terms of our certificate of incorporation only
if this offering results in aggregate gross proceeds to us of
not less than $20 million and a
price-per-share
to the public of not less than $12.00 per share); and
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the filing of our amended and restated certificate of
incorporation, in connection with the consummation of this
offering.
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5
Summary
Consolidated Financial and Other Information
The following tables summarize consolidated financial and other
data for the periods indicated. The consolidated statements of
operations data for each of the three years ended
December 31, 2007, 2008 and 2009, are derived from, and
qualified by reference to, our audited consolidated financial
statements included elsewhere in this prospectus. The
consolidated statements of operations data for each of the three
months ended March 31, 2009 and 2010, and the consolidated
balance sheet data as of March 31, 2010, are derived from,
and qualified by reference to, our unaudited consolidated
financial statements included elsewhere in this prospectus. The
unaudited interim financial statements have been prepared on the
same basis as the annual consolidated financial statements, and
in the opinion of management, reflect all adjustments, which
include only normally recurring adjustments, necessary to
present fairly our financial position and results of operations
and cash flows for the three months ended March 31, 2009
and March 31, 2010. The results of the three months ended
March 31, 2010 are not necessarily indicative of the
results to be expected for the year ending December 31,
2010 or for any other interim period or for any other future
year. You should read all of this information in conjunction
with our consolidated financial statements and the accompanying
notes and the information under Managements
Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere in this prospectus. Our
historical results are not necessarily indicative of results to
be expected for future periods.
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Year Ended December 31,
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Three Months Ended March 31,
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2007
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2008
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2009
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2009
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2010
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(in thousands, except per share data)
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Consolidated Statements of Operations Data:
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Revenue
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$
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22,030
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$
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34,989
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$
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54,674
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$
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10,312
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$
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16,208
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Cost of revenue (1)
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5,508
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7,508
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11,978
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2,488
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3,496
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Gross profit
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16,522
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27,481
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42,696
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7,824
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12,712
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Operating expenses (1):
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Sales and marketing
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10,093
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16,991
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23,890
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5,303
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7,798
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Technology
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1,426
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1,692
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2,781
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665
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930
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General and administrative
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4,394
|
|
|
|
7,026
|
|
|
|
10,865
|
|
|
|
2,520
|
|
|
|
3,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
15,913
|
|
|
|
25,709
|
|
|
|
37,536
|
|
|
|
8,488
|
|
|
|
12,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
609
|
|
|
|
1,772
|
|
|
|
5,160
|
|
|
|
(664
|
)
|
|
|
573
|
|
Interest income
|
|
|
669
|
|
|
|
413
|
|
|
|
64
|
|
|
|
37
|
|
|
|
2
|
|
Other non-operating expense (1)
|
|
|
|
|
|
|
(21
|
)
|
|
|
(1,072
|
)
|
|
|
(234
|
)
|
|
|
(551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
1,278
|
|
|
|
2,164
|
|
|
|
4,152
|
|
|
|
(861
|
)
|
|
|
24
|
|
Income tax provision (benefit) (2)
|
|
|
110
|
|
|
|
313
|
|
|
|
(8,696
|
)
|
|
|
23
|
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,168
|
|
|
$
|
1,851
|
|
|
$
|
12,848
|
|
|
$
|
(884
|
)
|
|
$
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.44
|
|
|
$
|
0.63
|
|
|
$
|
3.94
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
0.08
|
|
|
$
|
0.54
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,665
|
|
|
|
2,961
|
|
|
|
3,260
|
|
|
|
3,126
|
|
|
|
3,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
20,900
|
|
|
|
21,981
|
|
|
|
23,724
|
|
|
|
3,126
|
|
|
|
3,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per share (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
$
|
0.60
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
$
|
0.54
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares outstanding (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
21,356
|
|
|
|
|
|
|
|
21,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
23,724
|
|
|
|
|
|
|
|
21,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010
|
|
|
|
|
|
|
|
|
|
Pro Forma as
|
|
|
|
Actual
|
|
|
Pro Forma (3)
|
|
|
Adjusted (4)
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
42,636
|
|
|
$
|
42,636
|
|
|
|
|
|
Working capital (5)
|
|
|
25,492
|
|
|
|
26,006
|
|
|
|
|
|
Total assets
|
|
|
68,216
|
|
|
|
68,216
|
|
|
|
|
|
Total liabilities
|
|
|
33,601
|
|
|
|
33,087
|
|
|
|
|
|
Convertible preferred stock
|
|
|
52,278
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(17,663
|
)
|
|
|
35,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Other Financial and Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (6)
|
|
$
|
1,611
|
|
|
$
|
2,649
|
|
|
$
|
7,298
|
|
|
$
|
(164
|
)
|
|
$
|
1,557
|
|
Adjusted EBITDA less capital expenditures (6)
|
|
|
837
|
|
|
|
1,205
|
|
|
|
5,641
|
|
|
|
(321
|
)
|
|
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Merchandise Volume (7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
231,210
|
|
|
$
|
337,940
|
|
|
$
|
412,874
|
|
|
$
|
82,037
|
|
|
$
|
116,738
|
|
International
|
|
|
|
|
|
|
3,611
|
|
|
|
45,556
|
|
|
|
9,675
|
|
|
|
13,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
231,210
|
|
|
$
|
341,551
|
|
|
$
|
458,430
|
|
|
$
|
91,712
|
|
|
$
|
129,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
22,030
|
|
|
$
|
34,691
|
|
|
$
|
49,517
|
|
|
$
|
9,444
|
|
|
$
|
14,449
|
|
International
|
|
|
|
|
|
|
298
|
|
|
|
5,157
|
|
|
|
868
|
|
|
|
1,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,030
|
|
|
$
|
34,989
|
|
|
$
|
54,674
|
|
|
$
|
10,312
|
|
|
$
|
16,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
1,611
|
|
|
$
|
5,598
|
|
|
$
|
10,420
|
|
|
$
|
799
|
|
|
$
|
2,551
|
|
International
|
|
|
|
|
|
|
(2,949
|
)
|
|
|
(3,122
|
)
|
|
|
(963
|
)
|
|
|
(994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,611
|
|
|
$
|
2,649
|
|
|
$
|
7,298
|
|
|
$
|
(164
|
)
|
|
$
|
1,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes stock-based compensation
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Cost of revenue
|
|
$
|
53
|
|
|
$
|
38
|
|
|
$
|
47
|
|
|
$
|
9
|
|
|
$
|
41
|
|
Sales and marketing expenses
|
|
|
34
|
|
|
|
105
|
|
|
|
148
|
|
|
|
31
|
|
|
|
78
|
|
Technology expenses
|
|
|
10
|
|
|
|
35
|
|
|
|
809
|
|
|
|
203
|
|
|
|
419
|
|
General and administrative expenses
|
|
|
620
|
|
|
|
191
|
|
|
|
288
|
|
|
|
71
|
|
|
|
160
|
|
Other non-operating expense*
|
|
|
|
|
|
|
21
|
|
|
|
935
|
|
|
|
234
|
|
|
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
717
|
|
|
$
|
390
|
|
|
$
|
2,227
|
|
|
$
|
548
|
|
|
$
|
1,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Related to an equity award held by a terminated employee. See
Managements Discussion and Analysis of Financial
Condition and Results of OperationsComparison of the Years
Ended December 31, 2007, 2008 and 2009Other
Non-Operating Expense for more information.
|
7
|
|
|
(2)
|
|
Reflects the one-time release of
substantially all of our U.S. federal and state net deferred tax
valuation allowance in the fourth quarter of 2009. See
Managements Discussion and Analysis of Financial
Condition and Results of OperationsKey Components of Our
Results of OperationsIncome Tax Provision (Benefit)
for more information.
|
|
|
|
(3)
|
|
Reflects on a pro forma basis the
conversion of all outstanding shares of our convertible
preferred stock as of March 31, 2010 into
17,523,274 shares of our common stock (which will occur
automatically pursuant to the terms of our certificate of
incorporation only if this offering results in aggregate gross
proceeds to us of not less than $20 million and a
price-per-share
to the public of not less than $12.00 per share).
|
|
|
|
(4)
|
|
Reflects on a pro forma basis the
conversion described in note 3 above and, on an adjusted
basis, the receipt by us of the estimated net proceeds from the
sale
of shares
of common stock by us in this offering at an assumed initial
public offering price of $ per
share, after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us.
|
|
(5)
|
|
Working capital is defined as
current assets minus current liabilities.
|
|
|
|
(6)
|
|
We define Adjusted EBITDA as net
income adjusted for stock-based compensation, depreciation and
amortization, interest income and income tax provision. We
define Adjusted EBITDA less capital expenditures as Adjusted
EBITDA less capital expenditures. See note 4 to
Selected Consolidated Financial and Other Data for
more information and a reconciliation of Adjusted EBITDA and
Adjusted EBITDA less capital expenditures to net income
calculated in accordance with accounting principles generally
accepted in the United States, or U.S. GAAP.
|
|
|
|
(7)
|
|
Gross Merchandise Volume, or GMV,
represents the total value of all items sold in our marketplace,
excluding our Private Marketplace, during a period. It is not a
measure of our financial performance or revenue and is not
presented in our consolidated financial statements. Our
definition of GMV may differ from that used by other
participants in our industry. We believe that revenue, which is
the most directly comparable measure in our statement of
operations, and certain other financial and operating data, are
best understood by considering their relationship to GMV.
Revenue represents the revenue we earn in the course of
conducting transactions through our marketplace from seller
commissions, seller listing and inspection fees and buyer
transaction fees.
|
8
RISK
FACTORS
You should carefully consider the following risk factors and
all other information contained in this prospectus before
purchasing our common stock. Investing in our common stock
involves a high degree of risk. If any of the following risks
actually occur, our business, financial condition, and operating
results could be seriously harmed. In addition, the trading
price of our common stock could decline due to the occurrence of
any of these risks, and you may lose all or a part of your
investment. Please read Special Note Regarding
Forward-Looking Statements and Industry Data.
Risks
Related to Our Business and Industry
The
success of our business depends on our ability to increase the
supply of and demand for used heavy equipment for sale in our
marketplace, and we may not be successful in doing
so.
The success of our online marketplace and our growth prospects
depend on our ability to provide a liquid marketplace for the
sale and purchase of used heavy equipment. We believe that an
increased supply of used heavy equipment would allow us to
attract and retain active buyers to purchase the equipment and
would support the continued growth of our gross merchandise
volume, or GMV, and revenue. Increasing the supply of and demand
for used heavy equipment in our marketplace depend on various
factors, including:
|
|
|
|
|
developing and retaining an effective salesforce that sources
used heavy equipment from a variety of sellers;
|
|
|
|
increasing awareness of and confidence in our brand among
sellers and buyers of used heavy equipment;
|
|
|
|
general economic conditions and the related impact on prices of
used heavy equipment, which affects sellers willingness to
supply and buyers willingness to purchase equipment for
sale in our marketplace; and
|
|
|
|
competition from other operators of used heavy equipment
disposition channels, many of whom have greater financial
resources and name recognition than we do.
|
If we do not increase the supply of and demand for used heavy
equipment available for sale in our online marketplace, or if we
do not otherwise attract a sufficient number of new sellers, our
GMV and revenue would likely be adversely affected.
If we
fail to grow, integrate, manage and retain our salesforce, our
growth prospects and results of operations may be adversely
affected.
Our continued growth, expansion and ability to increase the
supply of used heavy equipment in our marketplace depends in
large part on the efforts of our salesforce. Our
salesforces efforts are the principal drivers of the
volume of equipment sold in our marketplace. We have rapidly
increased our salesforce in recent years, and intend to further
expand our salesforce in North America and internationally. As a
result of this rapid expansion, a significant portion of our
salesforce has limited tenure with us. Less experienced sales
persons are generally less productive than those with
experience. Our growth prospects and operating results will be
adversely affected if we do not successfully accomplish the
following:
|
|
|
|
|
hire and retain a sufficient number of qualified sales personnel
with the aptitude, skills and understanding to obtain a steady
stream of quality used heavy equipment for sale in our
marketplace;
|
|
|
|
adequately train our salesforce in the use and benefits of all
our services, thereby making them more effective in attracting
customers to our marketplace; and
|
|
|
|
increase our salesforces knowledge of the equipment that
is sold in our marketplace and our customers.
|
As we expand into markets outside of North America, our revenue
may be adversely impacted, as we do not have a substantial
history of providing our solutions in foreign markets, in
adapting to different local cultures or in complying with
standards or regulatory policies necessary to successfully
compete in those
9
markets. We will therefore need to invest significant resources
to build our salesforce and operations in such markets. In
addition, as we expand our presence into industries that are
relatively new to us, such as the mining and agricultural
industries, our salesforce may lack the skills and experience
necessary to attract sellers and buyers. Development of our
salesforce takes time and significant resources. If we are
unable to timely expand into new markets or if we ultimately
fail in our efforts, our growth prospects may be adversely
affected.
We may
not succeed in continuing to establish and expand the IronPlanet
brand, which could prevent us from continuing to acquire
customers and increase our GMV and revenue.
A significant component of our business strategy is continuing
to establish and expand our IronPlanet brand and maintaining the
confidence and trust that we believe distinguishes our
IronClad Assurance. Without a strong brand we believe it
will be difficult to attract sellers of used heavy equipment to
our marketplace and attract active buyers for that equipment. If
we do not continue to establish and expand our brand, or if our
brand is harmed by our actions or otherwise, we may fail to
build the critical mass of sellers and buyers required to
support the continued growth of our GMV and revenue. Promoting
and positioning our brand will depend, among other things, on
our ability to:
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expand and strengthen our salesforces efforts to provide a
consistent supply of used heavy equipment;
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expand and strengthen our inspection services department to
provide consistently accurate inspection reports, which serve as
the basis for our IronClad Assurance;
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establish and maintain a relationship of trust with our
customers, especially through our IronClad
Assurance; and
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develop and improve the functionality and efficiency of our
website, technology infrastructure and marketplace operations.
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Our ability to provide a high quality and efficient customer
experience is also dependent on external factors over which we
may have little or no control, including, without limitation,
the reliability and performance of the equipment sold in our
marketplace and the performance of third-party carriers who
transport purchased equipment on behalf of buyers. If our
customers are dissatisfied with the accuracy of our detailed
inspection reports, or do not receive the equipment they
purchased in a timely manner or in the condition that they
expect, our customers may stop using our online marketplace to
purchase equipment. In addition, the reputation of our
IronClad Assurance may be harmed, which may cause us to
lose sellers and buyers. Our failure to provide our customers
with high quality and efficient customer experiences could
substantially harm our reputation and adversely impact our
efforts to develop IronPlanet as a trusted brand. The failure of
our brand promotion activities could adversely affect our
ability to attract new customers and maintain customer
relationships, and, as a result, adversely affect our GMV,
revenue and business.
Competition
in the market for used heavy equipment could adversely affect
our growth prospects and results of operations.
Most sales of used heavy equipment continue to be conducted
offline through dealers, brokers and individual end-user to
end-user sales. The auction market in which we compete is highly
fragmented and intensely competitive and the majority of such
auctions are conducted in the traditional offline manner. We
compete directly for potential purchasers of industrial
equipment with other national and regional auction companies.
Our indirect competitors include original equipment
manufacturers, or OEMs, and independent equipment dealers,
rental companies and brokers, as well as traditional and online
listing services.
Many of the national and regional auction companies with whom we
compete have longstanding and personal ties with sellers and
buyers of used heavy equipment in the regions in which they
operate, have significantly greater financial and marketing
resources and name recognition than we do, and have
traditionally offered sellers guarantees on a large percentage
of equipment sales, which is attractive to many sellers. Such
ties may make it more difficult for us to gain market acceptance
in certain regions or may require us to reduce our commissions
or assume greater risk in guarantee or purchase arrangements in
order to increase market
10
share. Such commission reductions or increased risk could
aversely affect our business and results of operations.
Our existing and future competitors may succeed in entering and
establishing successful operations in new geographic markets
prior to our entry into those markets. Traditional competitors
may also start to compete against us by offering online auction
services. For example, in 2008 certain Caterpillar dealers began
to provide online auction services for used heavy equipment. If
we are unable to compete successfully our growth prospects and
results of operations may be adversely affected.
If our
high volume sellers stop selling used heavy equipment through
our marketplace, or sell significantly lower volumes of
equipment, our business would be harmed.
A significant amount of equipment sold in our marketplace is
supplied by a limited number of high volume equipment sellers.
Approximately 39.5%, 38.9%, 37.5% and 35.0% of our GMV was
attributable to equipment listed and sold by our ten largest
sellers in 2007, 2008, 2009 and the first quarter of 2010,
respectively. Caterpillar Financial Services Corporation and its
corporate affiliates are our largest sellers and collectively
accounted for 22.0%, 15.5%, 11.9% and 7.7% of our revenue in
2007, 2008, 2009 and the first quarter of 2010, respectively. In
addition, certain of these high volume sellers are affiliated
with holders of our preferred stock, including Caterpillar
Financial Services Corporation, Komatsu Financial and Volvo
Financial Services and their respective corporate affiliates,
and Ring Power Corporation. Upon completion of this offering and
applicable
lock-up
periods, the entities affiliated with these sellers may sell
their stockholdings. If these sellers no longer hold stock in
our company, they may have less incentive to sell their
equipment through our marketplace. If these, or other, high
volume sellers stop selling equipment through our marketplace,
or sell significantly lower volumes, our GMV and revenue would
be adversely impacted.
A
decline in used heavy equipment prices could adversely affect
our revenue.
The price of used heavy equipment could significantly decline
based on a number of factors, especially recessionary economic
conditions. Low equipment prices may cause potential sellers to
be more reluctant to list their equipment for sale through our
marketplace. For example, in the fourth quarter of 2008, used
heavy equipment prices declined significantly, across virtually
all categories, models and manufacturers, which coincided with
the general economic and financial market crisis. As a result,
equipment owners deferred decisions to sell equipment and the
selling prices of equipment sold in our marketplace was
significantly reduced. Decreased selling prices for used heavy
equipment impacts our revenue, as a significant portion of our
revenue consists of seller commissions and buyer transaction
fees, which are based on the final selling price of equipment.
The
current prolonged economic downturn has adversely affected and
is likely to continue to adversely affect the heavy equipment
and construction industries, as well as many of our customers,
and could adversely affect our revenue and results of
operations.
The current economic downturn has been characterized by, among
other things, a general tightening in credit markets, lower
levels of liquidity, increases in default and bankruptcy rates,
and depressed levels of activity in industries such as
residential and commercial construction, mining and agriculture.
These factors have likely had a negative impact on the
operations, financial condition and liquidity of many of our
customers and, as a result, these market factors may continue to
negatively impact the volume of equipment listed for sale in our
marketplace and the prices of equipment sold in our marketplace,
thereby having a further negative impact our revenue and our
ability to grow our business. If our sellers choose not to sell
their assets as a result of current economic conditions, our
buyers are unable to purchase equipment based on their inability
to obtain sufficient financing or are unwilling to do so given
the prevailing market climate, or if our customers are in
general financial distress, our operations may be negatively
impacted and our GMV and revenue from our marketplace may
decrease. Although governments have proposed and approved
measures to aid economic recovery, including economic stimulus
legislation and assistance to real estate developers and others,
such measures may not have the desired effect and as such
measures eventually diminish, or cease, industries in which
participants in our marketplace compete may experience further
economic difficulties. If the economic downturn continues for an
extended period of time or worsens, our revenue and results of
operations could be adversely impacted.
11
Our
annual and quarterly revenue and results of operations are
difficult to forecast and subject to fluctuations, and, as a
result, we may fail to meet the expectations of securities
analysts and investors, which could cause volatility and a
decline in the trading price of our common stock.
Our results of operations could vary significantly from quarter
to quarter and from year to year. In the past, we have seen an
increase in sales in the second quarter, when many of our buyers
typically prepare for construction projects, and also the fourth
quarter, when our sellers often sell equipment prior to the end
of the year. These trends, however, may differ materially from
our expectations, and we may experience unanticipated
fluctuations in our GMV and our revenue. Our customers often do
not have consistent, long-term visibility into their used heavy
equipment needs, and as a result, it is difficult for us to
accurately forecast our GMV and to appropriately plan for
expenses. If we fail to accurately forecast our GMV or
appropriately plan for expenses, our quarterly or annual results
of operations may be adversely impacted. Additional factors that
could affect our quarterly or annual operating results include:
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our ability to increase and effectively deploy our salesforce;
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our ability to consistently offer a broad selection of equipment
in our marketplace;
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an overall reduction in demand for used heavy equipment in
industries such as construction or a saturation in supply of
certain types of equipment;
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our customers inventory levels;
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foreign currency exchange rate fluctuations;
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the effect of macroeconomic conditions; and
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increased competition in our industry.
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If our results of operations fall below the expectations of
industry or securities analysts or investors, it could cause
volatility and a decline in the trading price of our common
stock.
We may
incur losses as a result of our guarantee and purchase
arrangements, which would adversely affect our results of
operations.
Although a substantial majority of our business is currently
conducted on a straight commission basis, we have occasionally
responded to, and will continue to respond to, requests from
sellers to provide guarantee or purchase arrangements, pursuant
to which we agree to:
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guarantee a minimum level of sale proceeds to the seller,
regardless of the final selling price of the equipment in our
marketplace; or
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purchase the equipment outright and then sell it in our
marketplace.
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Equipment sold pursuant to a guarantee arrangement comprised
13.5%, 9.3%, 6.2% and 9.7% of our GMV in 2007, 2008, 2009 and
the first quarter of 2010, respectively. Purchased equipment
that was later resold through our marketplace comprised
approximately 2.1%, 2.2%, 1.6% and 7.1% of GMV in 2007, 2008,
2009 and the first quarter of 2010, respectively. The level of
guaranteed proceeds or purchase price in these transactions is
based on appraisals performed on equipment by our personnel. We
assume more risk with these types of contracts than in our
straight commission arrangements. Inaccurate appraisals or
precipitous declines in demand or pricing of a particular type
or types of equipment could result in our appraisal values
exceeding the proceeds obtained though the sale of such
equipment through our marketplace. If the selling prices are
less than the amount that we guarantee or the purchase price we
paid for equipment, we will incur a loss. For example, the
selling prices of equipment sold under guarantee arrangements in
the fourth quarter of 2008 were significantly reduced as a
result of an unexpected and significant price decline for used
heavy equipment, which coincided with the general economic and
financial market crisis. Consequently, we incurred a loss of
$0.05 million on the sale of such equipment in the fourth
quarter of 2008, which adversely impacted our results of
operations in that period. If we incur similar losses in future
periods associated with the guarantee or purchase contracts we
enter into, our results of operations would be adversely
affected.
12
We may
be unsuccessful in expanding our operations internationally,
which could adversely affect our results of
operations.
In 2008 and 2009, we began expanding our presence outside of
North America. In 2008, we held our first Asia-Pacific
marketplace event, primarily focused in Australia, and in 2009,
we held our first European marketplace event. In 2008, 2009 and
the first quarter of 2010, revenue attributable to markets
outside North America accounted for approximately 0.9%, 9.4% and
10.9%, respectively, of our total revenue and we expect to
increase our international presence. Based on current
international market demands, we have recently reallocated
certain resources in our Asia-Pacific operations from Australia
to other regions in the Asia-Pacific arena. Our ability to
continue our international expansion involves various risks,
including the possibility that returns on such investments will
not be achieved in the near future, or ever, and the difficulty
of competing in markets with which we are unfamiliar.
Our international operations may also fail due to other risks
inherent in foreign operations, including:
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cultural differences, including potential ambivalence toward
online marketplaces, which may make it more difficult for
potential foreign customers to understand our value proposition;
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varied, unfamiliar and unclear legal and regulatory
restrictions, including different legal and regulatory standards
applicable to Internet services, communications, privacy, data
protection, auctioneering, vehicle dealer licensing,
professional selling, and distance selling;
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strains on our financial and other systems to properly
administer VAT and other taxes;
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unexpected changes in international regulatory requirements and
tariffs;
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legal, political or systemic restrictions on the ability of
U.S. companies to do business in foreign countries;
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difficulty in localizing our website for language and
country-specific business requirements and regulations;
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difficulties in staffing and managing foreign operations;
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import and export restrictions;
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potential adverse tax consequences;
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foreign currency exchange rate fluctuations;
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differing intellectual property laws that may not provide
sufficient protection for our intellectual property; and
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controls or other restrictions on foreign currency.
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Our current and any future international expansion plans will
require significant management attention and resources and may
be unsuccessful. We may find it impossible or too expensive to
continue to expand internationally or we may be unsuccessful in
our attempt to do so, and our business, growth prospects and
results of operations could be adversely impacted.
Expanding
our business into particular emerging markets may present
additional regulatory risks beyond those associated with more
developed international markets.
In addition to the numerous risks inherent in doing business in
international markets that are discussed above, we may face
additional challenges in certain markets that place restrictions
on the export or import of used equipment, require direct
partnership with local or government-run companies, impose
tariffs that may make imported used equipment less attractive to
buyers or adopt an online marketplace model more slowly. In
addition, from time to time, the U.S. Congress may consider
enacting legislation that could result in the imposition of
protectionary quotas and tariffs on imports from certain
countries into which we would like to expand. If those countries
that are affected by such quotas and tariffs change their
existing policies to retaliate and penalize the United States or
businesses from the United States, our revenue could be further
adversely impacted. If we are unsuccessful in expanding into
these emerging markets, our growth prospects and results of
operations may be adversely affected.
13
Our
business depends on the continued growth and confidence in the
Internet as a medium for buying and selling used heavy
equipment.
The Internet is a relatively new medium for buying and selling
used heavy equipment. Many sellers and buyers of used heavy
equipment still conduct their business through traditional
offline channels. These sellers and buyers may be hesitant to
use the Internet as a medium for buying and selling used heavy
equipment. In addition, concerns about integrity, fraud and
privacy, Internet service disruptions and other problems may
also discourage potential customers from participating in our
online marketplace. Although we have developed processes and
policies that encourage customers to have confidence in our
online marketplace, we may not be successful in our efforts, and
from time to time market participants may engage in dishonest
market practices. Any negative impression, even if inaccurate,
of how our marketplace events are conducted may diminish the
trust that our customers place in the efficiency and quality of
our marketplace and may drive away potential customers from
using our marketplace. If traditional sellers and buyers of used
heavy equipment are unwilling to conduct business on our website
we may be unable to continue to attract new customers, which
could adversely affect our GMV, revenue and results of
operations.
Our
auditors identified a material weakness in our internal controls
over financial reporting. Failure to establish and maintain an
effective system of internal controls in the future could result
in material misstatements in our financial
statements.
In connection with the audit of our 2009 financial statements
and preparation of the registration statement of which this
prospectus forms a part, our auditors identified a material
weakness in our system of internal control over financial
reporting. The Public Company Accounting Oversight Boards
Auditing Standard No. 5 defines a material weakness as a
deficiency, or combination of deficiencies, in internal controls
over financial reporting, such that there is a reasonable
possibility that a material misstatement of annual or interim
financial statements will not be prevented or detected on a
timely basis. The material weakness that was identified related
to a lack of effective internal controls over the accounting and
reporting of stock-based compensation grants, forfeitures and
modifications, and their related impact on stock-based
compensation expense. Specifically, we did not have effective
controls in place to identify and account for modifications to
equity based awards in connection with a non-routine employment
separation and we failed to account for a modification to an
option grant following an employees termination in August
2007. We have added resources and established new procedures to
ensure the identification, communication, approval and
appropriate accounting and reporting of any non-standard stock
option grants or modifications. Since 2007, we have also hired
additional personnel with financial reporting expertise,
including a chief financial officer and a controller. Management
believes that these additional control procedures that have been
implemented will mitigate the risks associated with the material
weakness identified. We cannot guarantee, however, that we will
not have additional material weaknesses in the future.
If we
fail to manage our growth effectively, our operating results
could be adversely affected.
We have expanded our operations rapidly since our inception in
1999. We may attempt to expand our business into new equipment
categories or increase our presence in existing categories. For
example, part of our strategy is to increase our presence in the
market for used mining and agricultural equipment, and we may
also seek to gain a presence in certain categories outside of
heavy equipment. There can be no assurance that our attempts at
expanding our business will be successful. If we are unable to
effectively implement our growth strategy or lose focus on our
existing customers and markets, our reputation and ability to
generate revenue from new or existing customers could be
adversely affected. If our attempts at expansion are
unsuccessful for any reason or if we lose focus on the used
heavy equipment market, our results of operations may be
adversely affected.
If one
or more U.S. states or foreign jurisdictions successfully assert
that we should collect or should have collected sales or other
taxes on the sale of equipment, we could be subject to liability
for past sales and our results of operations could be adversely
affected.
Generally, U.S. state and local sales tax laws require all
retailers to collect and remit sales taxes and file tax returns.
Sales tax laws and rates vary greatly from state to state, and
from country to country. Due to our
14
role as an auction company, we are obligated to collect state
and local sales tax from buyers and remit the sales tax to the
appropriate taxing authorities, based on a buyers
location, unless there is a valid exemption from sales tax
available to the buyer. Certain sales tax exemptions that are
regularly applicable in our business include exemptions related
to resellers, export sales, agriculture, manufacturing, and
forestry equipment, and motor vehicles. Based on our review of
relevant tax laws and on certifications provided to us by
buyers, a substantial portion of our marketplace transactions
are exempt from U.S. state and local sales taxes. From time
to time we are audited by tax authorities to assess whether we
have collected sales tax on applicable transactions.
Occasionally these audits have found that we have exempted
certain transactions from sales tax that were not qualified to
be exempted. Such findings, and any other successful assertion
by one or more U.S. states or foreign countries that we
should have collected sales or other taxes on the sale of
equipment, could result in fines or subsequent sales tax
assessments, which may adversely affect our results of
operations.
Proposed
future U.S. federal income tax legislation could negatively
impact our effective tax rate.
President Obamas administration has announced proposed
future tax legislation that could substantially modify the rules
governing the U.S. taxation of certain
non-U.S. subsidiaries.
These potential changes include, but are not limited to
(1) limitations on the ability to claim and utilize foreign
tax credits; and (2) deferral of interest expense
deductions until
non-U.S. earnings
are repatriated to the United States. Each of these
proposals would be effective for taxable years beginning after
December 31, 2010. Details of the proposal remain unknown,
although if any of these proposals are enacted into law, they
could negatively impact our effective tax rate.
Fluctuations
in the value of the U.S. dollar and fluctuating foreign
currencies could decrease bidding activity in our marketplace
and may negatively impact our business, results of operations
and financial position.
Equipment in our U.S. marketplace is priced in
U.S. dollars, but attracts foreign bidders. All bidders at
our U.S. marketplace events must bid for and purchase
equipment in U.S. dollars. Increases in the value of the
U.S. dollar relative to the bidders local currencies
may reduce the prices they are willing to pay for equipment in
our marketplace or discourage them from participating in our
marketplace. A decrease in bidding activity or in bidders may
adversely affect the liquidity of our marketplace, which in turn
could adversely affect our revenue and results of operations.
In addition, with respect to our recent international expansion,
a portion of our business is now denominated in Euro and
Australian dollars and as a result, fluctuations in foreign
currencies may have an additional impact on our business,
results of operations and financial position. Equipment in our
European marketplace is priced in Euros and equipment in our
Asia-Pacific marketplace is priced in Australian dollars.
Significant fluctuations in those currencies could reduce the
prices that bidders in those marketplace events are willing to
pay for equipment in international marketplace or discourage
them from participating in our international marketplace.
Both the value of the U.S. dollar and foreign currency
exchange rates have fluctuated and may continue to fluctuate.
Conducting business in currencies other than U.S. dollars
subjects us to fluctuations in currency exchange rates that
could adversely affect our results of operations. Fluctuations
in the value of the U.S. dollar relative to other
currencies affect our revenue, cost of revenue and operating
expenses, and result in foreign currency transaction gains and
losses. Currently, we are not a party to any hedging
transactions intended to reduce our exposure to exchange rate
fluctuations for our international operations. We may seek to
enter into hedging transaction in the future, but we may be
unable to enter into those transactions successfully, on
acceptable terms or at all. We cannot predict whether or not we
will incur foreign exchange losses in the future. Further,
significant foreign exchange fluctuations resulting in a decline
in the Euro or Australian dollar may decrease the value of our
foreign assets, as well as decrease our revenue and earnings
from our foreign subsidiaries, which would reduce our
profitability and adversely affect our financial position.
Our
business operations may be subject to a number of U.S. federal
laws and regulations including export control
regulations.
Our business operations may be subject to a number of
U.S. federal laws and regulations, including the Export
Administration Regulations, or EAR, maintained by the
U.S. Department of Commerce, trade and
15
economic sanctions maintained by the Treasury Departments
Office of Foreign Assets Control, or OFAC, and the International
Traffic in Arms Regulations, maintained by the Department of
State. If we fail to comply with these laws and regulations, we
could be exposed to claims for damages, financial penalties,
reputational harm, incarceration of our employees or
restrictions on our operations. Although we have implemented
procedures whereby we monitor, on an automatic and manual basis,
the potential sellers and buyers and restrict business from
certain countries pursuant to OFAC regulations, we can offer no
assurances that such procedures will be effective.
Although we believe that we have never sold equipment to Cuba,
Iran, North Korea, Sudan or Syria whether through affiliates,
distributors, or other direct or indirect arrangements, and we
have never made any effort to attract consignors or bidders from
any country listed above, it is possible that some equipment
purchased in our marketplace events was sold or will be sold to
persons or entities that re-exported or will re-export such
equipment to these countries. We continue to conduct a review of
the business activities involving Cuba, Iran, North Korea,
Syria, and Sudan and monitor the sellers and buyers in our
marketplace to restrict access from individuals or companies
from these countries. We may not be successful in our efforts,
however. If we do identify violations of U.S. sanctions
laws, however, we could be exposed to administrative or criminal
penalties which, in certain circumstances, could be material.
Any action on the part of the U.S. Department of Commerce,
OFAC, or the U.S. Department of State could have a negative
impact on our reputation which might decrease stockholder value.
Uncertainty
exists in the application of various laws and regulations to our
business. New laws or regulations applicable to our business, or
expansion or interpretation of existing laws and regulations to
apply to our business, could subject us to monetary liabilities
and limitations on our business practices, and could increase
administrative costs or adversely affect our
business.
Our operations are subject to regulation, supervision and
licensing under various U.S., foreign and international
authorities, agencies, statutes and ordinances, which, among
other things, require us to obtain and maintain certain
licenses, permits and qualifications. Although we do not believe
that existing laws or regulations materially and adversely
impact us, our business could be significantly affected by
changes in law or governmental regulations or different
interpretations or applications of existing laws or regulations.
We also operate in a regulatory climate in which there is
uncertainty as to the application of various laws and
regulations to our business. Our operations may be subjected to
adoption, expansion or interpretation of various laws and
regulations, and compliance with these laws and regulations may
require us to obtain appropriate licenses at an undeterminable
and possibly significant initial and annual expense. These
additional expenditures may increase future expenses, thereby
potentially reducing our future profitability. There can be no
assurance that future laws or regulations or interpretations or
expansions of existing laws or regulations will not impose
requirements on Internet commerce that could substantially harm
our business, growth prospects, results of operations, and
financial condition. The adoption of additional laws or
regulations may decrease the popularity or impede the expansion
of
e-commerce,
restrict our present business practices, require us to implement
costly compliance procedures or expose us
and/or our
customers to potential liability, which, in turn, could
adversely affect our results of operations.
We, for example, may be considered to operate or
do business in states or other jurisdictions where
our customers conduct their business, resulting in regulatory
action. In addition, we are currently subject to money
laundering regulations, vehicle brokerage and auction laws, and
may in the past have been subject to regulations in various
jurisdictions. If any jurisdictions regulatory
requirements impose jurisdiction-specific requirements on us or
include us within an industry-specific regulatory scheme, we may
be required to modify our marketplace and other activities in,
or directed to, that jurisdiction in a manner that may undermine
the attractiveness of our events to potential sellers and
buyers. If we are found to have been in violation of any such
regulations, we could be exposed to financial liability,
including substantial fines which could be imposed on a per
transaction basis, and disgorgement of our profits. In addition,
if we determine that the licensing and related requirements are
or become overly burdensome, we may elect to terminate
operations in certain jurisdictions. In each case, our business,
growth prospects, results of operations and financial condition
could be materially and adversely affected.
16
We may
be unable to adequately protect or enforce our intellectual
property rights, which could harm our reputation and adversely
affect our growth prospects.
We regard our proprietary technologies and intellectual property
as integral to our success. We protect our proprietary
technology through a combination of trade secrets, third-party
confidentiality and non-disclosure agreements and additional
contractual restrictions on disclosure and use, and patent,
copyright and trademark laws.
We currently are the registered owners of several Internet
domain names in the United States and internationally. As we
seek to protect our domain names in an increasing number of
jurisdictions, we may not be successful in doing so in certain
jurisdictions. Our competitors may adopt trade names or domain
names similar to ours, thereby impeding our ability to promote
our marketplace and possibly leading to customer confusion. In
addition, we could face trade name or trademark or service mark
infringement claims brought by owners of other registered or
unregistered trademarks or service marks, including trademarks
or service marks that may incorporate variations of our
marketplace names. Any claims related to our intellectual
property or customer confusion related to our marketplaces could
damage our reputation and adversely affect our growth prospects.
The legal means we use to protect our proprietary technology and
intellectual property do not afford complete protection and may
not adequately protect our rights or permit us to gain or keep
any competitive advantage. We cannot guarantee that any of our
present or future intellectual property rights will not lapse or
be invalidated, circumvented, challenged or abandoned; our
intellectual property rights will provide competitive advantages
to us; our ability to assert our intellectual property rights
against potential competitors or to settle current or future
disputes will not be limited by our agreements with third
parties; any of our pending or future patent applications will
be issued or have the coverage originally sought; our
intellectual property rights will be enforced in jurisdictions
where competition may be intense or where legal protection may
be weak. We also may allow certain of our registered
intellectual property rights, or our pending applications or
registrations for intellectual property rights, to lapse or to
become abandoned if we determine that obtaining or maintaining
the applicable registered intellectual property rights is not
worthwhile.
Further, although it is our practice to enter into
confidentiality agreements and intellectual property assignment
agreements with our employees and contractors, such agreements
may not be enforceable or may not provide meaningful protection
for our trade secrets or other proprietary information in the
event of unauthorized use or disclosure or other breaches of the
agreements. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy, reverse
engineer, or otherwise obtain and use our products or
technology. We cannot be certain that we will be able to prevent
unauthorized use of our technology or infringement or
misappropriation of our intellectual property, particularly in
foreign countries where the laws may not protect our proprietary
rights as comprehensively as in the United States, if at all.
Effective patent, copyright, trademark, service mark, trade
secret and domain name protection is expensive to maintain.
Litigation may be necessary to enforce our intellectual property
rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others, which
could result in substantial costs and diversion of our
resources. If competitors are able to use our technology or
develop proprietary technology similar to ours or competing
technologies, our ability to compete effectively and our growth
prospects could be adversely affected.
We
have in the past, and could in the future be subject to claims
which could adversely affect our reputation and results of
operations.
In the normal course of our business, we may be involved in
various legal proceedings. We may be subject to claims that
arise from our marketplace, including claims that inspection
reports issued in connection with our IronClad Assurance
were inaccurate or incomplete, or we may be subject to other
claims incidental to our services, such as claims made regarding
the title of the equipment. Any claim brought against us, with
or without merit, could be costly to defend or arbitrate and
could result in adverse judgments or settlement payments that
may be substantial and could adversely affect our reputation and
results of operations.
17
We
recently repurchased shares from a former executive officer who
has commenced litigation against us disputing such repurchase,
and if we are unable to resolve this litigation in our favor,
such litigation may adversely impact our results of
operations.
On March 11, 2010, we repurchased 633,542 shares of
Series A-1
convertible preferred stock from Reza Bundy Saadlou, our former
president and chairman. We repurchased the shares at a price of
$0.10 per share, for an aggregate repurchase price of $63,354,
pursuant to rights embodied in a June 2001 separation
agreement and mutual release with Mr. Saadlou. On
April 2, 2010, Mr. Saadlou filed suit against us in
Alameda County Superior Court in California, alleging that we
did not have the right to repurchase such shares and seeking
damages. On April 23, 2010, we concurrently filed a demand
for arbitration with the American Arbitration Association and a
motion to stay the litigation and to compel arbitration. This
lawsuit may be a distraction to management and may potentially
lead to us incurring significant legal fees and costs, the
issuance of additional shares and the payment of damages, which
may adversely impact our results of operations.
If we
do not respond to technological changes or upgrade our website
and technology systems, our growth prospects and results of
operations could be adversely affected.
To remain competitive, we must continue to enhance and improve
the functionality and features of our website and marketplace.
Although we currently do not have specific plans for any
upgrades that would require significant capital investment, in
the future we will need to improve and upgrade our technology,
transaction processing systems and network infrastructure in
order to allow our business to grow in both size and scope.
Without such improvements, our operations might suffer from
unanticipated system disruptions, slow transaction processing,
unreliable service levels, or impaired quality or delays in
reporting accurate information regarding our marketplace events,
any of which could negatively affect our reputation and ability
to attract and retain sellers and buyers. We may also face
material delays in introducing new services, products and
enhancements. If competitors introduce new products and services
using new technologies or if new industry standards and
practices emerge, our existing websites and our proprietary
technology and systems may become obsolete. In addition, the
expansion and improvement of our systems and infrastructure may
require us to commit substantial financial, operational and
technical resources, with no assurance our business will
increase. If we fail to respond to technological change or to
adequately maintain, expand, upgrade and develop our systems and
infrastructure in a timely fashion our growth prospects and
results of operations could be adversely impacted.
System
interruptions that impair access to our website or the
efficiency of our marketplace events would damage our reputation
and brand and adversely affect our results of
operations.
The satisfactory performance, reliability and availability of
our website and network infrastructure are critical to our
reputation, our ability to attract and retain both sellers and
buyers for our online marketplace and our ability to maintain
adequate customer service levels. Any systems interruption that
results in the unavailability of our website could result in
negative publicity, damage our reputation and brand and
adversely affect our results of operations. We may experience
temporary system interruptions for a variety of reasons,
including security breaches and other security incidents,
viruses, telecommunication and other network failures, power
failures, software errors or an overwhelming number of visitors
trying to reach our website during periods of strong demand,
such as during our marketplace events. We rely upon third-party
co-location providers for our data centers, and we are dependent
on these third parties to provide continuous power, cooling,
Internet connectivity and physical security for our servers. In
the event that these third-party providers experience any
interruption in operations or cease business for any reason, or
if we are unable to agree on satisfactory terms for continued
hosting relationships, we would be forced to enter into a
relationship with other service providers or assume some hosting
responsibilities ourselves. Although we operate two data centers
in an active/standby configuration for geographic and vendor
redundancy, a system disruption at the active data center could
result in a noticeable disruption to our website until all
website traffic is redirected to the standby data center. Even a
disruption as brief as a few minutes could have a negative
impact on marketplace activities and could therefore result in a
loss of revenue. Because some of the causes of system
interruptions may be outside of our control, we may not be able
to remedy such interruptions in a timely manner, or at all.
18
Our
business is subject to online security risks, including security
breaches and misappropriation of our customers
confidential information.
We collect limited confidential information in connection with
the user registration and other marketplace-related processes on
our website and, in particular, in connection with processing
and remitting payments to and from our customers. Although we
maintain security features on our website, our security measures
may not detect or prevent hacker interceptions, break-ins,
security breaches and other disruptions that may jeopardize the
security of information stored in and transmitted by our
website. We rely on encryption and authentication technology
licensed from third parties to provide the security and
authentication to effectively secure transmission of the
confidential information that we process for our customers, and
such technology may fail to function properly or may be
compromised or breached. Additionally, as described above, we
use third-party co-location vendors for our data centers, and
their security measures may not prevent security breaches and
other disruptions that may jeopardize the security of
information stored in and transmitted through their systems. A
party that is able to circumvent our security measures could
misappropriate proprietary information, cause interruption in
our operations, damage or misuse our website, and misuse the
information that they misappropriate. We may be required to
expend significant capital and other resources to protect
against such security breaches or to alleviate problems caused
by such breaches. These issues are likely to become more
difficult as we expand our operations. If any compromise of our
security were to occur, we may lose customers and our
reputation, business, financial condition and operating results
could be harmed by the misappropriation of confidential customer
information. Any compromise of security may result in us being
out of compliance with U.S. federal and state and
international laws and we may be subject to lawsuits, fines,
criminal penalties, statutory damages, and other costs. Any
failure, or perceived failure, by us to comply with our posted
privacy policies or with any regulatory requirements or orders
or other federal, state, or international privacy or consumer
protection-related laws and regulations, could result in
proceedings or actions against us by governmental entities or
others, subject us to significant penalties and negative
publicity, may adversely affect our results of operations.
We
depend on key personnel to operate our business, and if we are
unable to retain our current personnel or hire additional
personnel our ability to develop and successfully market our
business could be harmed.
We believe our future success will depend in large part upon our
ability to attract and retain highly skilled managerial,
technical, finance, and sales and marketing personnel. All of
our U.S. officers and other employees are at-will
employees, which means they may terminate their employment
relationship with us at any time, and their knowledge of our
business and industry would be extremely difficult to replace.
In addition, the loss of any key employees or the inability to
attract or retain qualified personnel could delay the
development and introduction of, and harm our ability to sell,
our solutions and harm the markets perception of us.
Qualified individuals are in high demand, and we may incur
significant costs to recruit them. We may be unable to recruit
and retain suitably qualified individuals who are capable of
meeting our growing sales, operational and managerial
requirements, or may be required to pay increased compensation
in order to do so. If we are unable to recruit and retain the
qualified personnel we need to succeed, our business could be
harmed.
Volatility or a decline in our stock price may also affect our
ability to recruit and retain key employees. Our named executive
officers have become, or will soon become, vested in a
substantial amount of stock or stock options. Employees may be
more likely to leave us if the shares they own or the shares
underlying their options have significantly appreciated in value
relative to the original purchase prices of the shares or the
exercise prices of the options, or if the exercise prices of the
options that they hold are significantly above the market price
of our common stock. In addition, to retain such employees we
may have to issue increased amounts of equity, which would
dilute existing stockholders and could adversely affect the
trading price our common stock. If we are unable to retain our
employees, our business, results of operations and financial
condition could be harmed.
Future
acquisitions could disrupt our business and adversely affect of
results of operations.
Our success will depend, in part, on our ability to expand our
offerings and markets and grow our business in response to
changing technologies, customer demands and competitive
pressures. In some circumstances, we may determine to do so
through the acquisition of complementary businesses, solutions
or
19
technologies rather than through internal development. The
identification of suitable acquisition candidates can be
difficult, time-consuming and costly, and we may not be able to
successfully complete identified acquisitions. Furthermore, even
if we successfully complete an acquisition, we may not be able
to successfully assimilate and integrate the business,
technologies, solutions, personnel or operations of the company
that we acquired, particularly if key personnel of an acquired
company decide not to work for us. In addition, we may issue
equity securities to complete an acquisition, which would dilute
our stockholders ownership and could adversely affect the
trading price of our common stock. Acquisitions may also involve
the entry into geographic or business markets in which we have
little or no prior experience. Consequently, we may not achieve
anticipated benefits of the acquisitions which could adversely
affect our results of operations.
Risks
Related to This Offering and Our Common Stock
An
active, liquid and orderly trading market for our common stock
may not develop, our share price may be volatile and you may be
unable to sell your shares at or above the offering
price.
Prior to this offering, there has not been a public market for
our common stock. We cannot predict the extent to which a
trading market will develop or how liquid that market might
become. The initial public offering price for our shares will be
determined by negotiations between us and representatives of the
underwriters and may not be indicative of prices that investors
in the market will be willing to buy and sell our shares
following this offering. If you purchase shares of our common
stock, you may not be able to resell those shares at or above
the initial public offering price. If an active public market
does not develop or is not sustained, it may be difficult for
you to sell your shares of common stock at a price that is
attractive to you, or at all. The market price of shares of our
common stock could be subject to wide fluctuations in response
to many risk factors listed in this section and others beyond
our control, including:
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actual or anticipated fluctuations in our key operating metrics,
financial condition and operating results;
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fluctuations in the price of used and new heavy equipment;
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changes in conditions in the industries in which participants in
our marketplace compete;
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the availability of credit to participants in our marketplace;
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rating downgrades by securities analysts who follow us, or our
failure to meet securities analysts projections for our
results;
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our announcement of actual or anticipated results that fail to
meet market expectations;
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fluctuations in the valuation of companies perceived by
investors to be comparable to us;
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price and volume fluctuations in the stock market on a whole;
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sales or expected sales of additional common stock by us, and
our officers, directors and significant stockholders;
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announcements from, or results of operations of, our
competitors; or
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market conditions or trends in our industry or in the economy in
general.
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Furthermore, the stock markets have experienced extreme price
and volume fluctuations that have affected and continue to
affect the market prices of equity securities of many companies.
These fluctuations often have been unrelated or disproportionate
to the operating performance of those companies. These broad
market and industry fluctuations, as well as general economic,
political and market conditions such as recessions, interest
rate changes or international currency fluctuations, may cause
the market price of shares of our common stock to decline. If
the market price of shares of our common stock after this
offering does not exceed the initial public offering price, you
may not realize any return on your investment in us and may lose
some or all of your investment. In the past, companies that have
experienced volatility in the market price of their stock have
been subject to securities class action litigation. We may be
the target of this type of litigation in the future.
20
Securities litigation against us could result in substantial
costs and divert our managements attention from other
business concerns, which could seriously harm our business.
If
securities or industry analysts do not publish research or
reports about our business, or if they publish negative
evaluations of our common stock, our stock price and trading
volume could decline.
The trading market for our common stock will be influenced by
the research and reports that securities or industry analysts
publish about us or our business. If securities or industry
analysts initiate coverage and one or more of the analysts who
cover us downgrade our stock or publish inaccurate or
unfavorable research about our business, our stock price would
likely decline. If one or more of these analysts cease coverage
of our company or fail to publish reports on us regularly,
demand for our stock could decrease, which might cause our stock
price and trading volume to decline.
Our
principal stockholders, executive officers and directors own a
significant percentage of our stock and will continue to have
significant control of us after the offering and could delay or
prevent a change in corporate control.
Following the completion of this offering, our executive
officers and directors, and entities that are affiliated with
them, will beneficially own an aggregate of
approximately % of our outstanding
common stock (or approximately % of
our outstanding common stock assuming exercise of the
underwriters overallotment option in full). As a result,
these stockholders, acting together, may be able to control our
management and affairs and matters requiring stockholder
approval, including the election of directors and approval of
significant corporate transactions, such as mergers,
consolidations or the sale of substantially all of our assets.
Consequently, this concentration of ownership may have the
effect of delaying or preventing a change of control, including
a merger, consolidation or other business combination involving
us, or discouraging a potential acquirer from making a tender
offer or otherwise attempting to obtain control, even if such a
change of control would benefit our other stockholders.
Our
stock price could decline due to the large number of shares of
our common stock eligible for future sale.
Sales of substantial amounts of our common stock in the public
market following this offering, or the perception that these
sales could occur, could cause the market price of our common
stock to decline. Based on shares outstanding as of
March 31, 2010, upon completion of this offering, we will
have
outstanding shares of common stock
(or outstanding
shares of common stock assuming exercise of the
underwriters overallotment option in full). All of the
shares sold pursuant to this offering will be immediately
tradable without restriction under the Securities Act unless
held by affiliates, as that term is defined in
Rule 144 under the Securities Act. The representatives of
the underwriters may, in their sole discretion and at any time
without notice, release all or any portion of the securities
subject to
lock-up
agreements.
After the
lock-up
agreements pertaining to this offer expire and based on shares
outstanding as of March 31, 2010, an
additional shares
will be eligible for sale in the public market. In addition,
shares underlying options that are either subject to the terms
of our equity compensation plans or reserved for future issuance
under our equity compensation plans will become eligible for
sale in the public market to the extent permitted by the
provisions of various option agreements, the
lock-up
agreements and Rules 144 and 701 under the Securities Act.
As resale restrictions end, the market price of our common stock
could decline if the holders of those shares sell them or are
perceived by the market as intending to sell them.
Holders of
approximately shares,
or %, of our common stock will have
rights, subject to some conditions, to require us to file
registration statements covering the sale of their shares or to
include their shares in registration statements that we may file
for ourselves or other stockholders. We also intend to register
the offer and sale of all shares of common stock that we may
issue under our equity compensation plans. Once we register the
offer and sale of shares for the holders of registration rights
and option holders, they can be freely sold in the public market
upon issuance, subject to the
lock-up
agreements described in the section of this prospectus captioned
Underwriting.
In addition, in the future, we may issue additional shares of
common stock or other equity or debt securities convertible into
common stock in connection with a financing, acquisition,
litigation settlement,
21
employee arrangement or otherwise. Any such issuance could
result in substantial dilution to our existing stockholders and
could cause the trading price of our common stock to decline.
Our
charter documents and Delaware law could prevent a takeover that
stockholders consider favorable and could also reduce the market
price of our stock.
Our amended and restated certificate of incorporation and our
bylaws contain provisions that could delay or prevent a change
in control of our company. These provisions could also make it
more difficult for stockholders to elect directors and take
other corporate actions. These provisions include:
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providing for a classified board of directors with staggered,
three-year terms;
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not providing for cumulative voting in the election of directors;
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authorizing the board to issue, without stockholder approval,
preferred stock with terms and rights superior to those of
common stock;
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permitting an amendment of our amended and restated certificate
of incorporation only through a super-majority vote of the
stockholders;
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prohibiting stockholder action by written consent;
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limiting the persons who may call special meetings of
stockholders; and
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requiring advance notification for stockholder director
nominations and other proposals.
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In addition, the provisions of Section 203 of the Delaware
General Corporate Law govern us. These provisions may prohibit
large stockholders, in particular those owning 15% or more of
our outstanding voting stock, from merging or combining with us
for a certain period of time.
These and other provisions in our amended and restated
certificate of incorporation, our bylaws and under Delaware law
could discourage potential takeover attempts, reduce the price
that investors might be willing to pay for shares of our common
stock in the future and result in the market price being lower
than it would be without these provisions. See Description
of Capital StockPreferred Stock and
Description of Capital StockEffect of Certain
Provisions of Our Amended and Restated Certificate of
Incorporation and Bylaws and the Delaware Anti-Takeover
Statute.
Our
management will have broad discretion in the use of the net
proceeds from this offering and may not use the net proceeds
effectively.
Our management will have broad discretion in the application of
the net proceeds of this offering and you will not have the
opportunity, as part of your investment decision, to assess
whether we are using our net proceeds appropriately. We expect
to use the proceeds for general corporate purposes and cannot
specify with certainty the uses to which we will apply the net
proceeds we will receive from this offering. Until the net
proceeds we receive are used, they may be placed in investments
that do not produce income or that lose value. If our net
proceeds are used for purposes that do not enhance stockholder
value, we may fail to achieve expected financial results, which
could cause the price of our common stock to decline.
22
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY
DATA
This prospectus contains forward-looking statements that are
based on our managements beliefs and assumptions and on
information currently available to our management. The
forward-looking statements are contained principally in
Prospectus Summary, Risk Factors,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, Business
and Compensation Discussion and Analysis.
Forward-looking statements include information concerning our
possible or assumed future results of operations, business
strategies, financing plans, competitive position, industry
environment, potential growth opportunities, potential market
opportunities and the effects of competition. Forward-looking
statements include all statements that are not historical facts
and can be identified by terms such as anticipates,
believes, could, seeks,
estimates, expects, intends,
may, plans, potential,
predicts, projects, should,
would or similar expressions and the negatives of
those terms.
The forward-looking statements contained in this prospectus
reflect our views as of the date of this prospectus about future
events and are subject to risks, uncertainties, assumptions and
changes in circumstances that may cause events or our actual
activities or results to differ significantly from those
expressed in any forward-looking statement. Although we believe
that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future events,
results, actions, levels of activity, performance or
achievements. Readers are cautioned not to place undue reliance
on these forward-looking statements. A number of important
factors could cause actual results to differ materially from
those indicated by the forward-looking statements, including,
but not limited to, those factors described in Risk
Factors and Managements Discussion and
Analysis of Financial Condition and Results of Operations.
These factors include, among others:
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our ability to increase the supply of quality used heavy
equipment for sale in our marketplace;
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our ability to grow, integrate, manage and retain our salesforce;
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our ability to continue to establish and expand the IronPlanet
brand;
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competition, particularly from larger, established companies
with greater financial resources and name recognition;
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our ability to retain our high volume sellers;
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a decline in the global economy or in used heavy equipment
prices;
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volatility in our annual and quarterly results of operations;
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our performance on guarantee and purchase arrangements; and
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risks associated with international operations and emerging
markets.
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All of the forward-looking statements we have included in this
prospectus are based on information available to us on the date
of this prospectus. We undertake no obligation to publicly
update or revise any forward-looking statement, whether as a
result of new information, future events or otherwise.
This prospectus contains various estimates related to our
industry, including market size and growth rates. These
estimates have been included in studies published or produced by
market researchers and other firms, including
Manfredi & Associates, Inc. and The Freedonia Group
Incorporated. These estimates have been produced by industry
analysts based on trends to date, their knowledge of
technologies and markets and customer research, but these are
forecasts only and are subject to inherent uncertainty.
23
USE OF
PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock that we are offering will be approximately
$ million, after deducting
underwriters discounts and commissions and estimated
offering expenses payable by us and assuming an initial public
offering price of $ per share (the
midpoint of the range set forth on the cover of this
prospectus). A $1.00 increase or decrease in the assumed initial
public offering price of $ per
share would increase or decrease the net proceeds to us from
this offering by approximately
$ million, assuming the
number of shares offered by us, as indicated on the cover page
of this prospectus, remains the same and after deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us. We will not receive any of the proceeds
from the sale of common stock by the selling stockholders.
The principal purposes of this offering are to create a public
market for our common stock, to obtain additional equity capital
and to facilitate future access to the public markets. We intend
to use the net proceeds from this offering for general corporate
purposes. If the opportunity arises, we may use a portion of the
net proceeds from this offering to acquire or invest in
businesses, products or technologies that are complementary to
our own. We are not currently a party to any agreements or
commitments for any acquisitions, and we have no current
understandings with respect to any acquisitions.
Managements plans for the proceeds of this offering are
subject to change due to unforeseen events and opportunities,
and the amounts and timing of our actual expenditures depend on
several factors, including our expansion plans and the amount of
cash generated or used by our operations. We cannot specify with
certainty the particular uses for the net proceeds to be
received upon completion of this offering. Accordingly, our
management team will have broad discretion in using the net
proceeds of this offering. Pending the use of the net proceeds,
we intend to invest the net proceeds in short-term,
investment-grade, interest-bearing instruments.
DIVIDEND
POLICY
We have never declared or paid any cash dividends on our common
stock. We do not anticipate paying cash dividends on our capital
stock in the foreseeable future and intend to retain all
available funds and any future earnings for use in the operation
and expansion of our business.
24
CAPITALIZATION
The following table summarizes our cash and cash equivalents and
capitalization as of March 31, 2010:
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on an actual basis (after giving effect to the 1-for-2 reverse
split of our common stock and preferred stock);
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on a pro forma basis reflecting the conversion of all
outstanding shares of our convertible preferred stock on a
one-for-one
basis into an aggregate of 17,523,274 shares of our common
stock effective immediately prior to the completion of this
offering (which will occur automatically pursuant to the terms
of our certificate of incorporation only if this offering
results in aggregate gross proceeds to us of not less than
$20 million and a
price-per-share
to the public of not less than $12.00 per share); and
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on a pro forma as adjusted basis to further reflect:
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the sale
of shares
of common stock by us in this offering at an assumed initial
public offering price of $ per
share, the midpoint of the estimated price range set forth on
the cover page of this prospectus;
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the filing of our amended and restated certificate of
incorporation; and
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the application of the estimated net proceeds from this offering
as described under the section captioned, Use of
Proceeds.
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You should read the information in this table in conjunction
with Managements Discussion and Analysis of
Financial Condition and Results of Operations and our
consolidated financial statements and the accompanying notes
appearing elsewhere in this prospectus.
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As of March 31, 2010
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Pro Forma
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Actual
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Pro Forma
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as Adjusted
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(in thousands)
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Cash and cash equivalents
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$
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42,636
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$
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42,636
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$
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Convertible preferred stock, $0.001 par value:
21,250,000 shares authorized, 17,523,274 shares issued
and outstanding, actual; 21,250,000 shares authorized, no
shares issued and outstanding pro forma; no shares authorized,
issued or outstanding, pro forma as adjusted
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$
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52,278
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$
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$
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Stockholders equity (deficit):
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Preferred stock, $0.001 par value: no shares authorized, issued
or outstanding, actual and pro forma; 5,000,000 authorized, no
shares issued or outstanding, pro forma as adjusted
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Common stock and additional paid-in capital, $0.001 par
value: 36,750,000 shares authorized, 4,702,094 shares
issued and outstanding, actual; 36,750,000 shares
authorized, 22,225,368 shares issued and outstanding, pro
forma; 100,000,000 shares
authorized, shares
issued and outstanding, pro forma as adjusted
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7,414
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60,206
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Accumulated other comprehensive loss
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(194
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)
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(194
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Accumulated deficit
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(24,883
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)
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(24,883
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Total stockholders equity (deficit)
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(17,663
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)
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35,129
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Total capitalization
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$
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34,615
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$
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35,129
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$
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25
The number of shares in the table above excludes, as of
March 31, 2010:
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an aggregate of 6,735 shares of common stock available for
issuance under our 1999 Stock Plan;
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1,632,500 additional shares of common stock, subject to increase
on an annual basis, reserved for issuance under our 2010 Equity
Incentive Plan, which will become effective upon completion of
this offering;
|
|
|
|
|
|
3,994,154 shares of common stock issuable upon the exercise
of outstanding options to purchase our common stock granted
pursuant to our 1999 Stock Plan at a weighted average exercise
price of $2.05 per share; and
|
|
|
|
|
|
360,943 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of
$8.00 per share.
|
26
DILUTION
If you invest in our common stock, you will experience immediate
and substantial dilution in the pro forma as adjusted net
tangible book value per share of our common stock after this
offering.
As of March 31, 2010, net tangible book value was
$ , or
$ per share of common stock. Our
pro forma net tangible book value as of March 31, 2010 was
$ , or
$ per share of common stock. Pro
forma net tangible book value per share represents total
tangible assets less total liabilities, divided by the number of
shares of common stock outstanding after giving effect to the
conversion of all outstanding shares of our convertible
preferred stock on a
one-for-one
basis into an aggregate of 17,523,274 shares of our common
stock effective immediately prior to the completion of this
offering (which will occur automatically pursuant to the terms
of our certificate of incorporation only if this offering
results in aggregate gross proceeds to us of not less than
$20 million and a
price-per-share
to the public of not less than $12.00 per share), for a total of
shares of common stock. After giving effect to the issuance and
sale by us
of shares
of our common stock in this offering at the assumed initial
public offering price of $ per
share (the mid-point of the estimated range shown on the cover
page of this prospectus), and after deducting the underwriting
discounts and commissions and our estimated offering expenses
payable by us, our pro forma as adjusted net tangible book value
as of March 31, 2010 would have been
$ million, or
$ per share. This represents an
immediate increase in net tangible book value of
$ per share to our existing
stockholders and an immediate dilution of
$ per share to our new investors
purchasing shares of common stock in this offering. The
following table illustrates this dilution on a per share basis:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price
|
|
|
|
|
|
$
|
|
|
Pro forma net tangible book value per share as of March 31,
2010
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase per share attributable to new investors
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after
this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth as of March 31, 2010, on a
pro forma as adjusted basis described above, the difference
between the number of shares of common stock purchased from us,
the total consideration paid, and the average price per share
paid by existing stockholders, and the number of shares of
common stock purchased from us, the total consideration paid,
and the average price per share paid by investors purchasing
shares in this offering, based on an assumed initial public
offering price of $ per share and
before deducting underwriting discounts and commissions and
estimated offering expenses payable by us:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Per Share
|
|
|
Existing stockholders
|
|
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
%
|
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If the underwriters overallotment option is exercised in
full, the number of shares held by the new investors will be
increased to , or
approximately % of the total number
of shares of our common stock outstanding after this offering. A
$1.00 increase (decrease) in the assumed initial public offering
price of $ per share would
increase (decrease) total consideration paid by new stockholders
by $ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same.
27
The tables and calculations above are based on
22,225,368 shares of common stock issued and outstanding as
of March 31, 2010, and exclude, as of March 31, 2010:
|
|
|
|
|
an aggregate of 6,735 shares of common stock available for
issuance under our 1999 Stock Plan;
|
|
|
|
|
|
1,632,500 additional shares of common stock, subject to increase
on an annual basis, reserved for issuance under our 2010 Equity
Incentive Plan, which will become effective upon completed of
this offering;
|
|
|
|
|
|
3,994,154 shares of common stock issuable upon the exercise
of outstanding options to purchase our common stock granted
pursuant to our 1999 Stock Plan at a weighted average exercise
price of $2.05 per share; and
|
|
|
|
|
|
360,943 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of
$8.00 per share.
|
28
SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA
The consolidated statements of operations data for each of the
three years ended December 31, 2007, 2008 and 2009, and the
consolidated balance sheet data as of December 31, 2008 and
2009, have been derived from our audited consolidated financial
statements included elsewhere in this prospectus. The
consolidated statements of operations data for the years ended
December 31, 2005 and 2006 and the consolidated balance
sheet data as of December 31, 2005, 2006 and 2007 are
derived from our audited consolidated financial statements not
included in this prospectus. Revenue and operating expenses in
the consolidated statements of operations data for the years
ended December 31, 2005 and 2006 have been reclassified by
us to present the data on a consistent basis with the data for
the years ended December 31, 2007, 2008 and 2009. The
consolidated statements of operations data for each of the three
months ended March 31, 2009 and 2010, and the consolidated
balance sheet data as of March 31, 2010, are derived from
our unaudited condensed consolidated financial statements
included elsewhere in this prospectus. The unaudited interim
financial statements have been prepared on the same basis as the
annual consolidated financial statements, and in the opinion of
management, reflect all adjustments, which include only normally
recurring adjustments, necessary to present fairly our financial
position and results of operations and cash flows for the three
months ended March 31, 2009 and March 31, 2010. The
results of the three months ended March 31, 2010 are not
necessarily indicative of the results to be expected for the
year ending December 31, 2010 or for any other interim
period or for any other future year. You should read the
consolidated financial and other data set forth below in
conjunction with our consolidated financial statements and the
accompanying notes and the information under
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained elsewhere in
this prospectus. Our historical results are not necessarily
indicative of results to be expected for future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands, except per share data)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
11,066
|
|
|
$
|
14,937
|
|
|
$
|
22,030
|
|
|
$
|
34,989
|
|
|
$
|
54,674
|
|
|
$
|
10,312
|
|
|
$
|
16,208
|
|
Cost of revenue (1)
|
|
|
4,160
|
|
|
|
4,652
|
|
|
|
5,508
|
|
|
|
7,508
|
|
|
|
11,978
|
|
|
|
2,488
|
|
|
|
3,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,906
|
|
|
|
10,285
|
|
|
|
16,522
|
|
|
|
27,481
|
|
|
|
42,696
|
|
|
|
7,824
|
|
|
|
12,712
|
|
Operating expenses (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
6,031
|
|
|
|
6,543
|
|
|
|
10,093
|
|
|
|
16,991
|
|
|
|
23,890
|
|
|
|
5,303
|
|
|
|
7,798
|
|
Technology
|
|
|
1,159
|
|
|
|
1,331
|
|
|
|
1,426
|
|
|
|
1,692
|
|
|
|
2,781
|
|
|
|
665
|
|
|
|
930
|
|
General and administrative
|
|
|
1,761
|
|
|
|
2,551
|
|
|
|
4,394
|
|
|
|
7,026
|
|
|
|
10,865
|
|
|
|
2,520
|
|
|
|
3,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,951
|
|
|
|
10,425
|
|
|
|
15,913
|
|
|
|
25,709
|
|
|
|
37,536
|
|
|
|
8,488
|
|
|
|
12,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(2,045
|
)
|
|
|
(140
|
)
|
|
|
609
|
|
|
|
1,772
|
|
|
|
5,160
|
|
|
|
(664
|
)
|
|
|
573
|
|
Interest income
|
|
|
227
|
|
|
|
288
|
|
|
|
669
|
|
|
|
413
|
|
|
|
64
|
|
|
|
37
|
|
|
|
2
|
|
Other non-operating expense (1)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
(1,072
|
)
|
|
|
(234
|
)
|
|
|
(551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
(1,816
|
)
|
|
|
148
|
|
|
|
1,278
|
|
|
|
2,164
|
|
|
|
4,152
|
|
|
|
(861
|
)
|
|
|
24
|
|
Income tax provision (benefit) (2)
|
|
|
1
|
|
|
|
4
|
|
|
|
110
|
|
|
|
313
|
|
|
|
(8,696
|
)
|
|
|
23
|
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,817
|
)
|
|
$
|
144
|
|
|
$
|
1,168
|
|
|
$
|
1,851
|
|
|
$
|
12,848
|
|
|
$
|
(884
|
)
|
|
$
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.65
|
)
|
|
$
|
0.05
|
|
|
$
|
0.44
|
|
|
$
|
0.63
|
|
|
$
|
3.94
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.65
|
)
|
|
$
|
0.01
|
|
|
$
|
0.06
|
|
|
$
|
0.08
|
|
|
$
|
0.54
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,797
|
|
|
|
2,825
|
|
|
|
2,665
|
|
|
|
2,961
|
|
|
|
3,260
|
|
|
|
3,126
|
|
|
|
3,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
2,797
|
|
|
|
20,923
|
|
|
|
20,900
|
|
|
|
21,981
|
|
|
|
23,724
|
|
|
|
3,126
|
|
|
|
3,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,356
|
|
|
|
|
|
|
|
21,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,724
|
|
|
|
|
|
|
|
21,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
As of December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,778
|
|
|
$
|
16,290
|
|
|
$
|
17,638
|
|
|
$
|
30,968
|
|
|
$
|
30,402
|
|
|
$
|
42,636
|
|
Working capital (3)
|
|
|
8,753
|
|
|
|
8,558
|
|
|
|
11,445
|
|
|
|
15,998
|
|
|
|
23,892
|
|
|
|
25,492
|
|
Total assets
|
|
|
16,212
|
|
|
|
18,334
|
|
|
|
20,499
|
|
|
|
36,303
|
|
|
|
57,287
|
|
|
|
68,216
|
|
Total liabilities
|
|
|
7,681
|
|
|
|
9,839
|
|
|
|
9,160
|
|
|
|
19,547
|
|
|
|
24,100
|
|
|
|
33,601
|
|
Convertible preferred stock
|
|
|
47,424
|
|
|
|
47,424
|
|
|
|
48,395
|
|
|
|
51,341
|
|
|
|
52,341
|
|
|
|
52,278
|
|
Total stockholders equity (deficit)
|
|
|
(38,893
|
)
|
|
|
(38,928
|
)
|
|
|
(37,055
|
)
|
|
|
(34,585
|
)
|
|
|
(19,154
|
)
|
|
|
(17,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Other Financial and Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (4)
|
|
$
|
(1,954
|
)
|
|
$
|
26
|
|
|
$
|
1,611
|
|
|
$
|
2,649
|
|
|
$
|
7,298
|
|
|
$
|
(164
|
)
|
|
$
|
1,557
|
|
Adjusted EBITDA less capital expenditures (4)
|
|
|
(2,087
|
)
|
|
|
(280
|
)
|
|
|
837
|
|
|
|
1,205
|
|
|
|
5,641
|
|
|
|
(321
|
)
|
|
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Merchandise Volume (5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
130,432
|
|
|
$
|
163,124
|
|
|
$
|
231,210
|
|
|
$
|
337,940
|
|
|
$
|
412,874
|
|
|
$
|
82,037
|
|
|
$
|
116,738
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,611
|
|
|
|
45,556
|
|
|
|
9,675
|
|
|
|
13,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
130,432
|
|
|
$
|
163,124
|
|
|
$
|
231,210
|
|
|
$
|
341,551
|
|
|
$
|
458,430
|
|
|
$
|
91,712
|
|
|
$
|
129,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
11,066
|
|
|
$
|
14,937
|
|
|
$
|
22,030
|
|
|
$
|
34,691
|
|
|
$
|
49,517
|
|
|
$
|
9,444
|
|
|
$
|
14,449
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298
|
|
|
|
5,157
|
|
|
|
868
|
|
|
|
1,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,066
|
|
|
$
|
14,937
|
|
|
$
|
22,030
|
|
|
$
|
34,989
|
|
|
$
|
54,674
|
|
|
$
|
10,312
|
|
|
$
|
16,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
(1,954
|
)
|
|
$
|
26
|
|
|
$
|
1,611
|
|
|
$
|
5,598
|
|
|
$
|
10,420
|
|
|
$
|
799
|
|
|
$
|
2,551
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,949
|
)
|
|
|
(3,122
|
)
|
|
|
(963
|
)
|
|
|
(994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,954
|
)
|
|
$
|
26
|
|
|
$
|
1,611
|
|
|
$
|
2,649
|
|
|
$
|
7,298
|
|
|
$
|
(164
|
)
|
|
$
|
1,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes stock-based compensation
as follows:
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Cost of revenue
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
53
|
|
|
$
|
38
|
|
|
$
|
47
|
|
|
$
|
9
|
|
|
$
|
41
|
|
Sales and marketing expenses
|
|
|
|
|
|
|
12
|
|
|
|
34
|
|
|
|
105
|
|
|
|
148
|
|
|
|
31
|
|
|
|
78
|
|
Technology expenses
|
|
|
|
|
|
|
1
|
|
|
|
10
|
|
|
|
35
|
|
|
|
809
|
|
|
|
203
|
|
|
|
419
|
|
General and administrative expenses
|
|
|
|
|
|
|
9
|
|
|
|
620
|
|
|
|
191
|
|
|
|
288
|
|
|
|
71
|
|
|
|
160
|
|
Other non-operating expense*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
935
|
|
|
|
234
|
|
|
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
|
|
|
$
|
26
|
|
|
$
|
717
|
|
|
$
|
390
|
|
|
$
|
2,227
|
|
|
$
|
548
|
|
|
$
|
1,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Related to an equity award held by
a terminated employee. See Managements Discussion
and Analysis of Financial Condition and Results of
OperationsComparison of the Years Ended December 31,
2007, 2008 and 2009Other Non-Operating Expense for
more information.
|
|
|
|
(2)
|
|
Reflects the one-time release of
substantially all of our U.S. federal and state net deferred tax
valuation allowance in the fourth quarter of 2009. See
Managements Discussion and Analysis of Financial
Condition and Results of OperationsKey Components of Our
Results of OperationsIncome Tax Provision (Benefit)
for more information.
|
|
(3)
|
|
Working capital is defined as
current assets minus current liabilities.
|
|
(4)
|
|
We define Adjusted EBITDA as net
income adjusted for stock-based compensation, performance
warrants, interest income, income tax provision and depreciation
and amortization. We define Adjusted EBITDA less capital
expenditures as Adjusted EBITDA less capital expenditures.
|
|
|
|
Management believes that the use of
Adjusted EBITDA facilitates more useful period to period
comparisons of operations, and also facilitates comparisons with
our peer companies, many of which use similar non-GAAP financial
measures to supplement their GAAP results. Management believes
that it is useful to exclude certain non-cash charges, such as
depreciation and amortization and stock-based compensation, from
Adjusted EBITDA because (a) the amount of such expenses in
any specific period may not directly correlate to the underlying
performance of our business operations and (b) such
expenses can vary significantly between periods as a result of
full amortization of previously acquired tangible and intangible
assets or the timing of new stock-based awards. We use Adjusted
EBITDA in conjunction with traditional GAAP operating
performance measures as part of our overall assessment of our
performance, for planning purposes, including the preparation of
our annual operating budget, to evaluate the effectiveness of
our business strategies, in connection with determination of our
annual bonus incentive plan and in communications with our board
of directors concerning our financial performance. We do not
place undue reliance on Adjusted EBITDA as our only measure of
operating performance.
|
|
|
|
Adjusted EBITDA less capital
expenditures is a key measure used in our internal operating
reports and allows us to evaluate the capital efficiency of our
business model. Management believes that Adjusted EBITDA less
capital expenditures is useful to investors as a supplemental
measure to evaluate our operating performance and to facilitate
comparisons with our peer companies with respect to capital
efficiency many of which use similar non-GAAP financial measures.
|
|
|
|
Adjusted EBITDA and Adjusted EBITDA
less capital expenditures should not be considered substitutes
for other measures of financial performance reported in
accordance with GAAP. There are limitations to using non-GAAP
financial measures, including that other companies may calculate
these measures differently than we do, that they do not reflect
our future requirements for capital expenditures, and that they
do not reflect changes in, or cash requirements for, our working
capital. Management compensates for the inherent limitations
associated with using the Adjusted EBITDA and Adjusted EBITDA
less capital expenditures measures through disclosure of such
limitations, presentation of our financial statements in
accordance with GAAP and reconciliation of Adjusted EBITDA and
Adjusted EBITDA less capital expenditures to the most directly
comparable GAAP measure, which is net income.
|
31
|
|
|
|
|
A reconciliation of net income to
Adjusted EBITDA and Adjusted EBITDA less capital expenditures is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Net income (loss)
|
|
$
|
(1,817
|
)
|
|
$
|
144
|
|
|
$
|
1,168
|
|
|
$
|
1,851
|
|
|
$
|
12,848
|
|
|
$
|
(884
|
)
|
|
$
|
(428
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
26
|
|
|
|
717
|
|
|
|
390
|
|
|
|
2,227
|
|
|
|
548
|
|
|
|
1,172
|
|
Performance warrants **
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
78
|
|
Interest income
|
|
|
(227
|
)
|
|
|
(288
|
)
|
|
|
(669
|
)
|
|
|
(413
|
)
|
|
|
(64
|
)
|
|
|
(37
|
)
|
|
|
(2
|
)
|
Depreciation and amortization
|
|
|
89
|
|
|
|
140
|
|
|
|
285
|
|
|
|
508
|
|
|
|
847
|
|
|
|
186
|
|
|
|
285
|
|
Income tax provision (benefit)
|
|
|
2
|
|
|
|
4
|
|
|
|
110
|
|
|
|
313
|
|
|
|
(8,696
|
)
|
|
|
23
|
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
(1,953
|
)
|
|
|
26
|
|
|
|
1,611
|
|
|
|
2,649
|
|
|
|
7,298
|
|
|
|
(164
|
)
|
|
|
1,557
|
|
Capital expenditures
|
|
|
134
|
|
|
|
306
|
|
|
|
774
|
|
|
|
1,444
|
|
|
|
1,657
|
|
|
|
157
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA less capital expenditures
|
|
$
|
(2,087
|
)
|
|
$
|
(280
|
)
|
|
$
|
837
|
|
|
$
|
1,205
|
|
|
$
|
5,641
|
|
|
$
|
(321
|
)
|
|
$
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
**
|
|
Reflects the mark-to-market
accounting for the Series A and Series C convertible
preferred stock warrants classified as liability awards. See
Note 1 to the consolidated financial statements included
elsewhere in this prospectus for more information regarding
classification of the convertible preferred stock warrants.
|
|
|
|
(5)
|
|
Gross Merchandise Volume, or GMV,
represents the total value of all items sold in our marketplace,
excluding our Private Marketplace, during a period. It is not a
measure of our financial performance or revenue and is not
presented in our consolidated financial statements. Our
definition of GMV may differ from that used by other
participants in our industry. We believe that revenue, which is
the most directly comparable measure in our statement of
operations, and certain other financial and operating data, are
best understood by considering their relationship to GMV.
Revenue represents the revenue we earn in the course of
conducting transactions through our marketplace from seller
commissions, seller listing and inspection fees and buyer
transaction fees.
|
32
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis by our
management of our financial condition and results of operations
in conjunction with our consolidated financial statements and
the accompanying notes included elsewhere in this prospectus.
This discussion and other parts of this prospectus contain
forward-looking statements that involve risks and uncertainties,
such as statements of our plans, objectives, expectations and
intentions. Our actual results could differ materially from
those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are
not limited to, those discussed in Risk Factors.
Overview
We are a leading online marketplace for used heavy equipment.
Our exclusively online model allows us to match supply and
demand globally for used heavy equipment, while achieving
greater reach, price performance and efficiency than traditional
models. We offer multiple online marketplace solutions for
sellers and buyers of used heavy equipment. Our primary solution
is our Featured Marketplace, which is a scheduled public online
auction typically held once a week, during which prospective
buyers bid on a wide variety of equipment for sale. Other
solutions offered include our Private Marketplace, our Daily
Marketplace and our One-Owner Marketplace, each designed to meet
the specific needs of used heavy equipment sellers.
As a marketplace, our customers are both sellers and buyers of
used heavy equipment. Sellers and buyers include a broad mix of
equipment owners ranging from large multinational corporations
to sole proprietors. These customers include a mix of equipment
owners, such as original equipment manufacturers, or OEMs,
re-marketing and finance organizations, construction and
contracting companies, equipment rental companies, farming and
mining entities and equipment dealers. Sellers typically provide
equipment to sell in our marketplace on a consignment basis. We
typically do not take title, ownership or possession of
equipment, and consigned equipment remains in the possession of
the seller until a sale transaction is completed through our
marketplace. We believe that sellers are attracted to our
marketplace due to the cost and time efficiencies of our online
solutions and the global audience of buyers that participate
regularly in our marketplace.
We generate revenue from sellers through commissions, listing
and inspection fees, and from buyers through transaction fees.
We assist sellers in the listing, inspection and marketing of
equipment, and in payment processing. For these services, we
charge sellers a commission tied to the final selling price of
equipment sold, and we charge sellers a listing and inspection
fee related to our assistance in listing equipment and
conducting an inspection. We provide buyers with a wide
selection of equipment, detailed inspection reports, transparent
bidding functionality, payment processing and customer support
assistance throughout their search, evaluation and bidding
activities. For these services, we charge buyers a transaction
fee tied to the final selling price of equipment purchased.
We were formed in 1999 and have grown by adding sales and
operations personnel to attract additional sellers and buyers to
our marketplace. As part of our growth strategy, over the last
three years we have expanded outside North America, expanded the
breadth of our marketplace solutions and expanded into
additional equipment categories. In 2008, we held our first
Asia-Pacific marketplace event, primarily focused in Australia,
and in 2009, we held our first European marketplace event. Our
current international expansion efforts and resources are
primarily focused on expanding our European marketplace events,
and to a lesser extent, our Asia-Pacific marketplace events.
Over time, we have added our Private Marketplace solution and
substantially increased our Daily Marketplace activities, and
have also added heavy equipment categories such as mining and
agricultural equipment.
We have achieved substantial growth in our business in recent
years. We grew our gross merchandise volume, or GMV, from
$231 million in 2007 to $458 million in 2009. We grew
our revenue from $22.0 million in 2007 to
$54.7 million in 2009. Over the same period, we grew
Adjusted EBITDA from $1.6 million in 2007 to
$7.3 million in 2009. Compared to the first quarter of
2009, in the first quarter of 2010 we grew GMV from
$92 million to $130 million, or 41%, and revenue from
$10.3 million to $16.2 million, or 57%, and Adjusted
EBITDA changed from negative $0.2 million to
$1.6 million. For a discussion of Adjusted EBITDA and a
reconciliation of net income to Adjusted EBITDA, see note 4
to Selected Consolidated Financial and Other Data.
33
We manage our business in two geographic segments: North
America, which includes the United States, Canada and Mexico,
and International, which includes Europe and Asia-Pacific.
Segment revenue is determined based on which segment conducts
the marketplace event. Currently our international segment is
not profitable as our marketplace activities in Europe and
Asia-Pacific have not yet generated revenue in excess of total
current operating expenses. For more information regarding our
segments, please see Results of Operations and
Note 10 to the consolidated financial statements included
elsewhere in this prospectus.
We believe that our investment in our technology platform, the
increase in the breadth of our marketplace solutions and our
geographic expansion have provided a foundation for a scalable
business model, which will allow us to continue to grow our
business, expand into additional equipment categories, further
penetrate existing markets and enter new markets without the
need for significant capital investments in real estate or
technology infrastructure.
Key
Business Metrics
We regularly monitor several key operating and financial metrics
to help us evaluate trends, establish budgets, measure the
effectiveness of our sales and marketing efforts and assess
operational efficiency. The following is a summary of those key
metrics.
|
|
|
|
|
Gross Merchandise Volume. Gross merchandise volume,
or GMV, represents the total value of all items sold in our
marketplace, excluding our Private Marketplace, during a period.
We use GMV as a key measure of the scale and growth of our
business, and as one measure of the level of liquidity achieved
by our marketplace.
|
|
|
|
Revenue Rate. Revenue rate is the revenue derived
from our marketplace, excluding our Private Marketplace, divided
by total GMV during a period. This revenue rate is comprised of
our seller commissions, seller listing and inspection fees, and
buyer transaction fees. We use this as a key measure of the
effectiveness of our sales organization and of the value our
marketplace provides to both sellers and buyers of equipment.
|
|
|
|
Total Sellers. Total sellers is the number of unique
sellers during a period. We use this as a measure of the reach
and liquidity of our marketplace, and as a measure of the
effectiveness of our salesforce in attracting new sellers and
growing our business. The number of international sellers is a
measure of the global reach and liquidity of our marketplace,
and our effectiveness in growing our business internationally.
|
|
|
|
Total Bidders. Total bidders is the number of unique
bidders during a period. We use total bidders, and bidders by
geography, as measures of the reach and liquidity of our
marketplace. The number of international bidders we attract to
our marketplace is a measure of the global reach of our business.
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(dollars in thousands)
|
|
|
Gross Merchandise Volume:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
231,210
|
|
|
$
|
337,940
|
|
|
$
|
412,874
|
|
|
$
|
82,037
|
|
|
$
|
116,738
|
|
International
|
|
|
|
|
|
|
3,611
|
|
|
|
45,556
|
|
|
|
9,675
|
|
|
|
13,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
231,210
|
|
|
$
|
341,551
|
|
|
$
|
458,430
|
|
|
$
|
91,712
|
|
|
$
|
129,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
9.0
|
%
|
|
|
9.9
|
%
|
|
|
11.7
|
%
|
|
|
11.5
|
%
|
|
|
12.2
|
%
|
International
|
|
|
|
|
|
|
8.3
|
|
|
|
11.3
|
|
|
|
9.0
|
|
|
|
13.4
|
|
Overall
|
|
|
9.0
|
|
|
|
9.8
|
|
|
|
11.7
|
|
|
|
11.0
|
|
|
|
12.3
|
|
Sellers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
682
|
|
|
|
1,024
|
|
|
|
1,407
|
|
|
|
409
|
|
|
|
610
|
|
International
|
|
|
|
|
|
|
41
|
|
|
|
211
|
|
|
|
42
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
682
|
|
|
|
1,065
|
|
|
|
1,618
|
|
|
|
451
|
|
|
|
759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bidders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
6,420
|
|
|
|
8,460
|
|
|
|
11,105
|
|
|
|
4,386
|
|
|
|
4,772
|
|
International
|
|
|
732
|
|
|
|
1,784
|
|
|
|
3,462
|
|
|
|
1,124
|
|
|
|
1,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,152
|
|
|
|
10,244
|
|
|
|
14,567
|
|
|
|
5,510
|
|
|
|
6,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trends
Affecting Our Business
Our business is affected by a number of key global economic and
heavy equipment market trends as follows.
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|
|
|
|
Global Economic Cycles. Economic and infrastructure
development cycles impact the quantity of supply and pricing of
used heavy equipment. We believe that our business benefits in
periods of economic expansion and is relatively insulated in
periods of economic contraction. In periods of economic
expansion, marketplace activity grows and, as demand outpaces
supply, pricing typically increases. In periods of economic
contraction, there may be greater quantities of used equipment
offered for sale, due to lack of project activity. While greater
supply levels in periods of contraction may negatively affect
equipment pricing, lower pricing attracts certain types of
buyers, and the timely disposal of idle equipment is important
to many sellers, contributing to marketplace activity.
|
|
|
|
Pricing of Used Heavy Equipment. Pricing can affect
supply and demand of equipment offered for sale. When pricing
moves significantly, there may be temporary imbalances between
supply and demand that might affect the unit volumes of
equipment that are sold in our marketplace. Additionally, our
revenue is directly related to the final selling price of
equipment sold in our marketplace, so general pricing of used
heavy equipment directly affects our revenue.
|
|
|
|
Cross-Border Sales of Used Heavy
Equipment. Standardization of equipment manufacturing
and usage has contributed to increased cross-border sales of
used heavy equipment. This trend has contributed to the
expansion of our business globally. Our business depends in part
on the continued openness of most international markets for used
heavy equipment, and is impacted by currency exchange rates,
which can affect bidding interest by international buyers.
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|
|
|
Continued Penetration of the Online Channel for Used Heavy
Equipment. Our business has benefited from the continued
development and acceptance of the online channel for used heavy
equipment transactions, and will continue to be affected by the
general perception and development of online marketplaces. We
expect that the online format of our marketplace will continue
to gain acceptance among sellers and buyers of equipment, and
will help us to further penetrate the used heavy equipment
market.
|
35
|
|
|
|
|
Mix of Equipment Supply from Sellers. As a
marketplace, the mix of used equipment that we sell reflects the
type of equipment that sellers offer for sale during a period.
This equipment mix may change, as may the mix of sellers, in a
given period. For example, in 2008 and 2009, many equipment
rental companies chose to reduce their rental fleets in response
to slowing demand. Accordingly, rental companies offered
increased amounts of smaller model used equipment for sale as
they adjusted their fleet makeup. The mix of equipment available
for sale will affect our average selling price, which in turn
will affect our revenue, gross profit, and income from
operations during a period.
|
Key
Components of Our Results of Operations
Revenue
We derive revenue primarily from seller commissions, seller
listing and inspection fees, and buyer transaction fees, in each
case related to the listing on, and sale of equipment through,
our marketplace.
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|
|
|
|
Seller Commissions. We earn commissions from sellers
upon completion of an equipment sale. Seller commissions are
earned under a straight commission arrangement, a guarantee
arrangement or a purchase arrangement, each of which are as
discussed more fully below. Seller commissions are our primary
source of revenue and are typically deducted from the purchase
price of equipment. In 2009, seller commissions represented
approximately 60% of our total revenue.
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|
|
|
Seller Listing and Inspection Fees. We earn listing
and inspection fees from sellers upon completion of an equipment
sale. Such fees are based on the type and size of equipment
listed. Listing and inspection fees are generally deducted from
the purchase price of equipment. In 2009, seller listing and
inspection fees represented approximately 17% of our total
revenue.
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|
|
|
Buyer Transaction Fees. We earn buyer fees from
individual buyers who purchase equipment in our marketplace.
Buyer fees are based on the final selling price of each piece of
equipment, subject to a maximum dollar amount. In 2009, buyer
transaction fees represented approximately 21% of our total
revenue.
|
We consider sellers that utilize our marketplace as
consigners, because the equipment is sold under an
agency relationship. Sellers maintain physical possession of the
equipment at their location, maintain title to, and are
contractually obligated to maintain insurance on, the equipment
up to and through buyer acceptance of the equipment. Following
the conclusion of a sale through our marketplace, sellers
release the equipment to the buyer and receive the entirety of
the proceeds from the sale of the equipment, less the agreed
seller commissions and fees.
Our primary form of commission arrangement with sellers is a
straight commission arrangement. Under such an arrangement,
sellers provide equipment to our marketplace for sale to buyers
and agree to commission rates that are based on the final
selling prices of the equipment provided. The commission rate
may vary based on the selling price of each individual piece,
based on our standard commission rate structure or based on an
agreed upon fixed commission rate with the seller. Certain large
sellers have commission rate arrangements that cover all pieces
of equipment sold during a defined period, typically fixed rates
for an annual period or longer. Certain of these annual or
long-term contracts have volume thresholds that govern the
commission rate charged to the seller.
In certain situations, we respond to requests from sellers and
offer to guarantee minimum sales proceeds to sellers on certain
consignments of equipment and earn a commission based on the
sales price of such equipment sold in our marketplace. In these
arrangements, which we refer to as guarantee arrangements, we
are obligated to pay the agreed upon minimum amount if the
consigned equipment in the aggregate sells for less than the
minimum price. Should the consigned equipment sell above the
minimum price in the aggregate, we are generally entitled to a
share of the excess proceeds and our share of the excess
proceeds, if any, is also included in seller commission revenue.
During the years ended December 31, 2007, 2008 and 2009 and
the three months ended March 31, 2010, equipment sold
pursuant to a guarantee arrangement comprised approximately
13.5%, 9.3%, 6.2% and 9.7% of GMV, respectively.
36
Periodically, as an accommodation to certain sellers and to
maintain the liquidity and efficiency of our marketplace, we may
purchase and temporarily take title to equipment that is then
listed and sold through our marketplace in the same manner as
consigned equipment. This occurs when either (1) a buyer
has defaulted on a transaction, in which case we may elect to
take the equipment into inventory and pay the seller, or
(2) when we have purchased equipment outright from a seller
in advance of a marketplace event, generally from a seller who
desires immediate liquidity. Sellers maintain physical
possession of the equipment at their location and are
contractually obligated to maintain insurance on the equipment
up to and through buyer acceptance of the equipment. Revenue
from such subsequent sales reflects the net profit or loss on
the sale of these purchased items. We believe that in the case
of default transactions, such transactions are an extension of
our original arrangement with our sellers, and in the case of
purchase transactions, such transactions are ancillary to our
primary consignment model with sellers. Because we typically
hold this purchased equipment for only a brief period of time
before it is resold, and because the market for this equipment
is relatively stable over such short time periods, we do not
believe that there is significant inventory and price risk
associated with these transactions. During the years ended
December 31, 2007, 2008 and 2009 and the three months ended
March 31, 2010, purchased equipment that was later resold
through our marketplace comprised approximately 2.1%, 2.2%, 1.6%
and 7.1% of GMV, respectively. We realized a net profit of
approximately $200,000 on the sale of purchase equipment during
the year ended December 31, 2007, a net loss of $58,000
during the year ended December 31, 2008, and a net profit
of $579,000 and $2.2 million during the year ended
December 31, 2009 and the three months ended March 31,
2010, respectively. Purchased equipment is reflected as
inventory on our balance sheet until it is sold.
Cost
of Revenue
Cost of revenue includes the cost of performing comprehensive
inspections of equipment to be sold in our marketplaces. These
comprehensive inspections provide the basis for our detailed
inspection reports and our IronClad Assurance and are
generally performed at the sellers physical location.
Expenses include payroll costs and related benefits for our
employees that perform and manage field inspection services and
the related inspection report preparation and quality assurance,
fees paid to contractors who also perform field inspections,
related travel and incidental costs for our inspection service
organization, and office and occupancy costs for our inspection
services personnel. Cost of revenue also includes costs for our
customer support, marketplace operations, site operations and
title and lien investigation functions. Significant components
of these costs include employee compensation, facilities costs,
depreciation of equipment and hosting expenses.
As the number of items in our marketplace grows, we will require
more people to inspect equipment and assist sellers with listing
their equipment. We expect that our cost of revenue will remain
generally stable as a percentage of revenue over time although
over short term periods such costs as a percentage of revenue
may fluctuate as the average selling price and volume of
equipment sold in our marketplace fluctuates.
Operating
Expenses
Sales and Marketing. Sales and marketing expenses
consists of employee-related expenses and advertising costs.
Employee related expenses include payroll and related benefits
costs for employees dedicated to sales and marketing efforts,
related travel, training, and other incidental costs incurred by
sales and marketing personnel and outside advertising costs.
Payroll costs includes sales commissions earned by sales
personnel based on seller commissions earned by us from sellers
of equipment. Advertising costs include costs of promotions and
advertising pieces in various industry trade journals and
periodicals for specific marketplace events, costs of paid
search engine advertising, costs of email and occasional direct
mail campaigns to website registrants and costs of participation
in trade events. Sales and marketing expense is the largest
component of our operating expenses.
We intend to hire additional sales and marketing personnel, and
to expand our marketing efforts worldwide in order to add new
customers, increase our penetration in existing core markets,
and expand our business in new markets. As such, we expect sales
and marketing expenses to increase in absolute dollars in future
periods.
37
Technology. Technology expenses include employee
salaries and benefits, outside contractor costs, travel,
amortization of software and hardware costs and other ancillary
costs related to our information technology and website
operations group. These expenses also include the lease and
operations costs related to our third-party data centers, from
which our website is hosted, and various technology license fees
related to outside technology applications that we employ in the
delivery of our website and in our internal operations.
We expect to continue to invest in our technology platform for
our marketplace events and our website, and we expect technology
expenses to increase in absolute dollars in future periods.
General and Administrative. General and
administrative expenses refer to the cost of our executive,
finance and human resources functions and include the following
types of costs in general and administrative expenses: employee
salaries, bonuses and benefits, travel and entertainment costs,
office space leases and related occupancy costs, professional
fees including audit, accounting, tax, legal and other
consulting fees, general office supplies and other general costs
related to operating our business.
We expect our general and administrative expenses to increase in
future periods as we continue to grow our business, and to
increase when we become a publicly traded company. Our
accounting, auditing, legal, insurance and personnel-related
expenses for officers and directors are expected to increase as
we institute and monitor a more comprehensive corporate
compliance function, implement more comprehensive board and
board committee governance functions, maintain and review a more
detailed system of internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act of
2002, and prepare and distribute related reports.
Interest
Income
Interest income consists of income earned on our cash, cash
equivalents, and short-term investments. We have generally
invested our cash in short-term investment grade and guaranteed
instruments, whose investment yields are generally tied to
short-term credit markets.
Income
Tax Provision (Benefit)
We are subject to federal and state taxes in the United States
as well as in other tax jurisdictions or countries in which we
conduct business. Earnings from our
non-U.S. activities
are subject to local country income tax and may be subject to
current U.S. income tax.
As of December 31, 2009, we had $16.5 million of
federal and $25.7 million of California state net operating
loss carry-forwards available to reduce future taxable income.
These net operating loss carryforwards begin to expire in 2020
and 2014 for federal and state tax purposes, respectively. Our
ability to use our net operating loss carryforwards to offset
any future taxable income could be subject to limitations
attributable to equity transactions that would result in a
change of ownership as defined by Section 382 of the
Internal Revenue Code of 1986, as amended, or the Internal
Revenue Code.
At December 31, 2009, we had a total deferred gross tax
asset of approximately $11.8 million, primarily comprised
of our accumulated net operating loss carryforwards. Our net
deferred tax assets consist primarily of net operating loss
carryforwards generated before we achieved profitability. During
the fourth quarter of 2009, we concluded that it was more likely
than not that we would be able to realize the benefit of certain
of these deferred tax assets in the future. Consequently, we
recognized a net tax benefit of $9.1 million in the fourth
quarter of 2009, resulting primarily from the release of all of
the U.S. federal and state net deferred tax valuation
allowance. We based this conclusion on historical and projected
operating performance, as well as our expectations that our
operations will generate sufficient taxable income in future
periods to be able to realize a portion of the tax benefits
associated with the deferred tax assets. We continue to maintain
a full valuation allowance on our foreign deferred tax assets.
We will continue to assess the need for a valuation allowance on
our deferred tax assets by evaluating both positive and negative
evidence that may exist. Any adjustment to the deferred tax
asset valuation allowance would be recorded in the income
statement of the periods that the adjustment is determined to be
required.
38
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations are based on our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States,
or U.S. GAAP. These principles require us to make estimates
and judgments that affect the reported amounts of assets,
liabilities, revenue, expenses, cash flows and related
disclosures. These estimates and assumptions are based on
judgments that we believe are reasonable under the circumstances
at the time made, and reflect historical experience and various
other factors. We evaluate our estimates and assumptions on an
ongoing basis. However, actual results may differ from these
estimates and assumptions, and to the extent there are material
differences between these estimates and our actual results, our
future financial statements may be affected.
We believe that of our significant accounting policies described
in Note 1 to our consolidated financial statements included
in this prospectus, the following policies and estimates involve
a greater degree of judgment and complexity. Accordingly, we
believe these are the most critical to fully understand our
financial condition and results of operations.
Revenue
Recognition
Marketplace Revenue. We record revenue from
marketplace events upon the sale of equipment, typically at the
conclusion of a marketplace event when bidding is concluded and
a winning bid is established, at which time all significant
terms of the sale transaction are known and a determination can
be made that the sale is complete. Revenue is recorded net of an
allowance for collapse sales, which is an estimate by management
of transactions that are expected to collapse or default based
on our historical experience with similar buyers. Our historical
overall collapse sale experience factor has been approximately
3% to 4% of total GMV. When an estimate for sales expected to
default cannot be made, revenue is recognized when the equipment
is accepted by the buyer and the proceeds are considered
collectible. We regularly review our default sales experience
factor, and conditions that might affect current levels of
default sales, as part of our preparation of periodic financial
statements.
Guarantee Arrangements. Net gains and losses on
guarantee arrangements are recorded as revenue at the time the
gain or loss is realized, which is typically at the conclusion
of a marketplace event when a determination can be made that the
sale of such equipment is complete. Net gains and losses are
calculated in total for the entire lot of consigned equipment,
and not on individual pieces of equipment. If certain pieces of
equipment in a guarantee arrangement are unsold in a marketplace
event, and are carried over to a subsequent event, we record
commission revenue, and any overage related to excess proceeds,
only to the extent that the commission and any gain amount for
the lot is fixed or determinable based on the items sold. Losses
on guarantee arrangements are provided for when the loss is
probable and can be reasonably estimated.
Purchased Equipment. Periodically, as an
accommodation to certain sellers, we may purchase and
temporarily take title to equipment that is then listed and sold
through our marketplace in the same manner as consigned
equipment. We record revenue from the sale of such purchased
equipment upon the sale of the equipment in a marketplace event,
typically at the conclusion of a marketplace event when a
determination can be made that the sale of such equipment is
complete. We believe that in the case of default transactions,
such transactions are an extension of our original arrangement
with our sellers, and in the case of purchase transactions, such
transactions are ancillary to our primary consignment model with
sellers. We do not take custody of the equipment in these
transactions and they are offered for sale in a manner
consistent with other equipment consigned for sale in our
marketplace. Accordingly, we record the net gain or loss on the
sale of inventory items as revenue in a similar manner as our
primary consignment arrangements. Inventory is stated at the
lower of cost or market, with cost being determined on a
specific identification basis. Losses are provided for based on
specific market data related to individual items.
Income
Taxes
We account for income taxes using the liability method. Deferred
tax assets and liabilities are measured based on differences
between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected
to be in effect when the differences are expected to reverse.
39
We make estimates and judgments about our future taxable income
that are based on assumptions that are consistent with our plans
and estimates. Should the actual amounts differ from our
estimates, the amount of our valuation allowance, if any, could
be materially impacted. Any adjustment to the deferred tax asset
valuation allowance would be recorded in the income statement of
the periods that the adjustment is determined to be required.
Under current tax law, if cash and cash equivalents and
investments held outside the United States are distributed to
the United States in the form of dividends or otherwise, we may
be subject to additional U.S. income taxes (subject to an
adjustment for foreign tax credits) and foreign withholding
taxes.
Stock-Based
Compensation
We grant our employees, directors and consultants options for
common stock. We account for our share-based payment awards by
recording compensation costs for all stock-based payment awards
made to employees, directors and consultants that are ultimately
expected to vest based upon the awards estimated grant
date fair value. We estimate potential forfeitures and recognize
compensation cost only for those equity awards expected to vest.
The estimate of forfeitures will be adjusted over the requisite
service period to the extent that actual forfeitures differ, or
are expected to differ, from the prior estimates. Changes in
estimated forfeitures will be recognized in the period of change
and will impact the amount of stock compensation expenses to be
recognized in future periods.
The fair value of each award is estimated on the date of the
grant and amortized over the requisite service period. For all
option awards granted subsequent to January 1, 2006, we
have used the Black-Scholes option pricing model to estimate the
fair value of stock-based payment awards on the date of grant.
Determining the fair value of stock-based awards at the grant
date under this model requires judgment, including estimating
the value per share of our common stock, volatility, expected
term and risk-free interest rate. The assumptions used in
calculating the fair value of stock-based awards represent our
best estimates based on management judgment and subjective
future expectations. These estimates involve inherent
uncertainties. If any of the assumptions used in the
Black-Scholes model significantly change, stock-based
compensation for future awards may differ materially from the
awards granted previously. Key assumptions utilized in
estimating the fair values of stock-based payment awards are as
follows:
|
|
|
|
|
|
|
|
|
2008
|
|
2009
|
|
Q1 2010
|
|
Volatility
|
|
58%
|
|
55% - 58%
|
|
61.9% - 67%
|
Expected life in years
|
|
6
|
|
6
|
|
6
|
Risk-free interest rate
|
|
2.75% - 3.32%
|
|
2.11% - 2.80%
|
|
2.68% - 2.84%
|
Dividend yield
|
|
|
|
|
|
|
We recorded non-cash stock-based compensation expenses related
to employee stock options granted of approximately
$2.2 million for the year ended December 31, 2009, and
$1.2 million for the three months ended March 31,
2010. We had compensation costs not yet recognized of
$1.0 million and $3.0 million related to unvested
stock options at December 31, 2009 and March 31, 2010,
respectively.
Valuation
of Common Stock
We have historically granted stock options at exercise prices
believed to be equal to the fair value of the common stock
underlying such options as determined by our board of directors,
with input from management, on the date of grant. Because our
common stock is not currently publicly traded, our board of
directors exercises significant judgment in determining the fair
value of our common stock and historically has relied in part on
independent, third-party valuations. Members of our board of
directors and management team have extensive business, financial
and investing experience. In assessing the fair value of our
common stock as of option grant dates, our board of directors
considered numerous objective and subjective factors including:
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our financial position and historical operating and financial
performance as well as progress to date against planned budgets;
|
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|
|
our financial projections and future prospects;
|
40
|
|
|
|
|
consideration received in connection with the issuance of shares
of preferred stock to outside investors in arms-length
transactions and the rights, privileges and preferences of our
preferred stock;
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|
|
any recent privately negotiated sales of our securities to third
parties;
|
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|
|
the current lack of marketability of our common stock as a
private company;
|
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|
|
the likelihood of achieving a liquidity event for the shares of
common stock underlying the options, given prevailing market
conditions;
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|
|
the stock price performance of comparable public companies;
|
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|
|
other input from management regarding our financial condition
and results of operations; and
|
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|
|
|
valuations of our common stock performed as of December 31,
2008, June 30, 2009, September 30, 2009,
December 31, 2009 and February 8, 2010.
|
As of each stock option grant date listed below, our board of
directors believes it made a thorough evaluation of the relevant
factors to determine the fair value of our common stock and
accordingly set the exercise price of the options granted equal
to the fair value of our common stock determined as of such
date. On each option grant date, our board of directors
considered the most recent valuation of our common stock as one
of several factors in estimating the fair value of our common
stock. In addition, our board of directors considered changes in
our financial condition and results of operations that had
occurred subsequent to the previous valuation date as well as
the then current general economic and market conditions as
described more fully below, as well as other objective and
subjective factors described above. Based on these
considerations, our board of directors also determined that no
significant change in our business or expectations of future
business had occurred as of each grant date since the most
recent valuation that would have warranted a materially
different determination of value of our common stock than that
suggested by the valuation. The valuations were consistent with
the guidance and methods outlined in the AICPA Practice Aid
Valuation of Privately-Held-Company Equity Securities Issued
as Compensation, or AICPA Practice Aid, for all option grant
dates listed below.
In connection with the preparation of our consolidated financial
statements for the year ended December 31, 2009, to be
included in this prospectus, we reassessed our estimate of fair
value of our common stock for financial reporting purposes using
a different valuation methodology than that employed during
2009, and at such time obtained additional, retrospective
valuations. Specifically, we determined that it was more
appropriate to perform retrospective valuations of our common
stock as of June 30, 2009, September 30, 2009 and
December 31, 2009, using the probability weighted expected
return method, or PWERM, rather than the option-pricing method
used for the earlier valuations. The PWERM is generally
considered to be a more sound method to determine fair value of
an enterprise that has reasonable expectations of a liquidity
event. Given our board of directors and managements
evolving outlook in the second half of 2009 that a public
offering might be more viable in the future based on our
improving financial performance and prospects, and the generally
improving conditions in the capital markets, we determined the
PWERM was a more appropriate methodology with which to assess
fair value of our common stock during this period. In addition,
the contemporaneous valuation as of February 8, 2010 was
performed using the PWERM, which was considered the most
appropriate method as of that date. For the valuations prior to
June 30, 2009, we determined that there were not reasonable
expectations of a near term liquidity event and the option
pricing method previously used to determine fair value remained
appropriate.
As a result of such reassessment, we subsequently revised the
fair value of our common stock for financial reporting purposes
for option grants made from February 5, 2009 through
January 19, 2010, which resulted in these option grants
having exercises prices below the subsequently determined fair
value per share.
41
From January 1, 2009 through March 31, 2010, we
granted stock options with exercises prices and fair value
assessments as follows:
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Fair Value
|
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|
|
|
|
|
|
|
Per Common
|
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|
|
Common Shares
|
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|
|
Share for Financial
|
|
Intrinsic Value
|
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|
Underlying Options
|
|
Exercise Price
|
|
Reporting Purposes
|
|
Per Underlying
|
Grant Date
|
|
Granted
|
|
Per Share
|
|
at Grant Date
|
|
Common Share
|
|
February 5, 2009
|
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|
131,000
|
|
|
$
|
1.54
|
|
|
$
|
1.82
|
|
|
$
|
0.28
|
|
May 7, 2009
|
|
|
78,725
|
|
|
|
1.54
|
|
|
|
2.68
|
|
|
|
1.14
|
|
August 27, 2009
|
|
|
145,700
|
|
|
|
2.26
|
|
|
|
3.62
|
|
|
|
1.36
|
|
January 19, 2010
|
|
|
191,650
|
|
|
|
4.50
|
|
|
|
4.66
|
|
|
|
0.16
|
|
February 11, 2010
|
|
|
490,500
|
|
|
|
6.24
|
|
|
|
6.24
|
|
|
|
|
|
February 26, 2010
|
|
|
150,000
|
|
|
|
6.24
|
|
|
|
6.24
|
|
|
|
|
|
The aggregate intrinsic value of vested and unvested stock
options as of March 31, 2010, based on the initial public
offering price of $ per share,
which is the midpoint of the range set forth on the cover page
of the prospectus, was
$ million and
$ million, respectively.
In conducting the valuations of our common stock we used a
two-step methodology. First we estimated the fair value of our
company as a whole, commonly referred to as our enterprise
value, and then we allocated the enterprise value to each
element of the capital structure, including our common stock, in
order to determine the fair value of a single share of common
stock. This approach is consistent with the methods outlined in
the AICPA Practice Aid.
Fair
Value Inputs
In our December 31, 2008, contemporaneous valuation, the
average of the results suggested by the income approach and
market approach valuation methods was used to estimate
enterprise value, with each method weighted equally, which was
then allocated to the various securities that comprise our
capital structure using the option-pricing method. The equal
weighting of the income and market approaches reflects our
belief that both these valuation methods provide a reasonable
estimate of our enterprise value and are equally reliable.
The income approach involves applying appropriate risk-adjusted
discount rates to cash flows, based on our forecasted revenue
and expenses, which quantified the present value of our future
economic benefits. Forecasted future cash flows were discounted
to their present value using a rate corresponding to our
estimated weighted average cost of capital. The discount rate
reflects the risk inherent in cash flows and the market rates of
return available from alternative investments of similar type
and quality as of the valuation date. Our weighted average cost
of capital reflects our estimated cost of equity, as we did not
have any outstanding debt during the relevant periods and there
were no plans to include debt as part of our long-term capital
structure. Our estimated cost of equity was determined by
calculating the average cost of equity for a peer group of
publicly-traded companies considered to be reasonably comparable
to us. The weighted average cost of capital used in our
December 31, 2008 contemporaneous valuation was 25%.
The market approach involves analyzing multiples of financial
metrics based on acquisition
and/or
trading multiples of a peer group of companies, which were then
applied to our projected revenues to derive an indication of
value. The multiple used in our December 31, 2008
contemporaneous valuation was 1.1x.
The resulting enterprise value obtained by averaging the values
calculated under the income approach and the market approach was
then discounted for lack of marketability for being a private
company, using a marketability discount of 37%. The enterprise
value was then allocated to the various securities that comprise
our capital structure, using the option-pricing method, as
described in the AICPA Practice Aid. The option-pricing method
involves making assumptions regarding the anticipated timing of
a potential liquidity event, such as an initial public offering,
and estimates of the volatility of our equity securities. The
anticipated timing of a potential liquidity event was based on
the plans of our board of directors and management at that time.
Estimating the volatility of the share price of a privately-held
company is complex because there is no readily
42
available market for our shares. Our board of directors
estimated the volatility of our stock based on available
information on the volatility of stocks of publicly-traded
companies in our industry determined to be reasonably comparable
to us. Our December 31, 2008 contemporaneous valuation
assumed a risk free interest rate of 1.0%, four year term
to a liquidity event and a volatility rate of 58%. Based on such
valuation and other objective and subjective factors, our board
of directors determined that the fair value of our common stock
as of December 31, 2008 was $1.54.
Our retrospective valuations performed as of June 30, 2009,
September 30, 2009, December 31, 2009, as well as our
contemporaneous valuation performed as of February 8, 2010,
used the PWERM to estimate fair value, rather than the option
pricing method used previously, as an initial public offering in
the near term became more likely. The PWERM involves analyzing
the probability weighted present value of expected future values
considering various possible future liquidity events, such as an
initial public offering, merger or liquidation of the company,
as well as the respective rights of common and preferred
holders. For each of the possible future liquidity events, our
board of directors and management estimated a range of future
equity values based on the market approach over a range of
possible event dates. The estimated values under each scenario
were then discounted for lack of marketability, and a
probability-weighted value per share of common stock was then
determined.
When estimating value under the initial public offering
scenario, we determined our enterprise value by applying current
revenue, EBITDA and EBIT multiples of companies similar to us
that had recently completed an initial public offering to our
projected revenue, EBITDA and EBIT. We used the following
multiples under this scenario:
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|
Valuation
|
|
Revenue Multiple
|
|
|
EBITDA Multiple
|
|
|
EBIT Multiple
|
|
|
June 30, 2009
|
|
|
2.9
|
x
|
|
|
9.9
|
x
|
|
|
10.9
|
x
|
September 30, 2009
|
|
|
3.0
|
x
|
|
|
10.2
|
x
|
|
|
13.3
|
x
|
December 31, 2009
|
|
|
3.0
|
x
|
|
|
10.2
|
x
|
|
|
13.3
|
x
|
February 8, 2010
|
|
|
2.8
|
x
|
|
|
9.7
|
x
|
|
|
13.9
|
x
|
When estimating value under the merger scenario, we analyzed
business combinations involving companies in industries similar
to the one in which we compete. We determined our enterprise
value by applying current revenue, EBITDA and EBIT multiples
related to such transactions to our projected revenue, EBITDA
and EBIT. We used the following multiples under this scenario:
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
|
|
Revenue Multiple
|
|
|
EBITDA Multiple
|
|
|
EBIT Multiple
|
|
|
June 30, 2009
|
|
|
1.4
|
x
|
|
|
11.8
|
x
|
|
|
14.0
|
x
|
September 30, 2009
|
|
|
1.4
|
x
|
|
|
12.0
|
x
|
|
|
14.4
|
x
|
December 31, 2009
|
|
|
1.5
|
x
|
|
|
12.2
|
x
|
|
|
15.5
|
x
|
February 8, 2010
|
|
|
1.3
|
x
|
|
|
11.5
|
x
|
|
|
14.9
|
x
|
When estimating value under the liquidation scenario, we
analyzed unprofitable or poorly performing companies in
industries similar to the one in which we compete. We determined
our enterprise value by applying current revenue multiples of
these companies to our projected revenue. For our valuations as
of June 30, 2009, September 30, 2009,
December 31, 2009 and February 8, 2010 we used a
projected revenue multiple of 0.85x, 0.85x, 0.98x and 1.0x,
respectively.
The enterprise value under each scenario was determined by
applying the multiples described above to our corresponding
projected financial metrics for the 12-month period following a
range of assumed timing of such event, which was then discounted
to determine the present value. The discount rates used for our
valuations as of June 30, 2009, September 30, 2009,
December 31, 2009 and February 8, 2010, were 25%, 25%,
26% and 26%, respectively.
43
The assumed probability for each future liquidity event and
marketability discount used under the PWERM, and the resulting
fair value determined, for each valuation are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPO
|
|
Merger
|
|
Liquidation
|
|
Marketability
|
|
Fair Value
|
Valuation
|
|
Probability
|
|
Probability
|
|
Probability
|
|
Discount
|
|
Determined
|
|
June 30, 2009
|
|
|
30
|
%
|
|
|
65
|
%
|
|
|
5
|
%
|
|
|
22
|
%
|
|
$
|
3.18
|
|
September 30, 2009
|
|
|
40
|
|
|
|
55
|
|
|
|
5
|
|
|
|
21
|
|
|
|
3.88
|
|
December 31, 2009
|
|
|
50
|
|
|
|
45
|
|
|
|
5
|
|
|
|
19
|
|
|
|
4.66
|
|
February 8, 2010
|
|
|
65
|
|
|
|
30
|
|
|
|
5
|
|
|
|
12
|
|
|
|
6.24
|
|
Grant
Date Fair Value Assessments
Following the retrospective valuations as of June 30, 2009,
September 30, 2009 and December 31, 2009, the revised
fair value of our common stock for financial reporting purposes
as of February 5, 2009, May 7, 2009 and
August 27, 2009, corresponding to option grant dates, was
derived based on linear interpolations between the valuations
performed between December 31, 2008 and December 31,
2009. Linear interpolations were considered appropriate because
there were no individually significant factors, events, or
changes in our business between the subsequent valuation dates
that would impact the fair value determination between the
subsequent valuation dates. Based on this process, we determined
that the revised fair value of our common stock for financial
reporting purposes was $1.82, $2.68 and $3.62 as of the option
grant dates of February 5, 2009, May 7, 2009 and
August 27, 2009, respectively.
Although we considered the June 2009 sale of approximately
$1.0 million of our Series C convertible preferred
stock in the June 2009 and subsequent valuations, we concluded
that the price of the Series C convertible preferred stock
was not an appropriate indicator of value because it was a
different security with significantly superior rights and
preferences to our common stock, was issued to strategic
partners, and investors in the Series C convertible
preferred stock financing were also issued warrants to acquire
additional shares of Series C convertible preferred stock.
The fair value of our common stock for financial reporting
purposes as of the January 19, 2010 option grant date was
determined to be $4.66, which corresponds to the retrospective
valuation performed as of December 31, 2009. Our board of
directors concluded that there was no significant change in our
business or expectations of future business as of
January 19, 2010 since the December 2009 valuation that
would have warranted a materially different determination of
value of our common stock.
The fair value of our common stock for financial reporting
purposes as of the February 11 and February 26, 2010 option
grant dates was determined to be $6.24, which corresponds to the
contemporaneous valuation performed as of February 8, 2010.
Our board of directors concluded that there were no significant
changes in our business or expectations of future business as of
February 11 or February 26, 2010 since the February 8,
2010 valuation that would have warranted a materially different
determination of value of our common stock as of either of those
dates.
Changes
in Fair Value Assessments
At noted above, at each option grant date in 2009 and in 2010,
our board of directors considered the objective and subjective
factors discussed above, including the valuations. The primary
reasons for the changes in the fair value of our common stock
during this period and between each valuation date are
summarized as follows:
June 30, 2009 Valuation. The increase in
fair value determination from $1.54 as of December 31, 2008
to $3.18 as of June 30, 2009, was due primarily to
improvements in our financial performance in the second quarter
of 2009, improved prospects for our future financial
performance, and improvements in the overall capital markets and
fair values of peer group companies used to estimate fair value
of our common stock. Specifically, our board of directors
considered that during the first and second quarters of 2009, we
sequentially increased revenue by 13.6% and 36.7% over the
fourth quarter of 2008 and substantially increased net income
from negative $0.9 million in the first quarter of 2009 to
$1.8 million in the second quarter of 2009. Additionally,
our change to the PWERM as part of our fair value reassessment
also contributed to a
44
higher determination of value. The PWERM was considered more
appropriate given our board of directors increased
interest in pursuing a public offering of common stock if
capital market conditions continued to improve. The assigned
probability of an initial public offering was considered
reasonable at that time, given a level of uncertainty that
existed about the sustainability of the recovery of the capital
markets, and the fact that we had sustained operating losses in
recent quarters.
September 30, 2009 Valuation. The
increase in fair value determination from $3.18 as of
June 30 2009 to $3.88 as of September 30, 2009, was
due primarily to continued improvements in our financial
performance in the third quarter of 2009, including a 16.3%
increase in net income from the prior quarter, continued
improved prospects for our future financial performance, and
continued improvements in the overall capital markets and fair
values of peer group companies used to estimate fair value of
our common stock. Additionally, we modified input assumptions to
the PWERM model to reflect our view at the time of such
valuation that an initial public offering was more likely than
in June 2009 even though we had not begun substantive
discussions with potential underwriters as of that date.
December 31, 2009 Valuation. The increase
in fair value determination from $3.88 as of September 30
2009 to $4.66 as of December 31, 2009, was due primarily to
continued improvements in our financial performance in the
fourth quarter of 2009, continued improved prospects for our
future financial performance, and continued improvements in the
overall capital markets and fair values of peer group companies
used to estimate fair value of our common stock. Our full year
2009 results of operations also reflected substantial increases
in revenue of 56.3% compared to 2008, which positively impacted
our forecasted revenues for subsequent periods. Additionally, we
modified input assumptions to the PWERM model to reflect our
view at the time of such valuation that an initial public
offering was more likely to occur than in September 2009, and to
reflect that we had begun to have substantive discussions with
potential underwriters about the prospects for such an offering.
February 8, 2010 Valuation. The increase
in fair value determination from December 31 2009, to
February 8, 2010, from $4.66 to $6.24 was due primarily to
continued improvements in our financial performance in January
2010, continued improved prospects for our future financial
performance, and continued improvements in the overall capital
markets and fair values of peer group companies used to estimate
fair value of our common stock. Specifically, there were a
number of initial public offerings that had recently been
executed and favorably received by the market. Additionally, we
modified input assumptions to the PWERM model to reflect our
view at the time of such valuation that an initial public
offering was more likely than in December 2009, and to reflect
that we had begun to prepare for an initial public offering with
underwriters and other advisors.
45
Results
of Operations
The following tables summarize key components of our results of
operations for the periods indicated, both in dollars and as a
percentage of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
22,030
|
|
|
$
|
34,989
|
|
|
$
|
54,674
|
|
|
$
|
10,312
|
|
|
$
|
16,208
|
|
Cost of revenue
|
|
|
5,508
|
|
|
|
7,508
|
|
|
|
11,978
|
|
|
|
2,488
|
|
|
|
3,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
16,522
|
|
|
|
27,481
|
|
|
|
42,696
|
|
|
|
7,824
|
|
|
|
12,712
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
10,093
|
|
|
|
16,991
|
|
|
|
23,890
|
|
|
|
5,303
|
|
|
|
7,798
|
|
Technology
|
|
|
1,426
|
|
|
|
1,692
|
|
|
|
2,781
|
|
|
|
665
|
|
|
|
930
|
|
General and administrative
|
|
|
4,394
|
|
|
|
7,026
|
|
|
|
10,865
|
|
|
|
2,520
|
|
|
|
3,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
15,913
|
|
|
|
25,709
|
|
|
|
37,536
|
|
|
|
8,488
|
|
|
|
12,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
609
|
|
|
|
1,772
|
|
|
|
5,160
|
|
|
|
(664
|
)
|
|
|
573
|
|
Interest income
|
|
|
669
|
|
|
|
413
|
|
|
|
64
|
|
|
|
37
|
|
|
|
2
|
|
Other non-operating expense
|
|
|
|
|
|
|
(21
|
)
|
|
|
(1,072
|
)
|
|
|
(234
|
)
|
|
|
(551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
1,278
|
|
|
|
2,164
|
|
|
|
4,152
|
|
|
|
(861
|
)
|
|
|
24
|
|
Income tax provision (benefit)
|
|
|
110
|
|
|
|
313
|
|
|
|
(8,696
|
)
|
|
|
23
|
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,168
|
|
|
$
|
1,851
|
|
|
$
|
12,848
|
|
|
$
|
(884
|
)
|
|
$
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(% of revenue)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of revenue
|
|
|
25.0
|
|
|
|
21.5
|
|
|
|
21.9
|
|
|
|
24.1
|
|
|
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
75.0
|
|
|
|
78.5
|
|
|
|
78.1
|
|
|
|
75.9
|
|
|
|
78.4
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
45.8
|
|
|
|
48.5
|
|
|
|
43.7
|
|
|
|
51.4
|
|
|
|
48.1
|
|
Technology
|
|
|
6.5
|
|
|
|
4.8
|
|
|
|
5.1
|
|
|
|
6.4
|
|
|
|
5.7
|
|
General and administrative
|
|
|
19.9
|
|
|
|
20.1
|
|
|
|
19.9
|
|
|
|
24.4
|
|
|
|
21.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
72.2
|
|
|
|
73.4
|
|
|
|
68.7
|
|
|
|
82.3
|
|
|
|
74.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
2.8
|
|
|
|
5.1
|
|
|
|
9.4
|
|
|
|
(6.4
|
)
|
|
|
3.5
|
|
Interest income
|
|
|
3.0
|
|
|
|
1.2
|
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
0.0
|
|
Other non-operating expense
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(1.9
|
)
|
|
|
(2.3
|
)
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
5.8
|
|
|
|
6.2
|
|
|
|
7.6
|
|
|
|
(8.3
|
)
|
|
|
0.1
|
|
Income tax provision (benefit)
|
|
|
0.5
|
|
|
|
0.9
|
|
|
|
(15.9
|
)
|
|
|
0.3
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5.3
|
%
|
|
|
5.3
|
%
|
|
|
23.5
|
%
|
|
|
(8.6
|
)%
|
|
|
(2.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Comparison
of the Three Months Ended March 31, 2009 and 2010
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Revenue
|
|
$
|
10,312
|
|
|
$
|
16,208
|
|
|
|
57.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue increased $5.9 million in the three months
ended March 31, 2010 compared to the three months ended
March 31, 2009. Of this increase, $5.0 million was
attributable to our North American operations and
$0.9 million was attributable to our European operations
while revenue from our Asia Pacific operations remained flat. Of
the increase related to our North American operations,
$3.9 million was due to an increase in GMV,
$0.8 million was due to an increase in our revenue rate and
$0.3 million was attributable to an increase in both GMV
and revenue rate. The increase in GMV in North America was
driven by significant increases in both the total number of
units sold as well as the average sales price per unit.
Additionally we increased the level of purchased equipment
transactions in the three months ended March 31, 2010
compared to the same period in 2009, which accounted for
approximately $2.2 million of the increase in revenue. The
increase in revenue rate was attributable to higher seller
commission rates and enhanced commission and gain performance on
purchased equipment transactions in the period. Of the
$0.9 million increase related to our European operations,
$0.3 million was due to an increase in GMV,
$0.4 million was due to an increase in our revenue rate and
$0.2 million was attributable to an increase in both volume
and revenue rate. The increase in European GMV was the result of
a significant increase in units sold offset by a decrease in
average sales price per unit which reflect a shift in the mix of
equipment sold in Europe.
Cost
of Revenue and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Cost of revenue
|
|
$
|
2,488
|
|
|
$
|
3,496
|
|
|
|
40.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
24.1
|
%
|
|
|
21.6
|
%
|
|
|
|
|
Gross profit
|
|
$
|
7,824
|
|
|
|
12,712
|
|
|
|
62.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
75.9
|
%
|
|
|
78.4
|
%
|
|
|
|
|
Our cost of revenue increased $1.0 million in the three
months ended March 31, 2010 compared to the three months
ended March 31, 2009. This was attributable to the increase
in the number of units sold in our marketplace during the
three months ended March 31, 2010 over the same period
in 2009, which resulted in a corresponding greater number of
units that were inspected, and the associated higher staffing
costs, outside contractor costs, travel, and other ancillary
costs in our inspection department. Of this increase in our cost
of revenue, $0.9 million was attributable to our North
American operations and $0.1 million was attributable to
our European operations, which commenced in early 2009. The
decrease in total cost of revenue as a percentage of revenue was
attributable to general leverage and efficiencies with certain
fixed costs in this area, and improved efficiency in our
European cost of sales area.
47
Operating
Expenses
Sales and
Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Sales and marketing
|
|
$
|
5,303
|
|
|
$
|
7,798
|
|
|
|
47.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
51.4
|
%
|
|
|
48.1
|
%
|
|
|
|
|
Our sales and marketing expenses increased $2.5 million in the
three months ended March 31, 2010 compared to the three months
ended March 31, 2009. The increase is attributable to a $1.7
million increase in our North American operations, a $0.7
million increase in our European operations and a $0.1 million
increase in our Asia-Pacific operations. The increase in our
North American operations was due to increases in headcount,
sales commissions, travel related expenses, and other sale and
marketing expenses of $0.7 million, $0.6 million, $0.2 million
and $0.2 million, respectively. The increase in our European
operations was attributable to increases in travel related
expenses, marketing activities, and higher payroll-related
expenses due to an increase in headcount. The increased sales
and marketing expenses were incurred as we continued to expand
our market presence. As a percentage of revenue, sales and
marketing expenses declined in the three months ended March 31,
2010 compared to the three months ended March 31, 2009 primarily
due to higher revenues and increased effectiveness of our
marketing campaigns.
Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Technology
|
|
$
|
665
|
|
|
$
|
930
|
|
|
|
39.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
6.4
|
%
|
|
|
5.7
|
%
|
|
|
|
|
Technology expenses increased $0.3 million in the three
months ended March 31, 2010 compared to the three months
ended March 31, 2009. The largest component of this
increase was a $0.2 million increase in stock-based
compensation expenses. The remaining increase related to
expenses incurred in connection with the continuing development
and maintenance of our website, additional internal technology
applications and technology support for increased personnel.
General
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
2,520
|
|
|
$
|
3,411
|
|
|
|
35.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
24.4
|
%
|
|
|
21.0
|
%
|
|
|
|
|
General and administrative expenses increased $0.9 million
in the three months ended March 31, 2010 compared to the
three months ended March 31, 2010. This increase was driven
in part by a $0.6 million increase in professional fees
related to our preparations to become a public company. The
remaining $0.3 million increase was attributable to
increases in executive, finance and administrative department
personnel costs, including an increase in personnel to support
our business.
48
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Interest income
|
|
$
|
37
|
|
|
$
|
2
|
|
|
|
(94.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
0.4
|
%
|
|
|
0.0
|
%
|
|
|
|
|
Interest income decreased $35,000 in the three months ended
March 31, 2010 compared to the three months ended
March 31, 2009. The decrease was primarily attributable to
a decline in the average yield on our interest bearing accounts
during the period.
Other
Non-Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Other non-operating expense
|
|
$
|
(234
|
)
|
|
$
|
(551
|
)
|
|
|
135.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
(2.3
|
)%
|
|
|
(3.4
|
)%
|
|
|
|
|
Other non-operating expense reflects the impact of non-cash
stock-based compensation expense recorded in connection with a
single option grant to a former employee for periods subsequent
to his service obligation and changes in fair value related to
Series A and Series C convertible preferred stock
performance warrants classified as liabilities.
Income
Tax Provision (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
23
|
|
|
$
|
452
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
0.3
|
%
|
|
|
2.8
|
%
|
|
|
|
|
We recorded an income tax provision of $23,000 and $452,000 for
the three months ended March 31, 2009 and 2010,
respectively. The 2010 amount represents the estimated annual
effective tax rate of 43.3% applied to our $1.0 million
domestic taxable income for the three months ended
March 31, 2010. Foreign losses of $1.0 million for the
same period were not recorded as tax benefit due to the
uncertainty surrounding our ability to use our foreign net
operating loss carryforwards. The tax provision for the three
months ended March 31, 2009 is primarily attributable to
minimum corporate taxes.
Comparison
of the Years Ended December 31, 2007, 2008 and
2009
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007-2008
|
|
|
2008-2009
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
% Change
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
22,030
|
|
|
$
|
34,989
|
|
|
$
|
54,674
|
|
|
|
58.8
|
%
|
|
|
56.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue increased $19.7 million in 2009 compared to
2008. Of the increase, $14.8 million was attributable to
our North American operations, $4.6 million was
attributable to our European operations, which commenced in
early 2009, and $0.3 million was attributable to our
Asia-Pacific operations. Of the $14.8 million North
American revenue increase, $8.2 million was attributable to
an increase in GMV, $5.4 million was
49
attributable to an increase in our revenue rate, and
$1.4 million was attributable to an increase in both volume
and revenue rate, offset by a decline in other revenue of
$0.2 million. The increase in GMV in North America was
driven by a significant increase in the total number of units
sold. The increase in units was offset by a decrease in the
average sales price per unit which reflected both a shift in the
mix of equipment sold as well as a general decline in pricing
levels for used heavy equipment in 2009 from 2008. The increase
in revenue rate in 2009 was due to an increase in our seller
commission, listing fee, and buyer transaction fee rates, and by
lower average selling prices per unit compared to 2008, as these
individual revenue rate components are all proportionately
higher on lower priced units. Additionally, we increased seller
commission rates for certain sellers in 2009, we increased our
buyer transaction fee schedule at the beginning of 2009, and our
overall seller commission rate was positively impacted by better
performance on our guarantee arrangements in 2009 compared to
2008.
Total revenue increased $13.0 million in 2008 compared to
2007. Of the increase, $12.7 million was attributable to
our North American operations, and $0.3 million was
attributable to our Asia-Pacific operations, which commenced in
Australia in early 2008. Of the $12.7 million North
American revenue increase, $9.0 million was attributable to
an increase in GMV volume, $2.5 million was attributable to
an increase in our revenue rate, $1.0 million was
attributable to an increase in both volume and revenue rate, and
$0.2 million was attributable to an increase in other
revenue. The increase in GMV in North America was driven by a
significant increase in total units sold. The increase in units
was offset by a decrease in the average sales price per unit,
which reflected both a shift in the mix of equipment sold as
well as a general decline in pricing levels for used heavy
equipment in 2008 from 2007. The increase in revenue rate in
2008 was due to an increase in our seller commission, listing
fee, and buyer transaction fee rates, and by lower average
selling prices per unit compared to 2007, as these individual
revenue rate components are all proportionately higher on lower
priced units. Our overall seller commission rate was also
positively impacted by a slight increase in our commission rates
charged to certain sellers, offset by the negative impact of
performance on guarantee arrangements in the fourth quarter of
2008. Additionally, our listing fee rate was positively impacted
by a slight increase in our listing fee rate schedule
implemented at the beginning of 2008, and by improved recovery
of listing fees from sellers.
Cost
of Revenue and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007-2008
|
|
|
2008-2009
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
% Change
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
5,508
|
|
|
$
|
7,508
|
|
|
$
|
11,978
|
|
|
|
36.3
|
%
|
|
|
59.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
25.0
|
%
|
|
|
21.5
|
%
|
|
|
21.9
|
%
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
16,522
|
|
|
$
|
27,481
|
|
|
$
|
42,696
|
|
|
|
66.3
|
%
|
|
|
55.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
75.0
|
%
|
|
|
78.5
|
%
|
|
|
78.1
|
%
|
|
|
|
|
|
|
|
|
Our cost of revenue increased $4.5 million in 2009 compared
to 2008. This was attributable to the increase in the number of
units sold in our marketplace during 2009, and the corresponding
greater number of units that were inspected, and the associated
higher staffing costs, outside contractor costs, travel, and
other ancillary costs in our inspection department. Of this
increase in our cost of revenue, $3.0 million was
attributable to our North American operations, $1.4 million
was attributable to our European operations, which commenced in
early 2009, and $0.1 million was attributable to our
Asia-Pacific operations.
Our cost of revenue increased $2.0 million in 2008 compared
to 2007. This was attributable to the increase in the number of
units sold in our marketplace during 2008, and the corresponding
greater number of units that were inspected, and the associated
higher staffing costs, outside contractor costs, travel, and
other ancillary costs in our inspection department. Of the
increase in our cost of revenue, $1.9 million was
attributable to our North American operations and
$0.1 million was attributable to our Asia-Pacific
operations, which commenced in early 2008.
50
Operating
Expenses
Sales and
Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007-2008
|
|
|
2008-2009
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
% Change
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
10,093
|
|
|
$
|
16,991
|
|
|
$
|
23,890
|
|
|
|
68.3
|
%
|
|
|
40.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
45.8
|
%
|
|
|
48.5
|
%
|
|
|
43.7
|
%
|
|
|
|
|
|
|
|
|
Our sales and marketing expenses increased $6.9 million in
2009 compared to 2008. Of this increase, $4.7 million was
attributable to a net increase in sales personnel in 2009, and
$1.1 million was attributable to increased sales commission
expense. The remaining increase of $1.1 million was
attributable to outside marketing expenses, resulting from an
increase in marketplace event advertising and promotion, an
increase in search engine advertising costs in order to continue
to build our registration base and buyer community, and a
general increase in other marketing activities. Additionally, of
the total increase in sales and marketing in 2009,
$2.9 million was attributable to our European operations,
which commenced in early 2009. As a percent of revenue, sales
and marketing expenses declined in 2009 primarily due to higher
revenues and increased effectiveness of our marketing campaigns.
Our sales and marketing expenses increased $6.9 million in
2008 compared to 2007. Of this increase, $4.7 million was
attributable to a net increase in sales personnel in 2008, and
$1.1 million was attributable to increased sales commission
expense. The remaining increase of $1.1 million was
attributable to outside marketing expenses, resulting from an
increase in marketplace event advertising and promotion, a
general increase in marketing and advertising costs in order to
continue to build our registration base and buyer community.
Additionally, of the total increase in sales and marketing in
2008, $0.8 million was attributable to our Asia-Pacific
operations, which commenced in early 2008. As a percent of
revenue, sales and marketing expenses increased in 2008
primarily due to the ramp up of sales personnel who had yet to
reach full productivity levels.
Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007-2008
|
|
|
2008-2009
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
% Change
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Technology
|
|
$
|
1,426
|
|
|
$
|
1,692
|
|
|
$
|
2,781
|
|
|
|
18.7
|
%
|
|
|
64.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
6.5
|
%
|
|
|
4.8
|
%
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
Technology expenses increased $1.1 million in 2009 compared
to 2008. The largest component of this increase was an
$0.8 million increase in stock-based compensation expenses.
The remaining increase related to expenses incurred in
connection with the continuing development and maintenance of
our website, additional internal technology applications and
technology support for increased personnel.
Technology expenses increased $0.3 million in 2008 compared
to 2007. This increase was generally attributable to an increase
in internal personnel and outside contractor expenses, related
to the continuing development and maintenance of our website,
and our internal technology.
General
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007-2008
|
|
|
2008-2009
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
% Change
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
4,394
|
|
|
$
|
7,026
|
|
|
$
|
10,865
|
|
|
|
59.9
|
%
|
|
|
54.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
19.9
|
%
|
|
|
20.1
|
%
|
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
51
General and administrative expenses increased $3.8 million
in 2009 compared to 2008. Of this increase, $2.6 million
was attributable to an increase in executive, finance and
administrative department personnel costs, including an increase
in personnel to support our business growth and an increase in
personnel for our European operations. The remaining increase of
$1.2 million was attributable to occupancy and facilities,
including new facilities in Europe.
General and administrative expenses increased $2.6 million
in 2008 compared to 2007. Of this increase, $1.5 million
was attributable to an increase in executive, finance and
administrative department personnel costs, including an increase
in personnel to support our business growth and an increase in
personnel related to our Asia-Pacific operations. Of the
remaining increase, $1.0 million was attributable to
professional fees related to the general growth of our business,
the launch of our operations in Asia-Pacific and organizational
expenses in advance of the launch of our European operations;
$0.5 million was attributable to occupancy and facilities,
including new facilities in Australia. These increases were
offset in part by a one-time $0.4 million stock-based
compensation charge recorded in 2007 in connection with the
severance agreement of one of our former executive officers.
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007-2008
|
|
|
2008-2009
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
% Change
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
669
|
|
|
$
|
413
|
|
|
$
|
64
|
|
|
|
(38.3
|
)%
|
|
|
(84.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
3.0
|
%
|
|
|
1.2
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
Net interest income decreased $0.3 million in 2009 compared
to 2008. This decrease was attributable to a decline in the
average yield on our interest bearing accounts during the
period, offset in part by higher overall cash balances.
Net interest income decreased $0.3 million in 2008 compared
to 2007. This decrease was attributable to a decline in the
average yield on our interest bearing accounts during the
period, offset in part by higher overall cash balances.
Other
Non-Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007-2008
|
|
|
2008-2009
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
% Change
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Other non-operating expense
|
|
$
|
|
|
|
$
|
(21
|
)
|
|
$
|
(1,072
|
)
|
|
|
|
%
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
|
%
|
|
|
(0.1
|
)%
|
|
|
(1.9
|
)%
|
|
|
|
|
|
|
|
|
Other non-operating expense reflects the impact of non-cash
stock-based compensation expense recorded in connection with the
ongoing variable accounting for a single option grant to a
former employee for periods subsequent to his service obligation
and changes in fair value related to Series A and
Series C convertible preferred stock performance warrants
classified as liabilities.
Income
Tax Provision (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007-2008
|
|
|
2008-2009
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
% Change
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
110
|
|
|
$
|
313
|
|
|
$
|
(8,696
|
)
|
|
|
184.5
|
%
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenue
|
|
|
0.5
|
%
|
|
|
0.9
|
%
|
|
|
(15.9
|
)%
|
|
|
|
|
|
|
|
|
52
We recorded an income tax provision in 2007 and 2008 and a
benefit in 2009. In 2007 and 2008, we offset our taxable income
through the utilization of net operating loss carryforwards;
accordingly, our tax provisions in both periods were primarily
attributable to minimum corporate taxes. In the fourth quarter
of 2009, we determined that it would be more likely than not
that remaining cumulative U.S. federal and state net
operating losses and other deferred tax benefits, which had
previously been fully reserved, would be realizable. Thus, in
the fourth quarter we reversed the valuation allowances and
recorded a net tax benefit of $9.1 million.
Unaudited
Quarterly Results of Operations Data
The following tables set forth our unaudited quarterly
consolidated statements of operations data and our unaudited
statements of operations data as a percentage of revenue for
each of the nine quarters ended March 31, 2010. We have
prepared the quarterly data on a consistent basis with the
audited consolidated financial statements included in this
prospectus, and the financial information reflects all necessary
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of this data. The results of
historical periods are not necessarily indicative of the results
of operations for a full year or any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended,
|
|
|
|
Mar 31,
|
|
|
Jun 30,
|
|
|
Sep 30,
|
|
|
Dec 31,
|
|
|
Mar 31,
|
|
|
Jun 30,
|
|
|
Sep 30,
|
|
|
Dec 31,
|
|
|
Mar 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
7,344
|
|
|
$
|
9,792
|
|
|
$
|
8,775
|
|
|
$
|
9,078
|
|
|
$
|
10,312
|
|
|
$
|
14,097
|
|
|
$
|
15,287
|
|
|
$
|
14,978
|
|
|
$
|
16,208
|
|
Cost of revenue
|
|
|
1,467
|
|
|
|
1,833
|
|
|
|
1,923
|
|
|
|
2,285
|
|
|
|
2,488
|
|
|
|
2,988
|
|
|
|
3,235
|
|
|
|
3,267
|
|
|
|
3,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,877
|
|
|
|
7,959
|
|
|
|
6,852
|
|
|
|
6,793
|
|
|
|
7,824
|
|
|
|
11,109
|
|
|
|
12,052
|
|
|
|
11,711
|
|
|
|
12,712
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
3,910
|
|
|
|
3,859
|
|
|
|
3,963
|
|
|
|
5,259
|
|
|
|
5,303
|
|
|
|
5,643
|
|
|
|
6,084
|
|
|
|
6,860
|
|
|
|
7,798
|
|
Technology
|
|
|
370
|
|
|
|
472
|
|
|
|
406
|
|
|
|
444
|
|
|
|
665
|
|
|
|
691
|
|
|
|
722
|
|
|
|
703
|
|
|
|
930
|
|
General and administrative
|
|
|
1,236
|
|
|
|
1,515
|
|
|
|
2,098
|
|
|
|
2,177
|
|
|
|
2,520
|
|
|
|
2,596
|
|
|
|
2,779
|
|
|
|
2,970
|
|
|
|
3,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,516
|
|
|
|
5,846
|
|
|
|
6,467
|
|
|
|
7,880
|
|
|
|
8,488
|
|
|
|
8,930
|
|
|
|
9,585
|
|
|
|
10,533
|
|
|
|
12,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
361
|
|
|
|
2,113
|
|
|
|
385
|
|
|
|
(1,087
|
)
|
|
|
(664
|
)
|
|
|
2,179
|
|
|
|
2,467
|
|
|
|
1,178
|
|
|
|
573
|
|
Interest income
|
|
|
126
|
|
|
|
90
|
|
|
|
107
|
|
|
|
90
|
|
|
|
37
|
|
|
|
8
|
|
|
|
6
|
|
|
|
13
|
|
|
|
2
|
|
Other non-operating expense
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
(10
|
)
|
|
|
(234
|
)
|
|
|
(234
|
)
|
|
|
(234
|
)
|
|
|
(370
|
)
|
|
|
(551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
487
|
|
|
|
2,203
|
|
|
|
481
|
|
|
|
(1,007
|
)
|
|
|
(861
|
)
|
|
|
1,953
|
|
|
|
2,239
|
|
|
|
821
|
|
|
|
24
|
|
Income tax provision (benefit)
|
|
|
72
|
|
|
|
152
|
|
|
|
68
|
|
|
|
21
|
|
|
|
22
|
|
|
|
193
|
|
|
|
193
|
|
|
|
(9,104
|
)
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
415
|
|
|
$
|
2,051
|
|
|
$
|
413
|
|
|
$
|
(1,028
|
)
|
|
$
|
(883
|
)
|
|
$
|
1,760
|
|
|
$
|
2,046
|
|
|
$
|
9,925
|
|
|
$
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
|
$
|
0.70
|
|
|
$
|
0.14
|
|
|
$
|
(0.34
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
0.56
|
|
|
$
|
0.62
|
|
|
$
|
2.88
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
0.10
|
|
|
$
|
0.02
|
|
|
$
|
(0.34
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.40
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended,
|
|
|
|
Mar 31,
|
|
|
Jun 30,
|
|
|
Sep 30,
|
|
|
Dec 31,
|
|
|
Mar 31,
|
|
|
Jun 30,
|
|
|
Sep 30,
|
|
|
Dec 31,
|
|
|
Mar 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(% of revenue)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of revenue
|
|
|
20.0
|
|
|
|
18.7
|
|
|
|
21.9
|
|
|
|
25.2
|
|
|
|
24.1
|
|
|
|
21.2
|
|
|
|
21.2
|
|
|
|
21.8
|
|
|
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
80.0
|
|
|
|
81.3
|
|
|
|
78.1
|
|
|
|
74.8
|
|
|
|
75.9
|
|
|
|
78.8
|
|
|
|
78.8
|
|
|
|
78.2
|
|
|
|
78.4
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
53.2
|
|
|
|
39.4
|
|
|
|
45.2
|
|
|
|
57.9
|
|
|
|
51.4
|
|
|
|
40.0
|
|
|
|
39.8
|
|
|
|
45.8
|
|
|
|
48.1
|
|
Technology
|
|
|
5.0
|
|
|
|
4.8
|
|
|
|
4.6
|
|
|
|
4.9
|
|
|
|
6.4
|
|
|
|
4.9
|
|
|
|
4.7
|
|
|
|
4.7
|
|
|
|
5.7
|
|
General and administrative
|
|
|
16.8
|
|
|
|
15.5
|
|
|
|
23.9
|
|
|
|
24.0
|
|
|
|
24.4
|
|
|
|
18.4
|
|
|
|
18.2
|
|
|
|
19.8
|
|
|
|
21.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
75.1
|
|
|
|
59.7
|
|
|
|
73.7
|
|
|
|
86.8
|
|
|
|
82.3
|
|
|
|
63.3
|
|
|
|
62.7
|
|
|
|
70.3
|
|
|
|
74.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
4.9
|
|
|
|
21.6
|
|
|
|
4.4
|
|
|
|
(12.0
|
)
|
|
|
(6.4
|
)
|
|
|
15.5
|
|
|
|
16.1
|
|
|
|
7.9
|
|
|
|
3.5
|
|
Interest income
|
|
|
1.7
|
|
|
|
0.9
|
|
|
|
1.2
|
|
|
|
1.0
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.0
|
|
Other non-operating expense
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(2.3
|
)
|
|
|
(1.7
|
)
|
|
|
(1.5
|
)
|
|
|
(2.5
|
)
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
6.6
|
|
|
|
22.5
|
|
|
|
5.5
|
|
|
|
(11.1
|
)
|
|
|
(8.3
|
)
|
|
|
13.9
|
|
|
|
14.6
|
|
|
|
5.5
|
|
|
|
0.1
|
|
Income tax provision (benefit)
|
|
|
1.0
|
|
|
|
1.6
|
|
|
|
0.8
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
(60.8
|
)
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
5.7
|
%
|
|
|
20.9
|
%
|
|
|
4.7
|
%
|
|
|
(11.3
|
)%
|
|
|
(8.6
|
)%
|
|
|
12.5
|
%
|
|
|
13.4
|
%
|
|
|
66.3
|
%
|
|
|
(2.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended,
|
|
|
|
Mar 31,
|
|
|
Jun 30,
|
|
|
Sep 30,
|
|
|
Dec 31,
|
|
|
Mar 31,
|
|
|
Jun 30,
|
|
|
Sep 30,
|
|
|
Dec 31,
|
|
|
Mar 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(dollars in thousands)
|
|
|
Other Financial and Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
532
|
|
|
$
|
2,299
|
|
|
$
|
628
|
|
|
$
|
(810
|
)
|
|
$
|
(164
|
)
|
|
$
|
2,687
|
|
|
$
|
2,991
|
|
|
$
|
1,784
|
|
|
$
|
1,556
|
|
Adjusted EBITDA less capital expenditures
|
|
|
412
|
|
|
|
1,604
|
|
|
|
272
|
|
|
|
(1,083
|
)
|
|
|
(321
|
)
|
|
|
2,385
|
|
|
|
2,759
|
|
|
|
818
|
|
|
|
1,338
|
|
Gross Merchandise Volume
|
|
|
77,617
|
|
|
|
91,305
|
|
|
|
76,355
|
|
|
|
96,274
|
|
|
|
91,712
|
|
|
|
119,642
|
|
|
|
122,919
|
|
|
|
124,157
|
|
|
|
129,824
|
|
Revenue rate
|
|
|
9.0
|
%
|
|
|
10.4
|
%
|
|
|
10.9
|
%
|
|
|
9.1
|
%
|
|
|
11.0
|
%
|
|
|
11.4
|
%
|
|
|
12.2
|
%
|
|
|
11.9
|
%
|
|
|
12.3
|
%
|
The following table presents a reconciliation of Adjusted EBITDA
and Adjusted EBITDA less capital expenditures to net income, the
most comparable GAAP measure, for each of the periods indicated.
For additional information, please see the discussion of
Adjusted EBITDA and Adjusted EBITDA less capital expenditures in
note 4 to Selected Financial Consolidated Financial
and Other Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended,
|
|
|
|
Mar 31,
|
|
|
Jun 30,
|
|
|
Sep 30,
|
|
|
Dec 31,
|
|
|
Mar 31,
|
|
|
Jun 30,
|
|
|
Sep 30,
|
|
|
Dec 31,
|
|
|
Mar 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
415
|
|
|
$
|
2,051
|
|
|
$
|
413
|
|
|
$
|
(1,028
|
)
|
|
$
|
(884
|
)
|
|
$
|
1,760
|
|
|
$
|
2,046
|
|
|
$
|
9,926
|
|
|
$
|
(428
|
)
|
Stock-based compensation
|
|
|
73
|
|
|
|
85
|
|
|
|
104
|
|
|
|
128
|
|
|
|
548
|
|
|
|
546
|
|
|
|
540
|
|
|
|
593
|
|
|
|
1,172
|
|
Performance warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
78
|
|
Interest income
|
|
|
(126
|
)
|
|
|
(90
|
)
|
|
|
(107
|
)
|
|
|
(90
|
)
|
|
|
(37
|
)
|
|
|
(8
|
)
|
|
|
(6
|
)
|
|
|
(13
|
)
|
|
|
(2
|
)
|
Depreciation and amortization
|
|
|
98
|
|
|
|
101
|
|
|
|
150
|
|
|
|
159
|
|
|
|
187
|
|
|
|
196
|
|
|
|
218
|
|
|
|
246
|
|
|
|
285
|
|
Income tax provision (benefit)
|
|
|
72
|
|
|
|
152
|
|
|
|
68
|
|
|
|
21
|
|
|
|
22
|
|
|
|
193
|
|
|
|
193
|
|
|
|
(9,104
|
)
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
532
|
|
|
|
2,299
|
|
|
|
628
|
|
|
|
(810
|
)
|
|
|
(164
|
)
|
|
|
2,687
|
|
|
|
2,991
|
|
|
|
1,784
|
|
|
|
1,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
120
|
|
|
|
695
|
|
|
|
356
|
|
|
|
273
|
|
|
|
157
|
|
|
|
302
|
|
|
|
232
|
|
|
|
966
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA less capital expenditures
|
|
$
|
412
|
|
|
$
|
1,604
|
|
|
$
|
272
|
|
|
$
|
(1,083
|
)
|
|
$
|
(321
|
)
|
|
$
|
2,385
|
|
|
$
|
2,759
|
|
|
$
|
818
|
|
|
$
|
1,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
Our quarterly revenue has generally continued to increase as we
have increased the number of marketplace events held over the
past nine quarters and the GMV sold in such events. Our revenue
has also increased as a result of the commencement of our
operations internationally. In the first quarter of 2008, we
held our first Asia-Pacific marketplace event and in the first
quarter of 2009 we held out first European marketplace event.
Historically, GMV has generally been highest during the second
and fourth quarters. We generally conduct more marketplace
events during these quarters than during the first and third
quarters, because sellers of equipment tend to be more active in
these periods to prepare for heavier construction project
activity during spring through late fall. However, this
quarterly seasonality pattern may not always occur due to the
timing and duration of global economic cycles, level of global
development activity and the impact on traditional supply and
demand patterns for used heavy equipment. In addition, our
volume of equipment for sale, and related revenue, is dependent
upon the timing of activity such as fleet upgrades and
realignments, contractor retirements, and the completion of
major construction and development projects, among other things.
Revenue Rate is impacted by a number of factors, including
equipment and seller mix and the performance of guarantee or
purchase arrangements during the period. These factors are
generally not predictable and are usually unrelated to fiscal
quarters, making
quarter-to-quarter
comparisons difficult.
During the fourth quarter of 2008, used heavy equipment prices
declined significantly across virtually all categories, models
and manufacturers. This used equipment price decline generally
coincided with a severe dislocation in the credit markets and a
decrease in activity in the commercial and residential
construction markets. The effect of this price decline on our
business was two-fold: first, equipment owners deferred
decisions to sell equipment in the face of significantly
depressed market prices and uncertainty regarding pricing
recovery; and second, the selling prices of equipment sold in
our marketplace during most of the fourth quarter were
significantly reduced. Additionally, the selling prices of
equipment sold under guarantee arrangements during the fourth
quarter 2008 were significantly reduced, and our performance on
such guarantee arrangements was negatively impacted. In total,
we estimate the negative revenue impact of the dramatic price
decline in fourth quarter of 2008 was approximately
$2.2 million. Conversely, during each of the third quarter
of 2009 and the first quarter of 2010, our financial results
were positively impacted by performance on guarantee
arrangements during that quarter, as the selling prices of
equipment sold in our marketplace were higher, which resulted in
increases in GMV and revenue.
Our cost of revenue increased sequentially each quarter of 2008
and 2009 and the first quarter of 2010 as we continued to
increase the number of units sold in our marketplace and add
additional personnel to assist with the listing and inspections
process. Gross margin decreased in the fourth quarter 2008 due
to the decrease in equipment pricing in that quarter, which
negatively impacted our revenue. Gross margin in the first
quarter 2009 was negatively impacted by the startup costs
associated with launching our European operations.
Our operating expenses increased sequentially in each quarter of
2008 and 2009 and the first quarter of 2010 due to the growth in
our sales and marketing, technology and general and
administrative headcount to support the corresponding growth in
our business and in GMV. Operating expenses increased in the
fourth quarter 2008 due to the addition of sales personnel and
pre-launch marketing expenditures related to our European
operations. Operating expenses increased in the fourth quarter
2009 and the first quarter of 2010 due to an increase in our
legal, accounting and other professional costs related to this
offering. In addition, during the fourth quarter we typically
incur additional expenses related to employee training and
certain marketing and promotional activities, which are
considered period costs.
Our other non-operating expense in 2008 and 2009 and the first
quarter of 2010 was the result of a non-cash stock-based
compensation expense recorded in connection with the ongoing
variable accounting for a single option grant to a former
employee for periods subsequent to his service obligation, as
well as changes in the fair value of preferred stock warrants
which are classified as a liability. The increase in 2009 and
the first quarter of 2010 was attributable to an increase in our
common and preferred-stock valuation.
Prior to the fourth quarter of 2009, our income tax provisions
were primarily attributable to minimum corporate taxes, as we
offset our taxable income through the utilization of net
operating loss carryforwards. In the fourth quarter of 2009, we
determined that it would be more likely than not that remaining
cumulative net operating losses and other deferred tax benefits
related to our U.S. operations, which had previously been
fully
55
reserved, would be realizable. Thus, in the fourth quarter of
2009 we reversed the valuation allowances and recorded a tax
benefit of $9.1 million.
Adjusted EBITDA decreased $0.2 million in the first quarter of
2010 compared to the fourth quarter of 2009, primarily as a
result of increased sales and marketing expenses related to
additional sales headcount and increases in our legal,
accounting and other professional expenses related to this
offering. Adjusted EBITDA decreased $1.2 million in the
fourth quarter of 2009 compared to the third quarter of 2009.
This was a result of a decline in revenue primarily related to a
decline in our revenue rate, increased sales and marketing
expenses related to additional sales headcount, and employee
training and marketing and promotional activities that we
typically incur in the fourth quarter. Adjusted EBITDA also
exhibited significant declines in both the fourth quarter of
2008 and the first quarter of 2009 primarily as a result the
decline in heavy equipment pricing that occurred during this
period, as well as start up expenses related to the launch of
our European operations.
Liquidity
and Capital Resources
At March 31, 2010, our total cash position, consisting of
cash and cash equivalents, was $42.6 million, of which
$22.2 million related to marketplace payables on our
balance sheet. Our net cash balance was invested primarily in
short-term investment grade and guaranteed instruments, whose
investment yields were generally tied to short term credit
markets. We do not enter into investments for trading or for
speculative purposes.
Since inception we have financed our business through a series
of private placements of equity securities, primarily in 1999
and 2000, and through cash generated from operations. In
addition, during 2007, 2008, and part of 2009, we had a line of
credit facility in place with a financial institution that
provided us the ability to borrow up to $10 million,
subject to certain terms and conditions, to facilitate the
purchase of equipment to sell in our marketplace. We did not
have any borrowings under this facility during this period, and
were in compliance with all covenants during this period. This
facility expired in 2009, and we chose to not renew this
facility due to our expectation that we would not need to access
the facility in the foreseeable future due to the adequacy of
our existing and anticipated cash resources. We may choose to
renew this facility, or a similar facility, in the future.
We have experienced increases in our total cash expenditures in
the last several years in connection with the overall growth in
our business and related growth in personnel and outside costs.
In 2008 and 2009 this included expenditures related to the
launch of our Asia-Pacific and European operations. We
anticipate that our total cash expenditures will increase in the
future. However, we believe our existing cash balances and cash
generated from our operations will be sufficient to meet our
anticipated cash needs for at least the next 12 months.
The following table sets forth, for the periods presented, our
summary consolidated statements of cash flows data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Consolidated Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
1,089
|
|
|
$
|
11,599
|
|
|
$
|
(277
|
)
|
|
$
|
(1,001
|
)
|
|
$
|
11,436
|
|
Investing activities
|
|
|
(774
|
)
|
|
|
(1,444
|
)
|
|
|
(1,657
|
)
|
|
|
(157
|
)
|
|
|
(218
|
)
|
Financing activities
|
|
|
1,033
|
|
|
|
3,192
|
|
|
|
1,308
|
|
|
|
34
|
|
|
|
1,199
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
(17
|
)
|
|
|
60
|
|
|
|
(18
|
)
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
1,348
|
|
|
$
|
13,330
|
|
|
$
|
(566
|
)
|
|
$
|
(1,142
|
)
|
|
$
|
12,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Working capital
|
|
$
|
11,445
|
|
|
$
|
15,998
|
|
|
$
|
23,892
|
|
|
$
|
15,915
|
|
|
$
|
25,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used for) Operating Activities
In the three months ended March 31, 2010, we generated
$11.4 million of cash from our operations. This was the
result of a net loss of $0.6 million, adjusted for non-cash
charges, consisting primarily of stock-based compensation of
$1.2 million, charges related to performance-based
preferred stock warrants of $0.3 million and depreciation
and amortization of $0.3 million. Net cash provided by
operations was impacted further by an increase in net amounts
due to sellers of $6.0 million, which was due to an
increase in overall sales activity in the quarter, including an
increase in sales activity in Europe, a decrease in inventory of
$5.0 million related to a purchased equipment transaction
in the quarter and an increase in accrued expense and accounts
payable of $3.0 million. The $3.0 million increase in
accounts payable was due to increases of $0.7 million for
accrued professional fees, $0.6 million in accrued commissions,
$0.5 million to reflect liability treatment for preferred
stock warrants, $0.4 million in sales tax payable, $0.3 million
in accrued income taxes payable and $0.5 million of other
accrued expenses. This was offset by an increase in accounts
receivable of $2.0 million, an increase in prepaid expenses
of $1.6 million primarily related to increases in prepaid
offering costs and an increase in VAT receivables due from tax
authorities in Europe of approximately $0.4 million. Other
net working capital changes were approximately $0.6 million
related to the overall growth of our business.
In the three months ended March 31, 2009, we used
approximately $1.0 million of cash in our operations. This
was the result of a net loss of $0.9 million, adjusted for
non-cash charges consisting primarily of stock based
compensation of $0.5 million and depreciation and
amortization of $0.2 million. Net cash used by operations
was impacted further by an increase in net amounts due to
sellers of $4.7 million, which was due to an increase in
overall sales activity in the quarter, an increase of
$0.4 million in accrued expense and trade payables, and a
decrease in inventory of $0.3 million. This was offset by
an increase in accounts receivable of $5.7 million, which
was the result of the proximity of our final marketplace events
to the quarter end for first quarter of 2009. By comparison,
there were no marketplace events in the final 12 days of 2008.
The timing and size of marketplace events within our normal 7 to
10 day collection cycle immediately prior to a balance
sheet date has a direct impact on our accounts receivable
balance. Other net working capital changes were approximately
$0.1 million related to the overall growth of our business.
During 2009, we used approximately $0.3 million of cash in
our operations. This was a result of net income of
$12.9 million, adjusted for non-cash charges, which
consisted primarily of an income tax benefit of
$9.2 million, offset by stock based compensation of
$2.2 million and depreciation and amortization of
$0.8 million. Net cash used for operations was further
impacted by an increase in net amounts due sellers of
$3.6 million and an increase in accrued sales and use taxes
of $0.5 million. This was offset by an increase in VAT
receivables due from tax authorities in Europe of approximately
$3.7 million related to European operations, which
commenced in 2009, an increase of $5.5 million in inventory
related to an equipment purchase agreement entered into just
prior to December 31, 2009, and an increase of
$2.5 million in accounts receivable. This increase in
accounts receivable was attributable to the launch of our
European operations, which accounted for approximately
$1.2 million of the increase; an increase in receivables
from certain private marketplace and buyer customers with
specific payment terms, which accounted for approximately
$0.8 million of the increase; and an increase in overall
marketplace activity transacted in the last 15 days of
December 2009 compared to the same period in 2008, which
accounted for the remaining $0.5 million of the increase in
accounts receivable. Other net working capital changes were
approximately $0.5 million related to the overall growth of
our business.
During 2008, we generated approximately $11.6 million of
cash from our operations. This was a result of net income of
approximately $1.9 million, adjusted for non cash charges,
primarily depreciation and amortization of approximately
$0.5 million, stock-based compensation of
$0.4 million, an increase in net amounts due sellers of
$8.7 million, and other net working capital changes of
approximately $0.1 million
57
related to the growth of our business. The increase in amounts
due sellers at December 31, 2009 relates to the growth of
our business, and the timing of collection of proceeds from
buyers related to equipment sales, prior to remittance to
sellers.
During 2007, we generated approximately $1.1 million of
cash from our operations. This was a result of net income of
$1.2 million, adjusted for non cash charges; primarily
depreciation and amortization of $0.3 million, stock-based
compensation of $0.7 million, a decrease in amounts due
sellers of approximately $2.0 million. Other working
capital changes, in total, were approximately $0.9 million
related to the growth of our business.
Net
Cash Used for Investing Activities
Our investing activities have consisted primarily of purchases
of capital equipment and fixed assets used in our operations.
In the three months ended March 31, 2010 we purchased
network and IT equipment for our website operations of
approximately $0.1 million and we spent an additional
$0.1 million on software development activities for our
website operations which costs were capitalized.
In the three months ended March 31, 2009 we purchased
network and IT equipment for our website operations of
approximately $0.2 million.
In 2009, we purchased network and IT equipment and related
application and database software for our website operations of
approximately $0.9 million. Additional fixed asset
purchases of approximately $0.4 million related to personal
computing equipment for employees, as well as furniture,
fixtures, leasehold improvements. Further, we spent
approximately $0.4 million on software development
activities for our website operations which were capitalized.
In 2008, we purchased network and IT equipment and related
application and database software for our website operations for
approximately $0.6 million. Additional fixed asset
purchases of approximately $0.5 million related to personal
computing equipment for employees, as well as furniture,
fixtures and leasehold improvements. Further, we spent
approximately $0.3 million on software development
activities for our website operations which were capitalized.
In 2007, we purchased network and IT equipment and related
software for our website operations of approximately
$0.3 million. Additional fixed asset purchases of
approximately $0.5 million related to personal computing
equipment for employees, as well as furniture, fixtures and
leasehold improvements.
Net
Cash Provided by Financing Activities
In the three months ended March 31, 2010 we received
proceeds of $1.3 million related to the exercise of stock
options to purchase our common stock. We also repurchased
preferred stock from our former president and chairman for
$0.1 million.
In 2009, we sold Series C convertible preferred equity
securities for approximately $1.0 million, net of related
transaction expenses. Additionally, we received proceeds of
approximately $0.3 million in 2009 related to the exercise
of stock options to purchase our common stock.
In 2008, we sold, in separate transactions, Series C
convertible preferred equity securities to two investors, for
approximately $2.9 million, net of related transaction
expenses. Additionally, we received proceeds of approximately
$0.2 million in 2008 related to the exercise of stock
options to purchase our common stock.
In 2007, we sold Series B convertible preferred equity
securities for approximately $1.0 million, net of related
transaction costs. Additionally, we received proceeds of
approximately $0.1 million in 2008 related to the exercise
of stock options to purchase our common stock.
Contractual
Obligations
We lease our primary office space in Pleasanton, California and
other locations under various non-cancelable operating leases
for office space and data center facilities that expire between
2010 and 2013. We have no debt obligations. Additionally, all
property and equipment has been purchased for cash, and
58
accordingly we have no capital lease obligations. We have no
material long-term purchase obligations outstanding with any
vendors or third parties.
The following table summarizes our principal contractual
obligations as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(in thousands)
|
|
|
Operating leases
|
|
$
|
1,324
|
|
|
$
|
425
|
|
|
$
|
899
|
|
|
$
|
|
|
|
$
|
|
|
In the normal course of our business, we will, in certain
situations, guarantee an equipment seller a minimum level of
proceeds in connection with the sale through our marketplace of
that sellers equipment. At December 31, 2009,
outstanding guarantees under contract for equipment totaled
$0.3 million, which was offset by the proceeds that we
received from the sale of the related equipment through our
marketplace. We do not record any liability in our financial
statements with respect to these guarantee arrangements, and
they are not reflected in the contractual obligations table
above.
Off-Balance
Sheet Arrangements
As of March 31, 2010, we did not have any off-balance sheet
arrangements.
Recently
Issued Accounting Standards
In June 2009, the FASB issued an update to ASC 810,
Consolidation, which modifies how a company determines
when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be
consolidated. The modification clarifies that the determination
of whether a company is required to consolidate an entity is
based on, among other things, an entitys purpose and
design and a companys ability to direct the activities of
the entity that most significantly impact the entitys
economic performance. This modification to ASC 810 requires an
ongoing reassessment of whether a company is the primary
beneficiary of a variable interest entity. It also requires
additional disclosures about a companys involvement in
variable interest entities and any significant changes in risk
exposure due to that involvement. This modification to ASC 810
is effective for fiscal years beginning after November 15,
2009 and is effective for us on January 1, 2010. We expect
this modification may have an impact on our financial position
and results of operations in future periods, but the nature and
magnitude of the specific effects will depend upon the nature,
terms and size of the transactions we consummate in the future.
In October 2009, the FASB issued an amendment to ASC
605-25,
Multiple Element Arrangements, which modifies how a
company separates consideration in multiple-delivery
arrangements. The amendment establishes a selling price
hierarchy for determining the selling price of a deliverable.
The amendment also clarifies the allocation of revenue is based
on entity-specific assumptions rather than assumptions of a
marketplace participant. The amendment also eliminates the
residual method of allocating revenue and requires the use the
relative selling price method. This amendment to ASC
605-25 is
effective for new revenue arrangements entered into or modified
in fiscal years beginning after June 15, 2010. Early
adoption is permitted. The adoption of this amendment is not
expected to have a material impact on our consolidated financial
statements.
In October 2009, the FASB issued an amendment to ASC
985-605,
Software-Revenue Recognition, which modifies the
accounting model for revenue arrangements that include both
tangible products and software elements. This amendment to ASC
985-605 is
effective for new revenue arrangements entered into or modified
in fiscal years beginning after June 15, 2010. Early
adoption is permitted. We do not sell products that include both
tangible products and software elements, therefore this
amendment will not impact our consolidated financial statements.
59
Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Sensitivity
During 2007, 2008, and 2009, we did not have any borrowings
outstanding under our line of credit arrangements, and thus were
not subject to interest rate risk related to borrowings. During
these periods, we did have substantial cash balances on hand
with financial institutions, which generally were invested in
short-term investment grade and guaranteed instruments, whose
investment yields were generally tied to short-term credit
markets. Our yields on these short-term instruments were
affected by the overall decline in short-term interest rates in
2009 compared to 2008, and in 2008 compared 2007. Our average
yields on invested cash balances were approximately 3.9% in
2007, 1.7% in 2008, and 0.4% in 2009.
Currency
Exchange Rate Sensitivity
In 2008, we commenced operations in the Asia-Pacific region,
based in Australia, where our transactions are denominated in
Australian dollars. In 2009, we commenced operations in Europe,
where our transactions are denominated in Euros. We utilize the
U.S. dollar as our reporting currency and accordingly
translate our international business unit results into
U.S. dollars for reporting purposes. We incurred a negative
net foreign currency translation adjustment of $17,000 in 2008,
and a positive net foreign currency translation adjustment of
$48,000 in 2009, primarily related to our intercompany funding
arrangements with our international business units.
Additionally, because we sell to a significant number of
international used equipment buyers, a significant change in
currency exchange rates may materially affect the participation
of our international buyers in our marketplace formats, and
consequently the equipment pricing levels realized.
60
BUSINESS
Overview
We are a leading online marketplace for used heavy equipment. We
believe that the online channel is increasingly becoming a
preferred method for used heavy equipment transactions, and our
long-term goal is to be the leading global marketplace for used
heavy equipment and other capital assets. Our exclusively online
model allows us to match supply and demand globally for used
heavy equipment, while achieving greater reach, price
performance and efficiency relative to the fragmented network of
brokers, dealers and physical auction houses that have
traditionally served this market. In 2009, our online
marketplace connected over 1,600 unique sellers to over 7,600
unique buyers, from among 14,500 unique bidders, located across
92 countries, who bought approximately 30,000 individual pieces
of equipment.
We offer multiple online marketplace solutions for sellers and
buyers of used heavy equipment. Our primary solution is our
Featured Marketplace, which is a scheduled public online auction
typically held once a week, during which prospective buyers bid
on a wide variety of equipment for sale. Other solutions offered
include our Private Marketplace, our Daily Marketplace and our
One-Owner Marketplace, each designed to meet the specific needs
of used heavy equipment sellers. Our online-only model allows us
to be flexible and capital efficient when developing new
marketplace solutions and when expanding into new geographies,
customer segments and product categories.
As a marketplace, our customers are both sellers and buyers of
used heavy equipment. Sellers and buyers include a broad mix of
equipment owners ranging from large multi-national corporations
to sole proprietors. These include original equipment
manufacturers, or OEMs, re-marketing and finance organizations,
construction and contracting companies, equipment rental
companies, farming and mining companies and equipment dealers.
Today, equipment sold through our marketplace is used primarily
in the construction, mining and agriculture industries.
For sellers, our solutions are designed to maximize price
performance, minimize time requirements and reduce sales-related
expenses as compared to traditional methods. For buyers, we
believe that our marketplace increases selection and market
transparency, while reducing the time and investment required to
search for, identify, evaluate and procure equipment. A key
element of our online marketplace is our proprietary inspection
and report process, which we refer to as our IronClad
Assurance. Our IronClad Assurance provides buyers
with confidence and trust in the condition of the equipment
listed in our marketplace. To increase supply in our
marketplace, we employ a direct salesforce to assist existing
and prospective equipment sellers. To increase demand in our
marketplace, we use our technology along with our marketplace
operations group to attract buyers to our online marketplace,
stimulate bidding activity, and assist them in their buying
process.
We generate revenue principally from sellers through
commissions, as well as listing and inspection fees. We also
generate revenue from buyers through transaction fees. Our
revenue is dependent on the total gross merchandise volume, or
GMV, of equipment sold through our marketplace. We grew our GMV
from $342 million in 2008 to $458 million in 2009, an
increase of 34%. We grew our revenue from $35.0 million in
2008 to $54.7 million in 2009, an increase of 56%. Over the
same period, we grew Adjusted EBITDA from $2.6 million in
2008 to $7.3 million in 2009, an increase of 181%. Compared
to the first quarter of 2009, in the first quarter of 2010 we
grew GMV from $92 million to $130 million, or 41%, and
revenue from $10.3 million to $16.2 million, or 57%,
and Adjusted EBITDA changed from negative $0.2 million to
$1.6 million. For a discussion of Adjusted EBITDA and a
reconciliation of net income to Adjusted EBITDA, see note 4
to Selected Consolidated Financial and Other Data.
Industry
Background
The market for heavy equipment is large, established and global.
Demand for heavy equipment is driven by worldwide economic
development, government stimulus and spending on infrastructure,
and a continual need by equipment operators to replace and
upgrade their equipment. This equipment is used in key sectors
of the economy, such as the construction, mining and agriculture
industries. Examples of such heavy equipment include tractors,
excavators, backhoes, wheel loaders, motor graders and dump
trucks manufactured by companies such as Caterpillar Inc.,
Deere & Company, Komatsu Ltd. and Volvo Construction
Equipment.
61
According to The Freedonia Group Incorporated, or Freedonia, an
international business research company, manufacturers
sales of heavy equipment in the construction and mining
industries in 2008 were $108 billion and $45 billion,
respectively. According to Freedonia, manufacturers sales
of heavy equipment in the agriculture industry in 2007, the most
recent period with data available, was $93 billion, and
combined spending in these industries is expected to grow to
$314 billion by 2013. We believe that the geographic
distribution within the construction equipment market is
representative of the overall heavy equipment market, and
according to Freedonia, worldwide construction equipment demand
in 2008 was distributed 35% in Asia-Pacific, 29% in North
America, 21% in Western Europe and 15% in the rest of the world.
Large
and Active Market for Used Heavy Equipment
There is a large and active secondary market for used heavy
equipment. Heavy equipment assets generally have long useful
lives, driven by manufacturing durability and generally limited
product changes and broad industry application. Over the course
of its useful life, a piece of heavy equipment may be resold
multiple times. This longevity and durability gives rise to a
large global stock of functional used equipment. The price
differential between new and used equipment values presents a
compelling economic case for buyers of used equipment, who
appreciate equipment at different stages of its lifecycle. This
in turn provides equipment owners a market to continually sell
and upgrade their assets, which is important to capital
intensive businesses seeking to manage their fleet size and
inventory. Additionally, the development of global standards in
equipment manufacturing methods and industrial practices has
facilitated a market for used heavy equipment that spans across
diverse geographic markets and industrial segments, as the
utility for such used heavy equipment has become much broader.
The long-term fundamental needs for infrastructure development
and increased economic activity in developing markets have
driven the demand for used heavy equipment in these markets,
since new equipment is generally less affordable, particularly
large and specialized heavy equipment. Collectively, these
factors have contributed to increasing global demand for used
heavy equipment, and for buying and selling used heavy equipment
across geographies.
According to research we commissioned by Manfredi &
Associates, a market research firm that specializes in the heavy
equipment industry, the average value of the worldwide fleet of
used heavy equipment was estimated to be more than
$500 billion between 2006 and 2008, of which over
$100 billion was resold annually. The market for secondary
sales has been characterized by disparate sellers and buyers
and, as a result, local brokers and OEM-branded dealers have
controlled much of the market historically. While these
businesses serve a necessary function, their limited geographic
footprint, narrow service offering and lack of scale and
transparency create inefficiencies for both sellers and buyers.
Established
Auction Channel for Used Heavy Equipment
Auctions are an established channel for buying and selling used
heavy equipment. According to research we commissioned with
Manfredi & Associates, approximately $10 billion
of used heavy equipment was sold through the auction channel
annually between 2006 and 2008. We believe the auction channel
is compelling due to a number of factors, including the ability
of auctions to better match large pools of supply and demand for
used equipment, the attractiveness to sellers looking to achieve
timely liquidity and dispose of large pools of equipment in one
event, and the attractiveness to buyers to choose from a broad
selection of equipment from a variety of manufacturers. In
addition, we believe the heavy equipment auction business
benefits in periods of economic expansion, as buying and selling
activity grows, and remains relatively insulated in periods of
economic contraction, as value pricing is important to buyers
and timely disposal of idle equipment is important to many
sellers.
Growing
Online Marketplace for Used Heavy Equipment
The development of the Internet and
e-commerce
has given rise to the online marketplace as a more efficient
channel for buying and selling used heavy equipment. The online
channel improves upon the benefits of physical auctions in
matching supply with demand across geographies, and reducing the
time and costs for sellers and buyers to transact and avoiding
the limitations of physical proximity. We believe the online
channel will become the preferred platform for the buying and
selling of used heavy equipment throughout the world.
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Market
Opportunity
Sellers and buyers of used heavy equipment are burdened with
significant challenges and inefficiencies using traditional
channels.
Challenges
for Sellers
Equipment sellers face a number of challenges as they seek to
maximize price realization and minimize the required time,
effort and resources associated with the sales process. Key
challenges for sellers include the following.
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Limited Buyer Reach. Historically, sellers have only
been able to reach a narrow set of buyers, such as those located
near sellers or traditional intermediaries. This limited reach
creates an imperfect market and may adversely impact the sale
price.
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Lack of Turn-Key Solutions. Sellers are required to
invest significant time and attention in the sales process
because traditional channels have not successfully offered a
comprehensive and efficient solution.
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Lack of Regular and Continuous Access to
Buyers. Sellers are constrained by lengthy sales cycles
associated with traditional used heavy equipment sales channels
and the timing of regional auctions.
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Unnecessary Cost Requirements. Sellers often face
costs that reduce their net proceeds, such as the potentially
significant expenses associated with transporting equipment to
an intermediarys site and the costs of preparing equipment
for sale that certain intermediaries may require.
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Payment Delays and Transaction Uncertainty. Sellers
are concerned that funds will be collected and delivered in a
timely manner. Sellers also risk broken sales when the equipment
does not match buyer expectations.
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Challenges
for Buyers
Buyers face a number of challenges as they seek to locate
specific equipment at a reasonable price, evaluate the condition
of used equipment and minimize the costs and time constraints of
procuring equipment. Key challenges for buyers include the
following.
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Lack of Selection. Buyers are generally limited to
the available selection from local broker and dealer, or at
infrequent regional auctions.
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Limited Ability to Assess Product Quality. Buyers
have limited resources to assess the condition of used heavy
equipment and critical components, which is problematic because
the performance of used heavy equipment can vary dramatically
based on prior usage and ownership. As heavy equipment assets
are generally significant capital expenditures for important
operating activities, the cost of business interruption from
equipment failure can be significant.
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Significant Time Commitment. Buyers spend
significant time searching for, identifying, evaluating, and
procuring equipment. Attending traditional sales channel events
and tracking down equipment is inconvenient and time consuming.
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Significant Cost Requirements. Costs associated with
searching for and evaluating the performance of equipment can be
substantial and are borne by the buyer. Traveling to
sellers locations and events is also costly and
potentially unproductive for the buyer.
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Lack of Market Transparency. Due to the fragmented
and regional nature of traditional used heavy equipment sales
channels, these markets operate with price inefficiencies.
Markets often lack transparency and buyers have limited data to
make informed buying decisions.
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We believe that there is a significant opportunity for an online
marketplace for used heavy equipment that better matches supply
and demand, and reduces the cost, time and friction associated
with buying and selling equipment. To be successful, a company
with this model must ensure the integrity of its marketplace and
build
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trust for both sellers and buyers as to the accuracy, legitimacy
and certainty of transactions. Moreover, the marketplace must
provide sufficient liquidity to ensure enough demand for sellers
and supply for buyers.
Our
Solution
Our online marketplace is designed to meet the needs of used
heavy equipment sellers and buyers globally. We believe that our
online marketplace solutions and processes offer distinct
benefits to both sellers and buyers of used heavy equipment,
providing substantial advantages compared to traditional used
heavy equipment sales channels. Key advantages of our online
model include the following:
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an efficient means of matching supply and demand globally;
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significant numbers of sellers and buyers;
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significantly reduced geographic constraints;
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reduced time and expense required of sellers to locate and reach
equipment buyers and of buyers to identify, evaluate and procure
equipment assets;
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enhanced trust and confidence of buyers in the condition of the
equipment purchased; and
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enhanced levels of market transparency.
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By attracting significant numbers of geographically dispersed
sellers and buyers to our marketplace, we believe we have built
a network effect that increases the value of our services to all
participants in our marketplace. Furthermore, we believe this
value continues to increase over time as the size of our
marketplace, and the resulting supply of and demand for used
heavy equipment, grows.
Key
Benefits for Sellers
Our solutions are designed to meet the needs of used heavy
equipment sellers by providing the following.
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Global Reach. We provide sellers access to our
global pool of active buyers, increasing marketplace
transparency, liquidity and price realization. Our marketing
efforts are designed to drive traffic to our marketplace and
demand for our sellers equipment. Our marketplace
operations group bolsters the level and depth of buyer interest
for specific auction events and items, and solicits, engages and
informs potential buyers to stimulate demand in advance of and
during a marketplace event. During 2009, our North American
Featured Marketplace attracted on average over 800 unique
bidders based in 28 countries per event.
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Flexible, Turn-Key Solutions. We provide sellers the
flexibility to choose from a number of marketplace solutions, as
well as the ability to leverage our technology platform to
manage their own Private Marketplace. This range of solutions
enables sellers to choose a solution which best suits their
business, cash and inventory needs. In addition to our Featured
Marketplace, we offer tailored marketplace solutions for
different seller requirements, including our One-Owner
Marketplace, our
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Daily Marketplace and our Private Marketplace. Because specialty
equipment assets attract different sets of buyers, and not all
equipment is suited for the Featured Marketplace, we believe our
different solutions give sellers flexibility in choosing the
best venue to attract the right buyers for their equipment.
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Continuous Market Access. We provide sellers with
regular market access regardless of where their equipment is
located. Our Featured Marketplace is held typically once a week
and our Daily Marketplace operates 365 days a year. Such
frequency provides equipment owners the opportunity to use
IronPlanet as an asset and inventory management tool, rather
than as an ad hoc selling channel. Large fleet owners can
schedule asset dispositions regularly and precisely based on
their corporate asset life cycle management schedules and not be
tied to infrequent service provider schedules. Furthermore, they
can better manage large fleet reductions by selling assets
systematically and regularly.
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Cost Efficiency. Our field-based sales and
inspections teams help limit the time and resources required of
sellers to prepare items for sale. Our process allows sellers to
avoid sales-related transportation costs, which can be
significant for large pieces of equipment. Furthermore, we
generally do not require sellers to incur make ready
expenditures prior to sale, but make recommendations on
improvements or repairs that will likely enhance the net
proceeds of the equipment being sold.
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Transaction Speed and Certainty. We have designed
our marketplace offering to minimize the end-to-end sales
process time. In particular, our online solution eliminates the
need for sellers to transport equipment to physical sites for
sale, and our field inspection reports and IronClad Assurance
reduce the time buyers require to evaluate equipment,
shortening the total sales process. In addition, we have
designed our payments process to give buyers an incentive to pay
sooner, and our secure payments process ensures that sellers
receive payment for their equipment in a timely and safe manner.
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Key
Benefits for Buyers
Our solutions are designed to meet the needs of used heavy
equipment buyers by providing the following:
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Broad Selection. We provide buyers with a broad
selection of equipment across multiple geographies, industries,
manufacturers, price points and equipment condition. As our
seller community grows, we are able to provide buyers with
increasing value through greater equipment selection. During
2009, our North American Featured Marketplace events on average
included over 600 items across a range of industrial uses, price
points, OEM brands and product quality parameters.
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Quality Assurance. We have created a proprietary
inspection process to provide buyers with confidence in the
condition of equipment listed in our marketplace. Buyers can
access and evaluate our detailed inspection reports online for
any piece of equipment, and our IronClad Assurance
instills trust in the accuracy of these inspection reports.
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Convenience. Buyers are able to search, identify,
evaluate and procure equipment at any time through our
convenient, user-friendly website. Our model is designed to
minimize the need for involvement throughout the process, as
well as reduce the total time necessary to successfully procure
equipment.
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Cost-Efficient Process. We enable buyers to search,
identify, evaluate and bid for equipment online, reducing costs
required to search for and bid on equipment located in
physically disparate locations.
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Market Fairness and Transparency. We enforce strict
rules among sellers and buyers that provide for open and
transparent bidding activity. Sellers are prohibited from
manipulating outcomes through shill bidding or buy-backs.
Furthermore, our automated system prevents last second
close-out bids by automatically extending the
auction period until all bidding is exhausted. We believe these
rules encourage buyers to participate with greater confidence in
the process.
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Our online marketplace meets the needs of used heavy equipment
sellers and buyers by matching global supply and demand for used
heavy equipment, while eliminating the constraints,
inefficiencies and costs associated with traditional methods of
conducting used heavy equipment transactions.
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IronPlanet
Competitive Advantages
We believe our business model provides us a number of
competitive advantages that enhance our ability to continue to
grow our business and expand our profitability.
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Scale, Network Effect and Marketplace Liquidity. Our
online marketplace has achieved significant scale and is an
active and liquid market for used heavy equipment. In 2009, our
online marketplace connected over 1,600 unique sellers to over
7,600 unique buyers, from among over 14,500 unique bidders,
located across 92 countries, who bought approximately 30,000
individual pieces of equipment totaling $458 million in
GMV. As the liquidity of our marketplace continues to increase,
as the numbers of sellers and buyers in our marketplace grows,
and as our geographic coverage expands, we benefit from a
network effect. We believe the value of our marketplace to both
sellers and buyers increases as we add more users. More
registrants to the marketplace allows for more prospective
bidding, which yields higher price realization for sellers. More
sellers produces a larger number and greater variety of
listings, which makes the marketplace more attractive for buyers.
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Proprietary Inspection Process and IronClad Assurance. We
believe that our proprietary inspection process and detailed
inspection reports are comprehensive, accurate and valuable to
participants in our marketplace. In addition, our IronClad
Assurance is a key differentiating factor for our
marketplace and provides benefits to both sellers and buyers.
Sellers benefit from more active bidding by a wider group of
prospective buyers, resulting in higher price realization, while
buyers benefit from accurate and reliable information that
allows them to bid with confidence.
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Capital-Efficient Business Model. We operate
entirely as an online marketplace, and, accordingly, we require
minimal physical footprint. We do not require real estate or
other significant capital outlays to enter new markets. Our
website can be efficiently localized to facilitate expansion to
new international markets, and can be easily adapted to new
asset categories. This provides us significant flexibility to
efficiently scale our business and enter new markets with
minimal capital expenditure requirements.
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Direct Relationships with Sellers. We believe that
cultivating strong relationships with sellers and having insight
into their situations and requirements is critical to generating
heavy equipment supply volume to our marketplace. We have a
dedicated salesforce of experienced professionals from the heavy
equipment industry, focused on fostering relationships with the
key decision-makers of our customers and of other large
equipment owners. Our salesforce maintains regular communication
with potential sellers and strives to understand their inventory
management, liquidity and cash needs associated with a sale.
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Portability of Our Business Model. We have developed
a business model and processes that can be efficiently
transferred to other asset categories, beyond our current heavy
equipment segments. Such business model characteristics include
our exclusively online operations, with no need for physical
facilities, our proprietary inspection process, and our flexible
marketplace technology platform. For example, we have begun
preliminary efforts to expand into recreation equipment, and
have recently held marketplace events featuring such equipment
for which we used our existing website at no substantial
additional development costs. Though we have no current plans to
expand our business to include other specific asset categories,
we continue to evaluate opportunities and may do so in the
future.
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We believe the combination of our reach and relationships with
sellers and buyers, our technology and ability to leverage the
Internet, our inspection reports and IronClad Assurance,
and our growing brand recognition positions us to become the
leading marketplace for used heavy equipment.
Our
Strategy
We seek to become the leading platform for buying and selling
used heavy equipment by expanding our market coverage and
offering a superior service. Key elements of our strategy
include the following.
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Increase Penetration in Our Key North American Market. We
believe our core North American used equipment market will
continue to grow and that we have the opportunity to further
penetrate this fragmented market. We intend to continue to
enhance the quality and productivity of our salesforce in
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North America and to add new sales personnel to cover more
regions and increase our coverage within each region. We also
intend to invest in marketing efforts and to expand our
Featured, One-Owner, Daily and Private Marketplaces to attract
additional heavy equipment sellers and to further deepen our
relationships with existing sellers. We also intend to focus on
adding equipment supply in the agriculture and mining
categories, and we will evaluate selectively adding new asset
categories to our marketplace.
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Focus on Key Customer Segments. We believe our
solutions are particularly well suited for, and provide unique
benefits to, certain sellers who have large fleets and regularly
dispose of equipment. These sellers include equipment rental,
financial services, and large industrial companies. We intend to
hire additional sales personnel focused on integrating our
marketplace solutions into the business processes of these large
accounts segments and other global companies that regularly buy
and sell heavy equipment. These companies represent a meaningful
portion of the overall global used equipment volume and we
believe that our online marketplace provides considerable
benefits to these sellers compared to traditional sales channels.
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Continue Our Expansion into International
Markets. Our exclusively online model provides us the
ability to rapidly grow our international footprint with minimal
capital investment. While we are able to serve buyers globally
from our U.S. operation, we have recently expanded our
operations into new international markets to attract and better
service sellers of heavy equipment in these markets, and to
obtain more equipment globally to satisfy buyer demand. In 2008
we launched our Asia-Pacific operations by adding sales and
customer service personnel in Australia, and in 2009 we began
our European operations. We expect to continue to add resources
in Europe in the near term and deploy our solution to additional
international markets in the next several years.
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Strengthen our Brand and Enhance the User
Experience. The trust that our customers place in our
brand is essential to our business model, and our ability to
protect and strengthen our brand is critical to our success. Our
proprietary IronClad Assurance is a key element of our
trusted relationship with sellers and buyers. We plan to
continue to develop and enhance awareness of our IronClad
Assurance and to strengthen and expand our brand globally
through marketing and promotional activities and the continued
hiring and training of inspection services personnel. We also
plan to further develop our website and platform to provide a
more compelling experience for sellers and buyers on our
marketplace by adding new data, analytics and communications
features to create a more efficient and intuitive purchasing
experience and to empower sellers and buyers with tools to help
them make purchase decisions.
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Invest in Technology and Infrastructure to Improve Services
and Operating Efficiency. We will continue to invest in
our technology, operations and processes to maintain our
state-of-the-art
online delivery infrastructure and improve our overall operating
efficiency for our online marketplace. This will also include
continued investments in transaction processes, and in further
automating various components of our inspection services, our
listing services, our marketplace operations and our back-office
and settlement services.
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Products
and Services
We have built a scalable and flexible online marketplace with
multiple selling solutions to meet the diverse needs of sellers
and buyers. Our marketplace solutions include the following.
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Featured Marketplace. Our primary solution is the
Featured Marketplace, where sellers list used heavy equipment
during a scheduled event that takes place entirely online and is
typically conducted weekly in North America and monthly in
Europe and Australia. During 2009, our North American Featured
Marketplace events on average included over 600 items across a
range of industrial uses, price points, OEM brands and product
quality parameters. Featured Marketplace events follow an
auction format in which equipment is sold on an
unreserved basis to the highest bidder, with a
minimum bid price. Items are typically listed on the website for
a two week preview period before the scheduled Featured
Marketplace event. All registered bidders on our website can
participate in our Featured Marketplace events and bid on items
for sale. There are no participation fees or bid fees charged to
bidders and bidding activity is conducted entirely online.
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One-Owner Marketplace. Our One-Owner Marketplace is
conducted like our Featured Marketplace, but targets sales of
equipment by a single owner in a single event. Often times these
are entire liquidations of a fleet of equipment due to the
retirement of a contractor, or financial liquidation of a
business. These events are available to our entire global
registration base. This solution is well suited to deliver
optimal results in such circumstances due to the global reach of
our marketplace.
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Daily Marketplace. Our Daily Marketplace solution
includes equipment pieces listed for sale, with a reserve price,
which are available on our website for a defined period of time,
typically one week. Buyers can place a bid or purchase equipment
immediately at a designated price, referred to as the Win it Now
price. The Daily Marketplace solution usually includes brokering
activity on the part of our marketplace operations team, which
reaches out to prospective buyers to solicit bids that at a
minimum meet sellers reserve requirements. This solution is well
suited to specialty assets or situations where sellers have
minimum requirements.
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Private Marketplace. Our Private Marketplace
solution is offered to large industrial, rental companies and
OEM equipment sellers who want to offer equipment assets to a
select group of potential buyers, such as their dealers. We
offer the Private Marketplace solution as a private-label
solution and provide sellers the opportunity to conduct online
sales using their own brand. For Private Marketplaces, we host
and manage a separate website for each seller, utilizing our
technology platform. This solution provides an efficient,
turn-key selling platform for customers who want to limit access
to a private bidding audience.
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We have developed proprietary inspection, listing and
transaction processes and systems to provide a broad range of
value-added services for sellers and buyers using our
marketplace. We provide these services to differentiate our
product offerings, to provide an efficient experience to users
and to ensure the successful completion of the highest number of
transactions in our marketplace.
Services
Provided to Sellers
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Equipment Pricing and Market Evaluation. Our
experienced sales team members provide sellers with preliminary
pricing estimates based on current market conditions. Our
centralized equipment pricing group of dedicated personnel
monitors used equipment market activity and overall equipment
output and demand data, and maintains our pricing database in
order to provide sellers with the most accurate price estimates.
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Listing Services. We provide sellers services to
summarize and present their equipment for sale in our
marketplace solutions. Equipment is evaluated based on the make,
model and year of manufacture, features and overall condition.
Our customer service organization works with sellers in
resolving lien status with lien holders and establishing lien
payoff amounts and timing, and also manages the physical
collection of titles to be transferred to buyers.
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Inspection Services. Our inspection services
department conducts detailed onsite evaluations of most large
pieces of equipment sold in most of our marketplace under our
IronClad Assurance program. Inspections are typically
scheduled with the seller four weeks in advance of the equipment
being offered for sale in our marketplace solutions. This
turn-key service requires minimal seller involvement. Inspection
reports are made available to prospective buyers in our
marketplace.
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Improvement Recommendations. While we do not require
make ready expenses to prepare equipment for sale, our field
inspectors and sales personnel will make suggestions on repairs
or improvements that are likely to enhance the net proceeds for
the seller.
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Funds Settlement. We collect sale proceeds directly
from buyers and remit funds to the respective sellers. For
transactions for which a local, state, VAT or other similar tax
is due, we include taxes in the collection amount due from the
buyer, and remit it to the applicable local tax authority on
behalf of the seller.
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Services
Provided to Buyers
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Equipment Inspection Report. We provide detailed
inspection reports on equipment for sale in upcoming marketplace
solutions available to prospective buyers when the equipment is
listed. The inspection reports contain:
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make, model, and year of manufacture;
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feature summary;
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engine hour summary, mileage summary, tread and undercarriage
summary, as applicable;
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overall condition assessment; and
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third-party analysis of engine oil, hydraulic fluid, other fluid
samples.
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IronClad Assurance. IronClad Assurance is our
commitment to buyers of the accuracy and completeness of our
inspection reports. If a buyer discovers that a piece of
equipment is not in substantially the condition described in the
inspection report, subject to certain conditions, we refund the
full purchase price and reimburse the buyers
transportation costs. This proprietary inspection and report
process instills trust in buyers, enabling them to bid on
equipment in our marketplace with confidence in the condition
and quality of the used heavy equipment they may purchase.
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Customer Service. We provide prospective buyers with
services such as confirming features of equipment in upcoming
marketplace solutions, assisting the buyer in their search or
alerting a buyer if a piece of equipment is available for sale.
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Referral Services. We offer referral services for
qualified transportation and financial service providers, who
quote terms for equipment financing and transport services
directly to buyers.
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Marketplace
Operations
We market equipment for sale in one of our Featured Marketplaces
for the two weeks leading up to the scheduled event, as well as
during the event itself. During the equipment preview period
leading up to the event, we have a dedicated marketplace
operations team that contacts buyers, markets upcoming equipment
and solicits bids from prospective bidders. These
representatives monitor our website traffic and the level of
interest on items for sale and then target their call campaigns
based on the specific interest expressed by buyers. As of
March 31, 2010, we employed 17 persons in our
marketplace operations group in three call centers, located in
Pleasanton, California, Dublin, Ireland, and Brisbane,
Australia, collectively speaking 13 languages.
Customers
IronPlanet is a marketplace, therefore we consider both
equipment sellers and buyers to be our customers. In 2009, we
sold equipment from more than 1,600 unique sellers in 29
countries to over 7,600 unique buyers in 92 countries.
Sellers
Our base of sellers has expanded and diversified rapidly. During
2007, 2008, 2009 and the first quarter of 2010, our ten largest
individual sellers accounted for 44.3%, 40.7%, 37.5% and 35.0%
of our revenue, respectively. In 2009, we sold equipment for
over 1,600 sellers located in 29 countries, up from
approximately 1,100 sellers located in three countries in 2008.
Caterpillar Financial Services Corporation and its corporate
affiliates are our largest sellers and collectively accounted
for 22.0%, 15.5%, 11.9% and 7.7% of our revenue in 2007, 2008,
2009 and the first quarter of 2010, respectively. Our sellers
come from a diverse range of business sizes and types, and
typical sellers include:
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OEM re-marketing and finance organizations who sell equipment
regularly as part of the OEMs overall brand management, dealer
support and regular business activities;
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regional, national and multi-national construction and
contracting companies who dispose of large quantities of
equipment on a recurring basis as part of ongoing fleet
management activities or who are winding down large projects;
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national equipment rental companies who sell large quantities of
equipment on a regular basis;
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large industrial companies who sell large quantities of
equipment on a regular basis;
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local and national finance companies who sell off-lease or
repossessed assets on a one-time, periodic or regular basis;
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large dealers who sell excess and trade-in inventory on a
regular basis;
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small dealers and local rental companies who may periodically
sell excess inventory;
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small contractors and construction companies who liquidate an
entire fleet of equipment due to owner retirement or business
wind-down;
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farm owners who sell their equipment; and
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local and state governments managing their fleets.
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The majority of sellers who use our marketplace execute our
standard equipment listing form available on our website. The
listing form allows the seller to identify the equipment to be
sold on our marketplace, requires that the seller agree to our
terms and conditions which are also available on our website,
and describes certain payment terms associated with
participating in our marketplace events. We also currently have
relationships with over 100 frequent sellers of equipment in our
marketplace who we refer to as preferred providers, and with
whom we enter into preferred provider agreements. Because these
preferred providers typically sell high volumes of equipment in
our marketplace, these individually-negotiated agreements
provide
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for seller commission rates that are more favorable than our
standard commission rates as well the waiver of certain fees for
some preferred providers. In 2009, each of our top 10 sellers
was a party to a preferred provider agreement with us. See
Certain Relationships and Related Transactions
Preferred Provider Agreements for additional disclosure
regarding certain of these preferred provider agreements.
Buyers
We have a broad international base of equipment buyers. We
attract many of the same categories of equipment industry
participants from our seller base for our buyer base. Our buyer
base is primarily comprised of small and mid-sized contractors,
industrial and manufacturing entities and equipment dealers and
brokers.
As of March 31, 2010, we had over 560,000 registered users
on our website and we are currently averaging 10,000 new
registrations per month. We believe that the continued increase
in registered users contributes to increased bidding activity
and the effectiveness of our marketplace. In 2009, our weekly
auctions attracted an average of over 600 unique bidders per
event, and we sold equipment to over 7,600 unique buyers in 92
countries, an increase from approximately 5,300 unique buyers in
62 countries in 2008.
In order for a registered user to become a qualified bidder in
our marketplace, the user must request bidding privileges from
us. Our bidding privilege approval process allows us to review
credit and business considerations of potential bidders and
requires potential bidders to re-affirm their agreement to our
marketplace terms and conditions. We typically do not enter into
any additional agreements with bidders in connection with our
marketplace events.
Sales and
Marketing
We have a direct salesforce organized by geographic region and
specific industry and seller categories. Our sales
representatives are responsible for developing relationships
with equipment sellers in their territory or market segment, and
for sourcing equipment to be sold in our marketplace. They are
also involved in the preliminary evaluation of equipment
condition, target price setting of equipment values and
monitoring of our equipment listing processes. Our sales
representatives are compensated on a fixed salary plus a
variable commission or a bonus arrangement. Commissions are
awarded based on seller commissions earned by us. As of
March 31, 2010, we employed 121 sales representatives and
sales managers.
Our marketing initiatives focus on supporting our sales
organization and driving awareness for our marketplace with
sellers and buyers of used equipment. We advertise in trade and
vertical publications, as well as a variety of online mediums,
including online heavy equipment listing sites, industry trade
websites, targeted email lists and search engines. Additionally,
we participate in a variety of industry trade shows,
associations and other industry forums in order to build overall
awareness of IronPlanet and our marketplace solutions.
Our website also serves as a primary marketing vehicle and the
destination for sellers and buyers. We are able to gather and
analyze data regarding user activity to target and
follow-up
with potential buyers based on their website usage. We are
continually exploring new mediums and techniques to reach
potential customers and drive increased transaction volumes.
Competition
The market for buying and selling used heavy equipment is highly
fragmented, and we compete with a diverse set of companies to
attract both sellers and buyers to our marketplace. Certain of
our competitors are much larger than we are, and have greater
financial resources and technical, marketing and customer
support capabilities than we do. Some of these competitors have
been in business substantially longer than us, and have
developed strong brand recognition and deep relationships with
numerous large sellers and buyers of used equipment. Our primary
competition falls into three categories:
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National and regional equipment auction companies, including
Ritchie Bros. Auctioneers, Alex Lyon & Son Sales
Managers and Auctioneers, Inc., Yoder & Frey Auctioneers,
Inc., Great American Group, Inc., Euro Auctions, WWA Group, Inc.
and Cat Auction Services. These companies typically conduct
on-site
auctions at regional locations.
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OEM and independent equipment dealers, rental companies, and
brokers that buy and sell used equipment.
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71
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Traditional and online listing services, including eBay,
Machinery Trader, Rock and Dirt, and Equipment Trader Online
that list used equipment for sale on their websites or in print
publications.
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We believe that we are well positioned relative to our
competitors in our ability to attract sellers and buyers to our
marketplace based on a number of factors. We compete to attract
sellers on the basis of the frequency of our online marketplace
events, the availability of multiple selling solutions in our
marketplace, quality of service, the numbers of potential
buyers, ability to attract international buyers, the net
proceeds realized by sellers and overall liquidity of the
marketplace. We compete to attract buyers and engender trust on
the basis of the convenience and accessibility of the
marketplace, the breadth and quality of equipment available for
sale, availability of equipment from different countries,
information and resources available to facilitate purchase
decisions and the transparency and fairness of the bidding and
purchasing process.
Technology
and Infrastructure
Since our inception, we have dedicated substantial resources
toward developing and maintaining our proprietary online
marketplace platform, which we operate through our IronPlanet
websites. Our technology expenses for the years ended
December 31, 2007, 2008 and 2009, were $1.4 million,
$1.7 million and $2.8 million, respectively. Our
technology platform and websites are built and generated using a
combination of proprietary and third-party software as well as
hardware from established technology vendors.
Our development team works closely with our sales and operations
teams to develop applications and technologies that can be used
across our business to increase the scalability of our
operations, add functionality to improve the experience of
sellers and buyers on our marketplace, and increase the
efficiency of our operations and sales personnel. For example,
we have developed technologies that increase the productivity of
our inspectors and the completeness of our inspection quality
review process. Our specialized inspection data entry software
allows our inspectors to use standard tablet computers to
quickly complete detailed inspection reports from remote
locations, store information on the devices and upload the
reports directly to our centralized quality control team over
the Internet.
The IronPlanet branded websites and websites that we operate for
sellers that utilize our Private Marketplace all run on a
technology platform that is designed to be fault-tolerant, with
sets of identical application servers connected to a cluster of
database servers. All load balancers, firewalls and network
devices connecting the servers operate in redundant pairs. The
failure of any single component is not expected to affect the
overall availability of our website. In addition, for geographic
and vendor redundancy, we maintain the same technology platform
in two data centers, each capable of handling our website
traffic, with one serving as a hot standby. These
data centers are located in co-location facilities in the Las
Vegas, Nevada and Seattle, Washington areas and share data with
each other using a high-speed private network connection. Each
data center is a secure facility, with high uptime rates
achieved using redundant systems such as backup electrical power
and multiple points of high-speed Internet connectivity to
insure high availability and eliminate single points of failure.
Intellectual
Property
We rely on a combination of patents, trademarks, copyrights and
trade secrets, as well as on confidentiality agreements, to
establish and protect our proprietary rights. The laws,
procedures and restrictions provide only limited protection. We
currently own one issued patent in the United States which
expires in 2021. In addition, we currently have trademarks
registered or pending registration in the United States and
certain foreign countries for our brand names and slogans used
as brands that we use in our business. We also rely on copyright
laws to protect computer programs related to our websites and
our proprietary technologies, although to date we have not
registered for statutory copyright protection. We have
registered numerous Internet domain names in the United States
and in foreign countries related to our business in order to
protect our proprietary interests. Furthermore, we endeavor to
enter into agreements with our employees and contractors and
with parties with which we do business in order to limit access
to and disclosure of our proprietary information, as well as to
clarify rights to intellectual property associated with our
business.
72
Regulatory
Matters
Our business is subject to regulation, supervision and licensing
under various U.S. federal and state, foreign and
international agencies and statutes, which, among other things,
may require us to obtain and maintain certain licenses and
qualifications. Regulations that may apply to us include those
related to conducting auctions, brokering sales of motor
vehicles, anti-money laundering and processing payments.
We continue to evaluate U.S. federal, state and foreign
regulations regarding the applicability of laws, if any, related
to the conduct of our online marketplace events. The State of
California requires us to post a bond, as an auction company,
and we have done so. We are also registered as an Internet
Auction Listing Service in the State of Illinois. We hold an
auctioneers license in Ireland as well as
auctioneers licenses in various Australian states and
territories. As of the date of this prospectus, we do not
believe we are required to obtain an auctioneer license in any
other U.S. state or foreign country where we may be subject
to regulation; however, we continue to evaluate regulations and
are in communication with some U.S. states seeking
clarification as to whether such states regulations might
be applicable to our business.
As of the date of this prospectus, we are registered in
California as a California Vehicle Dealer to permit the sale to
our California retail customers of on-road
equipment, and we hold motor vehicle dealer licenses in several
Australian states and territories. We currently do not believe
we are required to obtain additional licenses or registrations
in other U.S. states or foreign countries where we do not
have a physical presence; however, we continue to evaluate
regulations and are in communication with some U.S. states
seeking clarification as to whether such states
regulations might require us to register as a motor vehicle
dealer.
As our business operations may involve individuals and countries
outside of the U.S., we are required to comply with a number of
U.S. federal laws and regulations, and may be required to
comply with certain E.U. directives, such as those related to
money laundering and terrorism. Given that bids can be submitted
to us online from any location, we have implemented procedures
pursuant to which we identify and restrict business from certain
countries in order to comply with the trade sanctions programs
administered by the U.S. Department of the Treasurys
Office of Foreign Assets Control, or OFAC, and other export
controls administered by the U.S. Department of Commerce.
We believe that the nature and conduct of our services exclude
us from certain laws and licensing regulations applicable to
bill payers, money transmitters, check sellers, issuers of
payment instruments, or similar non-bank payment businesses.
Given the continuously evolving regulatory environment governing
the Internet and sales conducted using the Internet, however,
our analysis is subject to significant uncertainty, and there
can be no assurances that governmental authorities will agree
with our interpretations. Changes in applicable laws and
regulations, interpretations of existing laws and regulations,
or new laws and regulations could force us to cease doing
business in certain jurisdictions, adversely affect our ability
to do business with certain customers, increase our expenses, or
otherwise adversely affect our results of operations.
Employees
As of March 31, 2010, we had 262 employees, of which
55 were based in our corporate headquarters at Pleasanton,
California, 20 were based in Atlanta, Georgia, 17 were based in
Ft. Worth, Texas, 16 were based in Dublin, Ireland, four
were based in Brisbane, Australia, and 148 were based in various
locations throughout the U.S., Europe and Australia. We consider
our current relationship with our employees to be good. We have
never experienced a work stoppage and none of our employees is
represented by a labor union or is covered by a collective
bargaining agreement.
Facilities
Our U.S. corporate headquarters are located in Pleasanton,
California. We also lease additional office space in the U.S.,
Europe and Asia-Pacific as set forth below. We do not own any
real property. We believe that our current facilities have
sufficient capacity to meet the projected needs or our business
for the next
73
12 months or that additional space is readily available.
The following table lists the locations, lease expiration dates
and the square footage of our principal properties as of
March 31, 2010:
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Location of Property
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Lease Expiration Date
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Square Footage
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Pleasanton, California (U.S.)
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August 2013
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8,430
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Dublin (Ireland)
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July 2013
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4,153
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Atlanta, Georgia (U.S.)
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November 2011
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3,879
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Ft. Worth, Texas (U.S.)
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February 2013
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3,833
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Brisbane (Australia)
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September 2010
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2,809
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Legal
Proceedings
From time to time, we have been and may be involved in various
legal proceedings arising from our ordinary course of business.
Although the outcome of these and other claims cannot be
predicted with certainty, management does not currently believe
that the ultimate resolution of these matters will have a
material adverse effect on our financial condition, cash flows,
or results of operations.
On April 2, 2010, Reza Bundy Saadlou, our former president
and chairman, filed suit against us in Alameda County Superior
Court in California. The complaint alleges that we did not have
the right to effect our March 11, 2010 repurchase of
633,542 shares of
Series A-1
convertible preferred stock held by Mr. Saadlou. The
complaint seeks declaratory relief that would void both the
March 11, 2010 repurchase and our contractual right to
repurchase such shares and damages. On April 23, 2010, we
concurrently filed a demand for arbitration with the American
Arbitration Association and a motion to stay the litigation and
to compel arbitration. We believe the allegations are without
merit, and intend to defend against them vigorously. For
additional discussion on this dispute please see the risk factor
on page 18.
74
MANAGEMENT
Executive
Officers and Directors
The following table sets forth information about our executive
officers and our board of directors as of March 31, 2010.
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Name
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Age
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Position(s)
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Gregory J. Owens
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49
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Chairman and Chief Executive Officer
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Michael J. ODonnell
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50
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Chief Financial Officer
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James J. Jeter
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51
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Executive Vice President
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Jeffrey L. Barca-Hall
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52
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Senior Vice President, Engineering and
Chief Technology Officer
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Michael D. Groves
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61
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Senior Vice President, Sales
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Robert L. Evans (1)
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57
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Director
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Arthur Patterson (2)(3)
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66
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Director
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Mark J. Rubash (1)
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53
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Director
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Ted Schlein (2)(3)
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45
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Director
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Roger S. Siboni (1)
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55
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Director
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Stephanie Tilenius (2)(3)
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42
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Director
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(1)
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Member of the audit committee.
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(2)
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Member of the compensation
committee.
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(3)
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Member of the nominating and
corporate governance committee.
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Gregory J. Owens has served as our chairman and chief
executive officer since July 2007. From January 2006 to June
2007, Mr. Owens served as managing director at Red Zone
Capital, a Washington, D.C. private equity firm focused on
strong revenue growth opportunities. From August 2004 to January
2006, Mr. Owens was an independent consultant. From April
1999 to August 2004, he was chairman and chief executive officer
of Manugistics Group, Inc. Prior to that time, Mr. Owens
served as global managing partner supply chain management at
Accenture where he was a founding member of their supply chain
group. Mr. Owens also serves as a director of S1
Corporation, and has formerly served as a director of Serena
Software, Inc. Mr. Owens serves on the Presidents
Advisory Board as well as the College of Management Board of the
Georgia Institute of Technology. Mr. Owens holds a Bachelor
of Science degree in industrial management from Georgia
Institute of Technology. Our board of directors has concluded
that Mr. Owens should serve as a director based on his
extensive and in-depth knowledge of our business gained from his
position as our chief executive officer.
Michael J. ODonnell has served as our chief
financial officer since July 2008. From 2001 through May 2008,
Mr. ODonnell served as chief financial officer and
chief operating officer for Procuri, Inc., an on-demand supply
management software company, that was acquired by Ariba, Inc.
Mr. ODonnell has 25 years of financial and
business management experience, including positions as managing
director of Sun Trust Capital Markets, where he led the
merger and acquisition advisory group, managing director of
Price Waterhouse Corporate Finance, where he led capital markets
advisory projects, and senior manager in the Price Waterhouse
audit practice. Mr. ODonnell holds a Bachelor of
Science degree in commerce from the University of Virginia.
James J. Jeter has served as our executive vice president
since July 2009, and from September 2007 to July 2009 served as
our senior vice president, international and new business. From
May 2006 to September 2007, Mr. Jeter served as senior
principal at PRTM Management Consultants where he helped lead
PRTMs customer experience consulting for Fortune
1000 companies. From October 2004 to May 2006,
Mr. Jeter was an independent consultant. From August 1999
to October 2004, Mr. Jeter was senior vice president of
marketing for Manugistics, where he executed Manugistics
global marketing strategies as well as managed their new
business development and sales operations initiatives.
Mr. Jeter has more than 25 years of experience in
sales, marketing, and international business, including two
international assignments for Iomega where he
75
was managing director for their Asia-Pacific and European
operations. Mr. Jeter holds a Bachelor of Arts degree from
Wake Forest University and a Master of Business Administration
from Mercer University.
Jeffrey L. Barca-Hall has served as our senior vice
president, engineering and chief technology officer since
February 2000. Prior to that time, Mr. Barca-Hall was the
chief technology officer for Inprise/Borland Corporation. In
that role, Mr. Barca-Hall had responsibility for a research
and development organization of more than 250 people
producing award-winning software products with combined annual
revenue approaching $200 million. Mr. Barca-Hall has
many years of experience in software engineering and management
with Inprise/Borland, Netscape (prior to its acquisition by
America Online), Symantec, Rapid Enterprise, a
start-up
which Mr. Barca-Hall co-founded, and DataEase.
Mr. Barca-Hall holds a Bachelor of Arts degree in
engineering sciences from Yale University.
Michael D. Groves has served as our senior vice
president, sales since August 2007, and from August 2002 to
August 2007 served as one of our regional managers. Prior to
joining IronPlanet, Mr. Groves served as vice president and
general manager of Forke Brothers and as a division manager of
Ritchie Brothers. Mr. Groves also held the position of
regional used equipment manager for Nortrax Southeast.
Mr. Groves has more than 30 years of experience in
equipment sales, including 11 years of auction industry
experience.
Robert L. Evans has served as a director since November
2009. Mr. Evans has been the president and chief executive
officer and a director of Churchill Downs, Inc. since August
2006. Prior to that time, Mr. Evans served as the managing
director of Symphony Technology Group, a strategic holding group
focused on the enterprise software and services market, and as
president and chief executive officer of Symphony Services
Corp., a software product engineering outsourcing services
company, from 2002 to 2004. From 1999 to 2001, he served as
president and chief operating officer of
i2 Technologies/Aspect Development. Mr. Evans also
serves as the president of Tenlane Farm, LLC and as a director
of ATC Technology Corp. Mr. Evans holds a Bachelor of Arts
degree in economics from MacMurray College and a Master of Arts
in quantitative economics from Western Illinois University. Our
board of directors has concluded that Mr. Evans should
serve as a director based on his experience with technology
companies and his financial literacy.
Arthur Patterson has served as a director since November
1999. Mr. Patterson has been a general partner at the
venture capital firm of Accel Partners since 1983.
Mr. Patterson serves as a director of MetroPCS
Communications, Inc. and Actuate Corp, in the past five years
has served as a director of iPass, Inc. and more than five years
ago served as a director of several other public companies. He
also serves as a director of several privately held software and
services companies. Mr. Patterson holds a Bachelor of Arts
degree and a Master of Business Administration from Harvard
University. Mr. Patterson was initially appointed to our
board of directors in connection with the investment in us made
by Accel Partners, who has the right to designate a director as
a result of a voting agreement between us and certain of our
stockholders. Although this agreement will terminate upon
completion of this offering, we expect that Mr. Patterson
will continue to serve as a director following such termination,
and our board of directors has concluded that Mr. Patterson
should serve as a director and a member of the compensation
committee based on his experience with entrepreneurial and
technology companies and public company executive compensation,
and as one our early stage investors, his extensive knowledge of
our company.
Mark J. Rubash has served as a director since March 2010.
Mr. Rubash has served as chief financial officer of
Shutterfly, Inc. since November 2007. Prior to joining
Shutterfly, Mr. Rubash was the chief financial officer of
Rearden Commerce from August 2007 to November 2007 and previous
to that, Mr. Rubash was a senior vice president at Yahoo!
Inc. from February 2007 to July 2007. Prior to joining Yahoo!,
Mr. Rubash held various senior positions at eBay, Inc. from
February 2001 to July 2005. From January 2000 to November 2000,
Mr. Rubash was the chief financial officer at Critical
Path, Inc. From October 1987 to January 2000, Mr. Rubash
was an audit partner at PricewaterhouseCoopers, LLP, where he
served as the global leader for their Internet industry practice
and practice leader for their Silicon Valley Software Industry
Practice. Mr. Rubash also serves as a director of Intuitive
Surgical, Inc. and Line 6, Inc., a private company.
Mr. Rubash holds a Bachelor of Science degree in accounting
from California State University, Sacramento. Our board of
directors has concluded that Mr. Rubash should serve as a
director and a member of the audit committee based on his
experience in corporate finance and accounting and experience in
the online marketplace industry.
76
Ted Schlein has served as a director since November 1999.
Mr. Schlein has served as a partner at Kleiner Perkins
Caufield & Byers, a venture capital firm, since 1996.
From 1986 to 1996, Mr. Schlein served in various executive
positions at Symantec Corporation, a provider of Internet
security technology and business management technology
solutions, most recently as vice president of enterprise
products. Mr. Schlein serves as a director of ArcSight,
Inc. and has formerly served as a director of Corio, Inc. He
also serves as a director of several private companies.
Additionally, Mr. Schlein has previously served as the
chairman of the National Venture Capital Association.
Mr. Schlein holds a Bachelor of Arts degree in economics
from the University of Pennsylvania. Mr. Schlein was
initially appointed to our board of directors in connection with
the investment in us made by Kleiner Perkins, who has the right
to designate a director as a result of a voting agreement
between us and certain of our stockholders. Although this
agreement will terminate upon completion of this offering, we
expect that Mr. Schlein will continue to serve as a
director following such termination, and our board of directors
has concluded that Mr. Schlein should serve as a director
and a member of the compensation committee based on based on his
experience with entrepreneurial and technology companies and
public company executive compensation, and as one our early
stage investors, his extensive knowledge of our company.
Roger S. Siboni has served a director since May 2009.
Most recently Mr. Siboni served as president and chief
executive officer of E.piphany, Inc. from August 1998 to July
2003. From 2003 to October 2005, Mr. Siboni served as
chairman of the board for E.piphany. Prior to August 1998, he
was with KPMG Peat Marwick for more than 20 years, serving
most recently as deputy chairman and chief operating officer.
Mr. Siboni serves as a director of ArcSight, Inc., Cadence
Design Systems, Inc., Dolby Laboratories, Inc. and infoGROUP,
Inc., and has formerly served as a director of Active Software,
Inc., Corio, Inc., FileNet, Macromedia and Pivotal Corporation.
He also serves as a director of several private companies.
Mr. Siboni is also a past chairman of the advisory board
for the Walter A. Hass School of Business at the University of
California at Berkley. Mr. Siboni holds a Bachelor of
Science degree in business administration from the University of
California at Berkeley. Our board of directors has concluded
that Mr. Siboni should serve as a director and member of
the audit committee based on his extensive experience and
executive level management in technology and financial
management and his financial literacy.
Stephanie Tilenius has served as a director since
February 2010. Ms. Tilenius is currently vice president of
commerce at Google Inc., where she is responsible for digital
content and commerce in the cloud, product search and payments.
Prior to joining Google she held various senior management
positions at eBay, including senior vice president and general
manager of eBay North America and global product at eBay from
January 2008 to February 2010, vice president and general
manager of PayPal Merchant Services from July 2003 to December
2007, vice president and general manager of eBay Motors from
July 2002 to July 2003, and vice president of international from
March 2001 to July 2003. Ms. Tilenius holds a Bachelor of
Arts degree in economics and a Master of Arts from Brandeis
University and a Master of Business Administration from Harvard
University. Our board of directors has concluded that
Ms. Tilenius should serve as a director based on her
experience in the online marketplace industry and in
international operations, and her financial literacy.
Board
Composition
Our board of directors is currently comprised of seven
directors, of whom all but Mr. Owens, our chairman and
chief executive officer, qualify as independent
according to the rules and regulations of The NASDAQ Stock
Market.
Upon the closing of this offering, all of our preferred stock
will be automatically converted into our common stock and all of
the contractual rights to appoint directors will be
automatically terminated. In accordance with the certificate of
incorporation and the bylaws that will become effective upon the
consummation of this offering, our board of directors will be
divided into three classes with staggered three-year terms as
follows:
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the Class I directors will be Mr. Patterson and
Mr. Rubash, and their terms will expire at our first annual
meeting of stockholders held after the effectiveness of this
offering;
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77
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the Class II directors will be Mr. Evans and
Ms. Tilenius, and their terms will expire at our second
annual meeting of stockholders held after the effectiveness of
this offering; and
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the Class III directors will be Mr. Owens,
Mr. Siboni and Mr. Schlein, and their terms will
expire at our third annual meeting of stockholders held after
the effectiveness of this offering.
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At each annual general meeting of the stockholders, the
successors to directors whose terms then expire will be elected
to serve from the time of election and qualification until the
third annual meeting following election. Any additional
directorships resulting from an increase in the number of
directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of one third of
the total number of directors. The authorized number of
directors may be changed by resolution of the board of
directors. Vacancies on the board of directors can be filled by
the board of directors.
Our Corporate Governance Guidelines provide that when the
chairman of our board of directors also serves as our chief
executive officer, as is the case currently with Mr. Owens,
the board shall designate a lead independent director
responsible for coordinating the activities of the independent
directors. Our board of directors has designated
Mr. Schlein as our lead independent director.
Board
Committees
Our board of directors has established an audit committee, a
compensation committee and a nominating and corporate governance
committee.
Audit
Committee
Our audit committee consists of Mr. Siboni, Mr. Evans
and Mr. Rubash, with Mr. Siboni serving as chairperson. Our
audit committee oversees our corporate accounting and financial
reporting process and internal controls over financial
reporting. Our audit committee evaluates the independent
registered public accounting firms qualifications,
independence and performance; engages and provides for the
compensation of the independent registered public accounting
firm; approves the retention of the independent registered
public accounting firm to perform any proposed permissible
non-audit services; reviews our consolidated financial
statements; reviews our critical accounting policies and
estimates and internal controls over financial reporting; and
discusses with management and the independent registered public
accounting firm the results of the annual audit and the reviews
of our quarterly consolidated financial statements. Our board of
directors has determined that each of our audit committee
members each meets the requirements for independence and
financial literacy under the applicable rules and regulations of
the SEC and The NASDAQ Stock Market. Our board of directors has
determined that Mr. Siboni and Mr. Rubash are each an
audit committee financial expert as defined under the applicable
rules of the SEC and has the requisite financial sophistication
under the applicable rules and regulations of The NASDAQ Stock
Market. The audit committee operates under a written charter
that satisfies the applicable rules of the SEC and The NASDAQ
Stock Market.
Compensation
Committee
Our compensation committee consists of Mr. Schlein,
Mr. Patterson and Ms. Tilenius, with Mr. Schlein
serving as chairperson. Our compensation committee reviews and
recommends policies relating to the compensation and benefits of
our officers and employees, including reviewing and approving
corporate goals and objectives relevant to compensation of our
chief executive officer and other senior officers, evaluating
the performance of these officers in light of those goals and
objectives and setting compensation of these officers based on
such evaluations. The compensation committee also administers
the issuance of stock options and other awards under our stock
plans. Our board of directors has determined that each member
our compensation committee meets the requirements for
independence under the applicable rules and regulations of the
SEC, The NASDAQ Stock Market and the Internal Revenue Code. The
compensation committee operates under a written charter.
Nominating
and Corporate Governance Committee
Our nominating and corporate governance committee consists of
Mr. Patterson, Mr. Schlein and Ms. Tilenius, with
Mr. Patterson serving as chairperson. The nominating and
corporate governance committee
78
will be responsible for making recommendations regarding
candidates for directorships and the size and composition of our
board. In making such recommendations, the nominating and
corporate governance committee will consider the skills and
experience of the directors or nominees in the context of the
needs of our board of directors as well as the directors
or nominees diversity of skills and experience in areas
that are relevant to our business and activities. In addition,
the nominating and corporate governance committee is responsible
for overseeing our corporate governance guidelines and reporting
and making recommendations concerning governance matters. Our
board of directors has determined that each member of our
nominating and corporate governance committee meets the
requirements for independence under the applicable rules and
regulations of The NASDAQ Stock Market.
Director
Compensation
We do not currently provide any compensation to our non-employee
directors for service on our board of directors. From
time-to-time,
we have granted stock options to our non-employee directors as
compensation for their services, but prior to this offering we
did not have a formal policy in place with respect to such
awards. We do, however reimburse our director for their expenses
associated with for attending meetings of our board of directors.
Following the completion of this offering, our non-employee
directors will be entitled to the following compensation package:
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Annual retainer
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$20,000
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Annual retainer for board committee chairperson
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Audit committee
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$12,000
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Compensation committee
|
|
|
$ 9,000
|
|
Nominating and corporate governance committee
|
|
|
$ 5,000
|
|
Annual retainer for board committee members
|
|
|
|
|
Audit committee
|
|
|
$ 6,000
|
|
Compensation committee
|
|
|
$ 4,500
|
|
Nominating and corporate governance committee
|
|
|
$ 2,500
|
|
Initial equity award for new directors (1)(3)
|
|
|
options to purchase 25,000 shares
|
|
Annual award for continuing board members (2)(3)
|
|
|
options to purchase 6,000 shares
|
|
|
|
|
(1)
|
|
The initial equity award will have
an exercise price equal to the fair market value of our common
stock on the date of grant and will be subject to vesting over a
period of three years in equal annual installments commencing on
the date of grant, subject to the non-employee directors
continued service to us through the vesting date.
|
|
(2)
|
|
The annual equity award for
continuing board members will have an exercise price equal to
the fair market value of our common stock on the date of grant
and will vest as to 100% of the shares subject to the award on
the earlier of (a) the one year anniversary of the date of
grant of the award and (b) the date immediately preceding
the date of the annual meeting of our stockholders for the year
following the year of grant for the award, subject to the
non-employee directors continued service to us through the
vesting date. A non-employee director will receive an annual
option award only if he or she has served on the board of
directors for at least the preceding six months.
|
|
(3)
|
|
All vesting for such awards will
terminate, and all such awards will become fully vested, upon a
Change of Control as defined in the 2010 Equity
Incentive Plan.
|
The following table sets forth information regarding
compensation earned by our directors who are not named executive
officers during 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
Name
|
|
or Paid in Cash
|
|
Option Awards (1)
|
|
Total
|
|
Robert L. Evans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Arthur Patterson
|
|
|
|
|
|
|
|
|
|
|
|
|
Ted Schlein
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger S. Siboni
|
|
|
|
|
|
|
49,812
|
|
|
|
49,812
|
|
|
|
|
(1)
|
|
This amount reflects the grant date
fair value of each option award computed in accordance with ASC
Topic 718. Information regarding the valuation assumptions used
in the calculation of this amount are described in Note 7
to the consolidated financial statements.
|
79
Compensation
Committee Interlocks and Insider Participation
None of the members of our compensation committee is or has at
any time during the past year been an officer or employee of
ours. None of our executive officers currently serves or in the
past year has served as a member of the board of directors or
compensation committee of any entity that has one or more
executive officers serving on our board or compensation
committee.
Code of
Business Conduct and Ethics
We have adopted a code of business conduct and ethics that
applies to all of our employees, officers and directors,
including those officers responsible for financial reporting.
The code of business conduct and ethics will be available on our
website at www.ironplanet.com. We expect that any amendments to
the code, or any waivers of its requirements, will be disclosed
on our website.
80
COMPENSATION
DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides information
about the material components of our executive compensation
program for:
|
|
|
Name
|
|
Position(s)
|
|
Gregory J. Owens
|
|
Chairman and Chief Executive Officer
|
Michael J. ODonnell
|
|
Chief Financial Officer
|
James J. Jeter
|
|
Executive Vice President
|
Jeffrey L. Barca-Hall
|
|
Senior Vice President, Engineering and Chief Technology
Officer
|
Michael D. Groves
|
|
Senior Vice President, Sales
|
We refer to these executive officers collectively in this
Compensation Discussion and Analysis and the related
compensation tables as the named executive officers.
Specifically, this Compensation Discussion and Analysis provides
an overview of our executive compensation philosophy, the
overall objectives of our executive compensation program, and
each compensation component that we provide. In addition, we
explain how and why our board of directors arrived at specific
compensation policies and decisions involving our executive
officers during 2009.
This Compensation Discussion and Analysis contains
forward-looking statements that are based on our current plans,
considerations, expectations, and determinations regarding
future compensation programs. The actual compensation programs
that we adopt in the future may differ materially from currently
planned programs as summarized in this discussion.
Executive
Compensation Philosophy and Objectives
We operate in a new and innovative business environment, which
seeks to successfully merge and scale the use of technology to
offer a global online marketplace for used heavy equipment and
other capital assets. This environment is marked by continuing
technological advances and rapidly changing market requirements.
To succeed in this environment, we must develop and refine new
technologies, devise appropriate business models, and
demonstrate an ability to quickly identify and capitalize on new
marketplace opportunities. To achieve these objectives, we need
a highly talented and seasoned team of business and technical
professionals.
We compete with many other companies in seeking to attract and
retain a skilled management team. To meet this challenge, we
have adopted a compensation philosophy designed to offer our
executive officers compensation and benefits that are
competitive and that meet our goals of attracting, retaining,
and motivating highly skilled individuals to help us achieve our
financial and strategic objectives.
Our executive compensation program is designed to achieve a
number of objectives:
|
|
|
|
|
provide competitive total compensation opportunities that enable
us to attract, retain and motivate executive officers with the
experience and skills to manage the growth of our company and
lead us to the next stage of development;
|
|
|
|
reward sustained stockholder value creation by providing a mix
of compensation that emphasizes creating and sustaining an
enterprise market valuation consistent with leading Internet
platform companies; and
|
|
|
|
reward achievement of our annual and long-term financial
objectives by awarding appropriate levels of cash and equity
compensation for consistent achievement (and over-achievement)
of our annual operating plan and for achievement of the
long-term financial objectives necessary to reaching and
maintaining a market valuation consistent with leading Internet
platform companies.
|
81
Compensation
Program Design
The compensation of our executive officers, including our named
executive officers, consists of base salary, an annual cash
bonus opportunity, equity compensation, and certain
post-employment payments and benefits.
The primary component of our executive compensation program to
date has been stock options to purchase shares of our common
stock. As a privately held company, we have emphasized the use
of equity to motivate our executive officers to focus on the
growth of our overall enterprise value and, correspondingly, to
create sustainable long-term value for our stockholders. We
believe that stock options offer our key employees, including
our executive officers, a valuable long-term incentive that
aligns their interests with the interests of our stockholders.
We offer cash compensation to our executive officers, in the
form of base salaries and annual bonus opportunities and, in the
case of our senior vice president, sales, commissions, at levels
that we believe are competitive compensation packages. Due to
our emphasis on equity compensation, however, historically we
have offered target total cash compensation opportunities at the
lower end of an identified market range as determined in the
collective business judgment of our board of directors.
Generally, we have structured our annual cash bonus
opportunities to focus on the achievement of specific near-term
financial and strategic objectives that will further our
longer-term growth objectives.
To date, we have not employed any policies or guidelines for
allocating compensation between current and long-term
compensation, between cash and non-cash compensation, or among
different forms of non-cash compensation.
Compensation-Setting
Process
Role
of the Board and Compensation Committee
Prior to the offering, our board of directors primarily
determined the compensation for our named executive officers.
Following the offering, the compensation committee of our board
of directors will be responsible for overseeing our executive
compensation philosophy and administering our executive
compensation program, as well as determining and approving the
compensation for our executive officers, including the named
executive officers. The compensation committee will regularly
consult with and report to our full board of directors on its
deliberations and actions.
The compensation committee intends to review on a periodic basis
our executive compensation program, including any incentive
compensation plans, to determine whether they are appropriate,
properly coordinated, and achieve their intended purposes, and
has the authority to establish and implement any modifications
or new plans or programs.
Role
of Management
In carrying out its responsibilities, our board of directors has
worked with members of our management team, including our chief
executive officer. Historically, our management team has
assisted the board of directors by providing information on
company and individual performance, market data, and
managements perspective and recommendations on
compensation matters.
Typically, our chief executive officer has made recommendations
to the board regarding the compensation of our employees,
including our executive officers (except with respect to his own
compensation), and attends that portion of the board meetings in
which compensation matters are discussed (except he recuses
himself from that portion of board meetings with respect to
discussions involving his own compensation).
While our board of directors has solicited and reviewed our
chief executive officers recommendations and proposals
with respect to compensation-related matters, it has only used
these recommendations and proposals as one factor in making
compensation decisions for our employees, including our
executive officers.
82
Commencing in the fourth quarter of 2009, the compensation
committee took a more active role in the decisions regarding
cash and equity compensation for our named executive officers,
including hiring a compensation consultant (as discussed below)
and determining the final bonus amounts for 2009.
Role
of Compensation Consultant
The compensation committee is authorized to retain the services
of compensation consultants and other advisors from time to
time, as it sees fit, in connection with the establishment of
cash and equity compensation plans and arrangements and related
policies.
In September 2009, the compensation committee engaged Compensia,
Inc., a national compensation consulting firm providing
executive compensation advisory services, to assist it in
developing a set of executive compensation guiding principles,
to evaluate the competitiveness of our executive officers
compensation, and to assist the compensation committee in
developing a public company-oriented executive compensation
program and a director compensation program. Compensia serves at
the discretion of the compensation committee. Compensia did not
provide any other services to our company in 2009.
Use of
Competitive Data
To assess the competitiveness of our executive compensation
program and compensation levels, the compensation committee has
instructed Compensia to examine the executive compensation
practices during 2009 of a peer group of 14 Internet platform
companies. Compensation data for the peer group companies was
gathered from public filings and from Compensias
proprietary compensation databases. This peer group data is to
be used to assess current compensation levels and to assist the
compensation committee in setting compensation levels for 2010
and thereafter.
The companies comprising the peer group have been selected by
our compensation committee, based on Compensias
determination that the peer group members are similar to the
Company in size (as determined by revenue and market
capitalization) and product or service similarity.
This peer group is comprised of the following companies:
|
|
|
Bankrate, Inc.
|
|
Move, Inc.
|
Constant Contact, Inc.
|
|
OpenTable, Inc.
|
CoStar Group, Inc.
|
|
Shutterfly, Inc.
|
Internet Brands, Inc.
|
|
Stamps.com Inc.
|
j2 Global Communications, Inc.
|
|
TechTarget, Inc.
|
Liquidity Services, Inc.
|
|
The Knot, Inc.
|
LoopNet, Inc.
|
|
Travelzoo Inc.
|
The compensation committee intends to review our peer group at
least annually and make adjustments to its composition as
necessary.
Executive
Compensation Program Components
The following describes each component of our executive
compensation program, the rationale for each component, and how
awards are determined.
Base
Salary
Base salary represents the most basic, fixed portion of our
executive officers compensation and is set at a minimum
level sufficient to attract, retain, and motivate highly
talented executive officers when included as one component of
our overall total compensation opportunity.
In past years, our board of directors has reviewed the base
salaries of our executive officers, including the named
executive officers, at the beginning of the year, taking into
consideration our chief executive officers base salary
recommendations, the scope of the executive officers
performance, individual contributions, responsibilities,
experience, prior salary level, and, in the case of a promotion,
position. In the future, we expect the compensation committee to
conduct an annual review of each executive officers base
salary, with
83
input from our chief executive officer, and to make adjustments
as it determines to be reasonable and necessary to reflect the
scope of an executive officers performance, individual
contributions, responsibilities, experience, prior salary level,
position (in the case of a promotion), and market conditions,
including a review of the compensation policies of our peer
group.
The actual base salaries paid to the named executive officers
during 2009 are set forth in the Summary Compensation Table
below. Mr. Jeter received a base salary increase from
$220,000 to $250,000 in 2009 for his performance and to align
his base salary with current market rates, based on the judgment
and experience of our board members.
Cash
Bonuses
In November 2008, our board of directors approved the design and
operation, and performance objectives of an annual cash bonus
plan for 2009, thereby establishing an overall cash bonus award
pool for our executive officers, including the named executive
officers, and other key employees.
To ensure alignment with our financial performance and the
creation of stockholder value, the size of the overall cash
bonus pool was to be based on our actual level of achievement
compared against corporate financial objectives for revenue and
operating income as reflected in our 2009 operating plan. For
these purposes, adjusted operating income was our
earnings for 2009 before reduction for interest, taxes,
depreciation, amortization, non-operating expenses, stock-based
compensation expense, and the cash bonus award pool.
Further, awards were to be made only if we achieved at least
threshold performance levels for the year for each of these two
financial objectives. Our board of directors believed that these
conditions and thresholds would encourage our executive officers
to manage our business in a cost-effective manner and make
decisions that would contribute to revenue growth and overall
profitability.
In February 2009, in response to the deepening global economic
recession and overall market uncertainty, and the impact on our
business and uncertainty of the timing of any recovery,
management and our board of directors began to discuss a revised
operating plan for 2009. A final revised operating plan for 2009
was approved by our board of directors in May 2009. The revised
plan adjusted revenue and adjusted operating income downward to
reflect the overall changes in markets and economic outlooks.
Additionally, in May 2009, our board of directors approved a
revised cash bonus plan for 2009, including changes to the
target and threshold levels for revenue and adjusted operating
income, and a reduction in the overall size of the target cash
bonus award pool. No individual target bonus amounts were
established for the named executive officers.
Annual revenue and adjusted operating income were the two
corporate financial objectives used to determine the amount of
the bonus pool, with annual revenue weighted at 70% and adjusted
operating income weighted at 30%. Annual revenue was weighted
more heavily than adjusted operating income because, at this
point in our development, our board of directors believed that
revenue growth was the primary driver of near-term value. The
threshold for revenue was set at approximately 89% of target, or
$39.5 million, a level our board of directors believed was
appropriate based on the position of us and our opportunities in
the market. The threshold for adjusted operating income was set
at approximately 40% of target, or $2.0 million, an amount
that would correspond with the threshold revenue amount, given
the high level of operating leverage within our business. Our
adjusted annual revenue and adjusted operating income objectives
were attainable but remained very challenging in light of the
continuing uncertain general economic conditions.
At the target level for annual revenue of $44.2 million and
adjusted operating income of $5.0 million, the bonus pool
amount was $0.6 million, and the bonus pool was adjusted on
a sliding scale for levels of revenue and adjusted operating
income starting at the threshold level (bonus pool of
$0.2 million), with accelerators for determining the bonus
pool amount in the event that revenue and adjusted operating
income exceeded the target amounts.
On December 18, 2009, the compensation committee determined
the amount of the overall cash bonus award for our executive
officers, including our named executive officers, and other key
employees for 2009. In making these this determination, the
compensation committee evaluated our financial performance and
the
84
level of achievement of operating objectives for the year, and
the overall economic environment in which we operated in 2009.
With respect to the corporate financial objectives, the
compensation committee determined that we had achieved 123% of
our adjusted revenue target of $54.5 million and 145% of
our adjusted operating income target of $7.2 million for
the year. While these results would have supported a bonus pool
of $1.1 million, which is 175% of the target bonus pool,
given the uncertain economy, the compensation committee
determined to reduce the size of the overall cash bonus pool to
$0.9 million, which bonus pool was used for our executive
officers, department managers and other key employees who
performed exceptionally in 2009.
In allocating this cash bonus pool among plan participants, our
chief executive officer formulated recommendations for the
compensation committee (except with respect to his own
compensation) based on his subjective assessment of each
participants individual contributions during the year and
internal equity between individuals. Even with these
recommendations from our chief executive officer, our
compensation committee had the sole authority and discretion to
determine the bonus amounts for all of our officers and
employees, including the bonus amount for our chief executive
officer, based on an evaluation of each eligible
participants contributions to the achievement of our
corporate financial goals. Specific quantitative or qualitative
performance criteria for individual participants were not
established at the beginning of the year, nor were any specific
individual performance criteria communicated to any of the
participants.
After considering our chief executive officers
recommendations, the compensation committee approved the amount
of the annual cash bonus for each named executive officer as
follows:
|
|
|
|
|
Name
|
|
Actual Bonus Payment
|
|
Gregory J. Owens
|
|
$
|
235,000
|
|
Michael J. ODonnell
|
|
|
110,000
|
|
James J. Jeter
|
|
|
110,000
|
|
Jeffrey L. Barca-Hall
|
|
|
115,000
|
|
Michael D. Groves
|
|
|
78,817
|
|
The actual bonus payment to Mr. Groves, our senior vice
president, sales, in 2009 was comprised of two components.
Mr. Groves was paid a sales commission based on achieving
specific sales volumes in certain designated sales regions and
his commission rate varies based on achieving certain revenue
milestones. At target revenue achievement, Mr. Groves
commission would equal $75,000. For 2009, Mr. Groves
earnings under his sales commission arrangement were $58,817, of
which $14,359 was paid in January 2010. In addition, because
Mr. Groves sales commission arrangement was not
adjusted in 2009 to reflect the revised operating plan
implemented in May 2009, the compensation committee awarded
Mr. Groves an additional bonus of $20,000 in recognition of
his role in our strong sales performance during a difficult and
uncertain market environment.
In February 2010, the compensation committee recommended to our
board of directors, and in March 2010 our board of directors
approved, the parameters for a new 2010 bonus incentive plan to
reward our executive officers, including our named executive
officers, except with respect to our chief executive officer
which was approved by the compensation committee, for the
achievement of pre-established financial performance objectives.
These parameters provide the minimum, target and maximum levels
for revenue and adjusted operating income, which are the
financial performance metrics that must be achieved to earn
bonuses. The board also determined the 2010 target bonus amount
for each named executive officer as a percentage of each
officers base salary.
Equity
Compensation
We use equity awards to motivate and reward our executive
officers, including the named executive officers, for long-term
corporate performance based on the value of our common stock and
to align the interests of our executive officers with those of
our stockholders. We believe that stock options, when granted
with exercise prices equal to the fair market value of our
common stock on the date of grant, provide an
85
appropriate long-term incentive for our executive officers,
because they reward them only to the extent that our stock price
grows and stockholders realize value following their grant date.
We have not applied a rigid formula to determine the size of the
stock option awards that have been granted to our executive
officers. Instead, these awards were determined in the judgment
of our board of directors, taking into consideration, among
other things, the performance of our company and the executive
officer during the past year, the prospective role and
responsibility of the executive officer, competitive factors,
the amount of equity-based compensation held by the executive
officer and portion that is vested or unvested, and the cash
compensation received by the executive officer. Based upon these
factors, our board of directors determines the size of each
stock option award at levels it considers appropriate to create
a meaningful opportunity for reward predicated on the creation
of long-term stockholder value.
To date, we have not granted any equity awards other than stock
options to our executive officers. Typically, our executive
officers have received an initial stock option grant at the time
of hire, with only periodic additional awards thereafter. In
connection with this offering, we expect the compensation
committee to oversee the development of a long-term equity
incentive plan. While this plan is likely to provide for a
variety of different types of equity awards, we expect that,
reflecting our focus on long-term growth, the compensation
committee will continue to use stock options as our primary form
of long-term incentive compensation. We also expect that the
compensation committee may elect to grant equity awards to our
executive officers on a more frequent (for example, annual)
basis than in the past, as it determines to be in the best
interests of our company.
There were no equity awards granted to the named executive
officers during 2009.
In February 2010, our board of directors granted bonus options
to our key employees, including our named executive officers,
for their strong performance in exceeding our revenue and
adjusted operating income targets for 2009. Each of these
options has a vesting commencement date of December 31,
2009 and vests over our standard four-year vesting schedule,
with 25% of the option shares vesting upon the completion of
twelve months of service following the vesting commencement date
and 1/48th of the option shares vesting upon the completion
of each of the next 36 months of service.
|
|
|
|
|
|
|
Number of Shares
|
Name
|
|
Underlying Options
|
|
Gregory J. Owens
|
|
|
46,500
|
|
Michael J. ODonnell
|
|
|
46,500
|
|
James J. Jeter
|
|
|
46,500
|
|
Jeffrey L. Barca-Hall
|
|
|
37,500
|
|
Michael D. Groves
|
|
|
12,500
|
|
At the same meeting, our board of directors also authorized the
grant of challenge options to purchase an aggregate
of 100,000 shares of common stock to certain key employees,
including our named executive officers, to provide additional
incentives to our key employees to achieve certain target and
maximum levels of revenue and adjusted operating income for
2010. These challenge options in the aggregate provide our named
executive officers with grants at approximately 60% of the
annual grants made to officers of our peer companies.
Retirement
and Other Benefits
We have established a tax-qualified Section 401(k)
retirement savings plan for our executive officers, including
the named executive officers, and other employees who satisfy
certain eligibility requirements, including requirements
relating to age and length of service. Under this plan,
participants may elect to make pre-tax contributions, not to
exceed the applicable statutory income tax limitation (which was
$16,500 in 2009). In addition, we may make discretionary
contributions to the plan in any year, up to certain limits.
Historically, we have provided a matching contribution equal to
50% of a participants salary deferrals, up to a maximum of
2% of a participants compensation. Our contributions to
the accounts of the named executive officers are shown in the
All Other Compensation column of the Summary Compensation Table
below. We intend for the plan to qualify under
Section 401(a) of the Internal Revenue Code so that
contributions by
86
participants to the plan, and income earned on plan
contributions, are not taxable to participants until withdrawn
from the plan.
Additional benefits received by our executive officers,
including the named executive officers, include medical, dental,
and vision benefits, medical and dependent care flexible
spending accounts, short-term and long-term disability
insurance, accidental death and dismemberment insurance, and
basic life insurance coverage. These benefits are provided on
the same basis as to all of our full-time employees.
We design our employee benefits programs to be affordable and
competitive in relation to the market as well as compliant with
applicable laws and practices. We adjust our employee benefits
programs as needed based upon regular monitoring of applicable
laws and practices and the competitive market.
Except as described in this prospectus, historically we have not
provided perquisites or other personal benefits to our executive
officers. Currently, we do not view perquisites or other
personal benefits as a significant component of our executive
compensation program. In the future, however, we may provide
such items in limited circumstances, such as where we believe it
is appropriate to assist an individual in the performance of his
or her duties, to make our executive officers more efficient and
effective, and for recruitment, motivation, or retention
purposes. All future practices with respect to perquisites or
other personal benefits will be approved and subject to periodic
review by the compensation committee.
Post-Employment
Compensation
The initial terms and conditions of employment of each of the
named executive officers were set forth in written offer
letters. With the exception of his own offer letter, each of
these agreements was negotiated on our behalf by our then-chief
executive officer, with the oversight and approval of our board
of directors.
In filling these executive positions, our board of directors was
aware that it would be necessary to recruit candidates with the
requisite experience and skills to manage a growing business in
a unique market niche. Accordingly, it recognized that it would
need to develop competitive compensation packages to attract
qualified candidates in a dynamic labor market. At the same
time, our board of directors was sensitive to the need to
integrate new executives into the executive compensation
structure that it was seeking to develop, balancing both
competitive and internal equity considerations.
Each of these employment offer letters provided for an initial
base salary, an annual cash bonus opportunity (except that
Mr. Owens did not have such bonus opportunity in his offer
letter and Mr. Groves had a commission opportunity), and an
equity award in the form of a stock option and, in the case of
our chief executive officer, a restricted stock award. These
employment offer letters also provided the named executive
officers with certain cash severance in the event of their
termination of employment without cause and certain vesting
acceleration upon a termination without cause or a constructive
termination following a change in control of our company for
Messrs. Owens, ODonnell, Jeter and Barca-Hall.
In February 2010, we entered into written employment agreements
with each of our named executive officers, which set forth the
terms of their employment, including their compensation. These
employment agreements superseded and replaced the existing
employment offer letters with each of our named executive
officers. At that time, our board of directors, at the
recommendation of the compensation committee, also adopted a
standard policy for the payment of severance and change in
control benefits to our named executive officers. Under this new
policy, the terms and conditions of which are reflected in their
written employment agreements, the rights of our named executive
officers with respect to specific events, including an
involuntary termination of employment or an involuntary
termination in connection with or following a change in control
of our company, are established on a uniform basis.
Our board of directors adopted this new policy because it serves
several objectives. First, this approach is more transparent,
both internally and externally. Internal transparency eliminates
the need to negotiate separation benefits on a
case-by-case
basis. It also assures an executive officer that his or her
severance benefits are comparable to those of other executives
with similar levels of responsibility and tenure. Finally, this
approach is easier for us to administer, as it requires less
time and expense.
87
Each of the named executive officers agreed to relinquish the
severance payments and benefits otherwise provided in his
employment offer letter or otherwise promised by our board of
directors in exchange for entering into an employment agreement
as described above.
We believe that entering into these employment agreements helps
our named executive officers maintain continued focus and
dedication to their assigned duties to maximize stockholder
value, including in the event that there is a potential
transaction that could involve a change in control of our
company. The terms of these agreements were determined after
review by our board of directors and the compensation committee
of our retention goals for each executive and as well as our
analysis of Compensias survey of the severance and change
in control benefits of our peer companies.
For a summary of the material terms and conditions of our new
severance and change in control policy, see Executive
CompensationPotential Payments Upon Termination or Change
in Control.
Other
Compensation Policies
Stock
Ownership Guidelines
As of the date of this prospectus, we have not implemented a
policy regarding minimum stock ownership requirements for our
executive officers, including the named executive officers.
Compensation
Recovery Policy
As of the date of this prospectus, we have not implemented a
policy regarding retroactive adjustments to any cash or
equity-based incentive compensation paid to our executive
officers and other employees where the payments were predicated
upon the achievement of financial results that were subsequently
the subject of a financial restatement.
Tax and
Accounting Considerations
Deductibility
of Executive Compensation
Generally, Section 162(m) of the Internal Revenue Code
disallows a tax deduction to any publicly-held corporation for
any remuneration in excess of $1 million paid in any
taxable year to its chief executive officer and each of its
three next most highly-compensated executive officers (other
than its chief financial officer). Remuneration in excess of
$1 million may be deducted if, among other things, it
qualifies as performance-based compensation within
the meaning of the Internal Revenue Code. In this regard, the
compensation income realized upon the exercise of stock options
granted under a stockholder-approved stock option plan generally
will be deductible so long as the options are granted by a
committee whose members are non-employee directors and certain
other conditions are satisfied.
As we are not currently publicly-traded, the compensation
committee has not previously taken the deductibility limit
imposed by Section 162(m) into consideration in setting
compensation for our executive officers. We expect that when the
compensation committee deems advisable, the compensation
committee, will adopt a policy that, where reasonably
practicable, we will seek to qualify the variable compensation
paid to our executive officers for the performance-based
compensation exemption from this deductibility limit. As
such, in approving the amount and form of compensation for our
executive officers in the future, the compensation committee
will consider all elements of the cost to us of providing such
compensation, including the potential impact of
Section 162(m). The compensation committee may, in its
judgment, authorize compensation payments that do not comply
with the exemptions in Section 162(m) when it believes that
such payments are appropriate to attract and retain executive
talent.
Taxation
of Parachute Payments
Sections 280G and 4999 of the Internal Revenue Code provide
that executive officers, persons who hold significant equity
interests and certain other highly-compensated service providers
may be subject to an excise tax if they receive payments or
benefits in connection with a change in control of our company
that exceeds certain prescribed limits, and that our company (or
a successor) may forfeit a deduction on the amounts subject to
this additional tax. We did not provide any executive officer,
including any named executive officer,
88
with a
gross-up
or other reimbursement payment for any tax liability that he or
she might owe as a result of the application of
Sections 280G or 4999 during 2009 and we have not agreed
and are not otherwise obligated to provide any executive
officer, including any named executive officer, with such a
gross-up
or other reimbursement.
Accounting
for Stock-Based Compensation
We follow the Financial Accounting Standards Boards
Accounting Standards Codification, or ASC, Topic 718,
CompensationStock Compensation, for our stock-based
compensation awards. ASC 718 requires companies to calculate the
grant date fair value of their stock-based awards
using a variety of assumptions. This calculation is performed
for accounting purposes and reported in the compensation tables
below, even though recipients may never realize any value from
their awards. ASC 718 also requires companies to recognize the
compensation cost of their stock-based awards in their income
statements over the period that an employee is required to
render service in exchange for the award.
89
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The following table presents, for services rendered to us for
2009, summary information regarding the total compensation
awarded to, earned by, or paid to each of the named executive
officers.
2009
Summary Compensation Table
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Non-Equity
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Option
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Incentive Plan
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All Other
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Salary
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Bonus
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Stock
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Awards
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Compensation
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Compensation
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Name and Principal Position
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($)
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($)
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Awards ($)
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($)
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($) (1)
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($) (2)
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Total ($)
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Gregory J. Owens
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$
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350,000
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$
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$
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235,000
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$
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2,990
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$
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587,990
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Chairman and Chief Executive Officer
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Michael J. ODonnell
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250,000
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110,000
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2,990
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362,990
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Chief Financial Officer
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James J. Jeter
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241,250
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110,000
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2,990
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354,240
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Executive Vice President
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Jeffrey L. Barca-Hall
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244,000
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115,000
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2,990
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361,990
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Senior Vice President, Engineering and Chief Technology Officer
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Michael D. Groves
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225,000
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20,000
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58,817
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2,990
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306,807
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Senior Vice President, Sales
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(1)
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The amounts reported in the
Non-Equity Incentive Plan Compensation column for
Messrs. Owens, ODonnell, Jeter and Barca-Hall
represent payments made under our 2009 cash bonus plan. The
amount reported in the Non-Equity Incentive Plan Compensation
column for Mr. Groves represents sales commissions.
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(2)
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For each of the named executive
officers, the amounts reported in the All Other Compensation
column represent a matching contribution under our tax-qualified
Section 401(k) retirement savings plan of $2,450 and a
premium payment of $540 on his life insurance coverage.
|
Grants of
Plan-Based Awards
The named executive officers did not receive any equity awards
during 2009.
2009
Grants of Plan-Based Awards Table
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Grant
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Estimated Future Payments Under Non-Equity Incentive Plan
Awards (1)
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Name
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Date
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Target ($)
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Maximum ($)
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Gregory J. Owens
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$
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$
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Michael J. ODonnell
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James J. Jeter
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Jeffrey L. Barca-Hall
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Michael D. Groves
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75,000
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(1)
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Messrs. Owens, ODonnell,
Jeter and Barca-Hall received bonuses under our 2009 cash bonus
plan, which was a performance-based non-equity incentive plan,
however, no individual threshold, target or maximum
awards were established for or communicated to these named
executive officers. For Mr. Groves, the target award amount
was established under a sales commission arrangement with us.
|
Outstanding
Equity Awards at Year-End
The following table presents, for each of the named executive
officers, information regarding outstanding stock options and
other equity awards held as of December 31, 2009. The
market value of the shares of our
90
common stock reflected in the table is based upon the fair
market value of our common stock on December 31, 2009, as
determined by our compensation committee, which was $4.50 per
share.
2009
Outstanding Equity Awards at Fiscal Year-End Table
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Option Awards
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Stock Awards
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Equity
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Incentive
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Equity
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Plan
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Incentive
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Awards:
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Equity
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Plan
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Market or
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Incentive
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Awards:
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Payout
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Plan
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Number of
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Value of
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Awards:
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Market
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Unearned
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Unearned
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Number of
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Number of
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Number of
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Number of
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Value of
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Shares,
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Shares,
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Securities
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Securities
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Securities
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Shares or
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Shares or
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Units or
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Units or
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Underlying
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Underlying
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Underlying
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Units of
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Units of
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Other
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Other
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Unexercised
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Unexercised
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Unexercised
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Option
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Stock That
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Stock That
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Rights
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Rights
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Options (1)
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Options (1)
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Unearned
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Exercise
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Option
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Have Not
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Have Not
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That Have
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That Have
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(#)
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(#)
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Options
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Price
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Expiration
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Vested
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Vested
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Not Vested
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Not Vested
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Name
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Exercisable
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Unexercisable
|
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(#)
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($)
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Date
|
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(#)
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($)
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(#)
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($)
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Gregory J. Owens
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238,094
|
(2)
|
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170,068 (2)
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$
|
0.98
|
|
|
|
11/07/2017
|
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349,308 (7)
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$
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1,571,886 (8
|
)
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$
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Michael J. ODonnell
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60,975
|
(3)
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129,167 (3)
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1.64
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08/06/2018
|
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9,856
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(3)
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1.64
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08/06/2018
|
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James J. Jeter
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56,250
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(4)
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43,750 (4)
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0.98
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10/31/2017
|
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|
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|
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|
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16,666
|
(4)
|
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33,334 (4)
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1.64
|
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08/06/2018
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Jeffrey L. Barca-Hall
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20,000
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(4)
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0.60
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07/23/2012
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100,000
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(5)
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0.60
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09/17/2015
|
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|
|
|
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Michael D. Groves
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2,969
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(5)
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|
|
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|
|
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0.60
|
|
|
|
09/17/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,678
|
(6)
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|
|
|
|
|
|
0.80
|
|
|
|
02/02/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,000
|
(4)
|
|
1,188 (4)
|
|
|
|
|
0.80
|
|
|
|
05/03/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,810
|
(4)
|
|
7,604 (4)
|
|
|
|
|
0.80
|
|
|
|
03/08/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,458
|
(4)
|
|
13,542 (4)
|
|
|
|
|
1.40
|
|
|
|
04/30/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,739
|
(4)
|
|
12,761 (4)
|
|
|
|
|
1.64
|
|
|
|
11/03/2018
|
|
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|
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|
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|
|
|
|
|
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(1)
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Stock option grants to purchase
shares of our common stock are made under the IronPlanet, Inc.
1999 Stock Plan. The exercise price of these options is equal to
the fair market value of our common stock on the date of grant.
Under the 1999 Stock Plan, the exercise price may be paid in
cash, by check, by delivery of a full-recourse promissory note
satisfying certain specified conditions, by cancellation of
indebtedness, in shares of our common stock having a fair market
value on the date of exercise equal to the aggregate exercise
price of the shares being purchased, by delivery of a
properly-executed exercise notice together with such other
documentation as may be required to effect an exercise and
delivery to us of the sale or loan proceeds required to pay the
exercise price and any applicable taxes, by delivery of an
irrevocable subscription agreement for the shares that obligates
the optionee to take and pay for the shares not more than
12 months after the date of delivery of the subscription
agreement, or by any combination of the foregoing payment
methods. In addition, under certain circumstances an option may
be exercised through a net exercise procedure,
whereby the optionee may elect to receive shares of our common
stock having an aggregate fair market value on the date of
exercise equal to the net value of the portion of the option so
exercised as of the exercise date. All stock options granted
under the 1999 Stock Plan are subject to service-based vesting
requirements.
|
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(2)
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These stock options vest over a
four-year period at the rate of 1/48th of the shares of common
stock underlying the option upon the completion of each month of
service following the vesting commencement date of
August 1, 2007, subject to continued service through each
such vesting date.
|
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(3)
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These stock options vest as to
20,833 shares of common stock on December 7, 2008, as
to an additional 29,167 shares of common stock on
July 7, 2009 and then thereafter at the rate of 1/48th of
the shares of common stock underlying the options each month,
subject to continued service through each such vesting date.
|
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(4)
|
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These stock options vest over a
four-year period at the rate of 1/4th of the shares of common
stock underlying the option on the first anniversary of the
vesting commencement date and then 1/48th of the shares of
common stock underlying the option each month thereafter,
subject to continued service through each such vesting date. The
respective vesting commencement dates, in descending order, are
as follows: September 16, 2007 and August 7, 2008 for
James J. Jeter; July 24, 2002 for Jeffrey L. Barca-Hall;
January 1, 2006, December 31, 2006, February 6,
2008, and November 13, 2008 for Michael D. Groves.
|
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(5)
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These stock options vested as to
all of the shares of common stock underlying the option on the
third anniversary of the vesting commencement date, subject to
continued service through each such vesting date. The respective
vesting commencement dates are as follows: February 4, 2003
for Jeffrey L. Barca-Hall; August 2, 2005 for Michael D.
Groves.
|
91
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|
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(6)
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This stock option vested as to all
of the shares of common stock underlying the option on the first
anniversary of the vesting commencement date of January 1,
2005.
|
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|
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(7)
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This stock award vests as to 1/48th
of the original number of shares of common stock subject to the
award (838,338) upon the completion of each month of service
following the vesting commencement date of August 1, 2007,
subject to continued service through each such vesting date.
|
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|
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(8)
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The market value of the shares was
calculated by multiplying the number of shares that have not
vested by the price per share as of December 31, 2009 of
$4.50.
|
Option
Exercises and Stock Vested
The following table presents, for each of the named executive
officers, the number of shares of our common stock acquired upon
the vesting of restricted stock during the year ended
December 31, 2009, and the aggregate value realized upon
the vesting of such awards. There were no stock options
exercised by any of the named executive officers during 2009.
For purposes of the table, the value realized is based upon the
fair market value of our common stock on the various vesting
dates, as determined by our board of directors or compensation
committee.
2009
Option Exercises and Stock Vested Table
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
Number of Shares
|
|
|
|
Number of Shares
|
|
Value Realized on
|
|
|
|
|
Acquired on
|
|
Value Realized on
|
|
Acquired on
|
|
Vesting
|
|
|
Name
|
|
Exercise (#)
|
|
Exercise ($)
|
|
Vesting (#)
|
|
($) (1)
|
|
|
|
Gregory J. Owens
|
|
|
|
|
|
$
|
|
|
|
|
209,584
|
|
|
$
|
413,929
|
|
|
|
|
|
Michael J. ODonnell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James J. Jeter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey L.
Barca-Hall
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Groves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amount reported reflects
104,792 shares that vested when the fair market value of
our common stock was $1.54 per share, 52,396 shares that
vested when the fair market value of our common stock was $2.26
per share, and 52,396 shares that vested when the fair
market value of our common stock was $2.56 per share.
|
Pension
Benefits
We did not sponsor any defined benefit pension or other
actuarial plan for the named executive officers during 2009.
Nonqualified
Deferred Compensation
We did not maintain any nonqualified defined contribution or
other deferred compensation plans or arrangements for the named
executive officers.
Employment
Agreements
In February 2010, we entered into written employment agreements
with each of the named executive officers. These agreements
provide for at-will employment and establish the
executives base salary at the same 2009 base salary rate,
eligibility to participate in an incentive bonus plan and
standard employee benefit plan participation as of the time of
their execution.
These agreements also contain provisions that provide for
certain payments and benefits in the event of certain
terminations of employment, including a termination of
employment following a change in control of the company. For a
summary of the material terms and conditions of these
provisions, as well as an estimate of the potential payments and
benefits payable to the named executive officers under these
provisions, see Potential Payments Upon Termination
or Change in Control below.
Potential
Payments Upon Termination or Change in Control
Each of the named executive officers is eligible to receive
certain severance payments and benefits in connection with his
termination of employment under various circumstances, including
following a change in
92
control of our company under each officers new employment
agreements with us. For a summary of the material terms and
conditions of the severance and change in control benefits for
each named executive officer, see below.
The estimated potential severance payments and benefits payable
to each named executive officer in the event of termination of
employment as of December 31, 2009 pursuant to his
individual employment agreement are also described below.
The actual amounts that would be paid or distributed to the
named executive officers as a result of one of the termination
events occurring in the future may be different than those
presented below as many factors will affect the amount of any
payments and benefits upon a termination of employment. For
example, some of the factors that could affect the amounts
payable include the named executive officers base salary
and the market price of our common stock. In addition, although
we have entered into individual written arrangements to provide
severance payments and benefits to the named executive officers
in connection with a termination of employment under particular
circumstances, we may mutually agree with the named executive
officers on severance terms that vary from those provided in the
pre-existing arrangements. Finally, in addition to the amounts
presented below, each named executive officer would also be able
to exercise any vested stock options that he held. For more
information about the named executive officers outstanding
equity awards as of December 31, 2009, see the table
captioned 2009 Outstanding Equity Awards at Year-End
Table.
In addition to the severance payments and benefits described in
the named executive officers individual employment
agreements, these executives are eligible to receive any
benefits accrued under our broad-based benefit plans, such as
disability benefits and accrued vacation pay, in accordance with
those plans and policies.
Involuntary
Termination of Employment Not in Connection with Change in
Control
In the event of an involuntary termination of employment
(defined as either a termination of employment by us without
cause or by the executive officer for good
reason) more than two months prior to a change in control:
|
|
|
|
|
Mr. Owens will be eligible to receive:
|
|
|
|
|
|
a cash payment equal to 12 months of his base salary as in
effect as of the date of termination, payable according to our
regular payroll schedule over a
12-month
period; and
|
|
|
|
COBRA premiums for a period of 12 months; and
|
|
|
|
|
|
Messrs. ODonnell, Jeter, Barca-Hall, and Groves will
be eligible to receive:
|
|
|
|
|
|
a cash payment equal to six months of his base salary as in
effect as of the date of termination, payable according to our
regular payroll schedule over a six-month period; and
|
|
|
|
COBRA premiums for a period of six months.
|
Involuntary
Termination of Employment in Connection with Change in
Control
In the event of an involuntary termination of employment
(defined as either a termination of employment by us without
cause or by the executive officer for good
reason) within the two-month period prior to or the
12-month
period following a change in control:
|
|
|
|
|
Mr. Owens will be eligible to receive:
|
|
|
|
|
|
a cash payment equal to 18 months of his (1) base
salary as in effect as of the date of termination and
(2) average actual bonus for the two years preceding the
year in which the termination occurred, collectively payable
according to our regular payroll schedule over an
18-month
period;
|
|
|
|
COBRA premiums for a period of 18 months; and
|
|
|
|
full and immediate vesting of all of the shares of our common
stock underlying any then-outstanding unvested stock options and
other unvested equity awards; and
|
93
|
|
|
|
|
Messrs. ODonnell, Jeter, Barca-Hall, and Groves will
be eligible to receive:
|
|
|
|
|
|
a cash payment equal to 12 months of his (1) base
salary as in effect as of the date of termination and
(2) average actual bonus for the two years preceding the
year in which the termination occurred, collectively payable
according to our regular payroll schedule over a
12-month
period;
|
|
|
|
COBRA premiums for a period of 12 months; and
|
|
|
|
in the case of Mr. ODonnell, full and immediate
vesting of all of the shares of our common stock underlying any
then-outstanding unvested stock options and other unvested
equity awards, and in the case of Messrs. Jeter,
Barca-Hall, and Groves full and immediate vesting of half of the
shares of our common stock underlying any then-outstanding
unvested stock options and other unvested equity awards.
|
The severance and change in control benefits have a four-year
term ending on February 11, 2014 that may be extended upon
the mutual agreement of the parties.
Accordingly, the following tables set forth the potential,
estimated, payments and benefits to which the named executive
officers would have been entitled assuming termination of their
employment as of December 31, 2009, as specified under the
terms and conditions of their respective employment agreements.
Mr. Owens
Potential
Payments and Benefits Upon Termination of Employment
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
Involuntary
|
|
|
|
Termination of
|
|
|
Termination of
|
|
|
|
Employment Not in
|
|
|
Employment in
|
|
|
|
Connection with
|
|
|
Connection with
|
|
Executive Payments and Benefits
(1)
|
|
Change in Control
|
|
|
Change in Control (2)
|
|
|
Severance Payments
|
|
$
|
350,000
|
|
|
$
|
573,750
|
|
Accelerated Vesting of Shares and Stock Options
|
|
|
|
|
|
|
|
|
COBRA Premiums
|
|
|
24,900
|
|
|
|
37,350
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
374,900
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For purposes of this analysis,
Mr. Owens compensation is assumed to be as follows:
current base salary equal to $350,000, average cash bonus for
2008 and 2007 of $32,500, and outstanding unvested stock options
and shares covering 519,376 shares of our common stock.
|
|
|
|
(2)
|
|
Assumes the date of termination of
employment of Mr. Owens was December 31, 2009 and is
the product of (a) the number of accelerated shares and
(b) the fair market value of our common stock determined as
the midpoint of the price range set forth on the cover page of
this prospectus.
|
94
Mr. ODonnell
Potential
Payments and Benefits Upon Termination of Employment
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
Involuntary
|
|
|
|
Termination of
|
|
|
Termination of
|
|
|
|
Employment Not in
|
|
|
Employment in
|
|
|
|
Connection with
|
|
|
Connection with
|
|
Executive Payments and Benefits
(1)
|
|
Change in Control
|
|
|
Change in Control (2)
|
|
|
Severance Payments
|
|
$
|
125,000
|
|
|
$
|
268,750
|
|
Accelerated Vesting of Stock Options
|
|
|
|
|
|
|
|
|
COBRA Premiums
|
|
|
4,002
|
|
|
|
8,004
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
129,002
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For purposes of this analysis,
Mr. ODonnells compensation is assumed to be as
follows: current base salary equal to $250,000, average cash
bonus for 2008 and 2007 of $18,750, and outstanding unvested
stock options covering 129,167 shares of our common stock.
|
|
|
|
(2)
|
|
Assumes the date of termination of
employment of Mr. ODonnell was December 31, 2009
and is the product of (a) the number of accelerated shares
and (b) the fair market value of our common stock
determined as the midpoint of the price range set forth on the
cover page of this prospectus.
|
Mr. Jeter
Potential
Payments and Benefits Upon Termination of Employment
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
Involuntary
|
|
|
|
Termination of
|
|
|
Termination of
|
|
|
|
Employment Not in
|
|
|
Employment in
|
|
|
|
Connection with
|
|
|
Connection with
|
|
Executive Payments and Benefits
(1)
|
|
Change in Control
|
|
|
Change in Control (2)
|
|
|
Severance Payments
|
|
$
|
125,000
|
|
|
$
|
271,250
|
|
Accelerated Vesting of Stock Options
|
|
|
|
|
|
|
|
|
COBRA Premiums
|
|
|
12,450
|
|
|
|
24,900
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
137,450
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For purposes of this analysis,
Mr. Jeters compensation is assumed to be as follows:
current base salary equal to $250,000, average cash bonus for
2008 and 2007 of $21,250, and outstanding unvested stock options
covering 77,084 shares of our common stock.
|
|
|
|
(2)
|
|
Assumes the date of termination of
employment of Mr. Jeter was December 31, 2009 and is
the product of (a) the number of accelerated shares and
(b) the fair market value of our common stock determined as
the midpoint of the price range set forth on the cover page of
this prospectus.
|
Mr. Barca-Hall
Potential
Payments and Benefits Upon Termination of Employment
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
Involuntary
|
|
|
|
Termination of
|
|
|
Termination of
|
|
|
|
Employment Not in
|
|
|
Employment in
|
|
|
|
Connection with
|
|
|
Connection with
|
|
Executive Payments and Benefits
(1)
|
|
Change in Control
|
|
|
Change in Control (2)
|
|
|
Severance Payments
|
|
$
|
122,000
|
|
|
$
|
282,750
|
|
Accelerated Vesting of Stock Options
|
|
|
|
|
|
|
|
|
COBRA Premiums
|
|
|
10,800
|
|
|
|
21,600
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
132,800
|
|
|
$
|
304,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For purposes of this analysis,
Mr. Barca-Halls compensation is assumed to be as
follows: current base salary equal to $244,000 and average cash
bonus for 2008 and 2007 of $38,750. All of his options were
vested as of December 31, 2009.
|
95
Mr. Groves
Potential
Payments and Benefits Upon Termination of Employment
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
Involuntary
|
|
|
|
Termination of
|
|
|
Termination of
|
|
|
|
Employment Not in
|
|
|
Employment in
|
|
|
|
Connection with
|
|
|
Connection with
|
|
Executive Payments and Benefits
(1)
|
|
Change in Control
|
|
|
Change in Control (2)
|
|
|
Severance Payments
|
|
$
|
112,500
|
|
|
$
|
260,896
|
|
Accelerated Vesting of Stock Options
|
|
|
|
|
|
|
|
|
COBRA Premiums
|
|
|
8,760
|
|
|
|
17,520
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
121,260
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For purposes of this analysis,
Mr. Groves compensation is assumed to be as follows:
current base salary equal to $225,000, average cash bonus for
2008 and 2007 of $35,896, and outstanding unvested stock options
covering 35,095 shares of our common stock.
|
|
|
|
(2)
|
|
Assumes the date of termination of
employment of Mr. Groves was December 31, 2009 and is
the product of (a) the number of accelerated shares and
(b) the fair market value of our common stock determined as
the midpoint of the price range set forth on the cover page of
this prospectus.
|
Employee
Benefit and Stock Plans
The following table provides information as of December 31,
2009 regarding compensation plans under which our equity
securities are authorized for issuance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Securities to be
|
|
Weighted Average
|
|
Number of Securities
|
|
|
Issued upon
|
|
Exercise Price of
|
|
Remaining Available
|
|
|
Exercise of
|
|
Outstanding
|
|
for Future Issuance
|
|
|
Outstanding Options,
|
|
Options, Warrants
|
|
Under Equity
|
Plan Category
|
|
Warrants and Rights
|
|
and Rights
|
|
Compensation Plans (1)
|
|
Equity compensation plans approved by stockholders (2)
|
|
|
3,537,951
|
(3)
|
|
$
|
1.05
|
|
|
|
812,603
|
|
Equity compensation plans not approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,537,951
|
|
|
$
|
1.05
|
|
|
|
812,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes securities to be issued
upon the exercise of outstanding options, warrants and rights.
|
|
(2)
|
|
Consists of our 1999 Stock Plan.
|
|
|
|
(3)
|
|
Consists of 3,537,951 shares
of common stock underlying outstanding options.
|
2010
Equity Incentive Plan
Our board of directors adopted our 2010 Equity Incentive Plan,
or 2010 Plan, on February 11, 2010. The 2010 Plan will
become effective on the date of this prospectus. No further
grants will be made under our 1999 Stock Plan after this
offering. However, the options outstanding under the 1999 Stock
Plan will continue to be governed by its existing terms.
Share
Reserve
We have reserved 1,632,500 shares of our common stock for
issuance under the 2010 Plan. The number of shares reserved for
issuance under the 2010 Plan will be increased automatically on
January 1 of each year, starting with January 1, 2011, by a
number equal to the smallest of:
|
|
|
|
|
4% of the shares of common stock outstanding at that
time; and
|
|
|
|
the number of shares determined by our board of directors.
|
96
In general, to the extent that awards under the 2010 Plan are
forfeited or lapse without the issuance of shares or shares are
reacquired by us, those shares will again become available for
awards. All share numbers described in this summary of the 2010
Plan (including exercise prices for options and stock
appreciation rights) are automatically adjusted in the event of
a stock split, a stock dividend, or a reverse stock split.
Administration
The compensation committee of our board of directors will
administer the 2010 Plan. The committee has the complete
discretion to make all decisions relating to the plan and
outstanding awards.
Eligibility
Employees, members of our board of directors who are not
employees and consultants are eligible to participate in our
2010 Plan.
Types of
Award
Our 2010 Plan provides for the following types of awards:
|
|
|
|
|
incentive and nonstatutory stock options to purchase shares of
our common stock;
|
|
|
|
stock appreciation rights;
|
|
|
|
restricted shares of our common stock; and
|
|
|
|
stock units.
|
We generally have granted options to our service providers
because we believe that options offer a more powerful long-term
incentive than restricted shares, stock appreciation rights or
stock units. However, in the future our compensation committee
may consider the grant of restricted shares, stock appreciation
rights or stock units in appropriate circumstances and use such
forms of equity-based compensation in addition to options to
align the interests of our service providers with that of our
stockholders.
Stock
Options and Stock Appreciation Rights
The exercise price for options granted under the 2010 Plan may
not be less than 100% of the fair market value of our common
stock on the option grant date. Optionees may pay the exercise
price by using:
|
|
|
|
|
cash;
|
|
|
|
shares of our common stock that the optionee already owns;
|
|
|
|
an immediate sale of the option shares through a broker approved
by us;
|
|
|
|
a promissory note, if permitted by applicable law; or
|
|
|
|
any other form of payment as the compensation committee
determines.
|
A participant who exercises a stock appreciation right receives
the increase in value of our common stock over the base price.
The base price for stock appreciation rights may not be less
than 100% of the fair market value of our common stock on the
grant date. The settlement value of a stock appreciation right
may be paid in cash or shares of common stock, or a combination
of both.
Options and stock appreciation rights vest at the time or times
determined by the compensation committee. In most cases, they
will vest over a four-year period following the date of grant.
Options and stock appreciation rights also expire at the time
determined by the compensation committee, but in no event more
than 10 years after they are granted. They generally expire
earlier if the participants service terminates earlier. No
participant may receive options or stock appreciation rights
under the 2010 Plan covering more than 250,000 shares in
any fiscal year, except that a new employee may receive options
or stock appreciation rights covering up to 750,000 shares
in the fiscal year in which his or her employment starts.
97
Restricted
Shares and Stock Units
Restricted shares and stock units may be awarded under the 2010
Plan in return for any lawful consideration, and participants
who receive restricted shares or stock units generally are not
required to pay for their awards in cash. In general, these
awards will be subject to vesting. Vesting may be based on
length of service, the attainment of performance-based
milestones, or a combination of both, as determined by the
compensation committee. No participant may receive restricted
shares or stock units with performance-based vesting covering
more than 250,000 shares in any fiscal year, except that a
new employee may receive restricted shares or stock units
covering up to 750,000 shares in the year in which his or
her employment starts. Settlement of vested stock units may be
made in the form of cash, shares of common stock, or a
combination of both.
Change in
Control
The compensation committee may determine that awards granted
under the 2010 Plan will vest or will become exercisable (as
applicable) on an accelerated basis if we experience a change in
control. Awards will be subject to the agreement evidencing a
change in control, as described below. Unvested awards (or
portions thereof) may be treated in any manner permissible by
applicable law, including (without limitation) cancellation for
no consideration. Vested options, stock appreciation rights and
stock units may be continued by us if we are the surviving
corporation or assumed or substituted by the surviving
corporation or its parent with new awards. In addition, vested
options and stock appreciation rights may be cancelled for
consideration equal to the excess of the fair market value of
our common stock as of the closing date of the change in control
over the exercise price of the awards, and vested stock units
may be canceled for a payment equal to the fair market value of
our common stock as of the closing date of the change in control.
A change in control includes:
|
|
|
|
|
a merger or consolidation or any other corporate reorganization
or business combination transaction of our company with or into
another corporation, entity or person;
|
|
|
|
a sale, transfer or other disposition of all or substantially
all of our assets;
|
|
|
|
a proxy contest that results in the replacement of more than 50%
of our directors over a
24-month
period; and
|
|
|
|
an acquisition of 50% or more of our outstanding stock by any
person or group, other than a person related to us (such as a
holding company owned by our stockholders or a trustee or other
fiduciary holding securities under an employee benefit plan of
ours or of a parent or of a subsidiary of ours).
|
Amendments
or Termination
Our board of directors may amend or terminate the 2010 Plan at
any time. If our board of directors amends the plan, it does not
need to ask for stockholder approval of the amendment unless
required by applicable law. The 2010 Plan will continue in
effect for 10 years from its adoption date, unless our
board of directors decides to terminate the plan earlier.
1999
Stock Plan
Our 1999 Stock Plan was adopted by our board of directors and
approved by our stockholders on November 12, 1999. The most
recent amendment to the 1999 Stock Plan was adopted by our board
of directors on May 27, 2010. No further awards will be
made under our 1999 Stock Plan after this offering, but options
outstanding under the 1999 Stock Plan will continue to be
governed by their existing terms.
Share
Reserve
We have reserved an aggregate of 7,964,009 shares for
issuance under our 1999 Stock Plan. In general, if options
granted under our 1999 Stock Plan are canceled or terminated or
otherwise forfeited by a 1999 Stock Plan participant, then those
option shares will again become available for awards under the
1999 Stock Plan.
98
Administration
Our board of directors has administered the 1999 Stock Plan
before this offering and the compensation committee of our board
of directors will administer this plan after this offering.
Before this offering, our board of directors and, after this
offering, our compensation committee has complete discretion to
make all decisions relating to our 1999 Stock Plan.
Eligibility
Employees, members of our board of directors who are not
employees and consultants are eligible to participate in our
1999 Stock Plan.
Types of
Awards
Our 1999 Stock Plan provides for the following types of awards:
|
|
|
|
|
incentive and nonstatutory stock options to purchase shares of
our common stock; and
|
|
|
|
direct awards and sales of shares of our common stock (including
restricted shares).
|
Options
The exercise price for incentive stock options and nonstatutory
stock options granted under the 1999 Stock Plan may not be less
than 100% of the fair market value of our common stock on the
option grant date. Optionees may pay the exercise price by using:
|
|
|
|
|
cash or check;
|
|
|
|
a promissory note;
|
|
|
|
cancellation of indebtedness;
|
|
|
|
shares of common stock that the optionee already owns;
|
|
|
|
an immediate sale of the option shares through a broker
designated by us;
|
|
|
|
an irrevocable subscription agreement for the shares;
|
|
|
|
any combination of the above payment methods; or
|
|
|
|
such other consideration and method of payment permitted by
applicable law.
|
In most cases, our options vest over a four-year period
following the date of grant and generally expire 10 years
after they are granted, unless the optionee ceases service with
us.
Share
Awards
The purchase price for shares awarded under the 1999 Stock Plan
may not be less than 100% of the fair market value of our common
stock on the award grant date. Restricted shares vest at the
times determined by our board of directors.
Merger,
Consolidation or Asset Sale
If we experience a merger, consolidation or asset sale, each
outstanding option or stock purchase right will be assumed or an
equivalent option or right will be substituted by such successor
corporation or a parent or subsidiary of such successor
corporation, unless such successor corporation or a parent or
subsidiary of such successor corporation does not agree to
assume the award or to substitute an equivalent option or right,
in which case such option or stock purchase right will terminate
upon the consummation of the transaction.
Amendments
or Termination
Our board of directors may amend or terminate the 1999 Stock
Plan at any time. If our board of directors amends the plan, it
does not need to ask for stockholder approval of the amendment
unless such amendment increases the number of shares available
for issuance under the 1999 Stock Plan or as otherwise required
by
99
applicable law. No further awards will be made under our 1999
Stock Plan after this offering, and the 1999 Stock Plan will
automatically terminate on November 12, 2019.
Limitations
on Director and Officer Liability and Indemnification
The following description references our certificate of
incorporation and bylaws as will be in effect upon completion of
this offering. Our certificate of incorporation limits the
liability of directors to the maximum extent permitted by
Delaware law. Delaware law provides that directors of a
corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except
liability for:
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any breach of their duty of loyalty to the corporation or its
stockholders;
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acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
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any transaction from which the director derived an improper
personal benefit.
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Our bylaws provide that we will indemnify our directors,
officers, employees and other agents to the fullest extent
permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the
part of indemnified parties. Our bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in
connection with their services to us, regardless of whether our
bylaws permit such indemnification.
We have entered into separate indemnification agreements with
our directors and executive officers, in addition to the
indemnification provided for in our bylaws. These agreements,
among other things, provide that we will indemnify our directors
and executive officers for certain expenses (including
attorneys fees), judgments, fines, penalties and
settlement amounts incurred by a director or executive officer
in any action or proceeding arising out of such persons
services as one of our directors or executive officers, or any
other company or enterprise to which the person provides
services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons
as directors and executive officers.
There is no pending litigation or proceeding involving a
director or executive officer of IronPlanet as to which
indemnification is required or permitted and we are not aware of
any threatened litigation or proceeding that may result in a
claim for indemnification.
Rule 10b5-1
Sales Plans
We expect that all of our executive officers will enter into
stock selling plans in accordance with
Rule 10b5-1
of the Securities Exchange Act of 1934, as amended, and our
insider trading policy prior to the closing of this offering.
100
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions since
January 1, 2007, in which we have been a participant, in
which the amount involved exceeded or will exceed $120,000, and
in which any of our directors, executive officers, beneficial
holders of more than 5% of our capital stock, or entities
affiliated with them, had or will have a direct or indirect
material interest.
Transactions
with Our Principal Stockholders
Voting
Agreement
We are party to a voting agreement, as amended, with certain
holders of our common stock and holders of our preferred stock,
including holders of more than 5% of our capital stock and their
affiliates, that provides for, among other things, certain
rights and obligations with respect to the voting of the
securities subject to the agreement and certain obligations with
respect to the sale of these securities in a transaction
involving our change of control.
Pursuant to the voting agreement, the parties agreed to vote any
shares of our common stock, and any of our other voting
securities held by them, in favor of the election to our board
of directors of: one director that Caterpillar Inc. has the
right to designate, which director seat is currently held by
Stephanie Tilenius; one director that Komatsu America Corp. has
the right to designate, which director seat is currently held by
Mark J. Rubash; one director designated by entities
affiliated with Accel Partners, which director is currently
Arthur Patterson; one director designated by Kleiner Perkins
Caulfield & Byers, which director is currently Ted
Schlein; our chief executive officer, who is currently Gregory
J. Owens; and all nominees agreed upon and nominated by a
majority of the directors listed above in this sentence, which
directors currently are Robert S. Siboni and Robert L. Evans.
Following this offering, we expect that Arthur Patterson, Ted
Schlein, Gregory J. Owens, Robert S. Siboni, Robert L. Evans,
Stephanie Tilenius and Mark J. Rubash will continue to serve as
members of our board of directors until their successors are
duly elected by the holders of our common stock, but we are
under no contractual obligation to retain these individuals as
members of our board of directors.
All of the rights and obligations under the voting agreement,
including rights to designate directors, automatically terminate
upon completion of this offering.
Board
Observer Agreement
We are party to a board observer agreement with Komatsu America
Corp., a holder of more than 5% of our capital stock. The
agreement grants Komatsu America Corp. the right, subject to
certain standard limitations, to appoint one
non-voting
board observer to our board of directors. All rights and
obligations under the board observer agreement automatically
terminate upon completion of this offering.
Investors
Rights Agreement
We are party to an investors rights agreement, as amended,
with certain of our stockholders, including holders of more than
5% of our capital stock and their affiliates. Pursuant to the
investors rights agreement, among other things, the
holders of our convertible preferred stock have the right to
demand that we file a registration statement or request that
their shares be covered by a registration statement that we are
otherwise filing, subject to certain limitations. For a more
detailed description of these rights, see Description of
Capital StockRegistration Rights.
Preferred
Provider Agreements
We have designated certain high-volume sellers as
preferred providers and have entered into agreements
with such sellers. We typically refer to these agreements as
preferred provider agreements. Such agreements include
negotiated special volume-based commission rates for the auction
sales made or auctions hosted on behalf of the preferred
provider. Such commission rates may be at a discount from our
published website standard rates, and may vary based on the
annual volume of sales that the preferred provider conducts
through our auctions. These preferred provider agreements may
also provide for the waiver of certain fees.
The following preferred providers are affiliated with beneficial
holders of more than 5% of our capital stock: Caterpillar
Financial Services Corporation and its corporate affiliates, or
Caterpillar, and Komatsu Financial and its corporate affiliates,
or Komatsu. Komatsu America Corp., the beneficial holder of
shares of
101
our preferred stock representing approximately 7.5% of our
capital stock outstanding as of March 31, 2010, is
affiliated with Komatsu. During the year ended December 31,
2009 and the three months ended March 31, 2010, we
recorded revenue of approximately $1.2 million and
$0.4 million, respectively, from Komatsu, and we expect
Komatsu to continue to sell equipment through our marketplace in
2010. Caterpillar, Inc., the beneficial holder of shares of our
common stock and shares of our preferred stock representing
approximately 9.8% of our capital stock outstanding as of
March 31, 2010, is affiliated with Caterpillar. During the
year ended December 31, 2009 and the three months
ended March 31, 2010, we recorded revenue of approximately
$6.2 million and $1.3 million, respectively, from
Caterpillar, and we expect Caterpillar to continue to sell
equipment through our marketplace in 2010.
Transactions
with Our Directors and Executive Officers
Employment
Agreements with Our Named Executive Officers/Severance
Policy
On February 11, 2010, our board of directors approved
employment agreements with each of our named executive officers,
that, among other things, provide for certain severance and
change of control benefits. These employment agreements
superseded and replaced the existing employment offer letters
with each of our named executive officers. For a description of
these agreements, see Executive
CompensationEmployment Agreements and
Potential Payments Upon Termination or Change in
Control.
Also on February 11, 2010, our board of directors also
adopted a standard policy for the payment of severance and
change in control benefits to our named executive officers.
Under this policy, the terms and conditions of which are
reflected in their written employment agreements, the rights of
our named executive officers with respect to specific events,
including an involuntary termination of employment or an
involuntary termination in connection with or following a change
in control, are established on a uniform basis.
Director
Compensation Policy
Effective upon the closing of this offering, the non-employee
members of our board of directors shall receive compensation
based on our Director Compensation Policy. A description of the
cash and equity compensation and expense reimbursement that
non-employee members of our board of directors are entitled to
receive is contained under the heading
ManagementDirector Compensation.
Indemnification
Agreements
Our amended and restated certificate of incorporation and bylaws
provide that we will indemnify each of our directors and
officers to the fullest extent permitted by Delaware law.
Further, we have entered into separate indemnification
agreements with each of our directors and executive officers. A
general description of these provisions is contained under the
heading, ManagementLimitations on Director and
Officer Liability and Indemnification.
Transactions
with Our Chief Executive Officer, Gregory J. Owens
On November 8, 2007, we loaned Gregory J. Owens, our chief
executive officer, $821,571 pursuant to a secured promissory
note dated November 8, 2007. To secure payment of the note,
Mr. Owens granted us a security interest in
838,338 shares of our common stock (as adjusted for stock
splits, consolidations and the like). The secured promissory
note provided that the unpaid principal amount of the loan bore
interest at 4.39% per year. All loans were repaid by
Mr. Owens in full, and the secured promissory note was
cancelled, in February 2010.
Since January 1, 2007, we have paid approximately $200,550
in the aggregate for our use, for business purposes, of a
hunting plantation of which Mr. Owens is the sole
proprietor.
Transactions
with Our Senior Vice President, Engineering and Chief Technology
Officer, Jeffrey L. Barca-Hall
On March 10, 2000, we loaned Jeffrey L. Barca-Hall, our
senior vice president of engineering and chief technology
officer, $33,150 to purchase shares of our common stock pursuant
to an early exercise notice and restricted stock purchase
agreement between us and Mr. Barca-Hall dated
March 10, 2000. The promissory note provided that the
unpaid principal amount of the loan bore interest at 6.69% per
annum. We also loaned Mr. Barca-Hall $15,000 and $5,000 on
March 30, 2001 and June 30, 2001, respectively,
pursuant to promissory
102
notes that bear interest at 6.69% per year. On September 8,
2004, we extended the maturity date of the March 2000 promissory
note in exchange for the release of potential claims
Mr. Barca-Hall may have against us. In addition, in March
2007, our board of directors approved the forgiveness of a
promissory note with a principal amount of $45,000, previously
assigned to us in 2003 from Mr. Barca-Halls former
employer. All remaining loans under were repaid by
Mr. Barca-Hall in full, and the respective promissory notes
were cancelled, in February 2010.
Transactions
with Our Former Executive Officers
On July 25, 2007, we entered into a separation agreement
with our former chief executive officer, Robert Alleger.
Mr. Alleger tendered his resignation effective on
July 31, 2007. Pursuant to the separation agreement,
Mr. Alleger was paid a cash severance totaling $336,000,
less all applicable withholdings, and was reimbursed for COBRA
premiums for Mr. Alleger and his eligible dependents
through and until August 1, 2008. In exchange for the
severance payment and other benefits, Mr. Alleger provided
a release of potential claims Mr. Alleger may have against
us. Mr. Alleger continues to be bound by an agreement to
observe and maintain the confidentiality of all of our
confidential and proprietary information. At the time of the
separation agreement, Mr. Alleger was fully vested in an
option to purchase 1,106,356 shares of our common stock at
$0.80 per share. As part of the separation agreement, we agreed
to extend the term of the options held by Mr. Alleger to
December 15, 2014. As of March 31, 2010,
938,023 shares of our common stock were available to be
exercised by Mr. Alleger.
On July 8, 2008, we entered into a separation agreement
with our former chief operating officer, William Coleman.
Mr. Coleman tendered his resignation effective on
July 8, 2008. Pursuant to the separation agreement,
Mr. Coleman was paid a cash severance totaling $149,333,
less all applicable withholdings, and was reimbursed for COBRA
premiums for Mr. Coleman and his eligible dependents
through and until April 1, 2009. As of March 31, 2010,
there was approximately $75,000 outstanding under the loan
between Mr. Coleman and us. In exchange for the severance
payment and other benefits, Mr. Coleman provided a release
of potential claims Mr. Coleman may have against us.
Mr. Coleman continues to be bound by an agreement to
observe and maintain the confidentiality of all of our
confidential and proprietary information.
On March 11, 2010, we repurchased 633,542 shares of Series
A-1 convertible preferred stock from Reza Bundy Saadlou, our
former president and chairman and a significant stockholder. We
repurchased these shares at a price of $0.10 per share, for an
aggregate repurchase price of $63,354, pursuant to rights
embodied in a June 2001 separation agreement and mutual release
with Mr. Saadlou. On April 2, 2010, Mr. Saadlou filed suit
against us in Alameda County Superior Court in California,
alleging that we did not have the right to repurchase such
shares and seeking damages. On April 23, 2010, we filed a demand
for arbitration and a motion to stay the litigation.
Policies
and Procedures for Related Party Transactions
We do not currently have a formal, written policy or procedure
for the review and approval of related party transactions;
however, all related party transactions are currently reviewed
and approved by our audit committee.
Effective at the closing of this offering, our audit committee
charter provides that our audit committee shall have the
authority to approve any related party transactions. All of our
directors, officers and employees will be required to report to
the audit committee any related party transaction prior to
entering into the transactions.
We believe that we have executed all of the transactions set
forth above on terms no less favorable to us than we could have
obtained from unaffiliated third parties. It is our intention to
ensure that all future transactions between us and our officers,
directors and principal stockholders and their affiliates are
approved by our audit committee, and are on terms no less
favorable to us than those that we could obtain from
unaffiliated third parties.
103
PRINCIPAL
AND SELLING STOCKHOLDERS
The following table presents the beneficial ownership of our
capital stock as of March 31, 2010, and as adjusted to
reflect the sale of shares of our common stock offered by this
prospectus, by:
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each person, or group of affiliated persons, who is known by us
to own beneficially 5% or more of our voting securities;
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each of our directors;
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each of our named executive officers;
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all of our directors and executive officers as a group; and
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each of the selling stockholders.
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Beneficial ownership is determined in accordance with the rules
of the SEC. All shares of our common stock subject to options or
warrants currently exercisable or exercisable within
60 days of March 31, 2010, are deemed to be
outstanding for the purpose of computing the percentage
ownership of the person holding options, but are not deemed to
be outstanding for computing the percentage of ownership of any
other person.
Unless otherwise indicated by the footnotes below, we believe,
based on the information furnished to us, that each stockholder
named in the table has sole voting and investment power with
respect to all shares beneficially owned, subject to applicable
community property laws.
Percentage of ownership is based on 22,225,368 shares of
common stock outstanding as of March 31, 2010,
and shares
outstanding after this offering, assuming no exercise of the
underwriters overallotment option. The table below assumes
the conversion of all shares of our preferred stock into shares
of our common stock immediately prior to the completion of this
offering.
Unless otherwise indicated in the footnotes to the table, the
address of each individual listed in the table is
c/o IronPlanet,
Inc., 4695 Chabot Drive, Suite 102, Pleasanton,
California 94588.
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Beneficial Ownership
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Beneficial Ownership
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Prior to the Offering
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After the Offering
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Number
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Number
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of Shares
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of Shares
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Beneficially
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Shares Being
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Beneficially
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Owned
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Percent
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Offered
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Owned
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Percent
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Greater than 5% Stockholders:
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Entities affiliated with Accel Partners (1)
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4,317,144
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19.42
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%
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428 University Ave.
Palo Alto, California 94301
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Caterpillar Inc.
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2,166,667
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9.75
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2120 West End Ave.
Nashville, Tennessee 37230
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Komatsu America Corp.
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1,666,667
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7.50
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440 N. Fairway Dr.
Vernon Hills, Illinois 60061
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KPCB Holdings, Inc., as nominee (2)
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4,317,144
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19.42
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2750 Sand Hill Rd.
Menlo Park, California 94025
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Reza Bundy Saadlou (3)
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2,074,853
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9.34
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21 Market St.
Venice, California 90291
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Executive Officers and Directors:
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Gregory J. Owens (4)
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1,085,949
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4.83
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%
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Michael J. ODonnell (5)
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91,666
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*
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James J. Jeter (6)
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88,541
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*
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104
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Beneficial Ownership
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Beneficial Ownership
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Prior to the Offering
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After the Offering
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Number
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Number
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of Shares
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of Shares
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Beneficially
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Shares Being
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Beneficially
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Owned
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Percent
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Offered
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Owned
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Percent
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Jeffrey L. Barca-Hall (7)
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357,000
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1.60
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Michael D. Groves (8)
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140,813
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*
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Robert L. Evans (9)
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4,010
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*
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Arthur Patterson (1)
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4,317,144
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19.42
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Mark J. Rubash
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*
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Ted Schlein (2)
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4,317,144
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19.42
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Roger S. Siboni (10)
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6,875
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*
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Stephanie Tilenius
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*
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All executive officers and directors as a group
(11 persons)
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10,409,142
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46.83
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%
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Other Selling Stockholders:
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*
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Indicates beneficial ownership of
less than 1%.
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(1)
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Includes 2,970,195 shares held
by Accel VII L.P., 742,549 shares held by Accel Internet
Fund III L.P., 388,543 shares held by Accel Investors
99 L.P. and 215,857 shares held by ACP Family
Partnership L.P. Accel VII Associates L.L.C. is the General
Partner of Accel VII L.P. and has the sole voting and investment
power. James W. Breyer, Arthur C. Patterson, Theresia Gouw
Ranzetta, James R. Swartz and J. Peter Wagner are the Managing
Members of Accel VII Associates L.L.C. and share such powers.
Accel Internet Fund III Associates L.L.C. is the General
Partner of Accel Internet Fund III L.P. and has the sole
voting and investment power. James W. Breyer, Arthur C.
Patterson, Theresia Gouw Ranzetta, James R. Swartz and J. Peter
Wagner are the Managing Members of Accel Internet Fund III
Associates L.L.C. and share such powers. James W. Breyer, Arthur
C. Patterson, Theresia Gouw Ranzetta, James R. Swartz and J.
Peter Wagner are the General Partners of Accel Investors
99 L.P. and therefore share the voting and investment
powers. ACP Family Partnership L.P. is a partnership for the
benefit of the family of Arthur C. Patterson. Arthur C.
Patterson does not control ACP Family Partnership L.P., but its
beneficiaries are members of his household. Each general partner
or managing member disclaims beneficial ownership except to the
extent of their pecuniary interest therein.
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(2)
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Includes 3,356,148 shares held
by Kleiner Perkins Caufield & Byers IX-A, LP. and
103,611 shares held by Kleiner Perkins Caufield &
Byers IX-B,
L.P. and 24,685 shares beneficially held by the Schlein
Family Trust dated April 4, 1999, whose trustee is
Mr. Schlein. Excludes in the case of Mr. Schlein,
832,700 shares held by other individual managers and other
entities and individuals affiliated with Kleiner Perkins
Caufield & Byers as to which Mr. Schlein does not
have voting or dispositive power. Mr. Schlein, who is a
member of the board of directors, is a manager and general
partner of the Kleiner Perkins Caufield & Byers funds
and has shared voting and investment power over these shares.
Shares are held for convenience in the name of KPCB
Holdings, Inc. as nominee for the account of entities
affiliated with Kleiner Perkins Caufield & Byers and
others. Mr. Schlein disclaims beneficial ownership of any
of these shares held by the aforementioned entities except to
the extent of his pecuniary interest therein.
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(3)
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Information with respect to
Mr. Saadlous holdings has been drawn solely from our
existing stock ledger, which does not reflect whether
Mr. Saadlou has sole or shared voting or investment power
with respect to some or all of these shares. Moreover,
Mr. Saadlou has contested our repurchase of
633,542 shares on March 11, 2010 and claims to be the
beneficial owner of 633,542 shares which are not included
in Mr. Saadlous holdings in the table above.
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On March 30, 2010, we received
a request from Mr. Saadlous
ex-wife to
transfer 277,500 shares that she alleges were awarded to
her as her sole and separate property during divorce
proceedings. Those 277,500 shares have not yet been
transferred and are included in Mr. Saadlous holdings
in the table above. Please see Certain Relationships and
Related Transactions and the risk factor on page 18
with respect to the repurchase dispute that could affect the
shares listed in this table as beneficially owned by
Mr. Saadlou.
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(4)
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Includes 100,000 shares held
by the Gregory J. Owens Grantor Annuity Trust, and options to
purchase 280,611 shares of our common stock exercisable
within 60 days of March 31, 2010.
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(5)
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Includes 66,666 shares of our
common stock subject to options that are exercisable within
60 days of March 31, 2010.
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(6)
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Includes 63,541 shares of our
common stock subject to options that are exercisable within
60 days of March 31, 2010.
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(7)
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Includes 120,000 shares of our
common stock subject to options that are exercisable within
60 days of March 31, 2010.
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(8)
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Includes 46,602 shares of our
common stock subject to options that are exercisable within
60 days of March 31, 2010.
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(9)
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Includes 4,010 shares of our
common stock subject to options that are exercisable within 60
days of March 31, 2010.
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(10)
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Includes 6,875 shares of our
common stock subject to options that are exercisable within 60
days of March 31, 2010. Excludes 103,611 shares held
by Kleiner Perkins Caufield &
Byers IX-B,
L.P., or
KPBC IX-B,
Mr. Siboni is a limited partner in
KPCB IX-B;
however, Mr. Siboni does not have voting or dispositive
power with respect to these shares and disclaims beneficial
ownership except to the extent of his pecuniary interest in
these shares.
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105
DESCRIPTION
OF CAPITAL STOCK
General
Upon the closing of this offering, our authorized capital stock,
after giving effect to the amendment and restatement of our
certificate of incorporation, will consist of
100,000,000 shares of common stock, $0.001 par value
and 5,000,000 shares of preferred stock, $0.001 par
value.
The following description of our capital stock and provisions of
our certificate of incorporation and bylaws are summaries and
are qualified by reference to the certificate of incorporation
and bylaws that will be in effect upon the closing of this
offering. Copies of these documents have been filed with the SEC
as exhibits to our registration statement, of which this
prospectus forms a part. The descriptions of the common stock
and preferred stock reflect changes to our capital structure
that will occur upon the closing of this offering.
Common
Stock
As of March 31, 2010, there were 22,225,368 shares of
common stock held of record by approximately 172 stockholders
after giving effect to the conversion of our preferred stock
into common stock. There will
be shares
of common stock outstanding, assuming no exercise of the
underwriters overallotment option and no exercise of
outstanding options, after giving effect to the sale of the
shares of common stock offered by this prospectus. Prior to this
offering, there has not been a public market for our common
stock.
Each holder of common stock is entitled to one vote for each
share on all matters submitted to a vote of the stockholders,
including the election of directors, and no holder has
cumulative voting rights.
Subject to preferences that may be applicable to any then
outstanding preferred stock, holders of common stock are
entitled to receive ratably those dividends, if any, as may be
declared from time to time by the board of directors out of
legally available funds. In the event of our liquidation,
dissolution or winding up, holders of common stock will be
entitled to share ratably in the net assets legally available
for distribution to stockholders after the payment of all of our
debts and other liabilities and the satisfaction of any
liquidation preference granted to the holders of any outstanding
shares of preferred stock. Holders of our common stock have no
preemptive, subscription, redemption or conversion rights.
The rights, preferences and privileges of holders of our common
stock are subject to, and may be adversely affected by, the
rights of holders of shares of any series of preferred stock
that we may designate and issue in the future.
Preferred
Stock
Upon the closing of this offering, the board of directors will
be authorized, subject to any limitations prescribed by law,
without stockholder approval, to issue up to an aggregate of
5,000,000 shares of preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon the preferred stock, including voting
rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences. The rights of the
holders of common stock will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that
may be issued in the future. We have not present plans to issue
any shares of preferred stock.
Issuances of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and for
other corporate purposes, may have the effect of delaying,
deferring or preventing a change in control of our company
without further action by the stockholders. The issuance of
preferred stock with voting and conversion rights may also
adversely affect the voting power of the holders of common
stock. In certain circumstances, an issuance of preferred stock
could have an effect of decreasing the market price of our
common stock.
Pursuant to the automatic conversion provision of our
certificate of incorporation, all outstanding shares of
preferred stock will be converted to common stock on a
one-for-one
basis upon the completion of any public offering with aggregate
gross proceeds to us of not less than $20 million (prior to
underwriting discounts and
106
commissions) and a per-share price to the public of not less
than $12.00 per share. This offering will trigger such an
automatic conversion. We currently have no plans to issue any
other shares of preferred stock.
Warrants
The following table shows the outstanding warrants to purchase
shares of our capital stock as of March 31, 2010.
After completion of this offering, these warrants will remain
outstanding and may be exercised at any time prior to their
respective termination dates, except as described in note 2
to the table below. The following description of the terms of
the warrants outstanding is intended as a summary only and is
qualified in their entirety by reference to the warrants filed
as exhibits to the registration statement, of which this
prospectus forms a part.
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Class of Stock Subject
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Shares Subject
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Exercise Price
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Name of Holder
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to Warrant (1)
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Date of Issuance
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Date of Termination
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to Warrant
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Per Share
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Ring Power Corporation
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Series C convertible preferred stock
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August 28, 2008
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June 30, 2014
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125,000
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$
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8.00
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Ring Power Corporation
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Series C convertible preferred stock
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August 28, 2008
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June 13, 2014
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125,000
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8.00
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Empire Southwest, LLC
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Series C convertible preferred stock
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June 30, 2009
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June 30, 2014
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50,000
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(2)
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8.00
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Empire Southwest, LLC
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Series C convertible preferred stock
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June 30, 2009
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June 30, 2014
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50,000
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(2)
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9.00
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Comdisco, Inc.
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Series A convertible preferred stock
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April 19, 2000
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(3)
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10,943
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3.655
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(1)
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After the completion of this
offering, exercisable for shares of our common stock.
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(2)
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Each of the warrants issued to
Empire Southwest, LLC, or Empire, contains a condition precedent
provision that is tied to the occurrence of certain sales-based
events. As of the date of this prospectus, Empire has satisfied
certain of the sales-based events and the warrants held by
Empire are currently 50% vested.
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(3)
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Terminates on the fifth anniversary
of this offering.
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Registration
Rights
We have entered into an investors rights agreement dated
as of August 28, 2008, as amended, with certain holders of
our common stock and preferred stock. Subject to the terms of
this agreement, holders of 13,278,229 shares of our capital
stock have demand registration rights and can demand we file a
registration statement. In addition, holders of
2,074,853 shares of our capital stock have certain
piggyback registration rights and can request that their shares
be covered by a registration statement that we otherwise file.
The following description of the terms of the investors
rights agreement is intended as a summary only and is qualified
in its entirety by reference to the investors rights
agreement filed as an exhibit to the registration statement, of
which this prospectus forms a part.
Demand
Registration Rights
After the completion of this offering, the holders of
13,278,229 shares of our common stock will be entitled to
demand registration rights. At any time beginning on the earlier
of August 28, 2010 and six months after the consummation of
this offering, the holders of at least a majority of these
shares can, on not more than two occasions, request that we
register the offer and sale of all or a portion of their shares,
subject to customary conditions and limitations. We will not be
required to effect a demand registration (1) if two demand
registrations have previously been made effective,
(2) during the period beginning 60 days prior to the
filing and 180 days following the effectiveness of a
registration statement relating to a public offering of our
securities or (3) if the demand is with respect to shares
the offer and sale of which may be registered immediately on a
registration statement on
Form S-3
as described below under
Form S-3
Registration Rights.
107
Piggyback
Registration Rights
All parties to the investors rights agreement have
piggyback registration rights. Under these provisions, after the
completion of this offering, if we propose to register the offer
and sale of any of our securities under the Securities Act,
either for our own account or for the account of other
stockholders, these stockholders have the right to include their
shares in the registration statement, subject to certain
marketing and other limitations. Piggyback registration rights
will not apply to this offering. In addition, the underwriters
of any underwritten offering will have the right to limit the
number of shares having registration rights to be included in a
registration statement.
Form S-3
Registration Rights
After the completion of this offering, the holders of
13,278,229 shares of our common stock will be entitled to
certain
Form S-3
registration rights. Subject to certain limitations, the holders
of at least 30% of these shares can make a written request that
we register the offer and sale of their shares on
Form S-3,
if
Form S-3
is available to us, provided the aggregate price to the public
of the shares offered is at least $500,000. Stockholders who
have these rights may make an unlimited number of requests for
registration on
Form S-3.
However, we will not be required to effect a registration on
Form S-3
if we have effected two such registrations in a given
12-month
period or during the six months following the effectiveness of a
registration statement covering the sale of our securities
solely for cash.
We will pay the registration expenses of the holders of the
shares registered pursuant to the demand, piggyback and
Form S-3
registrations described above.
In an underwritten offering, the managing underwriter, if any,
has the right, subject to specified conditions, to limit the
number of shares such holders may include.
The demand, piggyback and
Form S-3
registration rights described above will expire, with respect to
any particular stockholder, after the earliest of (1) the
third anniversary of this offering, (2) the end of a
three-month period during which Rule 144 of the Securities
Act or a similar exemption is available for the sale of all of
such stockholders shares and (3) the date on which
such holders shares covered by the investors rights
agreement constitute less than 2% of our outstanding voting
stock.
In addition, pursuant to the investors rights agreement,
subject to certain limitations, each stockholder that has
registration rights has agreed that, to the extent requested by
us and the underwriters, such stockholder will not sell or
otherwise dispose of any securities for a period of up to
180 days.
Effect of
Certain Provisions of Our Amended and Restated Certificate of
Incorporation and Bylaws and the Delaware Anti-Takeover
Statute
Certificate
of Incorporation and Bylaws to Be in Effect Upon the Completion
of this Offering
Our certificate of incorporation to be in effect upon the
completion of this offering will provide for our board of
directors to be divided into three classes with staggered
three-year terms. Only one class of directors will be elected at
each annual meeting of our stockholders, with the other classes
continuing for the remainder of their respective three-year
terms. Because our stockholders do not have cumulative voting
rights, our stockholders holding a majority of the shares of
common stock outstanding will be able to elect all of our
directors. Our certificate of incorporation and bylaws to be
effective upon the completion of this offering will provide that
all stockholder actions must be effected at a duly called
meeting of stockholders and not by a consent in writing, and
that only our board of directors, chairman of the board, chief
executive officer or president (in the absence of a chief
executive officer) may call a special meeting of stockholders.
Our certificate of incorporation and bylaws will require a
662/3%
stockholder vote for the removal of a director without cause or
the rescission, alteration, amendment or repeal of the bylaws by
stockholders. The combination of the classification of our board
of directors, the lack of cumulative voting and the
662/3%
stockholder voting requirements will make it more difficult for
our existing stockholders to replace our board of directors as
well as for another party to obtain control of us by replacing
our board of directors. Since our
108
board of directors has the power to retain and discharge our
officers, these provisions could also make it more difficult for
existing stockholders or another party to effect a change in
management. In addition, the authorization of undesignated
preferred stock makes it possible for our board of directors to
issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change our
control.
These provisions may have the effect of deterring unsolicited
takeover attempts or delaying changes in our control or
management. These provisions are intended to enhance the
likelihood of continued stability in the composition of our
board of directors and its policies and to discourage certain
types of transactions that may involve an actual or threatened
acquisition of us. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. The
provisions also are intended to discourage certain tactics that
may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for
our shares and, as a consequence, they also may inhibit
fluctuations in the market price of our stock that could result
from actual or rumored takeover attempts. Such provisions may
also have the effect of preventing changes in our management.
Section 203
of the Delaware General Corporation Law
We are subject to Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from
engaging in any business combination with any interested
stockholder for a period of three years after the date that such
stockholder became an interested stockholder, with the following
exceptions:
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before such date, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
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upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction began,
excluding for purposes of determining the voting stock
outstanding (but not the outstanding voting stock owned by the
interested stockholder) those shares owned (1) by persons
who are directors and also officers and (2) employee stock
plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
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on or after such date, the business combination is approved by
the board of directors and authorized at an annual or special
meeting of the stockholders, and not by written consent, by the
affirmative vote of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
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In general, Section 203 defines business combination to
include the following:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested
stockholder;
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subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock or any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loss, advances, guarantees, pledges or other financial benefits
by or through the corporation.
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In general, Section 203 defines an interested
stockholder as an entity or person who, together with the
persons affiliates and associates, beneficially owns, or
within three years prior to the time of determination of
interested stockholder status did own, 15% or more of the
outstanding voting stock of the corporation.
109
Acceleration
of Options Upon Change of Control
Generally, under our 1999 Stock Plan and 2010 Equity Incentive
Plan, in the event of certain mergers, a reorganization or
consolidation of our company with or into another corporation or
the sale of all or substantially all of our assets or all of our
capital stock wherein the successor corporation does not assume
outstanding options or issue equivalent options, our board of
directors is required to accelerate vesting of options
outstanding under such plans.
Limitations
on Liability and Indemnification
See Executive CompensationLimitations on Director
and Officer Liability and Indemnification.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock will be
American Stock Transfer & Trust Company LLC.
NASDAQ
Listing
We have applied to list our common stock on The NASDAQ Global
Market under the symbol IRON.
110
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for our
common stock, and although we expect that our common stock will
be approved for listing on The NASDAQ Global Market, we cannot
assure you that there will be an active public market for our
common stock following this offering. Future sales of
substantial amounts of our common stock in the public market
could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale
shortly after this offering because of contractual and legal
restrictions on resale, sales of substantial amounts of our
common stock in the public market after the restrictions lapse
could adversely affect prevailing market prices and our ability
to raise equity capital in the future.
Upon completion of this offering, based on our shares
outstanding as of March 31, 2010, and after giving effect
to the conversion of all shares of outstanding preferred stock,
we will
have shares
of common stock outstanding
(or shares
of common stock if the underwriters exercise their overallotment
option in full). All of the shares sold in this offering will be
freely tradable without restriction or registration under the
Securities Act, except for shares purchased by any of our
affiliates, as that term is defined in Rule 144
under the Securities Act, which generally includes officers,
directors or 10% stockholders. The remaining shares of common
stock held by existing stockholders are restricted
securities within the meaning of Rule 144 under the
Securities Act. These shares may be sold in the public market
only if registered, or if they qualify for an exemption from
registration under the Securities Act, inclusion exemptions
provided by Rule 144 and Rule 701, which are
summarized below.
Rule 144
In general, a person who has beneficially owned restricted
shares of our common stock for at least six months would be
entitled to sell their securities provided that (1) such
person is not deemed to have been one of our affiliates at the
time of, or at any time during the 90 days preceding, a
sale and (2) we are subject to the Exchange Act periodic
reporting requirements for at least 90 days before the
sale. Persons who have beneficially owned restricted shares of
our common stock for at least six months but who are our
affiliates at the time of, or any time during the 90 days
preceding, a sale, would be subject to additional restrictions,
by which such person would be entitled to sell within any
three-month period only a number of securities that does not
exceed the greater of:
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1% of the number of shares of our common stock then outstanding,
which will equal
approximately shares
immediately after this offering
(or shares
assuming exercise by the underwriters of their overallotment
option in full), based on the number of shares of common stock
outstanding as of March 31, 2010; and
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the average weekly trading volume of our common stock on The
NASDAQ Global Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to the sale;
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provided, in each case, that we are subject to the Exchange Act
periodic reporting requirements for at least 90 days before
the sale. Such sales both by affiliates and by non-affiliates
must also comply with the manner of sale, current public
information and notice provisions of Rule 144.
Rule 701
In general, under Rule 701 a person who purchased shares of
our common stock pursuant to a written compensatory plan or
contract and who is not deemed to have been one of our
affiliates during the immediately preceding 90 days may
sell these shares in reliance upon Rule 144, but without
being required to comply with the notice, manner of sale or
public information requirements or volume limitation provisions
of Rule 144. Rule 701 also permits affiliates to sell
their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144.
All holders of Rule 701 shares, however, are required
to wait until 90 days after the date of this prospectus
before selling such shares pursuant to Rule 701.
As of March 31, 2010, 5,930,001 shares of our
outstanding common stock had been issued in reliance on
Rule 701 as a result of exercises of stock options. All of
these shares, however, are subject to
lock-up
agreements or market stand-off provisions as discussed above,
and, as a result, these shares will only become
111
eligible for sale at the earlier of the expiration of the
lock-up
period or upon obtaining the consent of the underwriters to
release all or any portion of these shares from the
lock-up
agreements.
Lock-Up
Agreements
We, our directors and officers, the selling stockholders and a
substantial majority of the other holders of our equity
securities have agreed, subject to certain exceptions, not to
offer, sell or transfer any common stock or securities
convertible into or exchangeable or exercisable for common
stock, other than the shares which the selling stockholders may
sell in this offering, for 180 days after the date of this
prospectus without first obtaining the written consent of the
J.P. Morgan Securities Inc. and Deutsche Bank Securities
Inc. subject to specified exceptions and a possible extension of
up to 34 additional days beyond the end of such
180-day
period, after the date of this prospectus. These agreements are
described below under the section captioned
Underwriting.
J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc.
have advised us that they have no present intent or arrangement
to release any shares subject to a
lock-up, and
will consider the release of any
lock-up on a
case-by-case
basis. Upon a request to release any shares subject to a
lock-up,
J.P. Morgan Securities Inc. and Deutsche Bank Securities
Inc. would consider the particular circumstances surrounding the
request, including, but not limited to, the length of time
before the
lock-up
expires, the number of shares requested to be released, reasons
for the request, the possible impact on the market or our common
stock and whether the holder of our shares requesting the
release is an officer, director or other affiliate of ours.
Registration
Rights
On the date beginning 180 days after the date of this
prospectus, the holders of approximately 15,853,082 shares
of our common stock, or their transferees, will be entitled to
certain rights with respect to the registration of the offer and
sale of those shares under the Securities Act. For a description
of these registration rights, please see Description of
Capital StockRegistration Rights. After the offer
and sale of these shares are registered, they will be freely
tradable without restriction under the Securities Act, and a
large number of shares may be sold into the public market. If
that occurs, the market price of our common stock could be
adversely affected.
Stock
Options
As of March 31, 2010, options to purchase a total of
3,994,154 shares of common stock pursuant to our 1999 Stock
Plan were outstanding, of which 2,271,139 were exercisable. We
intend to file a registration statement on
Form S-8
under the Securities Act as promptly as possible after the
completion of this offering to register shares to be issued
pursuant to the 1999 Stock Plan and shares outstanding or
reserved for issuance under our 2010 Equity Incentive Plan. The
registration statement is expected to become effective
immediately upon filing, and shares covered by the registration
statement will then become eligible for sale in the public
markets. As a result, shares issued pursuant to such plans after
the effectiveness of the registration statement will be freely
tradable in the public market, subject to the Rule 144
limitations applicable to affiliates, vesting restrictions and
expiration of
lock-up or
market stand-off agreements.
112
MATERIAL
U.S. FEDERAL INCOME TAX AND ESTATE TAX CONSEQUENCES TO
NON-U.S.
HOLDERS
The following is a summary of the material U.S. federal
income tax and estate tax consequences of the ownership and
disposition of our common stock to
non-U.S. holders,
but does not purport to be a complete analysis of all the
potential tax considerations relating thereto. This summary is
based upon the provisions of the Internal Revenue Code, Treasury
regulations promulgated thereunder, administrative rulings and
judicial decisions, all as of the date hereof. These authorities
may be changed, possibly retroactively, so as to result in
U.S. federal income or estate tax consequences different
from those set forth below. We have not sought any ruling from
the Internal Revenue Service, or the IRS, with respect to the
statements made and the conclusions reached in the following
summary, and there can be no assurance that the IRS will agree
with such statements and conclusions.
This summary also does not address the tax considerations
arising under the laws of any
non-U.S.,
state or local jurisdiction or under U.S. federal gift and
estate tax laws, except to the limited extent below. In
addition, this discussion does not address tax considerations
applicable to an investors particular circumstances or to
investors that may be subject to special tax rules, including,
without limitation:
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banks, insurance companies or other financial institutions;
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persons subject to the alternative minimum tax;
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tax-exempt organizations;
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controlled foreign corporations, passive foreign investment
companies and corporations that accumulate earnings to avoid
U.S. federal income tax;
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dealers in securities or currencies;
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traders in securities that elect to use a
mark-to-market
method of accounting for their securities holdings;
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persons that own, or are deemed to own, more than five percent
of our capital stock (except to the extent specifically set
forth below);
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certain former citizens or long-term residents of the U.S.;
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persons who hold our common stock as a position in a hedging
transaction, straddle, conversion
transaction or other risk reduction transaction;
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persons who do not hold our common stock as a capital asset
(within the meaning of Section 1221 of the Internal Revenue
Code; or
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persons deemed to sell our common stock under the constructive
sale provisions of the Internal Revenue Code.
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In addition, if a partnership or entity classified as a
partnership for U.S. federal income tax purposes holds our
common stock, the tax treatment of a partner generally will
depend on the status of the partner and upon the activities of
the partnership. Accordingly, partnerships that hold our common
stock, and partners in such partnerships, should consult their
tax advisors.
You are urged to consult your tax advisor with respect to the
application of the U.S. federal income tax laws to your
particular situation, as well as any tax consequences of the
purchase, ownership and disposition of our common stock arising
under the U.S. federal estate or gift tax rules or under
the laws of any state, local,
non-U.S. or
other taxing jurisdiction or under any applicable tax treaty.
Non-U.S.
Holder Defined
For purposes of this discussion, you are a
non-U.S. holder
if you are any holder other than:
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an individual citizen or resident of the U.S.;
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a corporation or other entity taxable as a corporation created
or organized in the U.S. or under the laws of the
U.S. or any political subdivision thereof;
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an estate whose income is subject to U.S. federal income
tax regardless of its source; or
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a trust (x) whose administration is subject to the primary
supervision of a U.S. court and which has one or more
U.S. persons who have the authority to control all
substantial decisions of the trust or (y) which has made an
election to be treated as a U.S. person.
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Distributions
We have not made any distributions on our common stock, and we
do not plan to make any distributions for the foreseeable
future. However, if we do make distributions on our common
stock, those payments will constitute dividends for
U.S. tax purposes to the extent paid from our current or
accumulated earnings and profits, as determined under
U.S. federal income tax principles. To the extent those
distributions exceed both our current and our accumulated
earnings and profits, they will constitute a return of capital
and will first reduce your basis in our common stock, but not
below zero, and then will be treated as gain from the sale of
stock.
Any dividend paid to you generally will be subject to
U.S. withholding tax either at a rate of 30% of the gross
amount of the dividend or such lower rate as may be specified by
an applicable income tax treaty. In order to receive a reduced
treaty rate, you must provide us with an IRS
Form W-8BEN
or other appropriate version of IRS
Form W-8
certifying qualification for the reduced rate. A
non-U.S. holder
of shares of our common stock eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may
obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the IRS. If the
non-U.S. holder
holds the stock through a financial institution or other agent
acting on the
non-U.S. holders
behalf, the
non-U.S. holder
will be required to provide appropriate documentation to the
agent, which then will be required to provide certification to
us or our paying agent, either directly or through other
intermediaries.
Dividends received by you that are effectively connected with
your conduct of a U.S. trade or business (and, if an income
tax treaty applies, such dividend is attributable to a permanent
establishment maintained by the
non-U.S. holder
in the U.S.) are exempt from such withholding tax. In order to
obtain this exemption, you must provide us with an IRS
Form W-8ECI
or other applicable IRS
Form W-8
properly certifying such exemption. Such effectively connected
dividends, although not subject to withholding tax, are taxed at
the same graduated rates applicable to U.S. persons, net of
certain deductions and credits, subject to an applicable income
tax treaty providing otherwise. In addition, if you are a
corporate
non-U.S. holder,
dividends you receive that are effectively connected with your
conduct of a U.S. trade or business may also be subject to
a branch profits tax at a rate of 30% or such lower rate as may
be specified by an applicable income tax treaty.
Gain on
Disposition of Common Stock
You generally will not be required to pay U.S. federal
income tax on any gain realized upon the sale or other
disposition of our common stock unless:
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the gain is effectively connected with your conduct of a
U.S. trade or business (and, if an income tax treaty
applies, the gain is attributable to a permanent establishment
maintained by you in the U.S.);
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you are an individual who is present in the U.S. for a
period or periods aggregating 183 days or more during the
calendar year in which the sale or disposition occurs and
certain other conditions are met; or
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our common stock constitutes a U.S. real property interest
by reason of our status as a United States real property
holding corporation for U.S. federal income tax
purposes, or a USRPHC, at any time within the shorter of the
five-year period preceding the disposition or your holding
period for our common stock.
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We believe that we are not currently and will not become a
USRPHC. However, because the determination of whether we are a
USRPHC depends on the fair market value of our U.S. real
property relative to the fair market value of our other business
assets, there can be no assurance that we will not become a
USRPHC in the future. Even if we become a USRPHC, however, as
long as our common stock is regularly traded on an established
securities market, such common stock will be treated as
U.S. real property interests only if you actually or
constructively hold more than five percent of such regularly
traded common stock at any time during the applicable period
that is specified in the Internal Revenue Code.
114
If you are a
non-U.S. holder
described in the first bullet above, you will be required to pay
tax on the net gain derived from the sale under regular
graduated U.S. federal income tax rates, and corporate
non-U.S. holders
described in the first bullet above may be subject to the branch
profits tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty. If you are an individual
non-U.S. holder
described in the second bullet above, you will be required to
pay a flat 30% tax on the gain derived from the sale, which tax
may be offset by U.S. source capital losses (even though
you are not considered a resident of the United States).
You should consult any applicable income tax or other treaties
that may provide for different rules.
Federal
Estate Tax
Our common stock beneficially owned by an individual who is not
a citizen or resident of the U.S. (as defined for
U.S. federal estate tax purposes) at the time of death will
generally be includable in the decedents gross estate for
U.S. federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise. However, it is currently
uncertain how the U.S. federal estate tax will be
implemented and administered in 2010.
Backup
Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of
dividends paid to you, your name and address, and the amount of
tax withheld, if any. A similar report is sent to you. Pursuant
to applicable income tax treaties or other agreements, the IRS
may make these reports available to tax authorities in your
country of residence.
Payments of dividends or of proceeds on the disposition of stock
made to you may be subject to information reporting and backup
withholding at a current rate of 28% unless you establish an
exemption, for example by properly certifying your
non-U.S. status
on a
Form W-8BEN
or another appropriate version of IRS
Form W-8.
Notwithstanding the foregoing, backup withholding and
information reporting may apply if either we or our paying agent
has actual knowledge, or reason to know, that you are a
U.S. person.
Backup withholding is not an additional tax; rather, the
U.S. income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund or
credit may generally be obtained from the IRS, provided that the
required information is furnished to the IRS in a timely manner.
Recently
Enacted Legislation Affecting Taxation of Our Common Stock Held
By or Through Foreign Entities
Recently enacted legislation generally will impose a U.S.
federal withholding tax of 30% on dividends and the gross
proceeds of a disposition of our common stock paid after
December 31, 2012 to a foreign financial institution unless such
institution enters into an agreement with the U.S. government to
withhold on certain payments and to collect and provide to the
U.S. tax authorities substantial information regarding U.S.
account holders of such institution (which includes certain
equity and debt holders of such institution, as well as certain
account holders that are foreign entities with U.S. owners). The
legislation also will generally impose a U.S. federal
withholding tax of 30% on dividends and the gross proceeds of a
disposition of our common stock paid after December 31, 2012 to
a non-financial foreign entity unless such entity provides the
withholding agent with a certification identifying the direct
and indirect U.S. owners of the entity. Under certain
circumstances, a non-U.S. holder might be eligible for refunds
or credits of such taxes. Prospective investors are encouraged
to consult with their own tax advisors regarding the possible
implications of this legislation on their investment in our
common stock.
The preceding discussion of U.S. federal tax
considerations is for general information only. It is not tax
advice. Each prospective investor should consult its own tax
advisor regarding the particular U.S. federal, state and
local and
non-U.S. tax
consequences of purchasing, holding and disposing of our common
stock, including the consequences of any proposed change in
applicable laws.
115
UNDERWRITING
We and the selling stockholders are offering the shares of
common stock described in this prospectus through a number of
underwriters. J.P. Morgan Securities Inc. and Deutsche Bank
Securities Inc. are acting as joint book-running managers of the
offering and as representatives of the underwriters. We have
entered into an underwriting agreement with the representatives
on behalf of the underwriters. Subject to the terms and
conditions of the underwriting agreement, we have agreed to sell
to the underwriters, and each underwriter has severally agreed
to purchase, at the public offering price less the underwriting
discounts set forth on the cover page of this prospectus, the
number of shares of common stock listed next to its name in the
following table:
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Number of
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Name
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Shares
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J.P. Morgan Securities Inc.
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Deutsche Bank Securities Inc.
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Cowen and Company, LLC
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Piper Jaffray & Co.
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Needham & Company, LLC
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Total
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The underwriters are committed to purchase all the common shares
offered by us and the selling stockholders if they purchase any
shares. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting
underwriters may also be increased or the offering may be
terminated.
The underwriters propose to offer the common shares directly to
the public at the initial public offering price set forth on the
cover page of this prospectus and to certain dealers at that
price less a concession not in excess of
$ per share. Any such dealers may
resell shares to certain other brokers or dealers at a discount
of up to $ per share from the
initial public offering price. After the initial public offering
of the shares, the offering price and other selling terms may be
changed by the underwriters. Sales of shares made outside of the
United States may be made by affiliates of the
underwriters. The representatives have advised us that the
underwriters do not intend to confirm discretionary sales in
excess of 5% of the common shares offered in this offering.
The underwriters have an option to buy up
to
additional shares of common stock from the selling stockholders
to cover sales of shares by the underwriters which exceed the
number of shares specified in the table above. The underwriters
have 30 days from the date of this prospectus to exercise
this overallotment option. If any shares are purchased with this
overallotment option, the underwriters will purchase shares in
approximately the same proportion as shown in the table above.
If any additional shares of common stock are purchased, the
underwriters will offer the additional shares on the same terms
as those on which the shares are being offered.
The underwriting discount is equal to the public offering price
per share of common stock less the amount paid by the
underwriters to us per share of common stock. The underwriting
discount is $ per share. The
following table shows the per share and total underwriting
discounts assuming both no exercise and full exercise of the
underwriters option to purchase additional shares.
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Paid by Us
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Paid by Selling Stockholders
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Total
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No Exercise
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Full Exercise
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No Exercise
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Full Exercise
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No Exercise
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Full Exercise
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Per Share
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$
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$
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$
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$
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$
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$
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Total
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We estimate that the total expenses of this offering, including
registration, filing and listing fees, printing fees and legal
and accounting expenses, but excluding the underwriting
discounts, will be approximately $
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116
A prospectus in electronic format may be made available on the
websites maintained by one or more underwriters, or selling
group members, if any, participating in the offering. The
underwriters may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the representatives to underwriters and selling
group members that may make Internet distributions on the same
basis as other allocations.
We and our officers, directors and a substantial majority all of
our holders of equity securities have agreed that, without the
prior written consent of the representatives, for a period of
180 days after the date of this prospectus, we will not
(1) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or
exercisable or exchangeable for common stock (including without
limitation, common stock or such other securities which may be
deemed to be beneficially owned by officers, directors and
holders of equity securities in accordance with the rules and
regulations of the SEC and securities which may be issued upon
exercise of a stock option or warrant), publicly disclose the
intention to make any offer, sale, pledge or disposition, or, in
our case, file or publicly disclose the intention to file a
registration statement relating to any such shares or
securities, (2) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences
of ownership of the common stock or such other securities
(regardless of whether any of these transactions are to be
settled by the delivery of common stock or such other
securities, in cash or otherwise), or (3) in the case of
our officers, directors and holders of our equity securities,
make any demand for or exercise any right with respect to the
registration of any shares of common stock or any security
convertible into or exercisable or exchangeable for common stock.
The foregoing restrictions shall not apply to (A) in each
case, the shares to be sold pursuant to the underwriting
agreement, (B) in our case, (i) any shares of stock
issued upon the exercise of options granted under our equity
incentive plans, (ii) the issuance of securities in
connection with the acquisition by us or any of our subsidiaries
of the securities, businesses, property or other assets of
another person or entity or pursuant to any employee benefit
plan assumed by us in connection with any such acquisition,
(iii) the issuance of securities in connection with joint
ventures, commercial relationships, or other strategic
transactions; provided that, in the case of clauses (ii)
and (iii), (x) the aggregate number of shares issued in all
such acquisitions and transactions does not exceed 5% of our
outstanding common stock following this offering, and
(y) each person to whom such shares are issued executes a
lock-up
letter (C) in the case of our officers, directors and
holders of our equity securities, (i) shares acquired from
the underwriters or in the public market after the close of our
initial public offering, (ii) shares transferred as part of
a bona fide gift or gifts, (iii) transfers to any immediate
family of such person, (iv) transfers to any trustee for
the direct or indirect benefit of such person or the immediate
family of such person, (v) transfers that occur by
operation of law, including a qualified domestic order,
(vi) distributions to limited partners, members or
stockholders of such person, or (vii) to such persons
affiliates or to any investment fund or other entity controlled
or managed by such person, provided that in the case of any
transfer or distribution pursuant to clauses (ii) through
(vii), each donee, trustee, distributee or transferee, as the
case may be, shall execute and deliver to the representatives a
lock-up
letter, and no filing by any party (donor, donee, grantor,
trustee, distributor, distributee, transferor or transferee)
under the Securities Exchange Act of 1934, as amended, or other
public announcement shall be required or shall be made
voluntarily in connection with such transfer or distribution
(other than a filing on a Form 5 made after the expiration
of the
180-day
period referred to above), and (viii) the establishment of
a trading plan pursuant to Rule 10b5-1(c) under the
Securities Exchange of 1934, as amended, for the transfer of
shares of common stock, provided that such plan does not provide
for the transfer of common stock during the
180-day
restricted period.
Notwithstanding the foregoing, if (1) during the last
17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to our company occurs; or
(2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
Notwithstanding the foregoing, in no event will the
lock-up
period extend beyond 214 days after the effective date of
this registration statement.
117
We and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act of 1933.
We have applied to list our common stock on The NASDAQ Global
Market under the symbol IRON.
In connection with this offering, the underwriters may engage in
stabilizing transactions, which involves making bids for,
purchasing and selling shares of common stock in the open market
for the purpose of preventing or retarding a decline in the
market price of the common stock while this offering is in
progress. These stabilizing transactions may include making
short sales of the common stock, which involves the sale by the
underwriters of a greater number of shares of common stock than
they are required to purchase in this offering, and purchasing
shares of common stock on the open market to cover positions
created by short sales. Short sales may be covered
shorts, which are short positions in an amount not greater than
the underwriters overallotment option referred to above,
or may be naked shorts, which are short positions in
excess of that amount. The underwriters may close out any
covered short position either by exercising their overallotment
option, in whole or in part, or by purchasing shares in the open
market. In making this determination, the underwriters will
consider, among other things, the price of shares available for
purchase in the open market compared to the price at which the
underwriters may purchase shares through the overallotment
option. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market
that could adversely affect investors who purchase in this
offering. To the extent that the underwriters create a naked
short position, they will purchase shares in the open market to
cover the position.
The underwriters have advised us that, pursuant to
Regulation M of the Securities Act, they may also engage in
other activities that stabilize, maintain or otherwise affect
the price of the common stock, including the imposition of
penalty bids. This means that if the representatives of the
underwriters purchase common stock in the open market in
stabilizing transactions or to cover short sales, the
representatives can require the underwriters that sold those
shares as part of this offering to repay the underwriting
discount received by them.
These activities may have the effect of raising or maintaining
the market price of the common stock or preventing or retarding
a decline in the market price of the common stock, and, as a
result, the price of the common stock may be higher than the
price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue
them at any time. The underwriters may carry out these
transactions on The NASDAQ Global Market, in the
over-the-counter
market or otherwise.
Prior to this offering, there has been no public market for our
common stock. The initial public offering price will be
determined by negotiations between us and the representatives of
the underwriters. In determining the initial public offering
price, we and the representatives of the underwriters expect to
consider a number of factors including:
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the information set forth in this prospectus and otherwise
available to the representatives;
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our prospects and the history and prospects for the industry in
which we compete;
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an assessment of our management;
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our prospects for future earnings;
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the general condition of the securities markets at the time of
this offering;
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the recent market prices of, and demand for, publicly traded
common stock of generally comparable companies; and
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other factors deemed relevant by the underwriters and us.
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Neither we nor the underwriters can assure investors that an
active trading market will develop for our common shares, or
that the shares will trade in the public market at or above the
initial public offering price.
Other than in the United States, no action has been taken by us
or the underwriters that would permit a public offering of the
securities offered by this prospectus in any jurisdiction where
action for that purpose is required. The securities offered by
this prospectus may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering
material or advertisements in connection with the offer and sale
of any such
118
securities be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with
the applicable rules and regulations of that jurisdiction.
Persons into whose possession this prospectus comes are advised
to inform themselves about and to observe any restrictions
relating to the offering and the distribution of this
prospectus. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities offered by
this prospectus in any jurisdiction in which such an offer or a
solicitation is unlawful.
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling with Article 49(2)(a)
to (d) of the Order (all such persons together being
referred to as relevant persons). The securities are
only available to, and any invitation, offer or agreement to
subscribe, purchase or otherwise acquire such securities will be
engaged in only with, relevant persons. Any person who is not a
relevant person should not act or rely on this document or any
of its contents.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (or each a
Relevant Member State), from and including the date
on which the European Union Prospectus Directive (the EU
Prospectus Directive) is implemented in that Relevant
Member State (the Relevant Implementation Date) an
offer of securities described in this prospectus may not be made
to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the EU Prospectus
Directive, except that it may, with effect from and including
the Relevant Implementation Date, make an offer of shares to the
public in that Relevant Member State at any time:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the EU Prospectus Directive) subject to
obtaining the prior consent of the book-running mangers for any
such offer; or
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in any other circumstances which do not require the publication
by the Issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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For the purposes of this provision, the expression an
offer of securities to the public in relation to any
securities in any Relevant Member State means the communication
in any form and by any means of sufficient information on the
terms of the offer and the securities to be offered so as to
enable an investor to decide to purchase or subscribe for the
securities, as the same may be varied in that Member State by
any measure implementing the EU Prospectus Directive in that
Member State and the expression EU Prospectus Directive means
Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State.
Certain of the underwriters and their affiliates may provide
from time to time in the future certain commercial banking,
financial advisory, investment banking and other services for us
and such affiliates in the ordinary course of their business,
for which they have received and may continue to receive
customary fees and commissions. In addition, from time to time,
certain of the underwriters and their affiliates may effect
transactions for their own account or the account of customers,
and hold on behalf of themselves or their customers, long or
short positions in our debt or equity securities or loans, and
may do so in the future.
At our request, the underwriters have reserved up to 5% of the
shares of common stock being sold in this offering for sale to
certain of our key selling customers, other persons associated
with us, and associates of our officers and directors at the
initial public offering price through a directed share program.
The number of shares available for sale to the general public in
this offering will be reduced to the extent that these reserved
shares are purchased by these persons. Any reserved shares not
purchased by these persons will be offered by the underwriters
to the general public on the same basis as the other shares in
this offering.
119
LEGAL
MATTERS
Orrick, Herrington & Sutcliffe LLP, Menlo Park,
California, which has acted as our counsel in connection with
this offering, will pass on the validity of the common stock
being offered by this prospectus. Certain partners of Orrick,
Herrington & Sutcliffe, LLP hold shares of our common
stock and shares of our common stock to be issued upon
conversion of our Series A Preferred Stock. The
underwriters are represented by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
EXPERTS
The consolidated financial statements included in this
prospectus and elsewhere in the registration statement have been
audited by Grant Thornton LLP, independent registered public
accountants, as indicated in their report with respect thereto,
and is included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the shares of common
stock offered in this prospectus. This prospectus, which forms a
part of the registration statement, does not contain all of the
information included in the registration statement. Certain
information is omitted and you should refer to the registration
statement and its exhibits for that information. With respect to
references made in this prospectus to any contract or other
document of ours, such references are not necessarily complete
and you should refer to the exhibits attached to the
registration statement for copies of the actual contract or
document. The description of each such document is qualified by
its reference.
You may review a copy of the registration statement, including
exhibits and any schedule filed therewith, and obtain copies of
such materials at prescribed rates, at the SECs public
reference room at 100 F Street, NE,
Washington, D.C.
20549-0102.
You may obtain information on the operation of the public
reference room by calling the SEC at
1-800-SEC-0330.
The SEC maintains a website (www.sec.gov) that contains reports,
proxy and information statements and other information regarding
registrants, such as us, that file electronically with the SEC.
As a result of this offering, we will become subject to the
information and reporting requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith,
will file periodic reports, proxy statements and other
information with the SEC. These reports, proxy statements and
other information will be available for inspection and copying
at the public reference room and website of the SEC referred to
above. We also maintain a website at www.ironplanet.com, at
which you may access these materials free of charge as soon as
reasonably practicable after they are electronically file with,
or furnished to, the SEC. The information contained in, or that
can be accessed through, our website is not part of this
prospectus.
120
Report of
Independent Registered Public Accounting Firm
Board of Directors
IronPlanet, Inc.
We have audited the accompanying consolidated balance sheets of
IronPlanet, Inc. and its subsidiaries (the Company)
as of December 31, 2008 and 2009 and the related
consolidated statements of income, convertible preferred stock
and stockholders deficit, and cash flows for each of the
three years in the period ended December 31, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of IronPlanet, Inc. and its subsidiaries as of
December 31, 2008 and 2009, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2009, in conformity
with accounting principles generally accepted in the United
States of America.
San Francisco, California
May 28, 2010
F-2
IRONPLANET,
INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
30,967,600
|
|
|
$
|
30,401,651
|
|
|
$
|
42,636,246
|
|
|
$
|
42,636,246
|
|
Accounts receivable, net of allowance for doubtful account of
$119,540, $160,174 and $138,210
|
|
|
1,117,144
|
|
|
|
3,074,783
|
|
|
|
4,900,372
|
|
|
|
4,900,372
|
|
Accounts receivable - related party
|
|
|
194,379
|
|
|
|
806,692
|
|
|
|
833,439
|
|
|
|
833,439
|
|
Prepaid expenses and other current assets
|
|
|
1,482,469
|
|
|
|
5,040,253
|
|
|
|
6,999,185
|
|
|
|
6,999,185
|
|
Inventory
|
|
|
310,056
|
|
|
|
5,830,220
|
|
|
|
811,918
|
|
|
|
811,918
|
|
Deferred tax assets
|
|
|
|
|
|
|
885,452
|
|
|
|
885,452
|
|
|
|
885,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
34,071,648
|
|
|
|
46,039,051
|
|
|
|
57,066,612
|
|
|
|
57,066,612
|
|
Fixed assets, net
|
|
|
1,771,666
|
|
|
|
2,563,160
|
|
|
|
2,495,209
|
|
|
|
2,495,209
|
|
Goodwill
|
|
|
170,449
|
|
|
|
170,449
|
|
|
|
170,449
|
|
|
|
170,449
|
|
Deposits and other assets
|
|
|
289,552
|
|
|
|
244,307
|
|
|
|
214,137
|
|
|
|
214,137
|
|
Deferred tax assets, net
|
|
|
|
|
|
|
8,269,676
|
|
|
|
8,269,676
|
|
|
|
8,269,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
36,303,315
|
|
|
$
|
57,286,643
|
|
|
$
|
68,216,083
|
|
|
$
|
68,216,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, convertible preferred stock and
stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,533,560
|
|
|
$
|
553,600
|
|
|
$
|
1,217,448
|
|
|
$
|
1,217,448
|
|
Accrued liabilities
|
|
|
2,309,878
|
|
|
|
3,337,260
|
|
|
|
6,244,235
|
|
|
|
5,730,335
|
|
Customer deposits
|
|
|
1,365,027
|
|
|
|
1,770,145
|
|
|
|
1,902,391
|
|
|
|
1,902,391
|
|
Marketplace payables
|
|
|
9,653,310
|
|
|
|
11,029,619
|
|
|
|
18,789,126
|
|
|
|
18,789,126
|
|
Marketplace payables - related party
|
|
|
3,120,547
|
|
|
|
5,456,272
|
|
|
|
3,421,400
|
|
|
|
3,421,400
|
|
Deferred revenue
|
|
|
91,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
18,073,441
|
|
|
|
22,146,896
|
|
|
|
31,574,600
|
|
|
|
31,060,700
|
|
Accrued sales and use tax
|
|
|
1,473,643
|
|
|
|
1,952,817
|
|
|
|
2,026,546
|
|
|
|
2,026,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
19,547,084
|
|
|
|
24,099,713
|
|
|
|
33,601,146
|
|
|
|
33,087,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock, par value $0.001, issuable in
series:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,250,000 authorized shares, 18,031,816, 18,156,816 and
17,523,274 shares issued and outstanding as of
December 31, 2008 and 2009 and March 31, 2010
(unaudited), respectively; no shares issued or outstanding
proforma (unaudited); aggregate liquidation value of $54,657,256
|
|
|
51,340,862
|
|
|
|
52,340,862
|
|
|
|
52,277,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and additional paid-in capital, par value $0.001:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,750,000 authorized shares, 3,943,125, 4,347,429 and
4,702,094 shares issued and outstanding as of
December 31, 2008, 2009 and March 31, 2010
(unaudited), respectively; 22,225,368 shares issued and
outstanding pro forma (unaudited)
|
|
|
2,734,883
|
|
|
|
5,269,316
|
|
|
|
7,413,668
|
|
|
|
60,205,076
|
|
Accumulated other comprehensive income (loss)
|
|
|
(16,716
|
)
|
|
|
31,393
|
|
|
|
(193,527
|
)
|
|
|
(193,527
|
)
|
Accumulated deficit
|
|
|
(37,302,798
|
)
|
|
|
(24,454,641
|
)
|
|
|
(24,882,712
|
)
|
|
|
(24,882,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(34,584,631
|
)
|
|
|
(19,153,932
|
)
|
|
|
(17,662,571
|
)
|
|
|
35,128,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, convertible preferred stock, and
stockholders equity (deficit)
|
|
$
|
36,303,315
|
|
|
$
|
57,286,643
|
|
|
$
|
68,216,083
|
|
|
$
|
68,216,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
IRONPLANET,
INC.
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Revenue
|
|
$
|
16,438,426
|
|
|
$
|
27,460,657
|
|
|
$
|
44,208,557
|
|
|
$
|
7,671,659
|
|
|
$
|
13,590,984
|
|
Revenue - related party
|
|
|
5,592,032
|
|
|
|
7,528,398
|
|
|
|
10,465,839
|
|
|
|
2,640,375
|
|
|
|
2,616,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
22,030,458
|
|
|
|
34,989,055
|
|
|
|
54,674,396
|
|
|
|
10,312,034
|
|
|
|
16,207,793
|
|
Cost of revenue
|
|
|
5,508,538
|
|
|
|
7,507,643
|
|
|
|
11,978,865
|
|
|
|
2,487,510
|
|
|
|
3,495,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
16,521,920
|
|
|
|
27,481,412
|
|
|
|
42,695,531
|
|
|
|
7,824,524
|
|
|
|
12,711,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
10,093,312
|
|
|
|
16,991,377
|
|
|
|
23,889,971
|
|
|
|
5,302,905
|
|
|
|
7,798,187
|
|
Technology
|
|
|
1,425,712
|
|
|
|
1,691,954
|
|
|
|
2,780,663
|
|
|
|
665,213
|
|
|
|
929,887
|
|
General and administrative
|
|
|
4,393,901
|
|
|
|
7,025,926
|
|
|
|
10,865,262
|
|
|
|
2,519,621
|
|
|
|
3,410,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
15,912,925
|
|
|
|
25,709,257
|
|
|
|
37,535,896
|
|
|
|
8,487,739
|
|
|
|
12,138,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
608,995
|
|
|
|
1,772,155
|
|
|
|
5,159,635
|
|
|
|
(663,215
|
)
|
|
|
573,275
|
|
Interest income
|
|
|
668,616
|
|
|
|
413,061
|
|
|
|
64,267
|
|
|
|
36,980
|
|
|
|
1,921
|
|
Other non-operating expense
|
|
|
|
|
|
|
(21,000
|
)
|
|
|
(1,071,693
|
)
|
|
|
(234,000
|
)
|
|
|
(551,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
1,277,611
|
|
|
|
2,164,216
|
|
|
|
4,152,209
|
|
|
|
(860,235
|
)
|
|
|
23,872
|
|
Income tax provision (benefit)
|
|
|
109,846
|
|
|
|
312,920
|
|
|
|
(8,695,948
|
)
|
|
|
23,413
|
|
|
|
451,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,167,765
|
|
|
$
|
1,851,296
|
|
|
$
|
12,848,157
|
|
|
$
|
(883,648
|
)
|
|
|
(428,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.44
|
|
|
$
|
0.63
|
|
|
$
|
3.94
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
0.08
|
|
|
$
|
0.54
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,664,797
|
|
|
|
2,960,735
|
|
|
|
3,260,423
|
|
|
|
3,126,145
|
|
|
|
3,918,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
20,900,123
|
|
|
|
21,981,068
|
|
|
|
23,723,799
|
|
|
|
3,126,145
|
|
|
|
3,918,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per share of common stock
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
$
|
0.60
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
$
|
0.54
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computing proforma net
income (loss) per share of common stock (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
21,356,470
|
|
|
|
|
|
|
|
21,934,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
23,723,799
|
|
|
|
|
|
|
|
21,934,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
IRONPLANET,
INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS DEFICIT
|
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|
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|
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Notes
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Accumulated
|
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Convertible
|
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Common Stock and
|
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Receivable
|
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|
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|
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Other
|
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Total
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Preferred Stock
|
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Additional Paid-in Capital
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From
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Accumulated
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Comprehensive
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Stockholders
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Shares
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Amount
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Shares
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Amount
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Stockholders
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Deficit
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Income (Loss)
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|
Deficit
|
|
Balances at December 31, 2006
|
|
|
17,540,149
|
|
|
$
|
47,423,832
|
|
|
|
|
2,618,797
|
|
|
$
|
1,480,780
|
|
|
$
|
(160,550
|
)
|
|
$
|
(40,248,673
|
)
|
|
$
|
|
|
|
$
|
(38,928,443
|
)
|
Reclassification of stockholders notes
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
(160,550
|
)
|
|
|
160,550
|
|
|
|
(73,186
|
)
|
|
|
|
|
|
|
(73,186
|
)
|
Issuance of common stock for cash upon the exercise of stock
options
|
|
|
|
|
|
|
|
|
|
|
|
95,572
|
|
|
|
61,881
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
61,881
|
|
Issuance of common stock upon exercise of stock options in
exchange for officer note
|
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|
|
|
|
|
|
|
|
|
|
838,339
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|
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|
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|
|
|
|
|
|
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|
|
|
|
|
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Issuance of Series B convertible preferred stock for cash,
net of issuance costs
|
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|
166,667
|
|
|
|
970,964
|
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|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
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|
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|
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|
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|
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Stock-based compensation expense
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
716,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
716,732
|
|
Net income and comprehensive income
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,167,765
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|
|
|
|
|
1,167,765
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|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Balances at December 31, 2007
|
|
|
17,706,816
|
|
|
|
48,394,796
|
|
|
|
|
3,552,708
|
|
|
|
2,098,843
|
|
|
|
|
|
|
|
(39,154,094
|
)
|
|
|
|
|
|
|
(37,055,251
|
)
|
Issuance of common stock for cash upon the exercise of stock
options
|
|
|
|
|
|
|
|
|
|
|
|
390,417
|
|
|
|
245,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245,880
|
|
Issuance of Series C convertible preferred stock for cash,
net of issuance costs
|
|
|
325,000
|
|
|
|
2,946,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,160
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,851,296
|
|
|
|
|
|
|
|
1,851,296
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,716
|
)
|
|
|
(16,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Comprehensive income
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,834,580
|
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|
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|
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|
|
|
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|
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|
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|
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Balances at December 31, 2008
|
|
|
18,031,816
|
|
|
|
51,340,862
|
|
|
|
|
3,943,125
|
|
|
|
2,734,883
|
|
|
|
|
|
|
|
(37,302,798
|
)
|
|
|
(16,716
|
)
|
|
|
(34,584,631
|
)
|
Issuance of common stock for cash upon the exercise of stock
options
|
|
|
|
|
|
|
|
|
|
|
|
404,304
|
|
|
|
307,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307,543
|
|
Issuance of Series C convertible preferred stock for cash
|
|
|
125,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,226,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,226,890
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,848,157
|
|
|
|
|
|
|
|
12,848,157
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,109
|
|
|
|
48,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,896,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
18,156,816
|
|
|
|
52,340,862
|
|
|
|
|
4,347,429
|
|
|
|
5,269,316
|
|
|
|
|
|
|
|
(24,454,641
|
)
|
|
|
31,393
|
|
|
|
(19,153,932
|
)
|
Issuance of common stock for cash upon the exercise of stock
options (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
354,665
|
|
|
|
972,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
972,069
|
|
Repurchase of preferred stock (unaudited)
|
|
|
(633,542
|
)
|
|
|
(63,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,172,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,172,283
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(428,071
|
)
|
|
|
|
|
|
|
(428,071
|
)
|
Foreign currency translation adjustments (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224,920
|
)
|
|
|
(224,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(652,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2010 (unaudited)
|
|
|
17,523,274
|
|
|
$
|
52,277,508
|
|
|
|
|
4,702,094
|
|
|
$
|
7,413,668
|
|
|
$
|
|
|
|
$
|
(24,882,712
|
)
|
|
$
|
(193,527
|
)
|
|
$
|
(17,662,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
IRONPLANET,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,167,765
|
|
|
$
|
1,851,296
|
|
|
$
|
12,848,157
|
|
|
$
|
(883,648
|
)
|
|
$
|
(428,071
|
)
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
285,522
|
|
|
|
508,046
|
|
|
|
846,671
|
|
|
|
185,545
|
|
|
|
285,276
|
|
Stock-based compensation expense
|
|
|
716,732
|
|
|
|
390,160
|
|
|
|
2,226,890
|
|
|
|
547,695
|
|
|
|
1,172,283
|
|
Deferred taxes
|
|
|
|
|
|
|
|
|
|
|
(9,155,128
|
)
|
|
|
|
|
|
|
|
|
Performance warrants
|
|
|
|
|
|
|
|
|
|
|
181,400
|
|
|
|
45,000
|
|
|
|
332,500
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
336,635
|
|
|
|
(985,302
|
)
|
|
|
(1,916,355
|
)
|
|
|
(5,520,195
|
)
|
|
|
(1,906,044
|
)
|
Accounts receivable-related party
|
|
|
(391,705
|
)
|
|
|
304,717
|
|
|
|
(612,313
|
)
|
|
|
(178,225
|
)
|
|
|
(26,747
|
)
|
Prepaid expenses and other current assets
|
|
|
(193,067
|
)
|
|
|
(854,618
|
)
|
|
|
(3,430,012
|
)
|
|
|
(687,203
|
)
|
|
|
(2,192,266
|
)
|
Inventory
|
|
|
(182,090
|
)
|
|
|
55,105
|
|
|
|
(5,517,065
|
)
|
|
|
271,952
|
|
|
|
4,999,706
|
|
Deposits and other assets
|
|
|
17,135
|
|
|
|
(58,154
|
)
|
|
|
48,089
|
|
|
|
51,994
|
|
|
|
30,443
|
|
Accounts payable
|
|
|
343,802
|
|
|
|
985,648
|
|
|
|
(995,530
|
)
|
|
|
(62,987
|
)
|
|
|
683,546
|
|
Accrued liabilities
|
|
|
(251,110
|
)
|
|
|
691,802
|
|
|
|
811,661
|
|
|
|
460,520
|
|
|
|
2,297,865
|
|
Customer deposits
|
|
|
459,268
|
|
|
|
345,941
|
|
|
|
400,930
|
|
|
|
55,888
|
|
|
|
136,188
|
|
Marketplace payables
|
|
|
(1,917,565
|
)
|
|
|
6,886,959
|
|
|
|
1,261,632
|
|
|
|
733,160
|
|
|
|
8,012,197
|
|
Marketplace payables-related party
|
|
|
(124,698
|
)
|
|
|
1,856,253
|
|
|
|
2,335,725
|
|
|
|
3,959,846
|
|
|
|
(2,034,872
|
)
|
Deferred revenue
|
|
|
383,448
|
|
|
|
(364,902
|
)
|
|
|
(91,119
|
)
|
|
|
(91,119
|
)
|
|
|
|
|
Accrued sales and use tax
|
|
|
438,968
|
|
|
|
(14,125
|
)
|
|
|
479,839
|
|
|
|
110,623
|
|
|
|
73,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
1,089,040
|
|
|
|
11,598,826
|
|
|
|
(276,528
|
)
|
|
|
(1,001,154
|
)
|
|
|
11,435,733
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(773,641
|
)
|
|
|
(1,444,279
|
)
|
|
|
(1,656,691
|
)
|
|
|
(156,575
|
)
|
|
|
(218,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(773,641
|
)
|
|
|
(1,444,279
|
)
|
|
|
(1,656,691
|
)
|
|
|
(156,575
|
)
|
|
|
(218,350
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible preferred stock, net of
issuance costs
|
|
|
970,964
|
|
|
|
2,946,066
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
Repurchase of convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,354
|
)
|
Proceeds from exercise of employee stock options
|
|
|
61,881
|
|
|
|
245,880
|
|
|
|
307,543
|
|
|
|
34,257
|
|
|
|
1,263,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,032,845
|
|
|
|
3,191,946
|
|
|
|
1,307,543
|
|
|
|
34,257
|
|
|
|
1,199,687
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
(16,716
|
)
|
|
|
59,727
|
|
|
|
(18,478
|
)
|
|
|
(182,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,348,244
|
|
|
|
13,329,777
|
|
|
|
(565,949
|
)
|
|
|
(1,141,950
|
)
|
|
|
12,234,595
|
|
Cash and cash equivalents at beginning of year
|
|
|
16,289,579
|
|
|
|
17,637,823
|
|
|
|
30,967,600
|
|
|
|
30,967,600
|
|
|
|
30,401,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
17,637,823
|
|
|
$
|
30,967,600
|
|
|
$
|
30,401,651
|
|
|
$
|
29,825,650
|
|
|
$
|
42,636,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
58,278
|
|
|
$
|
436,557
|
|
|
$
|
284,440
|
|
|
$
|
|
|
|
$
|
40,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2007, 2008 and 2009,
and the three months ended March 31, 2009 and 2010
(unaudited)
|
|
NOTE 1
|
THE
COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Organization
and Description of Business
IronPlanet, Inc. (the Company) was incorporated in
Delaware on January 6, 1999. The Companys principal
business is the operation of a marketplace for the buying and
selling of used heavy equipment (e.g., construction, mining,
forestry, agricultural equipment and related peripheral items)
via online marketplace events. In addition, the Company provides
a physical inspection service for equipment listed in its
marketplace.
In May 2007, the Company established a wholly-owned subsidiary
in Australia, IronPlanet Pty Limited. The purpose of this
subsidiary is to develop and operate a used heavy equipment
online marketplace in Asia-Pacific. The principal place of its
business is located in Brisbane, Queensland. The first
Asia-Pacific marketplace event was conducted in February 2008.
In March 2008, the Company established a wholly-owned subsidiary
in Georgia, IronPlanet Real Estate LLC. The purpose of the
subsidiary is to develop an online real estate marketplace
business. This subsidiary had minimal business activity during
2008 and 2009.
In July 2008, the Company established a wholly-owned subsidiary
in Ireland, IronPlanet Limited. The purpose of this subsidiary
is to develop and operate a used heavy equipment online
marketplace in Europe. The first European marketplace event was
conducted in January 2009.
Basis of
Presentation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Correction
of Prior Period Misstatement
During the three months ended March 31, 2010, the Company
discovered an error in the classification and treatment of the
Series A and Series C convertible preferred stock
warrants. Specifically, the Company should have classified these
freestanding warrants, related to shares that are presented
outside of permanent equity, as liabilities on the
Companys consolidated balance sheet as of
December 31, 2009. In addition, the fair value of such
warrants should have been re-measured at December 31, 2009
with changes in fair value recognized as a component of other
non-operating expense in the accompanying consolidated
statements of operations for the year ended December 31,
2009.
Accordingly, the Company determined that net income was
overstated by $87,095 for the year ended December 31, 2009.
The error had no impact on reported cash flows from operating,
financing or investing activities and was considered immaterial
to previously reported results of operations. Since the
cumulative impact of correcting this error would be material to
the results of the quarter ended March 31, 2010, the
Company applied the guidance of Accounting Standards
Codification (ASC) 250 Accounting Changes and
Error Corrections, which requires that the prior period
consolidated financial statements be corrected, even though such
revisions previously were, and continue to be, immaterial to the
prior period consolidated financial statements.
F-7
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables represent the impact of the misstatements
discussed above on the Companys statement of operations
and balance sheet as of and for the year ended December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously
Reported
|
|
|
Adjustment
|
|
|
Revised
|
|
|
Deferred tax assets, net
|
|
$
|
8,220,371
|
|
|
$
|
49,305
|
|
|
$
|
8,269,676
|
|
Accrued liabilities
|
|
|
3,155,860
|
|
|
|
181,400
|
|
|
|
3,337,260
|
|
Convertible preferred stock
|
|
|
52,385,862
|
|
|
|
(45,000
|
)
|
|
|
52,340,862
|
|
Accumulated deficit
|
|
|
(24,367,546
|
)
|
|
|
(87,095
|
)
|
|
|
(24,454,641
|
)
|
Other non-operating expense
|
|
|
(935,293
|
)
|
|
|
(136,400
|
)
|
|
|
(1,071,693
|
)
|
Income tax provision (benefit)
|
|
|
(8,646,643
|
)
|
|
|
(49,305
|
)
|
|
|
(8,695,948
|
)
|
Net income (loss)
|
|
$
|
12,935,252
|
|
|
$
|
(87,095
|
)
|
|
$
|
12,848,157
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.97
|
|
|
$
|
(0.03
|
)
|
|
$
|
3.94
|
|
Diluted
|
|
$
|
0.55
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.54
|
|
Reclassifications
In 2009, the Companys presentation of certain expenses
within its consolidated statements of operations was changed.
Direct auction expenses were previously reported within
operating expenses and are now included in the caption
cost of revenue. Costs for the Companys
customer support, marketplace operations, site operations and
title and lien investigation functions were previously reported
within general and administrative expenses and are now included
within the caption cost of revenue. In connection
with these reclassifications, the Company added the caption
gross profit to its consolidated statements of
operations. Technology expenses were also previously reported in
general and administrative expenses and are now presented in a
separate caption within the consolidated statements of
operations. Stock-based compensation expense related to stock
options retained by a terminated employee that are still subject
to variable plan accounting was reclassified from general and
administrative expenses to other non-operating expense.
The Company believes that the changes in presentation provide a
more meaningful measure of its cost of revenue, technology, and
general and administrative expenses and that gross profit is a
useful, widely accepted measure of profitability. These
reclassifications had no effect on reported consolidated income
before income taxes, net income or per share amounts. Amounts
presented for the years ended December 31, 2007 and 2008
have been reclassified to conform to the current presentation.
The following table provides the amounts reclassified for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
Amounts reclassified to (from):
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
5,508,538
|
|
|
$
|
7,507,643
|
|
Technology expenses
|
|
|
1,425,712
|
|
|
|
1,691,954
|
|
Direct auction expenses
|
|
|
(3,606,001
|
)
|
|
|
(4,896,424
|
)
|
General and administrative expenses
|
|
|
(3,328,249
|
)
|
|
|
(4,324,173
|
)
|
Other non-operating expense
|
|
|
|
|
|
|
21,000
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-8
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Applicable
Accounting Guidance
Any reference in these notes to applicable accounting guidance
is meant to refer to the authoritative non-governmental
accounting principles generally accepted in the United States
(U.S. GAAP) as found in the Financial
Accounting Standards Boards (FASB) ASC.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make judgments,
assumptions, and estimates that affect the amounts reported in
its consolidated financial statements and accompanying notes.
The Companys management regularly assesses these estimates
which primarily affect revenue recognition, the valuation of
accounts receivable, accruals for sales and use taxes, common
stock, stock options and the valuation allowances associated
with deferred tax assets. Actual results could differ from those
estimates, and such differences may be material to the
consolidated financial statements.
Unaudited
Interim Financial Information
The accompanying consolidated balance sheet as of March 31,
2010, the consolidated statements of operations and of cash
flows for the three months ended March 31, 2009 and 2010
and the consolidated statement of stockholders equity and
comprehensive income (loss) for the three months ended
March 31, 2010 are unaudited. The unaudited condensed
interim financial statements have been prepared on the same
basis as the annual consolidated financial statements and, in
the opinion of management, reflect all adjustments, which
include only normal recurring adjustments, necessary to present
fairly the Companys financial position and results of
operations and cash flows for the three months ended
March 31, 2009 and 2010. The financial data and other
information disclosed in these notes to the consolidated
financial statements related to the three-month periods are
unaudited. The results of the three months ended March 31,
2010 are not necessarily indicative of the results to be
expected for the year ending December 31, 2010 or for any
other interim period of for any other future year.
Unaudited
Pro Forma Stockholders Equity
If an initial public offering is consummated that results in the
automatic conversion of the Companys convertible preferred
stock, as described in Note 6, all of the convertible
preferred stock outstanding will automatically convert into
17,523,274 shares of common stock based on the number of
shares of convertible preferred stock outstanding at
March 31, 2010. The unaudited pro forma balance sheet
information at March 31, 2010 gives effect to the automatic
conversion of all outstanding shares of convertible preferred
stock to common stock.
Convertible
Preferred Stock and Warrants
The holders of the outstanding shares of convertible preferred
stock do not have stated redemption rights; however, the rights
and preferences of the convertible preferred stock provide for a
deemed liquidation of the shares in the event of a sale of all
or substantially all of the Companys assets, the merger or
consolidation of the Company, or upon the sale of more than 50%
of the voting power of the Company. The holders of the Series A,
B and C convertible preferred stock control a majority of the
voting power of the Companys capital stock and have the
right to designate a majority of the member of the board of
directors. As a result, the holders of these preferred shares
could force a change in control that would trigger the
liquidation of all series of convertible preferred stock. Such
deemed liquidation could occur outside of the control of the
Companys common stockholders, and accordingly, all shares
of convertible preferred stock have been presented outside of
permanent equity in the accompanying consolidated balance sheets
for all periods presented.
In addition, freestanding warrants related to shares that are
presented outside of permanent equity are classified as
liabilities on the Companys consolidated balance sheets.
The convertible preferred stock warrants are subject to
re-measurement at each balance sheet date, and any change in
fair value is recognized as a
F-9
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
component of other non-operating expense in the accompanying
consolidated statements of operations. The Company will continue
to adjust the liability for changes in fair value until the
earlier of: (1) the exercise or expiration of the warrants
and (2) the completion of a liquidity event, including the
completion of an initial public offering, at which time all
convertible preferred stock warrants will be converted into
warrants to purchase common stock and, accordingly, the
liability will be reclassified to additional paid-in capital.
Cash and
Cash Equivalents
Cash equivalents are highly liquid investments with original
maturities of three months or less at the date of purchase. Cash
equivalents are stated at cost, which approximates fair market
value. At times, cash deposits with banks may exceed federally
insured limits. Cash held with foreign institutions amounted to
$359,939, $665,369 and $3,123,496 as of December 31, 2008
and 2009, and March 31, 2010, respectively.
Concentrations
of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of demand
deposit accounts, money market accounts, and trade accounts
receivable.
The Company provides its services on a credit basis. Accounts
receivable are recorded when billed, advanced or accrued and
represent claims against third parties that will be settled in
cash. The Company generally does not require collateral from its
customers other than nominal deposits. The Company had one
customer that accounted for 11% of accounts receivable at
December 31, 2008, two customers that each accounted for
11% of accounts receivable as of December 31, 2009, and one
customer that accounted for 12% of accounts receivable as of
March 31, 2010.
Revenue
Revenue is comprised primarily of seller commissions, seller
listing and inspection fees and buyer transaction fees derived
from the sale of equipment through the Companys online
marketplace. Transaction fees are charged to buyers as a
transaction settlement cost. Listing fees are charged to sellers
for listing equipment on the Companys marketplace. Revenue
is earned upon the sale of equipment, typically at the
conclusion of a marketplace event, when bidding is concluded and
a winning bid is established, at which time all significant
terms of the sale transaction are known and a determination can
be made that a sale of equipment is complete. Revenue is
recorded net of an allowance for collapse sales, which is an
estimate by management of sales that are expected to collapse or
default based on historical experience with similar buyers. The
Companys historical overall collapse sale experience
factor has been approximately 3% to 4% of total gross
merchandise volume. When an estimate for sales expected to
collapse cannot be made, revenue is recognized when the
equipment is accepted by the buyer and the proceeds are
considered collectible.
In certain situations, the Company responds to requests from
sellers and offers to guarantee minimum sales proceeds to
sellers on certain consignments of equipment. In these
arrangements, the Company is obligated to pay the agreed upon
minimum amount if the consigned equipment lot sells in aggregate
for less than the minimum price. Should the consigned equipment
sell above the minimum price in the aggregate, the Company is
generally entitled to a share of the excess proceeds. The
Companys share of the excess, if any, is recorded as
revenue together with the commission for guaranteed sales. Net
gains and losses on guaranteed arrangements are recorded as
revenue at the time the gain or loss is realized. Excess
proceeds and losses are calculated in total for the consigned
equipment and not on individual pieces of equipment within the
lot.
If certain pieces of equipment within a guaranteed lot remain
unsold in a primary marketplace event, the Company records
commission revenue only to the extent that the commission amount
for the lot is fixed or determinable with respect to the items
that have sold. Losses on guaranteed arrangements are provided
for when the loss is probable and can be reasonably estimated.
During the years ended December 31, 2007, 2008 and 2009,
the Company recorded revenue for guaranteed arrangements, net of
losses, totaling $2,023,086, $762,253, and $1,963,622,
respectively, and during the three months ended March 31,
2009 and 2010, the
F-10
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company recorded revenue for guaranteed arrangements, net of
losses, totaling $427,996 and $1,172,323, respectively.
Revenue also includes the net profit or loss on the sale of
purchased items. Periodically, as an accommodation to certain
sellers and to maintain the liquidity and efficiency of the
Companys marketplace the Company purchases and temporarily
takes title to equipment that is sold through its marketplace in
the same manner as consigned equipment. This occurs when either
(1) a buyer has defaulted on a transaction, in which case
the Company may elect to take the equipment into inventory and
pay the seller, or (2) when the Company has purchased
equipment outright from a seller in advance of a marketplace
event, generally from a seller who desires immediate liquidity.
Sellers maintain physical possession of the equipment at their
location, maintain title to, and are contractually obligated to
maintain insurance on, the equipment up to and through buyer
acceptance of the equipment. In the case of default
transactions, the Company considers such transactions as an
extension of its original arrangement with the seller, and in
the case of purchase transactions, such transactions are
ancillary to its primary consignment model with sellers.
The following table provides supplemental information related to
purchased equipment transactions for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Year Ended December 31,
|
|
|
(unaudited)
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
Gross sale proceeds
|
|
$
|
4,747,919
|
|
|
$
|
7,604,205
|
|
|
$
|
7,107,164
|
|
|
$
|
1,249,450
|
|
|
$
|
9,175,767
|
|
Costs of purchased equipment
|
|
|
4,547,933
|
|
|
|
7,661,846
|
|
|
|
6,528,142
|
|
|
|
1,160,946
|
|
|
|
6,990,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss)
|
|
$
|
199,986
|
|
|
$
|
(57,641
|
)
|
|
$
|
579,022
|
|
|
$
|
88,504
|
|
|
$
|
2,184,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2007, 2008 and 2009, and
the three months ended March 31, 2009 and 2010 the gross
sale proceeds represented 2.1%, 2.2%, 1.6%, 1.4% and 7.1%,
respectively, of the total value of all equipment sold through
the Companys marketplace. The net gains and net loss were
recorded as a component of revenue during the respective
periods. The cost of equipment purchased for resale is recorded
as inventory on the Companys balance sheet and had a
carrying value of $310,056, $5,830,220, and $811,918 as of
December 31, 2008 and 2009, and March 31, 2010,
respectively.
Revenue from other related services, including transportation
coordination, is recognized as services are provided. Sales and
similar taxes assessed by governmental authorities are excluded
from revenues. Deferred revenue consists of unearned seller
commission fees.
Cost of
Revenue
Cost of revenue includes the cost of performing comprehensive
inspections of equipment to be sold in the Companys
marketplace. The inspections are generally performed at the
sellers physical location. Expenses include payroll costs
and related benefits for the Companys employees that
perform and manage field inspection services and the related
inspection report preparation and quality assurance, fees paid
to contractors who also perform field inspections, related
travel and incidental costs for the Companys inspection
service organization, and office and occupancy costs for its
inspection services personnel. Cost of revenue also includes
costs for the Companys customer support, marketplace
operations, site operations and title and lien investigation
functions. Significant components of these costs include
employee compensation, facilities costs, depreciation of
equipment and hosting expenses.
F-11
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Operating
Expenses
Sales
and Marketing
Sales and marketing expenses consists of employee-related
expenses and advertising costs. Employee related expenses
include payroll and related benefits costs for employees
dedicated to sales and marketing efforts, related travel,
training, and other incidental costs incurred by sales and
marketing personnel and outside advertising costs. Payroll costs
include sales commissions earned by sales personnel based on
seller commissions earned by the Company from sellers of
equipment. Advertising costs include costs of promotions and
advertising pieces in various industry trade journals and
periodicals for specific marketplace events, costs of paid
search engine advertising, and costs of email and occasional
direct mail campaigns to website registrants and cost of
participation in trade events.
Technology
Technology expenses include employee salaries and benefits,
outside contractor costs, travel, amortization of software and
hardware costs and other ancillary costs related to the
Companys information technology and website operations
group. These expenses also include the lease and operations
costs related to the Companys third-party data centers,
from which its website is hosted, and various technology license
fees related to outside technology applications that the Company
employs in the delivery of its website and in its internal
operations. Technology costs are expensed as incurred, except
for certain costs relating to the development of internal-use
software and website development, including software used to
upgrade and enhance the Companys websites and processes
supporting its business, which are capitalized and amortized
over three years.
General
and Administrative
General and administrative expenses reflect the costs of the
Companys executive, finance and human resources functions
and include employee salaries, bonuses and benefits, travel and
entertainment costs, office space leases and related occupancy
costs, professional fees including audit, accounting, tax, legal
and other consulting fees, general office supplies, and other
general costs related to operating its business.
Accounts
Receivable
Accounts receivable primarily consists of funds owed by buyers
for equipment sold in the Companys marketplace. The
accounts receivable is generally collected within one week after
the marketplace event. Accounts receivable also include amounts
owed for listing fees and other miscellaneous revenue billed to
certain large customers on a monthly basis.
Allowance
for Doubtful Accounts
The Company makes estimates as to the overall collectability of
accounts receivable and provides an allowance for accounts
receivable considered uncollectible. The Company specifically
analyzes its accounts receivable and historical bad debt
experience, customer concentrations, customer credit-worthiness
and changes in its customer payment terms when evaluating the
adequacy of the allowance for doubtful accounts. Charges
increasing the allowance for doubtful accounts are recorded in
general and administrative expense. When the Company ultimately
concludes that a receivable is uncollectible, the balance is
charged against the allowance for doubtful accounts.
Marketplace
Payables
Marketplace payables consist of funds received from buyers of
equipment and are payable to the sellers or related lien holders
upon closing of the sale.
F-12
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventory
Inventory consists of equipment held for resale and is stated at
the lower of cost or market. Cost is determined using the
specific-identification method.
Fair
Value of Financial Instruments
The fair value of the Companys cash and cash equivalents,
short-term investments, accounts receivable and accounts payable
approximates their carrying values due to the short maturity or
market rate structure of those instruments.
Fair
Value Measurements
During 2008, the Company adopted on a prospective basis new
accounting guidance for financial assets and liabilities that
are re-measured and reported at fair value at each reporting
period. Fair value is now defined as the price that would be
received from selling an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date.
Fair value measurements are classified and disclosed in one of
the following three categories:
Level 1Valuations based on quoted prices in active
markets for identical assets or liabilities.
Level 2Valuations based on other than quoted prices
in active markets for identical assets and liabilities, quoted
prices for identical or similar assets or liabilities in
inactive markets, or other inputs that are observable or can be
corroborated by observable market data for substantially the
full term of the assets or liabilities.
Level 3Valuations based on inputs that are generally
unobservable and typically reflect managements estimates
of assumptions that market participants would use in pricing the
asset or liability.
The Company has cash equivalent investments that are subject to
fair value measurement and are valued using Level 1 inputs.
The Companys redeemable convertible preferred stock
warrants are valued using Level 3 inputs. The change in the
value of the warrant liability is summarized below:
|
|
|
|
|
Fair value as of December 31, 2008
|
|
$
|
|
|
Fair value of warrants vested during the year
|
|
|
45,000
|
|
Change in fair value recorded in other non-operating expense
|
|
|
136,400
|
|
|
|
|
|
|
Fair value as of December 31, 2009
|
|
|
181,400
|
|
Fair value of warrants vested during the three month period
ended March 31, 2010 (unaudited)
|
|
|
255,000
|
|
Change in fair value recorded in other non-operating expense
(unaudited)
|
|
|
77,500
|
|
|
|
|
|
|
Fair value as of March 31, 2010 (unaudited)
|
|
$
|
513,900
|
|
|
|
|
|
|
Deferred
Offering Costs
Deferred offering costs of $143,163 and $1,229,741 consisted
primarily of professional fees directly related to the
Companys proposed initial public offering of its common
stock, and are included in prepaid expenses and other current
assets on the Companys consolidated balance sheet at
December 31, 2009 and March 31, 2010, respectively.
Upon the consummation of the offering, these amounts will be
offset against the proceeds of the offering. If the offering is
terminated, the deferred offering costs will be expensed. There
were no amounts capitalized as of December 31, 2008.
F-13
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property
and Equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated
useful lives of the assets, typically three to five years.
Leasehold improvements are amortized over the shorter of the
estimated useful life of the asset or the life of the lease.
Capitalized
Software Development Costs
The Company capitalizes direct costs related to the development
of the Companys online marketplace platform when the
original code is enhanced to provide new functionality or
features. The Company begins amortizing capitalized software
costs when the software is substantially complete and ready for
its intended use. For the years ended December 31, 2007,
2008 and 2009, the Company capitalized $0, $255,383 and
$378,004, respectively, and for the three months ended
March 31, 2009 and 2010, the Company capitalized $82,226
and $141,835 respectively, primarily related to payroll and
payroll-related costs. Such costs are amortized on a
straight-line basis over three years.
Stock-Based
Compensation
Stock-based compensation expense is recorded for all share-based
payment awards made to employees and directors that are
ultimately expected to vest based upon the awards
estimated grant date fair value.
The Company estimates potential forfeitures and recognizes
compensation cost only for those equity awards expected to vest.
The estimate of forfeitures will be adjusted over the requisite
service period to the extent that actual forfeitures differ, or
are expected to differ, from the prior estimates. Changes in
estimated forfeitures will be recognized in the period of change
and will impact the amount of stock compensation expense to be
recognized in future periods.
Income
Taxes
The Company accounts for income taxes under the asset and
liability method, which requires the recognition of taxes
payable or refundable for the current year, and deferred tax
liabilities and assets for the future tax consequences of events
that have been recognized in the Companys financial
statements or tax returns. The measurement of current and
deferred tax liabilities and assets are based on provisions of
the enacted tax law; the effects of future changes in tax laws
or rates are not anticipated. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount that it believes is more likely than not to be realized.
The Company operates in various tax jurisdictions and is subject
to audit by various tax authorities. Tax positions are based
upon their technical merits, relevant tax law and the specific
facts and circumstances as of each reporting period. Changes in
facts and circumstances could result in material changes to the
amounts recorded for such tax positions.
A tax position is only recognized in the financial statements if
it is more likely than not to be sustained based
solely on its technical merits as of the reporting date. The
Company considers many factors when evaluating and estimating
its tax positions and tax benefits, which may require periodic
adjustments that will result in recognition of additional tax
benefits or additional charges to the tax provision and may not
accurately reflect actual outcomes. The Companys policy is
to recognize interest and penalties relating to uncertain tax
positions related to unrecognized tax benefits as a component of
income tax expense.
Goodwill
The Company accounts for business combinations using the
purchase method in accordance with relevant accounting guidance,
which requires that goodwill not be amortized, but instead be
tested for impairment at least annually, and more frequently
upon the occurrence of certain events that indicate potential
impairment. These tests are performed at the reporting unit
level using a two-step, fair-value based approach, and the
F-14
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Companys operations are organized as two reporting units,
which are equivalent to the Companys reportable segments.
In testing for a potential impairment of goodwill, the Company
first compared the carrying value of assets and liabilities,
including goodwill, to their estimated fair value. Goodwill
impairment exists when the estimated fair value is less than the
carrying value of the assets and liabilities, including goodwill.
The Company used the income approach in order to calculate the
estimated fair value of the reporting units based on estimated
discounted future cash flows. The methodology applied in the
current year analysis was consistent with the methodology
applied in the prior year analysis, but was based on updated
assumptions as appropriate.
The Company completes its annual impairment tests as of
October 1. No impairment charges were recorded during the
years ended December 31, 2007, 2008 and 2009 or the three
months ended March 31, 2009 and 2010. The Companys
goodwill has been allocated to the North America reportable
segment.
Impairment
of Long-Lived Assets
The Company evaluates long-lived assets other than goodwill for
impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable based
on expected undiscounted cash flows attributable to that asset.
The amount of any impairment is measured as the difference
between the carrying value and the fair value of the impaired
asset. There have been no such impairments of long-lived assets
for the years ended December 31, 2007, 2008 and 2009 or the
three months ended March 31, 2009 and 2010.
Advertising
Costs
Advertising costs are expensed when incurred and are included in
sales and marketing expense. Advertising expense for the years
ended December 31, 2007, 2008 and 2009 were $1,575,515,
$2,264,479 and $2,429,970, respectively.
Net
Income Per Share and Pro Forma Net Income Per Share
Basic net income per share attributed to common shares is
computed by dividing the net income for the period by the
weighted-average number of common shares outstanding during the
period as reduced by the weighted average unvested common shares
subject to repurchase by the Company. Diluted net income per
share is computed by dividing the net income for the period by
the weighted-average number of common and potentially dilutive
shares outstanding during the period, to the extent such
potentially dilutive shares are dilutive. Potentially dilutive
shares are composed of incremental common shares issuable upon
the exercise of stock options and warrants, unvested common
shares subject to repurchase and convertible preferred stock.
F-15
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the computation of basic and
diluted net income per share for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Net income (loss)
|
|
$
|
1,167,765
|
|
|
$
|
1,851,296
|
|
|
$
|
12,848,157
|
|
|
$
|
(883,648
|
)
|
|
$
|
(428,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
2,664,797
|
|
|
|
2,960,735
|
|
|
|
3,260,423
|
|
|
|
3,126,145
|
|
|
|
3,918,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute basic net income per
share
|
|
|
2,664,797
|
|
|
|
2,960,735
|
|
|
|
3,260,423
|
|
|
|
|
|
|
|
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants to purchase convertible preferred stock
|
|
|
3,947
|
|
|
|
|
|
|
|
3,390
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
580,733
|
|
|
|
1,203,672
|
|
|
|
2,363,939
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
17,650,646
|
|
|
|
17,816,661
|
|
|
|
18,096,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute diluted net income per
share
|
|
|
20,900,123
|
|
|
|
21,981,068
|
|
|
|
23,723,799
|
|
|
|
3,126,145
|
|
|
|
3,918,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.44
|
|
|
$
|
0.63
|
|
|
$
|
3.94
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
0.08
|
|
|
$
|
0.54
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following shares were excluded from the computation of
diluted earnings per share, as their effect would have been
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,031,811
|
|
|
|
18,016,024
|
|
Employee stock options
|
|
|
488,262
|
|
|
|
690,664
|
|
|
|
2,500
|
|
|
|
1,798,857
|
|
|
|
2,278,396
|
|
Warrants to purchase convertible preferred stock
|
|
|
|
|
|
|
10,943
|
|
|
|
|
|
|
|
10,943
|
|
|
|
10,943
|
|
Performance-based warrants vested
|
|
|
|
|
|
|
|
|
|
|
119,863
|
|
|
|
104,167
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
488,262
|
|
|
|
701,607
|
|
|
|
122,363
|
|
|
|
19,945,778
|
|
|
|
20,555,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based awards, which consist of performance-based
warrants issued in connection with convertible preferred stock
issuances, are included in the diluted shares outstanding each
period if established performance criteria have been met at the
end of the respective periods. However, if none of the required
F-16
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
performance criteria have been met for such awards then the
Company excludes the shares of such awards from its diluted
shares outstanding.
Accordingly, weighted average shares of 844,053, 1,229,274,
836,613, 982,565, and 662,565 shares have been excluded
from the dilutive shares outstanding for the years ended
December 31, 2007, 2008 and 2009 and the three months ended
March 31, 2009 and 2010, respectively. Furthermore, these
shares are not included as a component of the anti-dilutive
shares because they are not considered potential common shares
based on the status of the performance criteria included therein.
Pro forma basic and diluted net income per share of common stock
have been computed to give effect to the conversion of the
Companys convertible preferred stock (using the
if-converted method) into common stock as though the conversion
had occurred on the original dates of issuance.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
Net income (loss)
|
|
$
|
12,848,157
|
|
|
$
|
(428,071
|
)
|
|
|
|
|
|
|
|
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute basic net income per
share
|
|
|
3,260,423
|
|
|
|
3,918,143
|
|
Pro forma adjustments to reflect assumed weighted effect of
conversion of convertible preferred stock
|
|
|
18,096,047
|
|
|
|
18,016,024
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute basic pro forma net
income per share
|
|
|
21,356,470
|
|
|
|
21,934,167
|
|
|
|
|
|
|
|
|
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute diluted net income per
share
|
|
|
23,723,799
|
|
|
|
3,918,143
|
|
Pro forma adjustments to reflect assumed weighted effect of
conversion of convertible preferred stock
|
|
|
|
|
|
|
18,016,024
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute diluted pro forma net
income per share
|
|
|
23,723,799
|
|
|
|
21,934,167
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.60
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.54
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
The Company reports by major components and as a single total,
the change in its net assets during the period from nonowner
sources. Comprehensive income consists of net income and other
comprehensive income, which includes certain changes in equity
that are excluded from net income. Specifically, it includes
foreign currency translation adjustments. Comprehensive income
for the years ended December 31, 2007, 2008 and 2009 and
the three months ended March 31, 2010 is included within
the consolidated statement of convertible preferred stock and
stockholders deficit.
Recent
Accounting Pronouncements
In June 2009, the FASB issued an update to ASC 810,
Consolidation, which modifies how a company determines
when an entity that is insufficiently capitalized or is not
controlled through voting (or similar
F-17
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
rights) should be consolidated. The modification clarifies that
the determination of whether a company is required to
consolidate an entity is based on, among other things, an
entitys purpose and design and a companys ability to
direct the activities of the entity that most significantly
impact the entitys economic performance. This modification
to ASC 810 requires an ongoing reassessment of whether a company
is the primary beneficiary of a variable interest entity. It
also requires additional disclosures about a companys
involvement in variable interest entities and any significant
changes in risk exposure due to that involvement. This
modification to ASC 810 is effective for fiscal years beginning
after November 15, 2009 and is effective for the Company on
January 1, 2010. The Company expects this modification may
have an impact on the Companys financial position and
results of operations in future periods, but the nature and
magnitude of the specific effects will depend upon the nature,
terms and size of the transactions the Company consummates in
the future.
In October 2009, the FASB issued an amendment to
ASC 605-25,
Multiple Element Arrangements, which modifies how a
company separates consideration in multiple-delivery
arrangements. The amendment establishes a selling price
hierarchy for determining the selling price of a deliverable.
The amendment also clarifies the allocation of revenue is based
on entity-specific assumptions rather than assumptions of a
marketplace participant. The amendment also eliminates the
residual method of allocating revenue and requires the use the
relative selling price method. This amendment to ASC
605-25 is
effective for new revenue arrangements entered into or modified
in fiscal years beginning after June 15, 2010. Early
adoption is permitted. The adoption of this amendment is not
expected to have a material impact on the Companys
consolidated financial statements.
In October 2009, the FASB issued an amendment to
ASC 985-605,
Software-Revenue Recognition, which modifies the
accounting model for revenue arrangements that include both
tangible products and software elements. This amendment to ASC
985-605 is
effective for new revenue arrangements entered into or modified
in fiscal years beginning after June 15, 2010. Early
adoption is permitted. The Company does not sell products that
include both tangible products and software elements, therefore
this amendment will not impact the Companys consolidated
financial statements.
|
|
NOTE 2
|
RELATED-PARTY
TRANSACTIONS
|
The Company has entered into agreements with five suppliers to
sell used heavy equipment in the Companys marketplace.
These five suppliers are investors in the Companys
convertible preferred stock and two of these suppliers were
represented on the Companys board of directors as of
December 31, 2009 though each had resigned from the board
as of March 31, 2010. During the years ended
December 31, 2007, 2008 and 2009, and the three months
ended March 31, 2009 and 2010, the Company recorded revenue
from these suppliers totaling $5,592,032, $7,528,398,
$10,465,839, $2,640,375 and $2,616,809, respectively. Amounts
owed from these suppliers for billings of marketplace related
services as of December 31, 2008 and 2009 and
March 31, 2010 were $194,379, $806,692 and $833,439,
respectively. Amounts owed to these suppliers for sales proceeds
as of December 31, 2008 and 2009 and March 31, 2010
were $3,120,547 and $5,456,272 and $3,421,400, respectively.
Cost of revenue is not tracked on a per item or on a per
customer basis for equipment sold in the Companys
marketplace as these costs are generally consistent across the
Companys customer base. The Company has no reasonable
basis for tracking costs separately for such equipment.
Accordingly, the Company has not separately disclosed related
party cost of revenue on its consolidated statements of income.
The Company uses its chief executive officers personally
owned hunting plantation for sales and marketing meetings and
entertaining customers. The total fees billed to the Company for
use of the plantation during the years ended December 31,
2007, 2008, and 2009 and the three months ended March 31,
2009 and 2010 was $8,700, $49,760, $78,790, $32,950 and $30,350,
respectively. As of December 31, 2008 and 2009 and
March 31, 2010, the Company owed its chief executive
officer $11,000 and $7,705 and $0, respectively.
For information regarding additional related-party transactions,
see also Note 7 regarding notes receivable held by the
Company and issued by certain officers.
F-18
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fixed assets, which include software developed for internal use,
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Computer equipment and software
|
|
$
|
3,300,347
|
|
|
$
|
4,393,022
|
|
Furniture and fixtures
|
|
|
185,908
|
|
|
|
340,365
|
|
Leasehold improvements
|
|
|
342,534
|
|
|
|
344,404
|
|
Website application and infrastructure cost
|
|
|
1,016,829
|
|
|
|
1,406,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,845,618
|
|
|
|
6,484,580
|
|
Less: accumulated depreciation and amortization
|
|
|
(3,073,952
|
)
|
|
|
(3,921,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,771,666
|
|
|
$
|
2,563,160
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $285,522, $508,046 and
$846,671 for the years ended December 31, 2007, 2008, and
2009.
|
|
NOTE 4
|
ACCRUED
SALES AND USE TAXES
|
The Company is subject to state and local sales and use tax
regulations for sales sourced in the United States. These
regulations require the Company to assess, collect, file and
remit sales and use taxes to individual states and local
jurisdictions. The Company also must obtain and retain resale
certificates and shipping documentation for all transactions
that are deemed exempt from the collection and remittance of
sales tax when applicable. The Company records a sales and use
tax contingency reserve based on estimates for transactions that
may subsequently be determined to have been improperly exempted
from sales tax. The estimates or assumptions used to determine
the reserve may change in future periods and could materially
affect the Companys future operating results.
The following table is a summary of contingent accrued sales and
use tax activity for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Balance at beginning of period
|
|
$
|
1,048,800
|
|
|
$
|
1,487,768
|
|
|
$
|
1,473,643
|
|
Additional sales and use tax
|
|
|
386,948
|
|
|
|
61,054
|
|
|
|
395,124
|
|
Additional interest
|
|
|
13,052
|
|
|
|
19,945
|
|
|
|
84,050
|
|
Refunds resulting from audits and adjustments
|
|
|
46,271
|
|
|
|
|
|
|
|
|
|
Payments resulting from audits
|
|
|
(7,303
|
)
|
|
|
(95,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,487,768
|
|
|
$
|
1,473,643
|
|
|
$
|
1,952,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The entire December 31, 2009 balance is recorded as a
long-term liability as there were no sales tax audit assessments
expected to be paid within 12 months.
|
|
NOTE 5
|
COMMITMENTS
AND CONTINGENCIES
|
Leases
The Company leases its office facilities under non-cancelable
operating leases, which expire at various dates between
September 2010 and July 2013. Under terms of one of its leases,
the Company is required to
F-19
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
provide a $100,000 letter of credit supporting the lease
payments. The letter of credit is fully collateralized by a
compensating cash balance at the issuing bank, which is recorded
as deposits and other assets. During the years ended
December 31, 2007, 2008 and 2009 rent expense for all
offices totaled $245,100, $352,328 and $427,336, respectively.
Certain leases contain an escalation clause calling for
increased rents. Where a lease contains an escalation clause,
rent expense is recognized on a straight-line basis over the
lease term.
Future minimum payments under operating leases at
December 31, 2009 having initial terms in excess of one
year are as follows:
|
|
|
|
|
2010
|
|
$
|
425,216
|
|
2011
|
|
|
400,787
|
|
2012
|
|
|
316,448
|
|
2013
|
|
|
181,142
|
|
2014
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,323,593
|
|
|
|
|
|
|
There were no outstanding capital lease obligations at
December 31, 2008 and 2009 or at March 31, 2010.
Loan and
Security Agreement
The Company had available for use a loan and security agreement
with a financing company that allowed the Company to borrow up
to $10,000,000. Borrowings under this agreement were secured by
equipment purchased for future sale in the Companys
marketplace. There were no borrowings under this agreement
during the years ended December 31, 2008 or 2009. The
agreement contained certain customary representations and
warranties, covenants and events of default, including the
requirement that the Company maintain net worth of at least
$5,000,000 at all times. The interest rate on borrowings under
the agreement was prime plus 0.75% per annum. This agreement
expired on April 30, 2009 and was not renewed.
Guarantee
Arrangements
At December 31, 2008 and 2009 and March 31, 2010,
outstanding guarantees under contract for equipment totaled
$1,931,788, $343,000 and $297,000, respectively (undiscounted
and before estimated proceeds from the sale in the marketplace).
The Company realized sales proceeds in excess of the guarantees
outstanding at each of December 31, 2008 and 2009 and
March 31, 2010, and no related loss contingencies were
recorded.
Legal
Proceedings
From time to time, the Company has been and may be involved in
various legal proceedings. Although the outcome of these and
other claims cannot be predicted with certainty, the
Companys management does not currently believe that the
ultimate resolution of such matters will have a material adverse
effect on the Companys financial condition, cash flows, or
results of operations.
F-20
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
NOTE 6
|
CONVERTIBLE
PREFERRED STOCK AND WARRANTS
|
Convertible
Preferred Stock
The Companys convertible preferred stock at
December 31, 2008 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
and
|
|
|
|
|
|
Liquidation
|
|
Series
|
|
Authorized
|
|
|
Outstanding
|
|
|
Proceeds
|
|
|
Preference
|
|
|
A
|
|
|
8,500,000
|
|
|
|
8,373,110
|
|
|
$
|
10,968,774
|
|
|
$
|
10,968,774
|
|
A-1
|
|
|
3,200,000
|
|
|
|
3,136,036
|
|
|
|
3,136,036
|
|
|
|
3,136,036
|
|
B
|
|
|
8,300,000
|
|
|
|
6,197,670
|
|
|
|
37,185,988
|
|
|
|
37,185,988
|
|
C
|
|
|
1,250,000
|
|
|
|
325,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,250,000
|
|
|
|
18,031,816
|
|
|
$
|
54,290,798
|
|
|
$
|
54,290,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys convertible preferred stock at
December 31, 2009 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
and
|
|
|
|
|
|
Liquidation
|
|
Series
|
|
Authorized
|
|
|
Outstanding
|
|
|
Proceeds
|
|
|
Preference
|
|
|
A
|
|
|
8,500,000
|
|
|
|
8,373,110
|
|
|
$
|
10,968,774
|
|
|
$
|
10,968,774
|
|
A-1
|
|
|
3,200,000
|
|
|
|
3,136,036
|
|
|
|
3,136,036
|
|
|
|
3,136,036
|
|
B
|
|
|
8,300,000
|
|
|
|
6,197,670
|
|
|
|
37,185,988
|
|
|
|
37,185,988
|
|
C
|
|
|
1,250,000
|
|
|
|
450,000
|
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,250,000
|
|
|
|
18,156,816
|
|
|
$
|
55,290,798
|
|
|
$
|
55,290,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys convertible preferred stock at March 31,
2010 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
and
|
|
|
|
|
|
Liquidation
|
|
Series
|
|
Authorized
|
|
|
Outstanding
|
|
|
Proceeds
|
|
|
Preference
|
|
|
A
|
|
|
8,500,000
|
|
|
|
8,373,110
|
|
|
$
|
10,968,774
|
|
|
$
|
10,968,774
|
|
A-1
|
|
|
3,200,000
|
|
|
|
2,502,494
|
|
|
|
3,072,682
|
|
|
|
2,502,494
|
|
B
|
|
|
8,300,000
|
|
|
|
6,197,670
|
|
|
|
37,185,988
|
|
|
|
37,185,988
|
|
C
|
|
|
1,250,000
|
|
|
|
450,000
|
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,250,000
|
|
|
|
17,523,274
|
|
|
$
|
55,227,444
|
|
|
$
|
54,657,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under the Companys certificate of incorporation, preferred
stock is issuable in series, and the board of Directors is
authorized to determine the rights, preferences, and terms of
each series.
In June 2008, the Company sold 200,000 shares of
Series C convertible preferred stock for aggregate proceeds
of $2.0 million. In August 2008, the Company sold
125,000 shares of Series C convertible preferred stock
for aggregate proceeds of $1.0 million. In June 2009, the
Company sold 125,000 shares of Series C convertible
preferred stock for aggregate proceeds of $1,000,000. The
Company did not sell any additional shares of convertible
preferred stock during 2008 and 2009 or during 2010 to date. In
March 2010, the Company repurchased 633,542 shares of
Series A-1 convertible preferred stock for $63,354.
F-21
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dividends
Series A, Series B and Series C preferred
stockholders are entitled to non-cumulative dividends of $0.10,
$0.48 and $0.64 per share, respectively, prior to any dividend
on the
Series A-1
preferred stock.
Series A-1
preferred stockholders are entitled to receive non-cumulative
dividends at $0.08 per share. Dividends will be paid only when
declared by the board of directors out of legally available
funds. No dividends had been declared as of December 31,
2008 or 2009.
Conversion
Each share of convertible preferred stock is, at the option of
the holder, convertible into one share of common stock. The
outstanding shares of convertible preferred stock automatically
convert into shares of common stock on the closing of an
underwritten public offering of common stock under the
Securities Act of 1933, in which the Company receives at least
$20,000,000 in net proceeds and the offering price per share is
at least $12.00, or upon written consent of holders of a
majority of the convertible preferred stock.
Liquidation
Preference
Series A and Series B preferred stockholders are
entitled to receive, upon liquidation, an amount per share of
$1.31 and $6.00, respectively, at an equal rate, plus declared
and unpaid dividends. Series C preferred stockholders are
entitled to receive, upon liquidation, the amount paid per
share. Series C preferred stockholders have paid an average
of $8.88 per share. After the distribution to Series A,
Series B and Series C preferred stockholders,
Series A-1
preferred stockholders are entitled to receive an amount equal
to $1.00 per share, plus declared but unpaid dividends.
Thereafter, any remaining assets shall be distributed pro rata
to the common stockholders.
Voting
Each holder of Series A, Series B and Series C
convertible preferred stock is entitled to the number of votes
equal to the number of shares of common stock into which such
preferred shares are convertible and have voting rights and
powers equal to the voting rights and powers of the common
stock. The holders of
Series A-1
convertible preferred stock do not have voting rights.
Warrants
In April 2000, the Company entered into an agreement with a
leasing company for computer and office equipment. In connection
with this lease arrangement, the Company issued a warrant to
purchase 10,943 shares of Series A convertible
preferred stock at an exercise price of $3.655 per share. The
Company valued the warrant using the Black-Scholes valuation
model with the following assumptions: volatility
70%; expected life seven years; risk free interest
rate 6.26%; and no dividend yield. The resulting
Black-Scholes value of $19,042 was recorded as a prepaid expense
and was amortized to interest expense over the term of the lease
agreement. The warrant is fully vested and exercisable through
five years from the effective date of the Companys initial
public offering. These warrants were outstanding as of
December 31, 2008 and 2009.
In May 2007, the Company issued three separate common stock
warrants in connection with its sale of 166,667 shares of
Series B convertible preferred stock to an investor. The
first warrant provided for the issuance of 293,781 shares
of common stock upon exercise, an exercise price of $3.40 and an
expiration date of March 1, 2008. The second warrant
provided for the issuance of 391,709 shares of common stock
upon exercise, an exercise price of $2.56 per share and an
expiration date of March 1, 2009. The third warrant
provided for the issuance of 587,565 shares of common stock
upon exercise with an exercise price of $1.70 per share and an
expiration date of March 1, 2010. The warrants would have
been exercisable upon the achievement of certain
performance-based goals; however, such goals were not met, and
the first, second and third warrants expired on March 1,
2008, 2009 and 2010, respectively. Accordingly, no valuation was
performed on these warrants as they expired prior to becoming
exercisable.
F-22
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In August 2008, the Company issued two separate warrants
exercisable for Series C convertible preferred stock in
connection with the sale of 125,000 shares of Series C
convertible preferred stock. The first and second warrant expire
on June 13, 2014 and June 30, 2014, respectively. Each
warrant provides for the issuance of 125,000 shares of
Series C convertible preferred stock at an exercise price
of $8.00 per share that are exercisable upon the achievement of
certain sales-based goals. The investor achieved the sales-based
goals in January 2009 and January 2010 and the warrants became
exercisable. The January 2009 warrants were valued using
the option pricing method, which employed a Black-Scholes model
with the following assumptions: volatility 58%;
expected life three years; risk free interest
rate 1.0%; and no dividend yield. The January 2010
warrants were valued using the PWERM and considered the
following future liquidity scenarios: initial public
offering, sale or merger of the Company, and liquidation. The
resulting $45,000 and $212,501 valuations related to the first
and second warrants, respectively, have been recorded as a
reduction in revenue for the year ended December 31, 2009
and the three months ended March 31, 2010, respectively.
In June 2009, the Company also issued two separate warrants
exercisable for Series C convertible preferred stock in
connection with the sale of 125,000 shares of Series C
convertible preferred stock. One warrant provides for the
issuance of 50,000 shares of Series C convertible
preferred stock, an exercise price of $8.00 per share and an
expiration date of June 30, 2014. The other warrant
provides for the issuance of 50,000 shares of Series C
convertible preferred stock, an exercise price of $9.00 per
share and an expiration date of June 30, 2014. Each warrant
becomes exercisable upon the achievement of certain sales-based
goals. The investor achieved certain sales-based goals in
January 2010 and the warrants became partially exercisable. The
warrants were valued using the PWERM and considered the
following future liquidity scenarios: initial public offering,
sale or merger of the Company, and liquidation. The resulting
$42,500 valuation has been recorded as a reduction in revenue
for the three months ended March 31, 2010. The remaining
sales-based goals are to be measured off of future events.
A summary of warrant activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Preferred Shares
|
|
|
|
Shares
|
|
|
Series A
|
|
|
Series B
|
|
|
Series C
|
|
|
Balance at December 31, 2006
|
|
|
|
|
|
|
10,943
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
1,273,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expirations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
1,273,055
|
|
|
|
10,943
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
Expirations
|
|
|
(293,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
979,274
|
|
|
|
10,943
|
|
|
|
|
|
|
|
250,000
|
|
Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Expirations
|
|
|
(391,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
587,565
|
|
|
|
10,943
|
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expirations
|
|
|
(587,565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
|
|
|
|
|
10,943
|
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
NOTE 7
|
COMMON
STOCK AND STOCK OPTIONS
|
Common
Stock
At December 31, 2009, the Company had reserved shares of
common stock for future issuance as follows:
|
|
|
|
|
|
|
Shares
|
|
Options outstanding under the 1999 Stock Plan
|
|
|
3,537,951
|
|
Options available for future grants under the 1999 Stock Plan
|
|
|
812,603
|
|
Common stock warrants
|
|
|
587,565
|
|
Convertible preferred stock
|
|
|
18,156,816
|
|
Convertible preferred stock warrants
|
|
|
360,943
|
|
|
|
|
|
|
|
|
|
23,455,878
|
|
|
|
|
|
|
At March 31, 2010, the Company had reserved shares of
common stock for future issuance as follows:
|
|
|
|
|
|
|
Shares
|
|
|
Options outstanding under the 1999 Stock Plan
|
|
|
3,994,154
|
|
Options available for future grants under the 1999 Stock Plan
|
|
|
6,735
|
|
Convertible preferred stock
|
|
|
17,523,274
|
|
Convertible preferred stock warrants
|
|
|
360,943
|
|
|
|
|
|
|
|
|
|
21,885,106
|
|
|
|
|
|
|
Stock
Options
The Companys 1999 Stock Plan (the 1999 Stock
Plan) provides for the issuance of up to
7,834,009 shares of common stock to employees, officers and
consultants. Options granted under the 1999 Stock Plan may be
either incentive stock options (ISOs) or
non-statutory stock options (NSOs). The ISOs may be
granted at a price per share not less than the fair market value
at the date of grant. The NSOs may be granted at a price per
share not less than 85% of the fair market value at the date of
grant. If at any time the Company grants an option and the
optionee directly or by attribution owns stock comprising more
than 10% of the total combined voting power of all classes of
stock of the Company, the option price shall be at least 100% of
the fair value at that date. Options and unvested shares of
restricted stock awards generally vest and become exercisable
over a period of two to four years, with a maximum term of
10 years. The 1999 Stock Plan also allows the Company to
award stock purchase rights to employees, officers, directors,
and consultants. The purchase may be in combination or entirely
in the form of cash, a promissory note, or cancellation of
indebtedness.
Several officers of the Company have the right to early exercise
their option awards either through a note receivable or cash.
These early exercises are subject to the Companys right of
repurchase at the original purchase price. This repurchase right
generally lapses at a rate of
1/4
of the shares on the
12-month
anniversary of the officers vesting commencement date, and
1/48
of the original number of shares per month thereafter, as long
as the officer remains an employee or a consultant. As of
December 31, 2008 and 2009 and March 31, 2010, there
were 593,823, 349,308 and 296,912 shares, respectively, of
common stock outstanding that were subject to repurchase by the
Company.
F-24
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the activity for the years ended December 31,
2007, 2008 and 2009 and the three months ended March 31,
2010 of stock options and stock rights under the 1999 Stock Plan
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Shares
|
|
|
Shares
|
|
|
Price
|
|
|
Available
|
|
|
Outstanding
|
|
|
Per Share
|
|
Balance at December 31, 2006
|
|
|
300,800
|
|
|
|
3,031,786
|
|
|
$
|
0.70
|
Additional shares authorized
|
|
|
1,246,600
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(1,550,913
|
)
|
|
|
1,550,913
|
|
|
|
0.96
|
Exercised
|
|
|
|
|
|
|
(933,911
|
)
|
|
|
0.94
|
Forfeited
|
|
|
218,896
|
|
|
|
(218,896
|
)
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
215,383
|
|
|
|
3,429,892
|
|
|
|
0.76
|
Additional shares authorized
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(905,124
|
)
|
|
|
905,124
|
|
|
|
1.58
|
Exercised
|
|
|
|
|
|
|
(390,417
|
)
|
|
|
0.64
|
Forfeited
|
|
|
101,200
|
|
|
|
(101,200
|
)
|
|
|
1.34
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
411,459
|
|
|
|
3,843,399
|
|
|
|
0.94
|
Additional shares authorized
|
|
|
500,000
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(355,425
|
)
|
|
|
355,425
|
|
|
|
1.76
|
Exercised
|
|
|
|
|
|
|
(404,304
|
)
|
|
|
0.74
|
Forfeited
|
|
|
256,569
|
|
|
|
(256,569
|
)
|
|
|
1.08
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
812,603
|
|
|
|
3,537,951
|
|
|
|
1.04
|
Additional shares authorized
|
|
|
5,000
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(832,150
|
)
|
|
|
832,150
|
|
|
|
5.84
|
Exercised
|
|
|
|
|
|
|
(354,665
|
)
|
|
|
0.86
|
Forfeited
|
|
|
21,282
|
|
|
|
(21,282
|
)
|
|
|
2.90
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
|
6,735
|
|
|
|
3,994,154
|
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes information about the
Companys stock options outstanding and exercisable at
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
Vested
|
|
Exercise
|
|
|
Options
|
|
|
and
|
|
Price
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
$
|
0.13
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
0.40
|
|
|
|
52,100
|
|
|
|
52,100
|
|
|
0.60
|
|
|
|
476,439
|
|
|
|
476,439
|
|
|
0.80
|
|
|
|
1,387,293
|
|
|
|
1,358,593
|
|
|
0.98
|
|
|
|
578,141
|
|
|
|
332,152
|
|
|
1.40
|
|
|
|
165,263
|
|
|
|
69,812
|
|
|
1.54
|
|
|
|
197,942
|
|
|
|
40,111
|
|
|
1.64
|
|
|
|
520,073
|
|
|
|
161,956
|
|
|
2.26
|
|
|
|
145,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,537,951
|
|
|
|
2,506,163
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the weighted-average remaining
contractual life of options outstanding was 6.3 years, the
weighted-average remaining contractual life of options vested
and exercisable was 5.3 years, and the weighted-average
exercise price of options vested and exercisable was $0.86.
The Company selected the Black-Scholes option-pricing model to
determine the fair value of stock option awards granted
subsequent to January 1, 2006. For these awards, the
Company recognizes compensation cost on a straight-line basis
over the awards vesting period. Options typically vest
with respect to 25% of the shares one year after the
options vesting commencement date and the remainder
ratably on a monthly basis over the following three years.
The fair value for options granted during the years ended
December 31, 2007, 2008 and 2009 was estimated at the date
of the grant using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
Ended March 31,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
Expected life in years
|
|
6
|
|
6
|
|
6
|
|
6
|
|
6
|
Risk-free interest rate
|
|
3.975%-4.85%
|
|
2.75%-3.32%
|
|
2.11%- 2.80%
|
|
2.11%
|
|
2.68%-2.84%
|
Volatility
|
|
38%
|
|
58%
|
|
55%-58%
|
|
58%
|
|
61.9%-67%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
The expected term represents the period that stock-based awards
are expected to be outstanding, giving consideration to the
contractual terms of the stock-based awards, vesting schedules
and expectations of future employee behavior as influenced by
changes to the terms of the Companys stock-based awards.
The computation of expected volatility for the years ended
December 31, 2007, 2008, and 2009 and the three months
ended March 31, 2009 and 2010, was based on the historical
volatility of comparable companies from a representative peer
group selected based on industry and market capitalization data.
The weighted-average grant date fair value of options granted
during the years ended December 31, 2007, 2008 and 2009 was
$0.66, $0.92 and $1.76 per share, respectively, and during the
three months ended
F-26
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2010 was $3.64. As of December 31,
2009, total compensation cost related to stock options granted,
but not yet recognized, was $988,279 which the Company expects
to recognize over a weighted-average period of 2.78 years.
The intrinsic value of options exercised during the years ended
December 31, 2007, 2008 and 2009 was estimated to be
$420,874, $335,846 and $462,015, respectively.
In July 2007, options held by a former officer of the Company to
purchase the Companys common stock were amended to extend
the term of such options to December 14, 2014 in accordance
with the former officers severance agreement. A total of
1,106,356 shares underlying such options were fully vested
at the date of termination. This material modification resulted
in incremental stock-based compensation expense of $385,182, all
of which was recorded as of the date of termination as general
and administrative expenses in the Companys
December 31, 2007 consolidated statement of operations.
The following table summarizes the components of total
stock-based compensation expense included in the Companys
statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
unaudited
|
|
|
Cost of revenue
|
|
$
|
52,500
|
|
|
$
|
38,475
|
|
|
$
|
47,051
|
|
|
$
|
9,127
|
|
|
$
|
41,223
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
33,873
|
|
|
|
105,080
|
|
|
|
148,287
|
|
|
|
31,199
|
|
|
|
78,006
|
|
Technology
|
|
|
10,483
|
|
|
|
35,166
|
|
|
|
808,783
|
|
|
|
202,706
|
|
|
|
419,081
|
|
General and administrative
|
|
|
619,876
|
|
|
|
190,439
|
|
|
|
287,476
|
|
|
|
70,663
|
|
|
|
159,973
|
|
Other non-operating expense
|
|
|
|
|
|
|
21,000
|
|
|
|
935,293
|
|
|
|
234,000
|
|
|
|
474,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
716,732
|
|
|
$
|
390,160
|
|
|
$
|
2,226,890
|
|
|
$
|
547,695
|
|
|
$
|
1,172,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Receivable from Stockholders
During the year ended December 31, 2000, the Company
accepted promissory notes receivable from certain officers in
consideration for the early exercise of stock options. The
promissory notes are secured by the underlying shares of common
stock. The notes receivable, totaling $160,550, bear interest at
6.69% and are due on the earlier of March 1, 2011 and
18 months from the date of an initial public offering. The
options are being accounted for using variable plan accounting
and the Company recognized compensation expense of $233,100,
$77,700, $1,731,600, $432,900 and $876,900 during the years
ended December 31, 2007, 2008, 2009 and three months ended
March 31, 2009 and 2010, respectively, related to these
stock options. During 2008, one of the officers subject to a
promissory note was terminated. The officer is no longer part of
continuing operations and the compensation expense related to
the variable plan accounting will continue until either the
promissory note is repaid or the option award is expired and has
been recorded as other non-operating expense within the
Companys consolidated statements of operations since the
date of termination. During February 2010, the Company received
the full principal payment of $33,150 and accrued interest of
$21,770 on one promissory note receivable from a current officer.
In November 2007, the Company accepted a promissory note
receivable from one officer in consideration for the early
exercise of stock options. The promissory note is secured by the
underlying shares of common stock. The note receivable, totaling
$821,571, bears interest at 4.39% and is due on the earlier of
March 1, 2011 and 18 months from the date of an
initial public offering. During February 2010, the Company
received a principal payment of $821,571 and interest of
approximately $85,000. Of the amounts paid, the Company recorded
a share repurchase liability of $290,972 related to the unvested
shares and $615,598 as additional paid in capital for the vested
shares and interest.
F-27
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The notes receivable disclosed above are considered nonrecourse
notes under relevant accounting guidance. Due to the nonrecourse
nature of the notes, the resulting exercise of the stock options
was determined to not be substantive. Therefore, the Company has
not reflected the exercise of the stock options for accounting
purposes in its balance sheet as of December 31, 2009.
Accordingly, the Company recorded a reclassification adjustment
between common stock and additional paid-in capital and from
notes receivable from officers of $160,550 and accumulated
deficit of $73,186 as of January 1, 2007 to reflect the
accounting for common stock issued in connection with these
promissory notes and related interest receivable that are
subject to variable accounting.
The Company also issued unsecured loans to one officer in
connection with his initial employment. The loans, totaling
$20,000, bear interest at 6.69%. The interest receivable on
these notes totaled $10,301 and $11,638 at December 31,
2008 and 2009, respectively. An additional unsecured, interest
free loan of $45,000 due from the same employee was forgiven
during 2007 and was recorded in general and administrative
expenses within the Companys consolidated statement of
income.
Income (loss) before income tax provision consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Domestic
|
|
$
|
1,664,177
|
|
|
$
|
4,911,982
|
|
|
$
|
8,798,043
|
|
Foreign
|
|
|
(386,566
|
)
|
|
|
(2,747,766
|
)
|
|
|
(4,645,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,277,611
|
|
|
$
|
2,164,216
|
|
|
$
|
4,152,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the provision for income taxes were as follows
for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
68,601
|
|
|
$
|
95,093
|
|
|
$
|
179,489
|
|
State
|
|
|
41,245
|
|
|
|
217,827
|
|
|
|
279,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,846
|
|
|
|
312,920
|
|
|
|
459,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
(7,324,275
|
)
|
State
|
|
|
|
|
|
|
|
|
|
|
(1,830,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,155,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
|
$
|
109,846
|
|
|
$
|
312,290
|
|
|
$
|
(8,695,948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The deferred tax assets were as follows for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
12,350,542
|
|
|
$
|
9,497,649
|
|
Tax credits carryforwards
|
|
|
173,992
|
|
|
|
1,109,721
|
|
Accruals and reserves
|
|
|
858,348
|
|
|
|
1,114,444
|
|
Stock compensation expense
|
|
|
164,230
|
|
|
|
89,416
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
13,547,112
|
|
|
|
11,811,230
|
|
Valuation allowance
|
|
|
(13,451,261
|
)
|
|
|
(2,386,998
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
95,851
|
|
|
|
9,424,232
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
95,851
|
|
|
|
269,104
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
95,851
|
|
|
|
269,104
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
9,155,128
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes for the three months ended
March 31, 2010 was $451,943, related to domestic pre-tax
income of $1,043,504 based on an annual effective U.S. tax
rate of 43.3% on domestic income.
Realization of the deferred tax assets is dependent upon future
taxable income, if any, the amount and timing of which are
uncertain. During 2007 and 2008, the net deferred tax assets
have been fully offset by a valuation allowance. During 2009,
the Company determined that it was more likely than not that it
would be able to realize the benefit of certain of these
deferred tax assets in the future. Accordingly, the Company
recognized a net tax benefit of $8,695,948 resulting primarily
from the release of substantially all of the U.S. federal
and state net deferred tax valuation allowance.
The Company based this conclusion on historical and projected
operating performance, as well as the expectations that its
operations will generate sufficient taxable income in future
periods to be able to realize a portion of the tax benefits
associated with the deferred tax assets. The net valuation
allowance decreased by $691,000, $879,000 and $11,064,000 during
the years ended December 31, 2007, 2008 and 2009. The
Company continues to maintain a full valuation allowance on its
foreign net operating losses.
The provision for income taxes differs from the amount of income
taxes determined by applying the U.S. statutory federal
income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Tax at federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State, net of federal benefit
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
4.5
|
|
Stock-based compensation
|
|
|
7.4
|
|
|
|
6.4
|
|
|
|
19.6
|
|
Other permanent items
|
|
|
3.4
|
|
|
|
12.7
|
|
|
|
10.9
|
|
Credits
|
|
|
4.2
|
|
|
|
(4.4
|
)
|
|
|
(26.8
|
)
|
Foreign losses not benefited
|
|
|
8.0
|
|
|
|
44.3
|
|
|
|
39.0
|
|
Other items not individually material
|
|
|
(4.0
|
)
|
|
|
(2.6
|
)
|
|
|
12.2
|
|
Change in valuation allowance
|
|
|
(51.4
|
)
|
|
|
(80.9
|
)
|
|
|
(302.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.6
|
%
|
|
|
14.5
|
%
|
|
|
(209.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2007, 2008 and 2009, the Company had
U.S. federal net operating loss carryforwards of
approximately $33.8 million, $29.1 million and
$16.5 million, respectively. As of December 31, 2007,
2008 and 2009, the Company had California state net operating
loss carryforwards of $25.9 million, $26.1 million and
$25.7 million, respectively. As of December 31, 2007,
2008 and 2009, the Company had foreign net operating losses of
$0.4 million, $3.1 million and $8.7 million,
respectively. The U.S. federal and state net operating loss
carryforwards will expire in varying amounts starting in 2020
and 2014, respectively. The foreign net operating losses will be
carried forward indefinitely.
In addition, the Company has approximately $686,000 of
U.S. federal and $332,000 of California research credits
available for carryforward. The federal credit carryforwards
expire at various times through 2020. California tax credit
carryforwards have no expiration dates. The net operating loss
carryforwards at December 31, 2009 include $417,255, which
arose from the exercise of stock options, the benefit of which
will be reflected as an increase in additional
paid-in-capital
when realized.
Utilization of the net operating loss carryforwards may be
subject to annual limitations due to the ownership percentage
change provisions of the Internal Revenue Code of 1986
(IRC) and similar state provisions. The annual
limitations may result in the inability to fully offset future
annual taxable income and could result in the expiration of the
net operating loss carryforwards before utilization. The Company
has prepared an IRC Section 382 limitation analysis and
does not believe any of its net operating losses are subject to
expiration prior to utilization.
Effective January 1, 2007, the Company adopted new
accounting guidance, which prescribes the minimum recognition
threshold a tax position is required to meet before being
recognized in the financial statements. The Company did not
recognize any material net adjustment in its liability for
unrecognized income tax benefits upon adoption of the new
accounting guidance, including any amounts for interest and
penalties.
Unrecognized tax benefits on January 1, 2007 totaled $0.
Additions based on tax positions related to 2009 total $262,000.
Thus, unrecognized tax benefits as of December 31, 2008 and
2009 totaled $0 and $262,000, respectively. If any unrecognized
tax benefits are recognized, the effective tax rate would be
affected by the full amount. The Companys policy is to
classify interest accrued or penalties related to unrecognized
tax benefits as a component of income tax expense. No such
interest or penalties have been recorded to date for
unrecognized tax benefits.
Due to net operating losses and credit carryforwards, all tax
years remain open to examination by major taxing jurisdictions
to which the Company is subject. The Company files a federal and
multiple states and foreign tax returns. The Company does not
anticipate significant changes to its uncertain tax positions
through 2010.
The Company has a defined contribution retirement plan, or the
Retirement Plan, for full-time employees, which qualifies under
Section 401(k) of the IRC. Under the terms of the
Retirement Plan, employees may contribute up to 15%, subject to
Internal Revenue Service limitations, of their annual
compensation. The Retirement Plan, provides for discretionary
employer contributions. During the years ended December 31,
2007, 2008 and 2009 there were employer contributions to the
Retirement Plan, of $0, $65,519 and $76,491, respectively.
The Company has concluded that it operates in one
industry-online marketplace in two distinct geographic locations
and therefore has two reportable segments: North America and
International. Reportable segments have been identified based on
how management makes operating decisions, assesses performance
and allocates
F-30
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
resources. The chief executive officer acts as the chief
operating decision maker on behalf of each segment. Management
reviews asset information on a global basis, not by segment.
The Company is domiciled in the United States and has
international operations in Europe and Australia. Information
regarding the Companys operations by geographic area is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
America
|
|
International
|
|
Total
|
|
|
Segment
|
|
Segment
|
|
Consolidated
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
22,030,458
|
|
|
$
|
|
|
|
$
|
22,030,458
|
|
Income (loss) from operations
|
|
|
608,995
|
|
|
|
|
|
|
|
608,995
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
34,691,122
|
|
|
$
|
297,933
|
|
|
$
|
34,989,055
|
|
Income (loss) from operations
|
|
|
4,377,908
|
|
|
|
(2,605,753
|
)
|
|
|
1,772,155
|
|
Long-lived assets
|
|
|
2,055,642
|
|
|
|
176,025
|
|
|
|
2,231,667
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
49,517,583
|
|
|
$
|
5,156,813
|
|
|
$
|
54,674,396
|
|
Income (loss) from operations
|
|
|
8,842,230
|
|
|
|
(3,682,595
|
)
|
|
|
5,159,635
|
|
Long-lived assets
|
|
|
2,775,559
|
|
|
|
202,357
|
|
|
|
2,977,916
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (unaudited)
|
|
$
|
9,444,247
|
|
|
$
|
867,787
|
|
|
$
|
10,312,034
|
|
Income (loss) from operations (unaudited)
|
|
|
341,375
|
|
|
|
(1,004,590
|
)
|
|
|
(663,215
|
)
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (unaudited)
|
|
$
|
14,449,292
|
|
|
$
|
1,758,501
|
|
|
$
|
16,207,793
|
|
Income (loss) from operations (unaudited)
|
|
|
2,004,775
|
|
|
|
(1,431,500
|
)
|
|
|
573,275
|
|
Long-lived assets (unaudited)
|
|
|
2,645,923
|
|
|
|
233,871
|
|
|
|
2,879,794
|
|
The Companys revenue and income (loss) from operations by
geographic area corresponds to those of the equivalent
reportable segments. The Company had one customer that
represented 22%, 16%, 12%, and 14% of total revenues for the
years ended December 31, 2007, 2008 and 2009, and the three
months ended March 31, 2009 respectively, which was
included in results of the North America and International
segments shown above. No one customer accounted for revenue in
excess of ten percent of total revenues for the
three months ended March 31, 2010.
F-31
IRONPLANET,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
NOTE 11
|
SUBSEQUENT
EVENTS
|
The Companys board of directors adopted the 2010 Equity
Incentive Plan, or 2010 Plan, on February 11, 2010. The
2010 Plan will become effective on the effective date of the
registration statement for the Companys initial public
offering. The Company has initially reserved
1,632,500 shares of common stock for issuance under the
2010 Plan.
On March 11, 2010, the Company repurchased
633,542 shares of
Series A-1
convertible preferred stock from the Companys former
president and chairman, at a price of $0.10 per share, for an
aggregate repurchase price of $63,354 pursuant to rights
embodied in a June 2001 agreement with such holder. On April 2,
2010, Mr. Saadlou filed suit against the Company in Alameda
County Superior Court in California, alleging that the Company
did not have the right to repurchase such shares. On April 23,
2010, the Company concurrently filed a demand for arbitration
with the American Arbitration Association and a motion to stay
the litigation and to compel arbitration. If this litigation is
not resolved in favor of the Company, this may potentially lead
to the Company incurring significant legal fees and costs and
the payment of damages allegedly caused by the repurchase, which
could impact the Companys results of operations.
On May 27, 2010, the Companys board of directors
approved a 1-for-2 reverse stock split of the Companys
common stock and preferred stock to be effected prior to the
effectiveness of the Companys initial public offering. All
shares and per share information referenced throughout the
consolidated financial statements have been retroactively
adjusted to reflect this reverse stock split.
Subsequent events have been evaluated through May 28, 2010,
the date these financial statements were available to be issued.
F-32
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
The following table sets forth all expenses to be paid by us,
other than the underwriting discounts and commissions payable in
connection with the sale of the common stock being registered.
All amounts shown are estimates except the Securities and
Exchange Commission registration fee, the FINRA filing fee and
The NASDAQ Global Market listing fee.
|
|
|
|
|
Item
|
|
Amount
|
|
SEC registration fee
|
|
$
|
6,560
|
|
FINRA filing fee
|
|
|
9,700
|
|
Initial NASDAQ Global Market listing fee
|
|
|
100,000
|
|
Legal fees and expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Printing and engraving expenses
|
|
|
*
|
|
Transfer agent and registrar fees
|
|
|
*
|
|
Blue Sky fees and expenses
|
|
|
*
|
|
Directors and officers insurance
|
|
|
*
|
|
Miscellaneous fees and expenses
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
|
|
|
|
*
|
|
To be filed by amendment.
|
|
|
Item 14.
|
Indemnification
of Officers and Directors.
|
Section 145 of the Delaware General Corporation Law
authorizes a court to award, or a corporations board of
directors to grant, indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under certain
circumstances for liabilities, including reimbursement for
expenses incurred, arising under the Securities Act of 1933, as
amended. Our amended and restated certificate of incorporation
to be in effect upon the completion of this offering provides
for indemnification of our directors, officers, employees and
other agents to the maximum extent permitted by the Delaware
General Corporation Law, and our amended and restated bylaws to
be in effect upon the completion of this offering provide for
indemnification of our directors, officers, employees and other
agents to the maximum extent permitted by the Delaware General
Corporation Law. In addition, we will enter into indemnification
agreements with our directors, officers and some employees
containing provisions which are in some respects broader than
the specific indemnification provisions contained in the
Delaware General Corporation Law. The indemnification agreements
may require us, among other things, to indemnify our directors
against certain liabilities that may arise by reason of their
status or service as directors and to advance their expenses
incurred as a result of any proceeding against them as to which
they could be indemnified. Reference is also made to
Section 6 of the underwriting agreement to be filed as
Exhibit 1.1 hereto, which provides for indemnification by
the underwriter of our officers and directors against certain
liabilities.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities.
|
During the last three years, we made sales of the following
unregistered securities:
1. On May 3, 2007, we issued 166,667 shares of
our Series B preferred stock and warrants to purchase
1,273,055 shares of our common stock, at exercise prices
ranging from $1.70 to $3.40 per share, to an accredited investor
for an aggregate purchase price of $999,999.
2. On August 28, 2008, we issued 125,000 shares
of our Series C preferred stock and warrants to purchase
250,000 shares of our Series C preferred stock, at an
exercise price of $8.00 per share, to an accredited investor for
an aggregate purchase price of $1,000,000.
II-1
3. On August 29, 2008, we issued 200,000 shares
of our Series C preferred stock at a purchase price of
$10.00 per share, to an accredited investor for an aggregate
purchase price of $2,000,000.
4. On June 25, 2009, we issued 125,000 shares of
our Series C Preferred stock, warrants to purchase
50,000 shares of our Series C preferred stock, at an
exercise price of $8.00 per share and warrants to purchase
50,000 shares of our Series C preferred stock, at an
exercise price of $9.00 per share, to an accredited investor for
an aggregate purchase price of $1,000,000.
5. Since December 31, 2006, we have granted stock
options and stock purchase rights to purchase an aggregate of
4,563,998 shares of our common stock at exercise prices
ranging from $0.80 to $8.00 per share to a total of
317 employees, consultants and directors under our 1999
Stock Plan.
6. Since December 31, 2006, we have issued and sold an
aggregate of 2,152,497 shares of our common stock to
employees, consultants and directors at prices ranging from
$0.14 to $4.50 per share pursuant to exercises of options and
stock purchase rights granted under our 1999 Stock Plan.
Unless otherwise stated, the sales of the above securities were
deemed to be exempt from registration under the Securities Act
in reliance upon Section 4(1) of the Securities Act,
Section 4(2) of the Securities Act, Regulation S
promulgated thereunder, Rule 701 promulgated under
Section 3(b) of the Securities Act as transactions by an
issuer not involving any public offering or pursuant to benefit
plans and contracts relating to compensation as provided under
Rule 701. The recipients of the securities in each of these
transactions represented their intentions to acquire the
securities for investment only and not with a view to or for
sale in connection with any distribution thereof, and
appropriate legends were placed upon the stock certificates
issued in these transactions. All recipients had adequate
access, through their relationships with IronPlanet, to
information about IronPlanet.
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement
|
|
3
|
.1**
|
|
Sixth Amended and Restated Certificate of Incorporation, as
currently in effect
|
|
3
|
.2**
|
|
Certificate of Amendment of Sixth Amended and Restated
Certificate of Incorporation, as currently in effect
|
|
3
|
.3**
|
|
Form of Amended and Restated Certificate of Incorporation, to be
effective upon closing of the offering
|
|
3
|
.4**
|
|
Amended and Restated Bylaws, as currently in effect
|
|
3
|
.5**
|
|
Form of Amended and Restated Bylaws, to be effective upon the
closing of the offering
|
|
4
|
.1*
|
|
Form of Common Stock Certificate
|
|
4
|
.2**
|
|
Third Amended and Restated Investors Rights Agreement,
dated August 28, 2008
|
|
4
|
.3**
|
|
Amendment to Third Amended and Restated Investors Rights
Agreement, dated August 29, 2008
|
|
4
|
.4**
|
|
Amendment to Third Amended and Restated Investors Rights
Agreement, dated June 30, 2009
|
|
4
|
.5**
|
|
Warrant Agreement issued to Comdisco, Inc., dated April 19,
2000, as amended by a letter dated June 14, 2002
|
|
4
|
.6**
|
|
Form of Series C Preferred Stock Purchase Warrant issued to Ring
Power Corporation and Empire Southwest, LLC
|
|
5
|
.1*
|
|
Form of Opinion of Orrick, Herrington & Sutcliffe LLP
|
|
10
|
.1**
|
|
IronPlanet, Inc. 1999 Stock Plan, including form of option
agreement
|
|
10
|
.2**
|
|
IronPlanet, Inc. 2010 Equity Incentive Plan
|
|
10
|
.3**
|
|
Form of Indemnification Agreement for directors and officers
|
|
10
|
.4**
|
|
Employment Agreement with Gregory J. Owens, dated February 11,
2010
|
|
10
|
.5**
|
|
Employment Agreement with Michael J. ODonnell, dated
February 11, 2010
|
|
10
|
.6**
|
|
Employment Agreement with James J. Jeter, dated February 11,
2010
|
II-2
|
|
|
|
|
|
10
|
.7**
|
|
Employment Agreement with Jeffrey L. Barca-Hall, dated February
11, 2010
|
|
10
|
.8**
|
|
Employment Agreement with Michael D. Groves, dated February 11,
2010
|
|
10
|
.9**
|
|
IronPlanet, Inc. Director Compensation Policy
|
|
10
|
.10**
|
|
Lease, dated April 28, 2000, as amended, with Central Building,
LLC
|
|
10
|
.11**
|
|
Third Amended and Restated Voting Agreement, dated September 27,
2000
|
|
10
|
.12**
|
|
Board Observer Agreement with Komatsu America Corp., effective
March 15, 2010
|
|
10
|
.13**
|
|
Form of Preferred Provider Agreement
|
|
10
|
.14**
|
|
Agreement with Caterpillar Financial Services Corporation, dated
January 1, 2010
|
|
21
|
.1**
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of Grant Thornton LLP, independent registered public
accounting firm
|
|
23
|
.2*
|
|
Consent of Orrick, Herrington & Sutcliffe LLP (included in
Exhibit 5.1)
|
|
24
|
.1**
|
|
Power of Attorney
|
|
99
|
.1
|
|
Consent of Manfredi & Associates, Inc.
|
|
|
|
*
|
|
To be filed by Amendment. All other
exhibits are filed herewith.
|
|
**
|
|
Previously filed.
|
|
|
|
Confidential Treatment has been
requested for portions of this exhibit. These portions have been
omitted from this registration statement and have been filed
separately with the Securities and Exchange Commission.
|
(b) Financial Statement Schedule
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable
or is shown in the financial statements or notes thereto.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the provisions described in Item 14, or otherwise, we have
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of
our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
II-3
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Pleasanton, State of California, on May 28, 2010.
IRONPLANET, INC.
Gregory J. Owens
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed
by the following persons in the capacities and on the dates
indicated:
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Gregory
J. Owens
Gregory
J. Owens
|
|
Chairman and Chief Executive Office
(Principal Executive Officer)
|
|
May 28, 2010
|
|
|
|
|
|
/s/ Michael
J. ODonnell
Michael
J. ODonnell
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
May 28, 2010
|
|
|
|
|
|
/s/ Robert
L. Evans
Robert
L. Evans
|
|
Director
|
|
May 28, 2010
|
|
|
|
|
|
/s/ Arthur
Patterson
Arthur
Patterson
|
|
Director
|
|
May 28, 2010
|
|
|
|
|
|
/s/ Mark J.
Rubash
Mark J.
Rubash
|
|
Director
|
|
May 28, 2010
|
|
|
|
|
|
/s/ Ted
Schlein
Ted
Schlein
|
|
Director
|
|
May 28, 2010
|
|
|
|
|
|
/s/ Roger
S. Siboni
Roger
S. Siboni
|
|
Director
|
|
May 28, 2010
|
|
|
|
|
|
/s/ Stephanie
Tilenius
Stephanie
Tilenius
|
|
Director
|
|
May 28, 2010
|
II-4
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement
|
|
3
|
.1**
|
|
Sixth Amended and Restated Certificate of Incorporation, as
currently in effect
|
|
3
|
.2**
|
|
Certificate of Amendment of Sixth Amended and Restated
Certificate of Incorporation, as currently in effect
|
|
3
|
.3**
|
|
Form of Amended and Restated Certificate of Incorporation, to be
effective upon closing of the offering
|
|
3
|
.4**
|
|
Amended and Restated Bylaws, as currently in effect
|
|
3
|
.5**
|
|
Form of Amended and Restated Bylaws, to be effective upon the
closing of the offering
|
|
4
|
.1*
|
|
Form of Common Stock Certificate
|
|
4
|
.2**
|
|
Third Amended and Restated Investors Rights Agreement,
dated August 28, 2008
|
|
4
|
.3**
|
|
Amendment to Third Amended and Restated Investors Rights
Agreement, dated August 29, 2008
|
|
4
|
.4**
|
|
Amendment to Third Amended and Restated Investors Rights
Agreement, dated June 30, 2009
|
|
4
|
.5**
|
|
Warrant Agreement issued to Comdisco, Inc., dated April 19,
2000, as amended by a letter dated June 14, 2002
|
|
4
|
.6**
|
|
Form of Series C Preferred Stock Purchase Warrant issued to Ring
Power Corporation and Empire Southwest, LLC
|
|
5
|
.1*
|
|
Form of Opinion of Orrick, Herrington & Sutcliffe LLP
|
|
10
|
.1**
|
|
IronPlanet, Inc. 1999 Stock Plan, including form of option
agreement
|
|
10
|
.2**
|
|
IronPlanet, Inc. 2010 Equity Incentive Plan
|
|
10
|
.3**
|
|
Form of Indemnification Agreement for directors and officers
|
|
10
|
.4**
|
|
Employment Agreement with Gregory J. Owens, dated February 11,
2010
|
|
10
|
.5**
|
|
Employment Agreement with Michael J. ODonnell, dated
February 11, 2010
|
|
10
|
.6**
|
|
Employment Agreement with James J. Jeter, dated February 11, 2010
|
|
10
|
.7**
|
|
Employment Agreement with Jeffrey L. Barca-Hall, dated February
11, 2010
|
|
10
|
.8**
|
|
Employment Agreement with Michael D. Groves, dated February 11,
2010
|
|
10
|
.9**
|
|
IronPlanet, Inc. Director Compensation Policy
|
|
10
|
.10**
|
|
Lease, dated April 28, 2000, as amended, with Central Building,
LLC
|
|
10
|
.11**
|
|
Third Amended and Restated Voting Agreement, dated
September 27, 2000
|
|
10
|
.12**
|
|
Board Observer Agreement with Komatsu America Corp., effective
March 15, 2010
|
|
10
|
.13**
|
|
Form of Preferred Provider Agreement
|
|
10
|
.14**
|
|
Agreement with Caterpillar Financial Services Corporation, dated
January 1, 2010
|
|
21
|
.1**
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of Grant Thornton LLP, independent registered public
accounting firm
|
|
23
|
.2*
|
|
Consent of Orrick, Herrington & Sutcliffe LLP (included in
Exhibit 5.1)
|
|
24
|
.1**
|
|
Power of Attorney
|
|
99
|
.1
|
|
Consent of Manfredi & Associates, Inc.
|
|
|
|
*
|
|
To be filed by Amendment. All other
exhibits are filed herewith.
|
|
**
|
|
Previously filed.
|
|
|
|
|
|
Confidential Treatment has been
requested for portions of this exhibit. These portions have been
omitted from this registration statement and have been filed
separately with the Securities and Exchange Commission.
|
II-5