S-1/A 1 d361560ds1a.htm FORM S-1/A FORM S-1/A
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Registration No. 333-183637

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 4 to

FORM S-1

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

 

 

TAYLOR & MARTIN GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   7389   37-1653986

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

12 Greenway Plaza, Suite 1100

Houston, Texas 77046

(713) 425-4940

 

Rod K. Cutsinger

12 Greenway Plaza, Suite 1100

Houston, Texas 77046

(713) 425-4940

(Address, including zip code, and telephone number, including

area code, of registrant’s principal executive offices)

 

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

Copies to:

Bracewell & Giuliani LLP

711 Louisiana Street, Suite 2300

Houston, Texas 77002-2849

(713) 223-2300

Attn: William S. Anderson

Jason M. Jean

 

Andrews Kurth LLP

111 Congress Avenue, Suite 1700

Austin, Texas 78701

(512) 320-9200

Attn: Ted A. Gilman

Brian J. Dillavou

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

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.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer     ¨   Accelerated filer    ¨   Non-accelerated filer     x   Smaller reporting company     ¨

 

 

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 of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

Subject to completion, dated October 18, 2012.

PRELIMINARY PROSPECTUS

15,000,000 Shares

 

LOGO

Common Stock

 

 

This is the initial public offering of Taylor & Martin Group, Inc. We are offering 15,000,000 shares of our common stock.

Prior to this offering there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $10.00 and $12.00. Our common stock has been approved for listing on the New York Stock Exchange, subject to official notice of issuance, under the symbol “TMG.”

 

 

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 17.

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.

 

 

 

     Per Share      Total  

Initial public offering price

   $                        $                    

Underwriting discounts and commissions(1)

   $         $     

Proceeds to Taylor & Martin Group, Inc. (before expenses)

   $         $     

 

(1) 

The underwriters will receive compensation in addition to the underwriting discounts and commissions. See “Underwriting” for a description of compensation payable to the underwriters.

The underwriters have an option for 30 days from the date of this prospectus to purchase a maximum of 2,250,000 additional shares of common stock at the initial public offering price, less underwriting discounts and commissions, to cover over-allotments.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and will be reporting in accordance with the reduced public company reporting requirements permitted thereby. See “Our Business – Emerging Growth Company” beginning on page 103.

Delivery of the shares of common stock will be made on or about November     , 2012.

 

 

 

Canaccord Genuity    Oppenheimer & Co.
  

KeyBanc Capital Markets
  
Stephens Inc.

The date of this prospectus is November     , 2012


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LOGO


Table of Contents

TABLE OF CONTENTS

 

Important Introductory Information

     ii   

Prospectus Summary

     1   

Risk Factors

     17   

Information Regarding Forward-Looking Statements

     34   

Use of Proceeds

     36   

Dividend Policy

     37   

Capitalization

     38   

Dilution

     39   

Selected Pro Forma Combined and Historical Financial and Other Data

     41   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     49   

Our Business

     83   

Combinations and Reorganization

     105   

Management

     114   

Executive Compensation

     120   

Certain Relationships and Related Party Transactions

     128   

Principal Stockholders

     133   

Description of Our Capital Stock

     135   

Shares Eligible for Future Sale

     140   

Material U.S. Federal Income Tax Consequences to Non-U.S. Holders

     142   

Underwriting

     146   

Validity of Securities

     152   

Experts

     152   

Where You Can Find Additional Information

     153   

Index to Financial Statements

     F-1   

 

 

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by us or on our behalf. We have not, and the underwriters have not, authorized anyone to provide you with any additional information or information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus is only accurate as of the date of this prospectus.

Industry and Market Data

The market data and certain other statistical information used throughout this prospectus are based on independent industry publications, government publications and other published independent sources, including (i) the publicly available report entitled Creating value through product stewardship and take-back (2010), which we refer to in this prospectus as the “Reverse Logistics Report,” by Dale S. Rogers, Zachary S. Rogers and Ronald Lembke, noted academics in the reverse logistics industry, (ii) published and unpublished information developed by Manfredi & Associates, (iii) publicly available information from the website of Blumberg Advisory Group, which we refer to as the “Blumberg Data”, and (iv) data compiled by InfoUSA, which is available to the public for a fee. We have also relied on the expertise of the authors of the book entitled “An Executive’s Guide to Reverse Logistics” by Curtis Greve and Jerry Davis, two of our executive officers and senior managers of our reverse logistics operations and former consultants to companies seeking solutions to their reverse logistics needs. We selected these sources because of their reputation and credibility in their industry. Some data are also based on our good faith estimates.

 

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IMPORTANT INTRODUCTORY INFORMATION

In this prospectus, we refer to the following entities collectively as the “Partner Companies” and individually as a “Partner Company:” (i) Taylor & Martin Enterprises, Inc. and its consolidated subsidiaries, which we refer to collectively, as “Taylor & Martin Enterprises,” (ii) Deanco Auction & Real Estate, Co., Deanco Auto Auction, Inc., Deanco Auction Company of Mississippi, Inc. and Deanco Auction Group, which we refer to collectively as “Deanco Auction,” (iii) International Enterprises, Inc., which we refer to as “International Enterprises,” (iv) The Jay Group, Ltd. and its wholly owned subsidiaries and an affiliated entity, which we refer to collectively as “Jay Group,” and (v) Image Microsystems Operating Company, LLC, which we refer to as “Image Microsystems.” See “Combinations and Reorganization.”

Prior to consummation of the offering made by this prospectus, TMG Founder Company, an affiliate of SABA Group, LLC, which we refer to as “our sponsor,” will become a subsidiary of Taylor & Martin Group, Inc. through a merger transaction, which we refer to as the “Reorganization.” Concurrently with the consummation of the offering made by this prospectus, Taylor & Martin Group, Inc., through a series of stock acquisitions, which we refer to collectively herein as the “Combinations,” will acquire all of the operations of the Partner Companies. Unless we close all of the Combinations, we will not close any of the Combinations and will not close this offering.

Unless otherwise indicated by the context, references to the “Company,” “our,” “we,” “us” and similar terms refer to Taylor & Martin Group, Inc., together with the Partner Companies, after giving effect to the Reorganization and the Combinations.

For accounting purposes, Taylor & Martin Group, Inc. has been designated as our accounting acquirer and each of the Partner Companies has been designated an accounting predecessor.

In this prospectus we use various industry-specific terms. A brief explanation of some of those terms follows. The “forward supply chain” for finished products is a commonly understood concept and the term is used to describe the process of the flow of a product, whether that product is a capital asset or a consumer good, from its point of origin, generally an original equipment manufacturer, or “OEM,” to its point of consumption, generally the consumer purchasing the product for its own use. The “reverse supply chain” represents the flow of these products in reverse, from the point of its consumption back to the point of its sale or origin. We refer to the market for buying and selling assets in the reverse supply chain as the “secondary market.” A product enters the secondary market for any number of reasons, including because it is returned, seasonal and remains unsold, recalled, distressed or excess inventory, the OEM has produced a new model and the owner of the product desires to upgrade the product, or the condition of the product is no longer suitable for the existing owner’s purpose. “Reverse logistics” is generally considered to be the process of coordinating the flow of products and related information through the secondary market for the purpose of maximizing recovery value or proper disposal. Our non-auction liquidation business deals in returned, seasonal, recalled, distressed and excess consumer goods, which we refer to as “excess inventory and returned consumer goods.” See “Our Business – Industry Overview –The Reverse Logistics Industry.”

We use the term “consignor” in this prospectus to refer to a seller for whom we sell assets on the seller’s behalf. In these consignment sales, we receive a commission on the sale and do not take title to the asset.

Unless otherwise indicated, all share, per share and financial data set forth in this prospectus:

 

   

have been adjusted to give effect to the reverse stock split discussed in Note 6 to the notes to the audited financial statements of TMG Founder Company, which occurred on August 17, 2012, and the occurrence of the Reorganization;

 

   

have been adjusted to give effect to the Combinations; and

 

   

assume an initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) and no exercise of the underwriters’ option to purchase additional shares.

 

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in the prospectus. Because it is a summary, it does not contain all of the information that you should consider before investing in our common stock. You should read and carefully consider this entire prospectus before making an investment decision, especially the information presented under the headings “Risk Factors,” “Information Regarding Forward-Looking Statements,” “Important Introductory Information” and “Selected Pro Forma Combined Historical and Financial and Other Data.”

The description of the business that follows assumes that the Combinations have occurred and the operations of the Partner Companies have been combined. The following description is prospective only, as the Partner Companies have historically operated independently and will remain independent until the closing of this offering. The Partner Companies have no combined operating history, and Taylor & Martin Group, Inc. has no business operations at this time. The discussion of our business assumes that the operations of our Partner Companies are combined and reflects our expectation for those combined operations; however, there can be no assurance, if we close the Combinations, that our expectations for the combined operations will be realized. We are dependent upon this offering to complete the Combinations and commence operations as a combined business. Unless we close all of the Combinations, we will not close any of the Combinations and will not close this offering.

Overview

We provide marketplaces and value-added solutions for the liquidation of pre-owned capital assets, excess inventory and returned consumer goods. Our marketplaces and solutions appeal to a broad base of customers seeking to liquidate their assets at the highest achievable prices in an efficient and timely manner. We believe that our platform, which we refer to as our TMG Complete Solution, offers the most comprehensive suite of services available within our targeted markets: (i) pre-owned capital assets, such as commercial trucks and trailers, agricultural, construction and industrial equipment, and (ii) excess inventory and returned consumer goods, such as footwear, apparel and accessories, electronics and general merchandise. We serve these targeted markets through our two operating divisions:

 

   

TMG Auction Services:    conducts live auctions with simultaneous world-wide Internet bidding, and provides additional value-added services including appraisals, equipment leasing and consulting services for our sellers and buyers; and

 

   

TMG Reverse Logistics:    provides a comprehensive array of reverse logistics capabilities including liquidation services as well as return center operations, proprietary reverse logistics software, and value-add services such as reconditioning, recycling and disposal solutions.

The TMG Complete Solution enables us to more fully address the auction and reverse logistics needs of our customers, which we believe are not currently met in the market by any other single service provider. We believe that the combination of our TMG Auction Services and TMG Reverse Logistics operating divisions provides us with diversification benefits in the liquidation marketplace by allowing us not to be dependent on a single market, geographic location or asset base.

Combined, we believe that our highly scalable infrastructure and operating activities will enable us to serve the needs of a large base of customers and achieve sales growth and expand profitability. During 2011, our infrastructure and operating activities consisted of:

 

   

Marketplaces and solutions that processed assets with a total liquidation volume of approximately $346 million;

 

   

Live auctions at 24 locations across 12 states with simultaneous Internet bidding through our online auction marketplaces at www.TMILive.com® and www.deancoauction.com;

 

 

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Auction marketplaces that connected over 3,000 unique consignors to over 5,700 unique buyers, from among 16,100 unique bidders generating $262.8 million in gross auction proceeds, or “GAP,” located across all 50 U.S. states and 14 countries;

 

   

Appraisals on approximately 545,000 pieces of capital assets with an aggregate appraised value of approximately $5.9 billion;

 

   

Reverse logistics liquidation activities that generated $83.2 million in gross merchandise volume, or “GMV,” through 14,000 sales to over 3,000 different potential buyers; and

 

   

Global network of buyers and sellers of excess inventory and returned consumer goods on the secondary market with long operating histories of buying and selling such products in global markets, including buying in 13 countries and selling in 36 countries.

We generate revenues through multiple sources, including the purchase and resale of assets, transaction fees from sellers and buyers on consignment sales, revenue sharing arrangements, leasing operations and fee-based services. On a pro forma combined basis, we experienced strong sales and profit growth in 2011 and for the six months ended June 30, 2012.

 

   

Pro forma combined revenues increased from $97.8 million in 2010 to $130.8 million in 2011, representing a 33.8% growth rate, and adjusted pro forma combined EBITDA increased from $13.6 million in 2010 to $22.4 million in 2011, representing a 65.2% growth rate. We had an adjusted pro forma combined net loss of $2.4 million for the year ended December 31, 2010 compared to adjusted pro forma combined net income of $4.2 million for the year ended December 31, 2011.

 

   

Pro forma combined revenues increased from $64.8 million for the six months ended June 30, 2011 to $73.3 million for the six months ended June 30, 2012, representing a 13.1% growth rate, and adjusted pro forma combined EBITDA increased from $10.9 million for the six months ended June 30, 2011 to $12.8 million for the six months ended June 30, 2012, representing a 16.8% growth rate. Our adjusted pro forma combined net income for the six months ended June 30, 2011 and 2012 was $1.7 million and $2.9 million, respectively, representing a 71.4% growth rate.

Our pro forma results of operations were significantly affected by adjustments for non-cash selling, general and administrative stock compensation expense, which we refer to as “non-cash stock compensation expense,” related to the grants of restricted stock to be made upon the consummation of this offering and the amortization of identifiable intangible assets. For a reconciliation of adjusted pro forma combined EBITDA to adjusted pro forma combined net income, see “Prospectus Summary – Non-GAAP Financial Measure – Adjusted Pro Forma Combined EBITDA and Adjusted EBITDA.”

Preliminary Third Quarter Operating Data

While no definitive pro forma combined financial statements have been prepared for any period subsequent to June 30, 2012, we have reviewed preliminary unaudited pro forma combined operating data for the three months ended September 30, 2012. Based on this data, we believe that:

 

   

Our pro forma combined revenue for the nine months ended September 30, 2012 is continuing to achieve solid growth, when compared to the comparable period for the preceding year, although at a modestly reduced rate relative to the growth achieved for the six months ended June 30, 2012. This preliminary operating data suggests that for the three months ended September 30, 2012 our pro forma combined costs of sales and services, net income and adjusted EBITDA, each as a percentage of pro forma combined revenue, were in line with the comparable percentages for the six months ended June 30, 2012.

 

   

Our pro forma combined revenue in the TMG Auction Services segment for the nine months ended September 30, 2012, as compared to the same period in 2011, grew slightly. The pro forma combined operating income for this segment for the three months ended September 30, 2012, as a percentage of

 

 

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this segment’s pro forma combined revenue, was in line with the comparable percentage for the six months ended June 30, 2012. This segment’s operating data for the three months ended September 30, 2012 reflect the positive impact of an improved supply of capital assets and significant improvement in sales revenues. This reflects a reversal of the trends that reduced the availability of trucks for sale in our auctions and caused a decline in the average GAP generated by each lot sold in our auctions during the second quarter.

 

   

Our pro forma combined revenue in the TMG Reverse Logistics segment for the nine months ended September 30, 2012, as compared to the same period in 2011, grew at a higher rate than our pro forma combined revenue on a company-wide basis. The pro forma combined operating income for this segment for the three months ended September 30, 2012, as a percentage of this segment’s pro forma combined revenue, was in line with the comparable percentage for the six months ended June 30, 2012. This revenue growth was driven by a substantial increase in the volume of shoes liquidated during the three months ended September 30, 2012 that was partially offset by decreases in revenue resulting from a recent shift in the sales by one of our Partner Companies from higher volume, lower margin soft goods to lower volume, higher margin electronic products, a revenue timing mismatch related to one of our Partner Company’s amended agreement to provide TMG Return Point software, and reduced volume from a large printer manufacturer, which we have taken steps to mitigate with purchases from other sources.

No assurance can be given that the current trends will continue unchanged for the remainder of 2012 or thereafter. The foregoing historical operating data for the three months ended September 30, 2012 are preliminary and subject to additional closing procedures and, as a consequence, may not be reflective of our definitive pro forma combined financial statements for the three months ended September 30, 2012 once they are compiled.

About Our Company and the Combinations

Taylor & Martin Group, Inc. has entered into definitive agreements to acquire each of the Partner Companies and the Combinations will close concurrently with this offering. We intend to operate each of the Partner Companies in a decentralized model in which management from the Partner Companies will remain responsible for daily operations while our senior management will utilize their deep industry expertise and strategic contacts to develop and implement growth strategies and leverage top-line and operating synergies among our Partner Companies, as well as provide overall general and administrative functions. Integration of the Partner Companies has commenced and is continuing in advance of the closing of this offering.

Taylor & Martin Group, Inc., whose common stock is being offered hereby, was formed in Delaware in November 2011 to serve as the parent company of the Partner Companies following the completion of this offering. It has generated no revenues from the date of its formation through June 30, 2012. Taylor & Martin Group, Inc.’s activities prior to the completion of this offering have consisted exclusively of locating the Partner Companies, negotiating and entering into definitive agreements with respect to the Combinations, preparing for this offering and initiating steps to integrate the business operations of the Partner Companies. We cannot assure you that we will be able to generate future profits as a combined business. Please see “Risk Factors – Risks Related to Our Company – There is no combined operating history of Taylor & Martin Group, Inc. and the Partner Companies.”

Industry Overview

The value of the assets sold on the secondary market is very large and the industry for the conversion of these assets into cash is still relatively undeveloped. Currently, the majority of these pre-owned capital assets and excess inventory and returned consumer goods are liquidated directly by their owners in a process that requires significant time and effort thereby diverting their attention from their core operations. We provide

 

 

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solutions for the conversion of assets into cash and we believe, based on our industry experience, that we do this at some of the highest obtainable prices and in an efficient and timely manner.

The Auction Industry

The supply of pre-owned transportation, agricultural and industrial capital assets continues to grow. We believe that auctions represent an increasingly popular distribution channel for these types of capital assets. We believe that the main drivers of growth for these types of capital assets sold through auctions include:

 

   

The ability of auctioneers to quickly deliver high net proceeds on the sale of pre-owned capital assets;

 

   

The ability of auctioneers to sell high volumes of pre-owned capital assets thereby attracting sellers with large quantities of goods such as transportation and agriculture companies, equipment companies, regional banks, and insurance companies;

 

   

The convenience for buyers who want to evaluate equipment from a range of manufacturers rather than being restricted to a single supplier;

 

   

Cost-conscious buyers looking for a discount relative to the costs of new equipment;

 

   

Convenience of an Internet platform where customers can easily review and share information and purchase equipment without traveling to a live auction;

 

   

The increasing trust by sellers and buyers in the transparency of the auction process;

 

   

Technological improvements increasing the pace of product obsolescence and, therefore, the turnover of pre-owned capital assets; and

 

   

Increasingly stringent government regulation of emissions that have resulted in new equipment that is significantly more expensive to purchase and operate, thereby making the purchase of pre-owned equipment more cost effective.

The Reverse Logistics Industry

Reverse logistics is the process of maximizing recovery values for excess inventory and returned consumer goods. According to the Reverse Logistics Report, the value of returned consumer goods alone is approximately 6% to 10% of retail sales. These returned consumer goods, along with excess inventory, are typically either liquidated by the retailer on the secondary market or sent back to OEMs. Once a product enters the reverse supply chain, OEMs and retailers have multiple disposal options, such as selling goods “as-is,” reconditioning or recycling, but face challenges in deciding how to maximize the recovery values of these goods.

We believe that reverse logistics solutions are becoming an increasingly attractive service as OEMs and retailers recognize the substantial value they can recover for their excess inventory and returned consumer goods. The supply of excess inventory and returned consumer goods on the secondary market results from a number of factors, including:

 

   

The increasingly flexible return practices of many large national retailers and online shopping sites result in a continuous supply of excess inventory and returned consumer goods, a significant portion of which must be liquidated;

 

   

Forecasting inaccuracies, manufacturer overruns, cancelled orders, evolving consumer preferences, discontinued product lines, merchandise packaging changes and seasonal fluctuations result in the supply of excess consumer goods;

 

   

Continuous innovation in technology products, such as computer and office equipment, consumer electronics, and personal communication and entertainment devices, results in a continuous flow of excess inventory;

 

   

An increasingly stringent regulatory environment necessitates the verifiable recycling and remarketing of excess inventory and returned electronic consumer goods that would otherwise be disposed of as waste; and

 

 

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Most organizations appreciate the growing need to be environmentally friendly by improving their management of end of life or excess electronic consumer goods, including creating the need to repurpose or efficiently redistribute excess consumer goods to minimize waste and maximize value for themselves and the communities they serve.

Competition

Competition in our industry is highly fragmented and, according to InfoUSA, there are over 10,000 auction, reverse logistics and associated service companies that provide liquidation services for pre-owned capital assets and excess inventory and returned consumer goods. In addition, based on publicly available information and our senior management team’s experience, the three largest competitors in our industry collectively represent less than 2% of total combined annual gross proceeds from the sale of pre-owned capital assets and excess inventory and returned consumer goods. With our combined operating divisions and scale, we believe that we will be positioned to garner substantial market share in the segments of the industry in which we operate.

Because of their respective sizes, different geographic areas of operation and varying individual core competencies, the Partner Companies have not historically competed against one another for business, and we do not expect them to do so following the Combinations. To the extent that we seek to acquire additional businesses in the future, we intend to focus on companies that we expect to offer us new or complementary areas of expertise, technology advancements, marketing capabilities, customer bases, geographic territories or asset classes, rather than companies that would compete with the Partner Companies for business. However, some businesses that we seek to acquire may have some competitive overlap with the Partner Companies or with other companies that we may acquire in the future.

TMG Complete Solution

We provide an array of marketplaces and solutions that enable our customers to convert their pre-owned capital assets and excess inventory and returned consumer goods into cash at what we believe to be some of the highest obtainable prices in an efficient and timely manner. Within our TMG Auction Services operating division, we provide physical and online marketplaces for the liquidation of transportation, agricultural and industrial assets as well as other value-added services. Our marketplaces and solutions include:

 

   

Live Auctions with Simultaneous World-Wide Internet Bidding:    Auctions of pre-owned capital assets, with an emphasis on commercial trucks and trailers and construction and agricultural equipment; and

 

   

Appraisals, Equipment Leasing and Consulting:    Appraisals and consulting for lenders, insurance companies, operators, bankruptcy courts and other capital asset owners and leasing of commercial trucks and trailers and agricultural equipment.

Within our TMG Reverse Logistics operating division, we offer a comprehensive suite of services that address the reverse logistics needs of OEMs and retailers. We believe that our ability to provide comprehensive services gives us a significant competitive advantage in acquiring and maintaining customers relative to companies that focus exclusively on product liquidation. Our services include:

 

   

Liquidation Services:    We provide multiple liquidation pathways that we believe enable our customers to maximize their net recovery on their excess inventory and returned consumer goods. Moreover, our streamlined management structure allows us to quickly price and process inventory, which we believe is a critical factor in maximizing net recovery values.

 

   

Return Center Operations:    We offer complete reverse logistics processing that includes disposition of all excess inventory and returned consumer goods, warehousing, and shipping, with full reconditioning programs for high valued electronics and other goods.

 

 

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Reverse Logistics Software:    We provide proprietary software, which we call TMG Return Point, that allows our customers to process excess inventory and returned consumer goods from the point of receipt through final disposition.

 

   

Reconditioning and Coordinating of Recycling and Proper Disposal:    We provide reconditioning services that are managed by an internally designed and developed proprietary information system and process. This system provides software-tracking that allows tracking of inventory that is processed, reconditioned, liquidated, recycled or disposed. We also provide services for the recycling or proper disposal of excess inventory and returned consumer goods.

Our Competitive Strengths

After this offering we believe that the following strengths will differentiate our company and create a platform for sales and profitability growth.

Core competitive strengths in our TMG Auction Services operating division include:

 

   

Proven and Reputable Auction Services Business:    We have been conducting auctions for over 75 years and we believe we are one of the largest commercial truck and trailer auctioneers in the nation in terms of GAP. We have specialized expertise in the auction and appraisal of transportation, agricultural and industrial capital assets.

 

   

Scalable Operating Model:    We will have an auction operating platform that we believe makes us, on a combined basis, one of the nation’s leading full-service auction companies. Our operating platform provides an established sales and general and administrative infrastructure that we plan to leverage as our auction volumes grow.

 

   

Extensive Network of Leased and Owned Auction Sites:    We will have a nationwide network of leased and owned auction sites that are capital efficient and flexible, providing us with considerable operating capacity.

 

   

Internet Auction Capabilities:    We conduct live physical auctions with simultaneous Internet bidding worldwide. This allows us to broaden our customer reach, which results in increased bidding activity.

 

   

Proprietary Information Systems and Databases:    We have proprietary auction software that fully integrates the auction registration, sales and settlement processes, allowing us to conduct back-office support seamlessly. We believe that this capability will enable us to efficiently integrate future acquisitions. Our auction data allows us to more accurately appraise assets and better market to our customers.

Core competitive strengths in our TMG Reverse Logistics operating division include:

 

   

Broad Liquidation Capabilities, Across Categories of Goods, for OEMs and Retailers:    We plan for TMG Reverse Logistics to offer our customers multiple liquidation pathways across categories of goods that we believe will enable OEMs and large retailers to achieve maximum net recovery values.

 

   

Proprietary Software Solutions:    Our recently developed proprietary reverse logistics software solutions, which we call TMG Return Point, enable complete reconciliation of returned products from the point of return by the consumer to final disposition and liquidation.

 

   

Well-Established Global Liquidation Network:    We have developed a global liquidation network over the last 79 years that regularly sources excess and returned footwear from 13 countries and liquidates them in 36 countries, with an emphasis on emerging markets in West Africa, Central America and North and Central Asia, and handles the liquidation of over ten million pairs of shoes annually. Although the Partner Company that engages in this business has historically only liquidated footwear, we believe we can utilize this well-established network for a broader range of excess inventory and returned consumer goods to maximize our customers’ recovery values and better serve our customer’s brand and channel control needs.

 

 

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Well Established Infrastructure that Mitigates the Impact of Transportation Costs:    We believe that our strategically located facilities, which are in significant commercial regions, provide us a competitive advantage over our competitors who do not have facilities in or near these significant commercial regions. Our facilities allow us to achieve higher net recovery values for our customers by reducing transportation costs, which are a major factor impacting the net recovery values of excess inventory and returned consumer goods.

Our Growth Strategy

We intend to grow our business by utilizing the highly complementary nature of our two operating divisions and our senior management team’s experience, expertise, strategic relationships and industry recognition. We believe that we are well positioned to leverage the scale of our combined businesses to become a leading global provider of marketplaces and solutions for the liquidation of pre-owned capital assets and excess inventory and returned consumer goods. We plan to achieve this objective by implementing and executing our growth strategy, in particular:

 

   

We intend to focus on our core competencies, which encompass the liquidation of pre-owned transportation, agricultural and industrial capital assets through live and Internet auctions and complete reverse logistics capabilities for the liquidation of excess inventory and returned consumer goods;

 

   

We believe that there exist substantial cross selling opportunities across our Partner Companies to capture a broader array of products for liquidation and provide a more comprehensive suite of services for our customers;

 

   

We intend to increase our share of the liquidation market by expanding our operations geographically and across new, complementary markets and assets through acquisitions;

 

   

We intend to leverage our TMG Complete Solution, as well as our senior management team’s industry contacts, to target additional OEMs and retailers to increase our customer base; and

 

   

We intend to increase our sales force within our operating divisions to organically grow our business.

We expect available borrowing capacity under our revolving credit facility and available cash flows from operations to be sufficient to support our ongoing business. We anticipate borrowing additional funds outside our credit facility to fund the cash consideration paid in any future acquisitions. However, we have no commitments for additional borrowings, and there is no assurance that additional debt and equity financing would be available to us on acceptable terms, or at all. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Pro Forma Combined – Pro Forma Combined Liquidity and Capital Resources – Possible Acquisitions and Capital Expenditures.”

Credit Facility

We have a commitment to enter into a $35 million senior secured revolving line of credit with the First National Bank of Omaha with a borrowing base of $19.4 million (based on our pro forma combined financial condition as of June 30, 2012) that is subject to periodic readjustment based on our accounts receivable and inventory. We may draw on our revolving credit facility for working capital and other general corporate purposes, including to acquire pre-owned capital assets for auction and excess inventory and returned consumer goods for liquidation. We may also draw on our revolving credit facility for potential company acquisitions, subject to prior lender approval. Additionally, we are permitted to draw on our revolving credit facility to fund the cash requirements in connection with the Combinations.

The closing of our revolving credit facility will occur contemporaneously with the closing of this offering and is conditioned upon the closing of this offering. Our revolving credit facility will be secured by substantially all of our assets.

 

 

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Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described in “Risk Factors” before making a decision to invest in our common stock. If any of these risks actually occurs, our business, financial condition and results of operations would likely be materially adversely affected. In such case, the trading price of our common stock would likely decline, and you may lose part or all of your investment. Below is a summary of some of the principal risks we face:

 

   

We have no combined operating history and may not be able to successfully manage the combined operations of our Partner Companies;

 

   

We do not have a centralized financial reporting system and we may be unable to successfully integrate the financial and other systems of the Partner Companies, which could result in inconsistent operating and financial practices across the Partner Companies;

 

   

We may not be able to achieve some or all of the benefits, including certain anticipated cost reductions, we expect from the integration of the Partner Companies and the Combinations;

 

   

We may not be able to successfully implement internal accounting controls;

 

   

We may not be successful in managing the enhanced marketing, tax, foreign exchange and compliance risks associated with our existing and expanding international operations;

 

   

Some members of our senior management team have not worked together previously and the members of our board of directors were recently elected;

 

   

We may not be able to manage our growth and successfully implement our business plan should we fail to implement our sales and marketing strategy, expand our sales force or successfully complete future business acquisitions;

 

   

We may be unable to successfully expand our marketplaces and auction platform to accommodate additional asset categories;

 

   

Our business could be harmed if we lost the services of one or more key personnel or our newly assembled management team cannot function effectively;

 

   

If our high volume sellers stop selling through our marketplaces, or sell significantly lower volumes, our business would be harmed as a result of decreased revenues;

 

   

If we fail to accurately predict our ability to sell capital assets or excess inventory and returned consumer goods in which we take inventory risk and credit risk, our margins may decline as a result of lower sale prices from such excess inventory and returned consumer goods;

 

   

The time and effort spent evaluating, and issues associated with, future acquisitions, including our potential failure to integrate future acquired businesses or other unknown problems with acquired businesses, could disrupt our business and adversely affect our results of operations;

 

   

Decreases in the supply of, demand for, or market values of capital assets could harm our business by decreasing our auction revenues;

 

   

Our future level of indebtedness may increase and consequently reduce our financial flexibility;

 

   

We do not have long-term commitments with our customers and our customers may terminate their relationships with us;

 

   

The markets in which we operate are highly competitive, and we may not have the resources to compete successfully in our markets; and

 

   

The voting power of our common stock will be concentrated in our sponsor following the completion of this offering, which could reduce your influence on stockholder votes and may have the effect of delaying, deferring or preventing a change in control of us.

 

 

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Our Structure and Ownership

The chart below depicts our basic organizational structure before giving effect to the Reorganization, the Combinations, and this offering. For a discussion of the Combinations and the Reorganization, see “Combinations and Reorganization.”

 

LOGO

The Reorganization is intended to optimize the corporate structure of Taylor & Martin Group, Inc. and the Partner Companies after consummation of the Combinations and to create uniformity of ownership of Taylor & Martin Group, Inc. and TMG Founder Company prior to consummation of the Combinations and this offering. To effect the Reorganization, Taylor & Martin Group, Inc.’s wholly owned subsidiary, TMG Merger Sub, Inc., will be merged with and into TMG Founder Company, resulting in TMG Founder Company becoming a wholly owned subsidiary of Taylor & Martin Group, Inc. and the stockholders of TMG Founder Company receiving one share of Taylor & Martin Group, Inc.’s common stock in exchange for each share of TMG Founder Company common stock held by them. After the Reorganization, TMG Founder Company will continue as a non-operating subsidiary of Taylor & Martin Group, Inc. until it is dissolved.

 

 

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The chart below depicts our basic organizational structure after giving effect to the Reorganization, the Combinations, this offering and the contribution of the acquired Partner Companies’ common stock to our subsidiaries.

 

LOGO

Our Corporate Information

Taylor & Martin Group, Inc. is a Delaware corporation formed in November 2011. Its principal executive offices are located at 12 Greenway Plaza, Suite 1100, Houston, Texas 77046, and its telephone number is (713) 425-4940. Our website will be found at www.TaylorandMartinGroup.com upon the commencement of trading of our common stock. Information on our website is not part of, and should not be construed as being incorporated by reference into, this prospectus.

 

 

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The Offering

 

Common stock offered

15,000,000 shares.

 

Option to purchase additional shares of
common stock

We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to 2,250,000 additional shares of common stock.

 

Common stock to be outstanding immediately after this offering(1)

31,000,002 shares of common stock outstanding. Additionally, we have agreed to issue 3,642,301 shares of restricted stock at the closing of this offering under our 2011 Omnibus Incentive Plan; the restricted stock has certain forfeiture restrictions that generally lapse in equal increments over a 5-year period.

 

Use of proceeds

We expect to receive approximately $153.5 million of net proceeds from the sale of the common stock in this offering, or approximately $176.5 million if the underwriters exercise in full their option to purchase additional shares, based upon the assumed initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and before deducting estimated offering expenses. Each $1.00 increase (decrease) in the initial public offering price would increase (decrease) our net proceeds by approximately $14.0 million.

 

  We intend to use the net proceeds from this offering, together with borrowings under our revolving credit facility, to pay an estimated $156.3 million in connection with this offering consisting of:

 

   

$136.1 million to fund the cash portion of the consideration payable at closing to the stockholders of the Partner Companies in the Combinations plus approximately $5.2 million of aggregate payments in respect of working capital adjustments estimated based on balances as of June 30, 2012; and

 

   

$15.0 million to pay the estimated expenses associated with the Combinations, our revolving credit facility and this offering, which include professional fees and payments to our sponsor’s subsidiary and members of our senior management (see “Use of Proceeds” for a more detailed discussion of these expenses).

 

Dividend policy

We do not anticipate paying cash dividends on our common stock in the foreseeable future. See “Dividend Policy.”

 

New York Stock Exchange symbol

“TMG”

 

 

(1) 

The common stock that will be outstanding after the offering also includes (i) 9,477,201 shares issued to the stockholders of TMG Founder Company, our sponsor’s affiliate, in connection with the Reorganization, (ii) 6,275,379 shares to be issued in the Combinations (with a value, based on a per-share price of $11.00 (the midpoint of the price range set forth on the cover page of this prospectus) equivalent to $69.0 million) plus an additional 247,422 shares, (iii) 3,642,301 shares of restricted stock issuable under our 2011 Omnibus Incentive Plan that will be outstanding immediately after consummation of this offering and (iv) the shares offered hereby. Such share number does not include 1,357,699 shares of common stock reserved for issuance under our 2011 Omnibus Incentive Plan that will not will be outstanding immediately after consummation of this offering. Because most of the stock to be issued to the Partner Company stockholders in the Combinations and to our directors, officers and employees under the 2011 Omnibus Incentive Plan are being issued for a fixed dollar amount ($69.0 million of the total $71.8 million in respect of the Combinations and $26.0 million of the total $40.1 million in respect of the 2011 Omnibus Incentive Plan) rather than as a fixed number of shares, the number of shares so issuable will not be known with certainty until the price per share in this offering is determined. A $1.00 decrease in the per-share assumed initial public offering price of $11.00 (the midpoint of the price range set forth on the cover page of this prospectus) would increase the number of shares issued in the Combinations and under the 2011 Omnibus Incentive Plan by 627,538 and 231,362, respectively, and a $1.00 increase in such per-share assumed initial public offering price would decrease the number of shares issued in the Combinations and under the 2011 Omnibus Incentive Plan by 522,948 and 192,805, respectively.

 

 

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Summary Pro Forma Combined and Historical Financial Data

The following summary historical consolidated or combined, as the case may be, financial data for each of the Partner Companies, TMG Founder Company and Taylor & Martin Group, Inc. for the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, or such shorter period as the company has been in existence, have been derived from the audited and unaudited consolidated or combined, as the case may be, financial statements included elsewhere in this prospectus. Such unaudited financial statements have been prepared on a basis consistent with the audited financial statements and the notes thereto, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial data and are not necessarily indicative of the results for the entire year. Certain reclassifications have been made to individual partner company historical amounts to conform to a consistent presentation.

The following summary pro forma combined financial data for Taylor & Martin Group, Inc. for the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012 have been derived from the unaudited pro forma combined financial statements of Taylor & Martin Group, Inc. included elsewhere in this prospectus.

You should read the following summary historical consolidated or combined, as the case may be, and pro forma combined financial data with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited and unaudited consolidated or combined, as the case may be, and pro forma combined financial statements and the notes thereto included elsewhere in this prospectus.

 

     Year Ended
December  31,
     Six Months Ended
June 30,
 
     2010     2011      2011      2012  
    

(Unaudited)

 
     (In thousands)  

Taylor & Martin Group, Inc. (Pro Forma Combined):(1)

          

Pro forma combined total revenues

   $ 97,815        130,833         64,842         73,332   

Pro forma combined total cost and expenses(2)

     101,782        123,959         62,087         68,986   

Pro forma combined net income (loss)

     (2,392     4,192         1,677         2,874   

Non-GAAP Financial Measure:(3)

          

Adjusted pro forma combined EBITDA

     13,567        22,407         10,947         12,780   
     Year Ended
December  31,
     Six Months Ended
June 30,
 
     2010     2011      2011      2012  
                  (Unaudited)  
     (In thousands)  

Taylor & Martin Enterprises:(4)

          

Total revenues

   $ 17,473        21,295         10,178         10,813   

Total costs and expenses(5)

     13,760        15,937         7,912         8,352   

Net income

     3,596        5,332         2,230         2,424   

Non-GAAP Financial Measure:(3)

          

Adjusted EBITDA (Unaudited)

     4,980        6,603         2,879         2,994   

Deanco Auction:(4)

          

Total operating revenues

   $ 13,025        18,451         10,098         10,213   

Total costs and expenses(5)

     10,030        14,836         7,917         8,502   

Net income

     2,653        3,307         2,024         1,594   

Non-GAAP Financial Measure:(3)

          

Adjusted EBITDA (Unaudited)

     3,302        3,933         2,349         1,832   

 

 

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     Year Ended
December  31,
    Six Months Ended
June 30,
 
     2010     2011     2011     2012  
                 (Unaudited)  
     (In thousands)  

International Enterprises:(4)

        

Sales

   $ 24,743        35,521        19,468        21,156   

Total costs and expenses(5)

     23,533        32,333        16,963        18,349   

Net income

     1,235        3,193        2,507        2,822   

Non-GAAP Financial Measure:(3)

        

Adjusted EBITDA (Unaudited)

     1,243        3,212        2,516        2,817   

Jay Group:(4)(6)

        

Net sales

   $ 32,781        35,672        16,142        21,334   

Total costs and expenses(5)

     29,507        33,199        15,478        19,123   

Net income

     2,085        1,292        77        1,658   

Non-GAAP Financial Measure:(3)

        

Adjusted EBITDA (Unaudited)

     3,569        3,199        1,172        2,053   

Image Microsystems:(4)

        

Total revenues

   $ 9,793        19,894        8,956        9,888   

Total costs and expenses(5)(7)

     9,475        17,501        7,682        9,799   

Net income

     317        2,383        1,270        32   

Non-GAAP Financial Measure:(3)

        

Adjusted EBITDA (Unaudited)

     443        2,616        1,315        236   

TMG Founder Company:(8)

        

Revenues

   $                        

Cost of sales

                            

Loss before income tax

     (5     (115     (4       

Taylor & Martin Group, Inc. (Restated):(8)

        

Revenues

   $                        

Costs of sales

                            

Combination expense

                          1,324   

Net (loss)

            (37            (1,367

 

(1) 

The pro forma combined statements of operations data assume that the Reorganization and the Combinations were closed on January 1, 2010, including borrowing under our revolving credit facility to close the Combinations, and are not necessarily indicative of the results we would have achieved had these events actually then occurred or of our future results. The pro forma combined financial information (i) is based on preliminary estimates, available information and certain assumptions that management deems appropriate and (ii) should be read in conjunction with the other financial statements and notes thereto included elsewhere in this prospectus. The pro forma combined revenues are all attributable to Taylor & Martin Group, Inc. (after giving effect to the Reorganization) and the Partner Companies.

 

(2) 

Includes pro forma combined cost of sales, pro forma combined cost of services and pro forma combined selling, general and administrative expenses, including amortization of identified intangibles and loan fees, Combination expense and non-cash stock compensation expense;

 

(3) 

We have included adjusted EBITDA and adjusted pro forma combined EBITDA data because they are measures used by us to evaluate our auction and reverse logistics business segments. Adjusted EBITDA and adjusted pro forma combined EBITDA are not measures of financial performance determined under generally accepted accounting principles, should not be considered as an alternative to net income as a measure of performance or to cash flows as a measure of liquidity, and is not necessarily comparable to similarly titled measures of other companies. For a definition of adjusted EBITDA and adjusted pro forma combined EBITDA and a reconciliation of adjusted EBITDA and adjusted pro forma combined EBITDA to pro forma combined net income, see “– Non-GAAP Financial Measure – Adjusted Pro Forma Combined EBITDA and Adjusted EBITDA” below.

 

(4) 

For all periods indicated, this entity was subject to Subchapter S of the Internal Revenue Code, and, as a result, has not recognized any federal income tax liability at the company level. Consequently, the historical financial information presented for this entity does not include the impact of income-based taxes. However, the pro forma combined financial information does include the impact of income-based taxes.

 

(5) 

For Taylor & Martin Enterprises, includes cost of goods sold and operating expenses; for Deanco Auction, includes costs of goods and services sold, selling, general, and administrative expenses (excluding depreciation) and depreciation expense; for International Enterprises, includes costs of goods sold and operating and administrative expenses; for Jay Group, includes costs of goods sold and selling, general and administrative expenses; and for Image Microsystems, includes total operating expenses.

 

 

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(6) 

Includes TJG Disc, Ltd., an entity under common control, which is not being acquired by us. Neither the results of operations nor the assets and liabilities of TJG Disc, Ltd. are significant. See Note 1(a) of the notes to the combined financial statements of Jay Group included elsewhere in this prospectus.

 

(7) 

Includes unaudited costs and expenses of $1.2 million, $0.2 million , and $1.7 million for the year ended December 31, 2011 and the six months ended June 30, 2011 and 2012, respectively, attributable to a sign manufacturing operation which began in early 2011, all of which will not be acquired by us but will be retained by Image Microsystems, Inc. See Note 9 to the notes to the financial statements of Image Microsystems, Inc. included elsewhere in this prospectus.

 

(8) 

The accounting predecessor of TMG Founder Company was incorporated on January 7, 2009 and Taylor & Martin Group, Inc. was incorporated on November 18, 2011. We have not included the non-GAAP financial measure of adjusted EBITDA because neither company has had commercial operations since its formation and, therefore, loss and adjusted EBITDA would be the same value in this instance.

Non-GAAP Financial Measure—Adjusted Pro Forma Combined EBITDA and Adjusted EBITDA

Adjusted EBITDA and adjusted pro forma combined EBITDA are supplemental non-GAAP financial measures that are used by management and external users of the financial statements included elsewhere in this prospectus, such as industry analysts, investors and lenders. We define adjusted pro forma combined EBITDA as our adjusted pro forma combined net income before interest expenses, income tax, gains and losses on property dispositions, depreciation and amortization, non-cash stock compensation and charges associated with the Combinations. We define adjusted EBITDA as net income before interest expenses, income tax, gains and losses on property dispositions and depreciation and amortization. Adjusted EBITDA and adjusted pro forma combined EBITDA are not measures of net income as determined by United States generally accepted accounting principles, or “GAAP.”

Management believes adjusted EBITDA and adjusted pro forma combined EBITDA are useful because they allow management to more effectively evaluate operating performance and compare the results of operations from period to period without regard to financing methods or capital structure. We exclude the items listed above from net income in arriving at adjusted EBITDA and adjusted pro forma combined EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital and tax structures and the method by which the assets were acquired. Adjusted EBITDA and adjusted pro forma combined EBITDA should not be considered as alternatives to, or more meaningful than, net income from operating activities as determined in accordance with GAAP or as indicators of operating performance or liquidity. Certain items excluded from adjusted EBITDA and adjusted pro forma combined EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets and the methods by which assets were acquired, none of which are components of adjusted EBITDA or adjusted pro forma combined EBITDA. Our computations of adjusted EBITDA and adjusted pro forma combined EBITDA may not be comparable to other similarly titled measures of other companies.

 

 

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The following table presents a reconciliation of the non-GAAP financial measures adjusted EBITDA and adjusted pro forma combined EBITDA to net income and pro forma combined net income, respectively, the most directly comparable GAAP financial measure, for the periods presented.

 

     Year Ended December 31,      Six Months Ended
June 30,
 
         2010              2011          2011      2012  
     (Unaudited)  
     (In thousands)  

Taylor & Martin Group, Inc. (Pro Forma Combined):(1)

           

Pro forma combined net income (loss)

   $ (2,392      4,192         1,677         2,874   

Pro forma combined interest and other, net

     (2      27         4         (373

Pro forma combined provision for income taxes

     (1,529      2,680         1,074         1,838   

Pro forma combined loss (gain) on disposition of property, plant and equipment

     (44      (25              7   

Pro forma combined depreciation and amortization

     6,815         7,246         3,749         3,454   

Pro forma combined non-cash stock compensation

     10,719         8,287         4,443         3,656   

Charges associated with the Combinations

                             1,324   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted pro forma combined EBITDA

   $ 13,567         22,407         10,947         12,780   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Year Ended December 31,      Six Months Ended
June 30,
 
         2010              2011          2011      2012  
                   (Unaudited)  
     (In thousands)  

Taylor & Martin Enterprises:

           

Net income

   $ 3,596         5,332         2,230         2,424   

Interest

     130         70         36         28   

Tax

                               

(Gain) loss on asset disposal

     (14      (44              8   

Depreciation and amortization

     1,268         1,245         613         534   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA (Unaudited)

   $ 4,980         6,603         2,879         2,994   
  

 

 

    

 

 

    

 

 

    

 

 

 

Deanco Auction:

           

Net income

   $ 2,653         3,307         2,024         1,594   

Interest

     373         289         158         116   

Tax

                               

(Gain) loss on asset disposal

     (31      19                   

Depreciation and amortization

     307         318         167         122   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA (Unaudited)

   $ 3,302         3,933         2,349         1,832   
  

 

 

    

 

 

    

 

 

    

 

 

 

International Enterprises:

           

Net income

   $ 1,235         3,193         2,507         2,822   

Interest

     (25      (4      (2      (12

Tax

                               

(Gain) loss on asset disposal

                             (2

Depreciation and amortization

     33         23         11         9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA (Unaudited)

   $ 1,243         3,212         2,516         2,817   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

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     Year Ended December 31,      Six Months Ended
June 30,
 
         2010              2011          2011      2012  
                   (Unaudited)  
     (In thousands)  

Jay Group:

           

Net income

   $ 2,085         1,292         77         1,658   

Interest and other

     1,189         1,182         588         161   

Tax

                               

(Gain) loss on asset disposal

                               

Depreciation and amortization

     295         725         507         234   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA (Unaudited)

   $ 3,569         3,199         1,172         2,053   
  

 

 

    

 

 

    

 

 

    

 

 

 

Image Microsystems:

           

Net income

   $ 317         2,383         1,270         32   

Interest

             10         4         57   

Tax

     31         104                   

(Gain) loss on asset disposal

                               

Depreciation and amortization

     95         119         41         147   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA (Unaudited)

   $ 443         2,616         1,315         236   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

See footnote 1 in the immediately preceding table.

Summary Pro Forma Combined and Historical Supplemental Operating Data

The following table presents certain historical and pro forma operations data for the periods indicated.

 

     Year Ended December 31,      Six Months Ended June 30,  
         2010              2011                  2011                      2012          
     (In thousands)  

Taylor & Martin Group, Inc. (Pro Forma Combined):

           

Total liquidation volume(1)

   $ 312,160         345,984         169,128         178,470   
           
           
           

Taylor & Martin Enterprises:

           

Gross auction proceeds(1)

   $ 161,510         166,042         71,908         79,905   

Deanco Auction:

           

Gross auction proceeds(1)

   $ 88,378         96,753         56,077         50,403   

International Enterprises:

           

Gross merchandise volume(1)

   $ 24,743         35,521         19,468         21,156   

Jay Group:

           

Gross merchandise volume(1)(2)

   $ 32,781         35,672         16,142         21,262   

Image Microsystems:

           

Gross merchandise volume(1)

   $ 4,748         11,996         5,533         5,744   

 

(1) 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Pro Forma Combined – Key Business Metrics” for a discussion of this metric.

(2) 

Reflects adjustment for the elimination of intercompany transactions between Partner Companies. See Note 4(l) of the notes to the pro forma combined financial statements of Taylor & Martin Group, Inc. included elsewhere in this prospectus.

 

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, in addition to the other information contained in this prospectus, before investing in our common stock. Realization of any of the following risks, or adverse results from any matter listed under “Information Regarding Forward-Looking Statements,” could have a material adverse effect on our business, prospects, financial condition, cash flows and results of operations and could result in a decline in the trading price of our common stock. You might lose all or part of your investment. This prospectus also contains forward-looking statements, estimates and projections that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements, estimates and projections as a result of specific factors, including the risks described below.

Risks Related to Our Company

There is no combined operating history of Taylor & Martin Group, Inc. and the Partner Companies.

Taylor & Martin Group, Inc. was incorporated in Delaware in November 2011. We have generated no revenues, and our operations have consisted exclusively of locating and negotiating with the Partner Companies, entering into definitive agreements with respect to the Combinations and conducting this offering. The Partner Companies have operated, and will operate until the consummation of this offering, as separate, independent businesses. Consequently, the unaudited pro forma combined financial information herein covers periods during which these businesses were not under common control or management and may not be indicative of what our operating results and financial condition would have been for the periods presented had the Combinations taken place on the date indicated or indicative of our future financial condition or operating results.

We may be unable to successfully integrate the financial, management information and other administrative systems of the Partner Companies.

To date, the Partner Companies have operated independently of one another. Until we establish centralized financial, management information and other administrative systems, we will rely on the separate systems of the Partner Companies. Our success will depend, in part, on the extent to which we are able to merge these functions, eliminate the unnecessary duplication of other functions and otherwise integrate the Partner Companies and any additional businesses we may combine with in the future into a cohesive, efficient enterprise. The integration of the Partner Companies may involve unforeseen difficulties and may require a disproportionate amount of our management’s attention and of our financial and other resources. Some or all of the Partner Companies’ systems, hardware and software may be incompatible with those of other Partner Companies. The integration of the systems of the Partner Companies may entail significant costs and delays could occur. In addition, each of the Partner Companies offer different services, have different capabilities, target different clients and have different management styles.

The differences identified above increase the risk inherent in the integration of the Partner Companies. There can be no assurance that we will be able to integrate the operations of the Partner Companies successfully, that we will be able to implement the necessary Company-wide systems and procedures to manage the operations of the combined enterprise successfully on a profitable basis or that we will be able to implement our business and growth strategies. Our failure to integrate the operations of the Partner Companies successfully or our inability to implement our business and growth strategies could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to achieve some or all of the benefits we expect to achieve from the integration of the Partner Companies.

Our integration plans include certain programs intended to reduce our costs. If these cost reduction efforts are ineffective or our estimates of cost savings are inaccurate, our profitability could be negatively impacted. We may not be successful in achieving the operating efficiencies and operating cost reductions expected from these efforts,

 

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and may experience business disruptions associated with the restructuring and cost reduction activities. These efforts may not produce the full efficiency and cost reduction benefits that we expect. Further, such benefits may be realized later than expected, and the costs of implementing these measures may be greater than anticipated.

We do not currently have a centralized financial reporting system.

To date, the Partner Companies have operated independently of one another. We currently do not have a centralized financial reporting system and initially will rely on the existing reporting systems of each of the Partner Companies. If we do not develop effective systems and procedures, including accounting and financial reporting systems, to manage our combined operations, this could result in inconsistent operating and financial practices, a material weakness in our internal controls over financial reporting and our business could be adversely affected.

Some members of our senior management team have not worked together previously and the members of our board or directors were recently elected.

Our senior management team, upon whom we rely significantly, has been assembled only recently, and there can be no assurance that it will be able to manage successfully the combined entity or implement effectively our operating, internal growth or acquisition strategies (including acquisitions that may occur after this offering). In the event that the members of senior management fail to transition effectively, we may not be able to execute our business strategy effectively, and as a result our stock price may decline. Additionally, upon completion of the Combinations, we will have a newly constituted, five-member Board of Directors, and some members of our senior management have not worked together previously.

We may be unable to manage our growth and successfully implement our business plan.

Our strategy is to expand primarily by internal growth as well as by acquiring additional businesses in our industry. Therefore, the expansion and development of our business will depend not only on our ability to, among other things, successfully implement our sales and marketing strategy, evaluate markets, expand our sales force and obtain any required government authorizations, but also on our ability to identify, evaluate, negotiate and consummate acquisitions, particularly family-owned auction or liquidation companies, successfully, all in a timely manner, at reasonable costs and on satisfactory terms and conditions. We will also need to fund our acquisition strategy with borrowings, which borrowings may be unavailable on terms acceptable to us, or at all. Future growth may place a significant strain on our administrative, operational and financial resources. Our ability to manage our growth successfully will require us to centralize and enhance our operational, management, financial and information systems and controls and to hire and retain qualified sales, marketing, administrative, operating and technical personnel. There can be no assurance that we will be able to do so. In addition, as we expand into our targeted markets, there will be additional demands on the customer support, sales, marketing and administrative resources and the network infrastructures of the Partner Companies, which have not been integrated.

Competition in our core markets could result in reductions in our future revenues and profitability.

The market for the auction of pre-owned capital assets is highly competitive. Although there are some significant auction companies that auction pre-owned capital assets, the market is generally characterized as regional and highly fragmented with a large number of small- and medium-sized competitors. We compete for prospective buyers in our marketplaces directly with online and traditional auction companies. Our auction business also competes indirectly for prospective buyers with equipment manufacturers, equipment brokers, and equipment rental companies. When sourcing pre-owned capital assets to sell at our auctions, we compete with other auction companies, equipment brokers, and capital assets owners that have traditionally disposed of equipment in private sales.

Competition within all facets of the market for the liquidation of excess inventory and returned consumer goods is intense with a few large and numerous smaller companies. We also compete with OEMs and major retailers that have developed their own internal liquidation processes. The competition we face is generally

 

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based on service, price, availability of parts in respect of parts fulfillment, speed and accuracy of delivery and receipt of customer goods, depth of technical know-how in respect of electronic surplus and returned consumer goods, and the ability to tailor specific solutions to customer needs.

We expect our market to become even more competitive as traditional and online liquidators and auctioneers continue to develop online and offline services for disposition, redeployment and remarketing of pre-owned capital assets and excess inventory and returned consumer goods. In addition, manufacturers and retailers may decide to create their own websites to sell their own pre-owned capital assets and excess inventory and returned consumer goods and those of third parties. Some of our competitors have significantly greater financial and marketing resources, locations and name recognition than we do. New competitors with greater financial and other resources may enter our markets in the future. Additionally, existing or future competitors may succeed in entering and establishing successful operations in new geographic markets prior to our entry into those markets. They may also compete against us through Internet-based systems, including timed Internet auctions, which we currently do not conduct. If existing or future competitors seek to gain or retain market share by reducing commission rates, or our strategy to compete against them is not effective, we may also be required to reduce commission rates, which may reduce our revenues and harm our operating results and financial condition, or we may lose market share.

We may be unsuccessful in attracting greater asset volumes or expanding our marketplaces into additional asset categories, which could adversely affect our results of operations.

Our ability to successfully grow our platform or otherwise enter into new markets involve various risks, including the possibility that returns on the initial investments needed to pursue such opportunities will not be achieved in the near future, or ever, and that the management distraction resulting from such an undertaking may otherwise harm our business. We may be unsuccessful in our attempt to attract greater pre-owned capital asset or excess inventory and returned consumer good volumes or expand our marketplaces into additional asset categories, which could adversely affect our business, growth prospects and results of operations.

Future acquisitions could disrupt our business and adversely affect our results of operations.

Our success will depend, in part, on our ability to expand our services 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 technologies rather than through internal development. The identification of suitable future acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete any such 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. Future acquisitions may place a significant strain on our administrative, operational and financial resources. 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. We may also borrow funds to complete an acquisition, which would increase our indebtedness and may reduce our financial flexibility. 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.

Our business could be harmed if we lost the services of one or more key personnel or our newly assembled management team cannot function effectively.

The performance and growth of the Partner Companies has historically been dependent to a significant extent on the efforts and abilities of their respective owners, executive officers and senior managers. As a combined enterprise, we expect to continue to be dependent to a significant extent on several of these owners, key executive officers and senior managers as well as additional executive officers that we have hired or may hire. Because we are a holding company with no previous operating experience and are seeking to consolidate numerous separate businesses, we are particularly vulnerable to the loss of one or more of our key members of

 

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senior management in the near term. Additionally, our ability to compete effectively in our industry is dependent to a significant degree on the networks that have been established by our senior management team over the course of their careers with other companies. Our business could be harmed if we lost the services of any of these individuals.

If we fail to grow, integrate, manage and retain our sales force, our growth prospects and results of operations may be adversely affected.

Our growth strategy depends, in part, on our ability to implement our initiative to significantly expand our direct sales force, which is integral to our efforts to expand the supply of pre-owned capital assets and excess inventory and returned consumer goods available for sale in our marketplaces. We expect that our sales force’s efforts will be the principal drivers of the volume of assets sold in our marketplaces. We may be unable to locate and hire on acceptable terms a sufficient number of qualified salespeople. Additionally, the salespeople we hire may have limited experience in our industry and are likely to be generally less productive than the experienced, existing sales force of the Partner Companies. It will take time to develop the customer relationships needed to obtain new sellers and supplies of assets for our marketplaces, which may adversely impact our operating results while our sales force matures. 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 in key markets with the aptitude, skills and understanding to obtain a steady stream of quality pre-owned capital assets or excess inventory and returned consumer goods for sale in our marketplaces;

 

   

adequately train our sales force in the use and benefits of all elements of our TMG Complete Solution, thereby making them more effective in attracting customers to our marketplaces; and

 

   

increase our sales force’s knowledge of our customers and the pre-owned capital assets or excess inventory and returned consumer goods that are sold in our marketplaces.

In addition, as we expand our presence into new markets, our sales force may lack the skills and experience necessary to attract sellers, products and buyers sufficient to create a liquid market for such products. Development of our sales force takes time and significant resources. If we are unable to timely expand our sales force or if we ultimately fail in our efforts, our growth prospects may be adversely affected.

Our credit facility will contain covenants that may inhibit our ability to make certain investments, incur additional indebtedness to fund acquisitions and otherwise engage in certain other transactions, which could adversely affect our ability to meet our future goals.

We have a commitment to enter into a $35 million senior secured revolving line of credit with the First National Bank of Omaha with a borrowing base of $19.4 million (based on our pro forma combined financial condition as of June 30, 2012) that is subject to periodic readjustment based on our accounts receivable and inventory, which would close contemporaneously with the closing of this offering and is conditioned upon the closing of this offering. Our revolving credit facility would be collateralized with substantially all of our assets, excluding certain of our real property. Our revolving credit facility will include a number of financial and other covenants that may restrict our business. For example, we will be required to maintain at all times consolidated tangible net worth of at least 95% of our consolidated tangible net worth as of the date this offering closes and consolidated working capital of at least $7.5 million, in each case to be measured as of the last day of each fiscal quarter. All of these restrictive covenants may restrict our ability to expand or pursue our business strategies, including acquisitions. Our ability to comply with these and other provisions of our revolving credit facility may be impacted by changes in economic or business conditions, results of operations or events beyond our control. The breach of any of these covenants could result in a default under our revolving credit facility, in which case, depending on the actions taken by the lender thereunder or its successors or assignees, such lender could elect to declare all amounts borrowed under our revolving credit facility, together with accrued interest, to be due and payable. If we were unable to repay such borrowings or interest, our lender could proceed against its collateral. If the indebtedness under our revolving credit facility were to be accelerated, our assets may not be sufficient to repay in full such indebtedness.

 

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Our future level of indebtedness may increase and therefore reduce our financial flexibility.

Upon the completion of this offering, we will have approximately $3.0 million in outstanding indebtedness (based on net proceeds from the sale of the common stock in this offering of $153.5 million after deducting underwriting discounts and commissions and before deducting estimated offering expenses), all of which will represent amounts drawn on our revolving credit facility to close the Combinations, and approximately $16.4 million in additional borrowing capacity under our revolving credit facility. A $1.00 increase in the per share initial public offering price would eliminate our need to borrow under our revolving credit facility to close the Combinations and pay the expenses of this offering. A $1.00 decrease in the per share initial public offering price would increase our borrowings under our revolving credit facility by approximately $14.0 million. In addition, our outstanding indebtedness could also increase if the actual amount of working capital adjustments in respect of the Combinations and the expenses associated with the Combinations, our revolving credit facility and this offering exceed our estimates. In the future, we may incur significant additional indebtedness in order to make future acquisitions and grow our business.

Our future level of indebtedness could affect our operations in several ways, including the following:

 

   

a significant portion of our cash flows could be used to service our indebtedness;

 

   

a high level of debt would increase our vulnerability to general adverse economic and industry conditions;

 

   

the covenants contained in the agreements governing our outstanding indebtedness may limit our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments;

 

   

a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing;

 

   

our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry; and

 

   

a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate expenses or other purposes.

A high level of indebtedness would increase the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness will depend on our future performance. General economic conditions and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital.

The past operations of one of our Partner Companies in international markets has exposed, and the proposed expansion of the business of other Partner Companies into international markets will expose, us to the risks associated with international operations, which may adversely affect our business and results of operations.

One of our Partner Companies has engaged in footwear procurement activities in 13 countries and has sold footwear in over 36 foreign countries. Following this offering, we intend to expand these activities to include pre-owned capital assets and other excess inventory and returned consumer goods.

As a result of our participation in international markets, we have been, and expect to continue to be, exposed to the following enhanced risks:

 

   

challenges caused by distance, language and cultural differences;

 

   

longer payment cycles in some countries;

 

   

credit risk and higher levels of payment fraud;

 

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legal and regulatory restrictions and international sanction regimes;

 

   

currency exchange rate fluctuations to the extent that our transactions are denominated in currencies other than U.S. Dollars;

 

   

foreign exchange controls that might prevent us from repatriating cash earned in countries outside the U.S.;

 

   

political and economic instability and export and import restrictions and customs regulations;

 

   

potentially adverse tax consequences; and

 

   

higher costs associated with doing business internationally.

These risks could harm our international efforts, which would in turn harm our business and operating results.

If we fail to comply with the U.S. Foreign Corrupt Practices Act and similar laws associated with our activities outside of the United States we could be subject to penalties and other adverse consequences.

We operate a global liquidation network, which subjects us to the requirements of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other anticorruption laws that prohibit improper payments or offers of payment to foreign governments and political parties for the purpose of obtaining or retaining business as well as commercial bribery. We face significant risks if we fail to comply with these laws. In many foreign countries, particularly in the countries with developing economies that we target, it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other applicable laws and regulations. We are in the early stages of implementing our FCPA compliance program and cannot assure you that none of our employees and agents will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of the FCPA or other applicable anticorruption laws could result in severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from any future U.S. government contracting, which could have a material and adverse effect on our reputation, business, financial condition, operating results and cash flows.

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

Our activities, particularly our liquidation activities, regularly require that we make purchases from our customers for future sale in our marketplaces or otherwise guarantee a minimum return to our customer. When we do this, we assume the risk that the proceeds of our sale of the asset will be less than either the amount we guaranteed our customer or the amount we paid for the asset, as the case may be. We typically have three arrangement types where we assume general and inventory risk for an asset:

 

   

purchase and resale, where we buy and take title to an asset from our customer at some percentage of our customer’s cost for such asset;

 

   

consignment sales with a minimum guarantee, where we do not take title to the asset but instead sell the asset on our customer’s behalf and receive a commission therefor but guarantee our customer a minimum return on the sale of the asset; or

 

   

shared recovery arrangements, where we provide our customer with a guaranteed minimum return on the sale of the asset, the floor, we capture all amounts in excess of the floor up to a negotiated amount, the ceiling, and then we and our customer share at a negotiated percentage the amount in excess of the ceiling.

We refer to the business we conduct through any of the foregoing arrangements as our at-risk business. For the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, substantially all of the combined revenues of our TMG Reverse Logistics operating division were attributable to our at-risk business. For the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, 31%, 36%, 37% and 40%, respectively, of the total pro forma combined revenues of our TMG Auction Services

 

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operating division were attributable to our at-risk business, which amounts exclude amounts attributable to our price guarantee arrangements. Price guarantee arrangements for our TMG Auction Services operating division have historically represented a nominal portion of our revenues.

The general and physical inventory risks we assume are especially significant for our TMG Reverse Logistics operating division because some of the surplus and returned consumer goods we liquidate are characterized by rapid technological change, obsolescence and price erosion, and because we sometimes make large purchases of particular types of inventory.

We may miscalculate buyer demand or obtain inaccurate evaluations, which may result in us purchasing too much of an asset or overpaying for the assets we acquire. In the event that the assets we purchase or on which we guarantee a minimum return are not sold in our marketplaces at a sufficiently high price, we may incur significant losses, which could reduce our revenues and margins. As we grow our business, we expect to increase the amount of our at-risk business. Such increase will require the use of additional working capital and subject us to the additional risk of incurring losses on the sale of that inventory.

Decreases in the supply of, demand for, or market values of capital assets could harm our business.

Our auction revenues could decrease if there was significant erosion in the supply of, demand for, or market values of pre-owned capital assets in which we deal, which could adversely affect our financial condition and results of operations. We have no control over any of the factors that affect the supply of, and demand for, pre-owned commercial trucks and trailers, and the circumstances that cause market values for pre-owned commercial trucks and trailers to fluctuate — including, among other things, economic uncertainty, disruptions to credit and financial markets, lower commodity prices, increases in fuel prices and our customers’ restricted access to capital — are beyond our control. Recent economic conditions have caused fluctuations in the supply, mix and market values of the pre-owned capital assets in which we deal that are available for sale, which has a direct impact on our auction revenues. In addition, price competition and the availability of these capital assets directly affect the supply of, demand for, and market value of these capital assets. Climate change initiatives, including significant changes to engine emission standards applicable to commercial trucks and industrial, agricultural and construction equipment, may also adversely affect the supply of, demand for or market values of the pre-owned capital assets in which we deal.

If our high volume sources of excess inventory and returned consumer goods stop using or reduce their use of our liquidation solutions, our business would be harmed.

A significant amount of the excess inventory and returned consumer goods we liquidate is supplied by a limited number of high volume OEMs and retailers. We estimate that nearly half of our total pro forma combined revenues were attributable to our ten largest sources in 2011 and the first six months of 2012. If these, or other, high volume sources stop using or reduce their use of our liquidation solutions, our gross merchandise volume and revenues would be adversely impacted.

We do not have long-term commitments from our customers, and our customers may terminate their relationships with us or reduce the amount of purchases they make from us or sales they make to us.

Our operations depend upon our relationships with our customers. We do not have formal written agreements with many of our customers and, to the extent we do, such agreements are generally non-exclusive and do not restrict our customers from terminating or deciding not to renew our contracts.

The success of our business depends on our ability to successfully obtain a supply of pre-owned capital assets and excess inventory and returned consumer goods for our buyers and to attract and retain active high volume buyers to create sufficient demand for our sellers.

Our ability to increase our revenues and maintain profitability depends on whether we can successfully expand the supply of pre-owned capital assets and excess inventory and returned consumer goods available for sale at our physical and online marketplaces and attract and retain active high volume buyers to purchase the pre-owned capital assets and excess inventory and returned consumer goods. Our ability to attract sufficient

 

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quantities of suitable pre-owned capital assets and excess inventory and returned consumer goods and new buyers will depend on various factors, some of which are out of our control. These factors include our ability to:

 

   

offer sellers liquid marketplaces for their assets;

 

   

offer buyers a sufficient supply of pre-owned capital assets and excess inventory and returned consumer goods;

 

   

develop and implement effective sales and marketing strategies;

 

   

comply with regulatory or corporate seller requirements affecting marketing and disposition of certain categories of assets;

 

   

efficiently catalogue, handle and store pre-owned capital assets and excess inventory and returned consumer goods, and ship and track excess inventory and returned consumer goods; and

 

   

achieve high levels of seller and buyer satisfaction with their experience in our marketplaces.

Disruptions to credit and financial markets and economic uncertainty could harm our operations.

Recent and continuing global economic and financial market events caused, among other things, a general tightening in credit markets, lower levels of liquidity, increases in default rates, and a level of uncertainty in the pre-owned equipment marketplace, all of which may have a continuing negative impact on our operations, financial condition and liquidity and ability to grow our business. Our future liquidation revenues may decrease if our consignors choose not to sell their assets or our OEM or retail customers choose to produce or inventory, respectively, fewer consumer goods as a result of economic conditions, or if our buyers are unable to obtain financing for their purchases, or if any of our customers are in financial distress. In addition, our lender may be unable to advance funds to us under our proposed revolving credit facility, which could harm our liquidity and ability to operate or grow our business. The timing and degree of a full recovery in credit and financial markets remain uncertain, and there can be no assurance that market conditions will improve in the near future and that our results of operations will not be adversely affected.

A recession could have a material adverse effect on our business.

A recession could decrease the supply of pre-owned capital assets available for our auctions or excess inventory and returned consumer goods for our liquidations. This could decrease the prices paid for pre-owned capital assets in our auctions and could increase the price of excess inventory and returned consumer goods, either of which could have a material adverse effect on our business.

Our future expenses may increase significantly or our operations and ability to expand may be limited as a result of environmental and other regulations.

A variety of federal, state and local laws, rules and regulations, including local tax and accounting rules, apply to our business. These relate to, among other things, the auction business, imports and exports of equipment, sales of real estate, worker safety, privacy of customer information, and the use, storage, discharge and disposal of environmentally sensitive materials. Complying with revisions to laws, rules and regulations could result in an increase in expenses and a deterioration of our financial performance. Failure to comply with applicable laws, rules and regulations could result in substantial liability to us, fines, suspension or cessation of some of our operations, restrictions on our ability to expand at present locations or into new locations, requirements for the acquisition of additional equipment or other significant expenses or restrictions.

The development or expansion of auction sites, warehouses or other facilities depends upon receipt of required licenses, permits and other governmental authorizations. Our inability to obtain these required items could harm our business prospects. Additionally, changes or concessions required by regulatory authorities could result in significant delays in, or prevent completion of, such development or expansion.

Under some environmental laws, an owner or lessee of, or other person involved in, real estate may be liable for the costs of removal or remediation of hazardous or toxic substances located on or in, or emanating from, the real estate, and related costs of investigation and property damage. These laws often impose liability

 

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without regard to whether the owner, lessee or other person knew of, or was responsible for, the presence of the hazardous or toxic substances. Environmental contamination may exist at our owned or leased auction sites, at other sites on which we may conduct auctions, at properties that we may be selling by auction, or at our warehouses or other facilities from prior activities at these locations or from neighboring properties. In addition, auction sites, warehouses or other facilities that we acquire or lease in the future may be contaminated, and future use of or conditions on any of our properties or sites could result in contamination. The costs related to claims arising from environmental contamination of any of these properties could harm our financial condition and results of operations.

Customers that engage us to arrange for the disposal of excess inventory and returned consumer goods or other materials that are unsuitable for sale on the secondary market may include in their bulk shipments to us materials that cannot be disposed of in traditional landfills. If our customers are unwilling or unable to accept the return of such materials, we may be forced to dispose of these materials in special landfills or other facilities at a substantially increased cost that could adversely affect our results of operations.

Climate change may not affect us directly, but government regulation in response to this area of global concern may affect the ability of commercial truck or agricultural, construction or industrial equipment owners to transport certain equipment between specified jurisdictions or the saleability of older equipment. These restrictions, or changes to environmental laws, could inhibit materially the ability of customers to ship equipment to or from our auction sites, reducing our gross auction proceeds and harming our business.

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

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

We will have a large amount of intangible assets and goodwill as a result of the acquisition of the Partner Companies, and if these assets and goodwill become impaired, our earnings would be adversely affected.

Goodwill represents the excess of the amount we pay for our acquisitions over the fair value of the acquired assets. We will have substantial goodwill related to our acquisitions of the Partner Companies. As we implement our business acquisition strategy, we may be required to account for similar premiums paid on future acquisitions in the same manner. We do not amortize acquired goodwill but instead we test it for impairment on an annual basis based upon a fair value approach. Testing for impairment of goodwill involves an estimation of the fair value of our net assets and involves a high degree of judgment and subjectivity. In addition, while we amortize our intangible assets, they may also be subject to impairment testing. If we have any significant impairment to our intangible assets or goodwill, it would have a material adverse effect on our reported financial results for the period in which the charge is taken and could result in a decrease in the market price of our common stock.

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

Other parties may assert that we have infringed on their technology or other intellectual property rights. We use internally developed systems and licensed technology to operate our auction platform and related websites and our return centers and to provide our reverse logistics services. Third parties may assert intellectual property infringement claims against us based on our internally developed systems or use of licensed third-party technology. Third parties also may assert intellectual property infringement claims against parties from whom we license technology. If we are forced to defend against any infringement claims, whether they are with or without merit or are determined in our favor, we may face costly litigation, diversion of technical and management personnel and/or lost sales. Furthermore, the outcome of a dispute may be that we would need to

 

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change technology, develop non-infringing technology or enter into royalty or licensing agreements. A switch to different technology could cause interruptions in our business. Internal development of a non-infringing technology may be expensive and time-consuming, if we are able to successfully develop such technology at all. Royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all. Incurrence of any of these costs could negatively impact our operating results.

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

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

Our Internet-related initiatives are subject to technological obsolescence and potential service interruptions and may not contribute to improved operating results over the long-term; in addition, we may not be able to compete with technologies implemented by our competitors.

We use and rely on intellectual property owned by third parties, which we license for use in providing our online bidding service. Our Internet technologies may not result in any material long-term improvement in our results of operations or financial condition and may require further significant investment to avoid obsolescence. We may also not be able to continue to adapt our business to Internet commerce, and we may not be able to compete effectively against Internet auction services offered by our competitors.

The success of our online bidding service and other services that we offer over the Internet, including equipment-searching capabilities and asset maintenance history, will continue to depend largely on the performance and reliability of the hardware and software we utilize, our ability to use suitable intellectual property licensed from third parties, further development and maintenance of our information technology infrastructure and the Internet in general. Our ability to offer online services depends on the performance of the Internet, as well as our internal hardware and software systems.

“Viruses,” “worms” and other similar programs, which have in the past caused periodic outages and other Internet access delays, may in the future interfere with the performance of the Internet and some of our internal systems. These outages and delays could reduce the level of service we are able to offer over the Internet. We could lose customers and our reputation could be harmed if we were unable to provide services over the Internet at an acceptable level of performance or reliability.

If one or more states in the United States successfully assert that we should collect sales or other taxes on the sale of capital assets or excess inventory and returned consumer goods that we sell through our websites, our business could be harmed.

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

 

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currently do not collect and remit sales taxes could subject shipments into such states to state sales taxes under current or future laws.

In October 2007, the federal government extended until November 2014 a ban on state and local governments’ imposition of new taxes on Internet access or electronic commerce transactions. This ban does not prohibit federal, state or local authorities from collecting taxes on our income or from collecting taxes that are due under existing tax rules. Unless the ban is further extended, state and local governments may begin to levy additional taxes on Internet access and electronic commerce transactions upon the legislation’s expiration. An increase in taxes may make electronic commerce transactions less attractive for merchants and businesses, which could result in a decrease in the level of demand for our simultaneous Internet bidding.

Currently, decisions of the U.S. Supreme Court restrict the imposition of obligations to collect state and local sales and use taxes with respect to sales made over the Internet. However, a number of states, as well as the U.S. Congress, have been considering various initiatives that could limit or supersede the Supreme Court’s position regarding sales and use taxes on Internet sales. If any of these initiatives resulted in a reversal of the Supreme Court’s current position, we could be required to collect sales and use taxes in states other than states in which we currently collect and remit such taxes. A successful assertion by one or more local, state or foreign jurisdictions that our sale of capital assets or excess inventory and returned consumer goods through our websites is subject to sales or other taxes could subject us to material liabilities and increase our costs of doing business. To the extent that we pass such costs on to our clients, doing so could harm our business and decrease our revenues.

Our business is subject to risks relating to our ability to safeguard the security and privacy of our customers’ confidential information.

We maintain proprietary databases containing confidential personal information about our customers and the results of our auctions and liquidations, and we must safeguard the security and privacy of this information. Despite our efforts to protect this information, we face the risk of inadvertent disclosure of this sensitive information or an intentional breach of our security measures.

Security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability for damages. We may be required to make significant expenditures to protect against security breaches or to alleviate problems caused by any breaches.

The availability and performance of our internal technology infrastructure are critical to our business.

The satisfactory performance, reliability and availability of our websites, processing systems and network infrastructure are important to our reputation and our business. We will need to continue to expand and upgrade our technology, transaction processing systems and network infrastructure both to meet increased usage of our online bidding service and other services offered on our websites and to implement new features and functions. Our business and results of operations could be harmed if we were unable to expand and upgrade in a timely manner our systems and infrastructure to accommodate any increases in the use of our Internet services, or if we were to lose access to or the functionality of our Internet systems for any reason.

We use both internally developed and licensed systems for transaction processing and accounting, including billings and collections processing. If we are unsuccessful in continuing to upgrade our technology, transaction processing systems or network infrastructure to accommodate increased transaction volumes, it could harm our operations and interfere with our ability to expand our business.

Our equipment leasing activities expose us to credit risk.

Our portfolio of equipment leases, which had a carrying value of $2.5 million at June 30, 2012, exposes us to the credit risk that our customers may not be able to fulfill their obligations to us under these leases. Increased credit risks arising from a deterioration in general economic conditions that results in a decline in the

 

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volume of goods and materials shipped by truck, a substantial increase in the price of diesel fuel or other factors affecting our customers’ ability to pay may require us to increase our reserves for future losses on our portfolio of leases and thus adversely affect our results of operations. Any increase in the size of our equipment leasing portfolio would increase our exposure to this risk.

Risks Related to This Offering and Our Common Stock

The initial public offering price of our common stock may not be indicative of the market price of our common stock after this offering. In addition, an active liquid trading market for our common stock may not develop and our stock price may be volatile.

Prior to this offering, our common stock was not traded on any market. An active and liquid trading market for our common stock may not develop or be maintained after this offering. Liquid and active trading markets usually result in less price volatility and more efficiency in carrying out investors’ purchase and sale orders. The market price of our common stock could vary significantly as a result of a number of factors, some of which are beyond our control. In the event of a decline in the market price of our common stock, you could lose a substantial part or all of your investment in our common stock. The initial public offering price will be negotiated between us and representatives of the underwriters, based on numerous factors which we discuss in the “Underwriting” section of this prospectus, and may not be indicative of the market price of our common stock after this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price paid by you in the offering.

The following factors could affect our stock price:

 

   

our operating and financial performance;

 

   

quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income, adjusted EBITDA and revenues;

 

   

our acquisitions of businesses;

 

   

strategic actions by our competitors;

 

   

changes in revenues or earnings estimates, publication of reports or changes or withdrawals of research coverage by equity research analysts;

 

   

speculation in the press or investment community;

 

   

sales of our common stock by us or our stockholders, or the perception that such sales may occur;

 

   

changes in accounting principles;

 

   

additions or departures of key management personnel;

 

   

actions by our stockholders;

 

   

general market conditions;

 

   

alleged violations by us of the FCPA or other international anti-corruption laws;

 

   

domestic and international economic, legal and regulatory factors unrelated to our performance; and

 

   

other factors described in these “Risk Factors,” and other parts of this prospectus.

The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition.

 

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You will experience immediate and substantial dilution in the pro forma as adjusted net tangible book value.

After giving effect to the Combinations, purchasers of our common stock in this offering will experience immediate and substantial dilution in the pro forma as adjusted net tangible book value of their shares in the amount of $9.95 per share, or 90.5%, assuming an initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus). For a discussion of dilution, see “Dilution.”

Voting power will be concentrated in our sponsor following the completion of this offering.

Following the Reorganization, the Combinations and the consummation of this offering (assuming an initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus)), our sponsor, will beneficially own 9,238,383 shares, or approximately 26.7%, of the outstanding common stock (25.0% if the underwriters exercise in full their option to purchase additional shares). Accordingly, our sponsor will hold sufficient voting power to enable it to significantly influence the election of all of our directors and the outcome of all issues submitted to a vote of our stockholders, including the terms of any merger, consolidation, sale of assets or dissolution and winding up that requires the affirmative vote of two-thirds of all shares of each class or series of our stock then outstanding and entitled to vote thereon. Accordingly, the concentration of ownership in our sponsor may have the effect of delaying, deferring or preventing a change in control of us, including transactions in which the holders of common stock might receive a premium for their shares over prevailing market prices.

Some of our Partner Companies do not have adequate internal control over financial reporting. If we fail to establish and maintain effective internal control over financial reporting, our ability to accurately report our financial results will be adversely affected.

Most of our Partner Companies did not conduct audits or prepare audited financial statements prior to the generation of the audited financial statements included in this prospectus. During the preparation of these audited financial statements, it became apparent to us that some of our Partner Companies did not have the requisite knowledgeable personnel to record transactions in the general ledger, allocate transactions to the proper account classification or prepare draft financial statements and the requisite supporting schedules. Accordingly, third-party service providers were retained to assist in discharging some of these accounting tasks. In addition, the independent registered public accounting firm auditing the Partner Companies identified material weaknesses in the internal control over financial reporting for three of our Partner Companies. We will be required to continue to engage third-party service providers until we establish a company-wide system of uniform account classifications and internal control over financial reporting. If we fail to establish and thereafter maintain effective controls over financial reporting, our ability to accurately report on our financial results will be adversely effected.

The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

As a public company with listed equity securities, we will need to comply with certain laws, regulations and requirements, including corporate governance provisions of the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” related regulations of the Securities and Exchange Commission, or “SEC,” and the requirements of the NYSE with which we are not required to comply as a private company. Complying with these statutes, regulations and requirements will occupy a significant amount of time of our board of directors and management and will significantly increase our costs and expenses. We will need to:

 

   

institute more comprehensive corporate governance and compliance functions;

 

   

design, establish, evaluate and maintain a system of internal control over financial reporting in compliance with the requirements of Section 404(a) of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

 

   

comply with rules promulgated by the NYSE;

 

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prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws;

 

   

establish new internal policies, such as those relating to disclosure controls and procedures and insider trading;

 

   

to a greater degree, involve and retain outside counsel and accountants in the above activities; and

 

   

establish an investor relations function.

We are an emerging growth company and our reliance on the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not emerging growth companies. In particular, while we are an emerging growth company we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and we will not be required to hold nonbinding advisory votes on executive compensation or shareholder approval of any golden parachute payments not previously approved. We may remain an emerging growth company until as late as December 31, 2017 (the fiscal year-end following the fifth anniversary of the completion of this offering), though we may cease to be an emerging growth company earlier under certain circumstances, including (i) if the market value of our common stock that is held by nonaffiliates exceeds $700 million as of any June 30, in which case we would cease to be an emerging growth company as of the following December 31 or (ii) if our gross revenues exceed $1 billion in any fiscal year. Investors may find our common stock less attractive if we rely on these exemptions and relief. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline and/or become more volatile.

Following this offering we will be obligated to develop and maintain proper and effective internal controls over financial reporting. We may not complete our analysis of our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

Following this offering we will be required, pursuant to Section 404(a) of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, such as the one that we recently identified regarding a failure to record properly costs relating to the Combinations that required us to restate our unaudited financial statement as of and for the six months ended June 30, 2012. We may not be able to complete evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to confirm that our internal controls are effective.

When we cease to be an emerging growth company, our auditors will be required to express an opinion on the effectiveness of our internal controls. If we are unable to confirm that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.

 

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Anti-takeover provisions contained in our organizational documents and Delaware law could delay or prevent a takeover attempt or change in control of our company, which could adversely affect the price of our common stock.

Our amended and restated certificate of incorporation, our amended and restated bylaws, and Delaware law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our organizational documents include provisions:

 

   

classifying our board of directors into three classes of directors with each class having staggered, three-year terms, which means at least two annual meetings of stockholders may be required for the stockholders to change a majority of our board of directors because our directors may only be removed for cause;

 

   

authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;

 

   

limiting the liability of, and providing indemnification to, our directors and officers;

 

   

limiting the ability of our stockholders to call and bring business before special meetings;

 

   

prohibiting our stockholders from taking action by written consent in lieu of a meeting;

 

   

requiring the affirmative vote of two-thirds of all shares of each class or series of our stock then outstanding and entitled to vote thereon for any merger, consolidation, sale of assets or dissolution and winding up of us;

 

   

requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nomination of candidates for election to our board of directors; and

 

   

limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on the board to our board of directors then in office.

These provisions, alone or together, could delay hostile takeovers and changes in control of us or changes in our management.

In addition, in our amended and restated certificate of incorporation we did not opt out of certain provisions of Delaware law that could delay or prevent a takeover attempt. After the completion of this offering, we will be subject to Section 203 of the General Corporation Law of the State of Delaware, or the “DGCL,” which generally prohibits a corporation from engaging in various business combination transactions with any “interested stockholder” (generally defined as a stockholder who owns 15% or more of a corporation’s voting stock) for a period of three years following the time that such stockholder became an interested stockholder, except under certain circumstances including receipt of prior board approval.

Any provision of our amended and restated certificate of incorporation, our amended and restated bylaws or Delaware law that has the effect of delaying or deterring a hostile takeover or change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

See “Description of Our Capital Stock – Certain Provisions of our Certificate of Incorporation and Bylaws” and “– Certain Anti-Takeover Effects of Delaware Law.”

We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.

Our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example,

 

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we could grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock. See “Description of Our Capital Stock – Description of Preferred Stock.”

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 9,477,201 shares outstanding as of September 21, 2012 and an assumed initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), upon completion of this offering, we will have 34,642,303 outstanding shares of common stock (or 36,892,303 outstanding shares of common stock assuming the underwriters exercise in full their option to purchase additional shares). All of the shares sold pursuant to this offering will be immediately tradable without restriction under the Securities Act of 1933, as amended, or the “Securities Act,” unless held by “affiliates,” as that term is defined in Rule 144 under the Securities Act.

In connection with the consummation of this offering, each of our directors and officers and our sponsor will enter into a 180-day lock-up agreement with the underwriters. Additionally, in connection with the Reorganization and the Combinations, a number of our directors and officers, our sponsor and the equity owners of the various Partner Companies will be subject to a one-year restriction on transfer. Shares that will be issued under the 2011 Omnibus Incentive Plan upon the closing of this offering will be subject to transfer restrictions that generally begin to lapse on the first anniversary of the closing of this offering. After the first anniversary of the closing of this offering, we expect that approximately 17 million shares of our common stock will become eligible for sale in the public market. 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 the 180-day lock-up agreements. During the 180-day lock-up period we may, with the consent of the representatives of the underwriters, release all or any portion of the shares subject to the one-year restriction on transfer. After the 180-day lock-up period, we may, in our sole discretion and at any time without notice, release all or any portion of the shares subject to the one-year restriction on transfer. In addition, shares underlying restricted stock that are either subject to the terms of our 2011 Omnibus Incentive Plan or reserved for future issuance under our 2011 Omnibus Incentive Plan will become eligible for sale in the public market to the extent permitted by the provisions of various restricted stock 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 16 million shares, or 46%, 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 2011 Omnibus Incentive Plan. Once we register the offer and sale of shares for the holders of registration rights or such shares otherwise become freely transferable without registration and holders of restricted stock whose stock vesting restrictions have lapsed, such shares can be freely sold in the public market, 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, 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.

 

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

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

 

   

the addition of new buyers and sellers or the loss of existing buyers and sellers;

 

   

the volume, size, timing and completion rate of transactions in our marketplaces;

 

   

changes in the supply and demand for and the volume, price, mix and quality of our assets;

 

   

introduction of new or enhanced services or product offerings by us or our competitors, which may impact our margins;

 

   

implementation of significant new contracts;

 

   

changes in our pricing policies or the pricing policies of our competitors;

 

   

changes in the conditions and economic prospects of the our industry or the economy generally, which could alter current or prospective buyers’ and sellers’ priorities;

 

   

event-driven disruptions such as war, terrorism, disease and natural disasters;

 

   

seasonal patterns in selling and purchasing activity; and

 

   

costs related to acquisitions of technology or equipment.

For example, in 2009, International Enterprises liquidated an unusually large volume of excess inventory for a customer following the customer’s acquisition of a competitor. This liquidation significantly contributed to International Enterprises’ sales of $39.2 million for 2009. Since no such transaction of this size occurred in 2010, International Enterprises’ sales declined to $24.8 million for 2010. Therefore, our operating results may fall below the expectations of market analysts and investors in some future periods. If this occurs, even temporarily, it could cause volatility in our stock price.

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.

Because we have no plans to pay dividends on our common stock, stockholders must look solely to appreciation of our common stock in order to realize a gain on their investments.

We do not anticipate paying any dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. Our future dividend policy is within the discretion of our board of directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements and investment opportunities. In addition, the expected terms of our proposed revolving credit facility may limit payment of dividends without the prior written consent of the lender. Accordingly, if you purchase shares in this offering, the price of our common stock must appreciate in order to realize a gain on your investment. This appreciation may not occur.

 

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this prospectus. These factors include:

 

   

our ability to consolidate the Partner Companies, which have no combined operating history, into one cohesive business while supporting individual Partner Company autonomy;

 

   

our future performance;

 

   

growth of our operations;

 

   

growth of the market for the auction of pre-owned capital assets and the liquidation of excess inventory and returned consumer goods on the secondary market;

 

   

changes in the number of consignors and bidders participating in our auctions and OEMs and retailers utilizing our liquidation services;

 

   

the impact of the economic environment on our operations and capital resources, and our customers, including the number of bidders attending our auctions and consignment volumes at those auctions; the number of buyers purchasing our excess inventory and returned consumer goods and the volume of excess inventory and returned consumer goods we are able to secure for liquidation from OEMs and retailers; the demand for our services; our buyers’ ability to access credit to fund their purchases; and supply and demand and the correlative effect on prices of the pre-owned capital assets and excess inventory and returned consumer goods in which we deal;

 

   

our principal operating strengths, our competitive advantages, and the appeal of our TMG Complete Solution to buyers and sellers of pre-owned capital assets and OEMs and retailers of consumer goods;

 

   

our ability to draw consistently significant numbers of bidders and buyers to our marketplaces;

 

   

our ability to grow our core auction and liquidation business, and the acquisition and development of auction facilities, warehouses and other facilities and the related impact on our capital expenditures;

 

   

our ability to acquire and integrate new businesses;

 

   

our ability to add new business and information solutions, including utilizing technology to enhance our services and support additional value added services;

 

   

the relative percentage of our revenues represented by arrangements where we make purchases of or guaranty minimum amounts for pre-owned capital assets or excess inventory and returned consumer goods;

 

   

our auction and liquidation revenue rates, the sustainability of those rates, the impact of our commission rate and fee changes, and the seasonality of liquidation revenue;

 

   

our ability to reduce administrative expenses through integration of certain accounting, financing, human resources and other functions;

 

   

our direct expense and income tax rates, depreciation expenses and general and administrative expenses;

 

   

our future capital expenditures;

 

   

our Internet initiatives and the level of participation in our marketplaces by Internet bidders and buyers;

 

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our estimates of future non-cash stock compensation expense;

 

   

financing available to us and the sufficiency of our working capital to meet our financial needs; and

 

   

other risk factors included under “Risk Factors” in this prospectus.

You should read the matters described in “Risk Factors” and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus. We cannot assure you that the forward-looking statements in this prospectus will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this prospectus completely. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

 

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USE OF PROCEEDS

We estimate that the net proceeds from our sale of 15,000,000 shares of common stock in this offering will be approximately $153.5 million, or approximately $176.5 million if the underwriters exercise in full their option to purchase additional shares. This estimate is based upon an assumed initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting underwriting discounts and commissions of approximately $11.6 million and before deducting estimated offering expenses. Each $1.00 increase (decrease) in the initial public offering price would increase (decrease) our net proceeds by approximately $14.0 million.

We intend to use the estimated net proceeds from this offering of $153.5 million, together with borrowings of approximately $3.0 million under our revolving credit facility, to pay an estimated $156.3 million in connection with the Combinations and this offering consisting of:

 

   

$136.1 million to fund the cash portion of the consideration payable at closing to the stockholders of the Partner Companies in the Combinations plus approximately $5.2 million of aggregate payments in respect of working capital adjustments estimated based on balances as of June 30, 2012; and

 

   

$15.0 million to pay the estimated expenses associated with this offering, which includes:

 

   

repayment of a non-exclusive sublicense fee with a stated amount of $3,546,171 plus accrued interest at 4.9349% per annum from May 27, 2011, the ultimate beneficiary of such non-exclusive sublicense fee is Rod K. Cutsinger (see “Certain Relationships and Related Party Transactions – Background”),

 

   

a $2.0 million cash bonus payment to Mr. Cutsinger in consideration of his investment of time, effort and money in connection with this offering (see “Certain Relationships and Related Party Transactions – Related Party Transactions” and “Executive Compensation – Cash Bonuses Payable from Net Proceeds of this Offering”),

 

   

an aggregate of $1.25 million to other members of our senior management in consideration of their investment of time and effort in connection with this offering (see “Executive Compensation – Cash Bonuses Payable from Net Proceeds of this Offering”),

 

   

$2.0 million to KPMG LLP for audit services in connection with this offering in addition to the $575,000 already paid, directly or indirectly, by Rod K. Cutsinger,

 

   

$3.5 million to Bracewell & Giuliani LLP for legal services provided to Taylor & Martin Group, Inc. in connection with this offering,

 

   

$1.2 million to RR Donnelley for printing fees and expenses,

 

   

$185,770 to ASB Corporation in connection with the mutual termination of the combination agreement with ASB Corporation (see “Combinations and Reorganization – Mutual Termination of ASB Corporation Combination Agreement”), and

 

   

the balance for other expenses of this offering, including FINRA filing fees and NYSE listing fees.

The net proceeds from this offering that will be used in connection with the Combinations will be used to acquire the Partner Companies, which consist of Taylor & Martin Enterprises and Deanco Auction, each of which auctions pre-owned transportation, agricultural and industrial capital assets, and International Enterprises, Jay Group and Image Microsystems, each of which liquidates excess inventory and returned consumer goods on the secondary market. For a more detailed discussion of the Combinations, please see “Combinations and Reorganizations.” By establishing a public market for our common stock, this offering is also intended to facilitate our future access to public markets.

 

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DIVIDEND POLICY

Following the completion of this offering, we intend to retain our future earnings, if any, to finance the expansion and growth of our business. We do not expect to pay cash dividends on our common stock in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, outstanding indebtedness and plans for expansion and restrictions that may be imposed by lenders. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Pro Forma Combined – Pro Forma Combined Liquidity and Capital Resources – Revolving Credit Facility” for a discussion of limitations that will be imposed by our revolving credit facility on our ability to declare and pay dividends.

 

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CAPITALIZATION

The following table sets forth the consolidated cash and capitalization information as of the date indicated of (i) Taylor & Martin Group, Inc. on an pro forma basis after giving effect to the Reorganization and (ii) Taylor & Martin Group, Inc, on an adjusted pro forma combined basis to give effect to the Combinations, the application of the estimated net proceeds of this offering and borrowing under our revolving credit facility. See “Use of Proceeds.”

You should read this table together with the other information in this prospectus, including “Selected Pro Forma Combined and Historical Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited consolidated or combined, as the case may be, historical financial statements and the notes thereto for each of the Partner Companies and our unaudited pro forma combined financial statements and the notes thereto included elsewhere in this prospectus.

 

     June 30, 2012(1)  
     Pro Forma     Pro Forma
As  Adjusted
 
    

(Unaudited)

(Dollars in thousands,
except per share data)

 

Cash and cash equivalents

   $ 1        9,442   
  

 

 

   

 

 

 

Revolving credit facility(2)

            3,000   

Stockholders’ equity:

    

Common Stock $0.00001 par value, 312,500,000 shares authorized; 9,477,201 shares issued and outstanding (Taylor & Martin Group, Inc. pro forma); 34,642,303 shares issued and outstanding (Company pro forma as adjusted)(3)

              

Preferred stock, $0.01 par value, 62,500,000 shares authorized, no shares outstanding (Taylor & Martin Group, Inc. pro forma and Company pro forma as adjusted)

              

Additional paid-in capital

     4        220,452   

Accumulated equity (deficit)

     (1,529     (6,329
  

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (1,525     214,123   
  

 

 

   

 

 

 

Total capitalization

   $ (1,525     214,123   
  

 

 

   

 

 

 

 

(1) 

On August 17, 2012, TMG Founder Company effected a reverse stock split. See Note 6 to the notes to the audited financial statements of TMG Founder Company, included elsewhere in this prospectus. As a result of the Reorganization, shares of TMG Founder Company common stock will be exchanged for shares of Taylor & Martin Group, Inc. on a one-for-one basis. The data in this table assumes the reverse stock split and Reorganization had occurred on June 30, 2012. Amounts assume an initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus).

(2)

Our $35 million revolving line of credit will become effective concurrently with the consummation of this offering. Upon the completion of this offering, we will have outstanding indebtedness under our revolving credit facility of approximately $3.0 million and approximately $16.4 million in additional borrowing capacity under our revolving credit facility (based on our pro forma combined financial condition as of June 30, 2012). Our borrowings under this facility will bear interest at a floating rate of 30 day LIBOR plus 2.5% if our ratio of total liabilities to tangible net worth is less than or equal to 1.0 to 1.0 (or plus 2.75% if our ratio of total liabilities to tangible net worth is greater than 1.0 to 1.0). A $1.00 increase in the per share initial public offering price would eliminate our need to borrow under our revolving credit facility to close the Combinations and pay the expenses of this offering. A $1.00 decrease in the per share initial public offering price would increase our borrowings under our revolving credit facility by approximately $14.0 million. In addition, our outstanding indebtedness could also increase if the actual amount of working capital adjustments in respect of the Combinations and the expenses associated with the Combinations, our revolving credit facility and this offering exceed our estimates.

(3) 

For information regarding the effect of changes in the initial public offering price assumed in this prospectus on the total number of shares to be issued and outstanding after this offering, see footnote 1 under “Prospectus Summary – The Offering.”

 

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DILUTION

If you invest in our common stock, your ownership interest in us will be diluted by the difference between the initial public offering price per share of common stock and the adjusted net tangible book value per share of common stock immediately after completion of this offering, the Reorganization, the Combinations and the issuance of restricted stock under our 2011 Omnibus Incentive Plan in connection with closing this offering. 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.

As of June 30, 2012, after giving effect to the Reorganization, the Combinations, the issuance of restricted stock under our 2011 Omnibus Incentive Plan in connection with closing this offering and the sale of shares of our common stock in this offering at an assumed initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), deducting estimated underwriting discounts and commissions and offering expenses payable by us, and applying the net proceeds from the sale, the pro forma as adjusted net tangible book value of our common stock, as of June 30, 2012, would have been approximately $36.5 million, or approximately $1.05 per share. This amount represents an immediate increase in net tangible book value to our existing stockholders of $8.17 per share and an immediate dilution to new investors of $9.95 per share. The following table illustrates this per share dilution:

 

Assumed initial public offering price per share

     $ 11.00   

Pro forma net tangible book value per share as of June 30, 2012

   $ (7.12  

Pro forma as adjusted increase per share attributable to new investors

     8.17     
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering

       1.05   
    

 

 

 

Dilution per share to new investors

     $ 9.95   
    

 

 

 

The following table illustrates this per share dilution if the underwriters exercise in full their option to purchase additional shares:

 

Assumed initial public offering price per share

     $ 11.00   

Pro forma net tangible book value per share as of June 30, 2012

   $ (7.12  

Pro forma as adjusted increase per share attributable to new investors

     8.73     
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering

       1.61   
    

 

 

 

Dilution per share to new investors

     $ 9.39   
    

 

 

 

A $1.00 increase in the assumed initial public offering price per share would increase the pro forma as adjusted net tangible book value per share of common stock after the offering by $0.32 per share and increase the pro forma as adjusted dilution per share of common stock to new investors by the same amount, calculated as described above and assuming that the number of shares offered by us remains equal to the number set forth on the cover page to this prospectus. Based on the same assumptions, a $1.00 decrease in the assumed initial public offering price per share would decrease the pro forma as adjusted net tangible book value per share of common stock after the offering by $0.40 per share and decrease the pro forma as adjusted dilution per share of common stock to new investors by the same amount. For information regarding the effect of changes in the initial public offering price assumed in this prospectus on the total number of shares to be issued and outstanding after this offering, see footnote 1 under “Prospectus Summary – The Offering.”

 

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The following table summarizes, as of June 30, 2012, on a pro forma as adjusted basis (giving effect to the Reorganization, the Combinations and the issuance of restricted stock under our 2011 Omnibus Incentive Plan in connection with closing this offering), the number of shares of common stock purchased from us in the offering, the total consideration paid to us and the average price per share paid by our existing stockholders and by new investors, based upon an assumed initial offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) and before deducting estimated underwriting discounts and commissions and offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average Price
per Share
 
      Number     Percent     Amount     Percent    

Existing stockholders(1)

     19,642,303 (2)      56.7   $ 71,754,916 (3)      30.3   $ 3.65   

New Investors

     15,000,000        43.3     165,000,000        69.7     11.00   
  

 

 

   

 

 

   

 

 

   

 

 

   

Total

     34,642,303        100.0   $ 236,754,916        100.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

(1) 

Existing stockholders includes stockholders participating in the Reorganization, stockholders of the Partner Companies receiving shares at the closing of the Combinations and recipients of shares issuable pursuant to the 2011 Omnibus Incentive Plan upon closing of this offering.

(2) 

Shares purchased by existing stockholders include shares outstanding on June 30, 2012 plus 6,522,801 shares issued in the Combinations (assuming an initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus)). For information regarding the effect of changes in the initial public offering price assumed in this prospectus on the total number of shares to be issued and outstanding after this offering, see footnote 1 under “Prospectus Summary – The Offering.”

(3) 

Total consideration paid by existing stockholders represents the sum of (i) total common stock value and additional paid in capital of the Partner Companies, TMG Founder Company and Taylor & Martin Group, Inc. as set forth under the caption “Historical Basis Combined” on Taylor & Martin Group, Inc.’s pro forma balance sheet, less (ii) cash to be paid at the closing of the Combinations of $136.1 million to fund the cash portion of the consideration payable to the stockholders of the Partner Companies in the Combinations plus approximately $5.2 million of aggregate payments in respect of working capital adjustments estimated based on balances as of June 30, 2012.

The discussion and tables above exclude:

 

   

1,357,699 shares of common stock reserved for issuance under our 2011 Omnibus Incentive Plan that will not will be outstanding immediately after consummation of this offering; and

 

   

2,250,000 shares subject to the underwriters’ option to purchase additional shares.

If the underwriters exercise in full their option to purchase additional shares, then the number of shares held by the existing stockholders after this offering would be reduced to 53.2% of the total number of shares outstanding after the offering and the number of shares held by new investors would increase to 46.8% of the total number of shares outstanding after the offering.

 

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Table of Contents

SELECTED PRO FORMA COMBINED AND HISTORICAL FINANCIAL AND OTHER DATA

Taylor & Martin Group, Inc. (Pro Forma Combined)

Taylor & Martin Group, Inc. will effect the Combinations concurrently with and as a condition to the consummation of this offering. Unless we close all of the Combinations, we will not close any of the Combinations and will not close this offering. Our selected pro forma combined financial and other data as of December 31, 2011 and June 30, 2012 and for the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012 are as adjusted for (i) the effects of the Reorganization and the Combinations, (ii) the effects of certain pro forma adjustments to the historical financial statements and (iii) the consummation of this offering and the application of the net proceeds as set forth under “Use of Proceeds,” based upon the assumed initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions, and before deducting estimated offering expenses, the borrowing under the credit facility and the application of such amounts as set forth under “Use of Proceeds.”

The information set forth below should be read together with (i) “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and (ii) the audited and unaudited consolidated or combined, as the case may be, historical financial statements and the notes thereto for each of the Partner Companies, Taylor & Martin Group, Inc. and TMG Founder Company included elsewhere in this prospectus and (iii) our unaudited pro forma combined financial statements and the notes thereto included elsewhere in this prospectus. The selected pro forma combined financial and other data may not be indicative of the results that would have occurred if the Combinations were consummated as of the beginning of the period presented or that will be obtained in the future.

 

     Year Ended
December 31,
    Six Months Ended
June 30,
     Percentage
change
between
years ended
December 31,
2010 and
2011
    Percentage
change
between
six months
ended
June 30,
2011 and
2012
 
     2010     2011     2011      2012       
     (Unaudited)
(Dollars in thousands, except per share data)
              

Pro Forma Combined Statement of Operations Data:(1)

              

Revenues:

              

Sales revenues

   $ 71,612        97,454        48,687         56,514         36.1     16.1   

Services revenues

     26,203        33,379        16,155         16,818         27.4        4.1   
  

 

 

   

 

 

   

 

 

    

 

 

      

Total revenues

     97,815        130,833        64,842         73,332         33.8        13.1   

Cost of sales

     51,888        70,017        36,249         41,445         34.9        14.3   

Cost of services

     12,847        15,547        6,848         8,120         21.0        18.6   

Selling, general and administrative expenses

     37,047        38,395        18,990         19,421         3.6        2.3   

Other income (expense)

     46        (2     (4)         366         N/A        N/A   

Provision (benefit) for income taxes

     (1,529     2,680        1,074         1,838         N/A        71.4   
  

 

 

   

 

 

   

 

 

    

 

 

      

Net income (loss)

   $ (2,392     4,192        1,677         2,874         N/A        71.4   
  

 

 

   

 

 

   

 

 

    

 

 

      

Earnings (loss) per share:(2)

              

Basic

     (0.07     0.12        0.05         0.08         N/A        60.0   

Fully diluted

     (0.07     0.12        0.05         0.08         N/A        60.0   

Non-GAAP Financial Measure:(3)

              

Adjusted pro forma combined EBITDA(4)

     13,567        22,407        10,947         12,780         65.2        16.8   

Pro Forma Combined Supplemental
Operating Data:(1)

              

Gross auction proceeds(4)

   $ 249,888        262,795        127,985         130,308         5.2        1.8   

Gross merchandise volume(4)

     62,272        83,189        41,143         48,162         33.6        17.1   
  

 

 

   

 

 

   

 

 

    

 

 

      

Total liquidation volume(4)

   $ 312,160        345,984        169,128         178,470         10.8        5.5   

Completed auction transactions(4)

     28,700        29,200        14,600         15,600         1.7        6.8   

Total auction participants(4)

     31,400        39,300        19,400         21,000         25.2        8.2   

 

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Table of Contents
     As of
June 30, 2012
 
    

(Unaudited)

(Dollars in
thousands)

 

Pro Forma Combined Balance Sheet Data:(1)(5)

  

Cash and cash equivalents

   $ 9,442   

Working capital

     24,750   

Goodwill and other identified intangibles

     173,786   

Total assets

     236,113   

Revolving credit facility

     3,000   

Stockholders’ equity

     214,123   

Pro Forma Combined Supplemental Operating Data:(1)

  

Target auction customer base(4)

     384,000   

 

(1) 

The pro forma combined statements of operations data and pro forma combined supplemental operating data assume that the Reorganization and the Combinations were closed on January 1, 2010, including borrowing under our revolving credit facility to close the Combinations, and are not necessarily indicative of the results we would have achieved had these events actually then occurred or of our future results. The pro forma combined balance sheet data assume that the Reorganization and the Combinations, including borrowing under our revolving credit facility to close the Combinations, were closed on June 30, 2012. The pro forma combined financial information (i) is based on preliminary estimates, available information and certain assumptions that management deems appropriate and (ii) should be read in conjunction with the other financial statements and notes thereto included elsewhere in this prospectus. The pro forma combined revenues are all attributable to Taylor & Martin Group, Inc. (after giving effect to the Reorganization) and the Partner Companies.

 

(2) 

See note 5 to the notes to our unaudited pro forma combined financial statements for information regarding the number of our shares used in calculating basic and fully diluted earnings (loss) per share. For information regarding the effect of changes in the initial public offering price assumed in this prospectus on the total number of shares to be issued and outstanding after this offering, see footnote 1 under “Prospectus Summary – The Offering.”

 

(3) 

We have included adjusted pro forma combined EBITDA data because it is a measure used by us to evaluate our auction and reverse logistics business segments. Adjusted pro forma combined EBITDA is not a measure of financial performance determined under generally accepted accounting principles, should not be considered as an alternative to net income as a measure of performance or to cash flows as a measure of liquidity, and is not necessarily comparable to similarly titled measures of other companies. For a definition of adjusted pro forma combined EBITDA and a reconciliation of adjusted pro forma combined EBITDA to pro forma combined net income, see “Prospectus Summary – Non-GAAP Financial Measure – Adjusted Pro Forma Combined EBITDA and Adjusted EBITDA.”

 

(4) 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Pro Forma Combined – Key Business Metrics” for a discussion of this metric.

 

(5) 

The pro forma consolidated balance sheet assumes offering proceeds before expenses of $165 million, and assumes the application of these net proceeds as provided in “Use of Proceeds.”

Selected Historical Financial and Other Data

The following selected historical consolidated financial data for each of our Partner Companies, TMG Founder Company and Taylor & Martin Group, Inc. as of December 31, 2010 and 2011 and for the years ended December 31, 2010 and 2011 and as of June 30, 2012 and for the six months ended June 30, 2011 and 2012 (unaudited), have been derived from the audited and unaudited financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on a basis consistent with the audited financial statements and the notes thereto, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial data and are not necessarily indicative of the results for the entire year. You should read the following selected historical financial data with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below and the audited and unaudited financial statements of our Partner Companies, TMG Founder Company and Taylor & Martin Group, Inc. and the notes thereto included elsewhere in this prospectus.

 

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Table of Contents

Taylor & Martin Enterprises

 

     Year Ended
December 31,
    Six Months Ended
June 30,
    Percentage
change
between
years ended
December 31,
2010 and
2011
    Percentage
change
between six
months ended
June 30,

2011 and
2012
 
   2010     2011     2011     2012      
           (Unaudited)              
     (In thousands)              

Statement of Operations Data:(1)

      

Revenues:

            

Sales commissions and other net gains

   $ 16,360        20,262        9,656        10,350        23.9     7.2   

Lease income

     1,113        1,033        522        463        (7.2     (11.3)   
  

 

 

   

 

 

   

 

 

   

 

 

     

Total revenues

     17,473        21,295        10,178        10,813        21.9        6.2   

Costs and expenses:

            

Cost of goods sold

     1,179        2,832        1,799        2,385        140.2        32.6   

Operating expenses

     12,581        13,105        6,113        5,967        4.2        (2.4)   
  

 

 

   

 

 

   

 

 

   

 

 

     

Total costs and expenses

     13,760        15,937        7,912        8,352        15.8        5.6   
  

 

 

   

 

 

   

 

 

   

 

 

     

Operating income

     3,713        5,358        2,266        2,461        44.3        8.6   

Other income (expense)

     (117     (26     (36     (37     (77.8     N/A   
  

 

 

   

 

 

   

 

 

   

 

 

     

Net income

   $ 3,596        5,332        2,230        2,424        48.3        8.7   
  

 

 

   

 

 

   

 

 

   

 

 

     

Non-GAAP Financial Measure:(2)

            

Adjusted EBITDA (Unaudited)

     4,980        6,603        2,879        2,994        32.7        3.9   

Supplemental Operating Data:

            

Gross auction proceeds(3)

     161,510        166,042        71,908        79,905        2.8        11.1   

 

     As of December 31,     As of
June 30,

2012
 
     2010     2011    
           (Unaudited)  
     (In thousands)  

Balance Sheet Data:

      

Cash and cash equivalents

   $ 181        1,373        5,067   

Working capital (deficit)

     (3,926     (1,800     198   

Total assets

     11,230        11,658        15,944   

Long-term debt, net of current portion

     1,881        1,121        1,093   

Stockholders’ equity

     3,553        5,911        7,732   

 

(1) 

For all periods indicated, this entity was subject to Subchapter S of the Internal Revenue Code, and, as a result, has not recognized any federal income tax liability at the company level. Consequently, the historical financial information presented for this entity does not include the impact of income-based taxes. However, the pro forma combined financial information does include the impact of income-based taxes.

 

(2)

We have included adjusted EBITDA data because it is a measure used by us to evaluate our auction and reverse logistics business segments. Adjusted EBITDA is not a measure of financial performance determined under generally accepted accounting principles, should not be considered as an alternative to net income as a measure of performance or to cash flows as a measure of liquidity, and is not necessarily comparable to similarly titled measures of other companies. For a definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income, see “Prospectus Summary – Non-GAAP Financial Measure – Adjusted Pro Forma Combined EBITDA and Adjusted EBITDA.”

 

(3) 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Pro Forma Combined – Key Business Metrics” for a discussion of this metric.

 

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Deanco Auction

 

    Year Ended
December 31,
    Six Months
Ended
June 30,
    Percentage
change
between
years ended
December 31,
2010 and
2011
    Percentage
change
between
six months
ended
June 30,
2011 and
2012
 
  2010     2011     2011     2012      
                (Unaudited)              
    (In thousands)              

Statement of Operations Data:(1)

           

Operating revenues:

           

Auction and service revenues

  $ 5,015        7,425        4,682        4,319        48.0    
(7.8)
  

Equipment sales

    8,005        11,010        5,411        5,890        37.5        8.8   

Other operating revenues

    5        16        5        4        198.2        (7.4)   
 

 

 

   

 

 

   

 

 

   

 

 

     

Total operating revenues

    13,025        18,451        10,098        10,213        41.7        1.1   

Costs of goods and services sold

    6,830        11,437        6,179        6,429        67.5        4.0   
 

 

 

   

 

 

   

 

 

   

 

 

     

Gross profit

    6,195        7,014        3,919        3,784        13.2        (3.4)   
 

 

 

   

 

 

   

 

 

   

 

 

     

Selling, general, and administrative expenses, excluding depreciation

    2,893        3,081        1,570        1,952        6.5        24.3   

Depreciation expense

    308        318        168        122        3.3        (27.4)   
 

 

 

   

 

 

   

 

 

   

 

 

     

Income from operations

    2,994        3,615        2,181        1,710        20.7        (21.6)   
 

 

 

   

 

 

   

 

 

   

 

 

     

Other expense, net

    (341     (308     (157)        (116)        (9.7     (26.1)   
 

 

 

   

 

 

   

 

 

   

 

 

     

Net income

  $ 2,653        3,307        2,024        1,594        24.7        (21.2)   
 

 

 

   

 

 

   

 

 

   

 

 

     

Non-GAAP Financial Measure:(2)

           

Adjusted EBITDA (Unaudited)

    3,302        3,933        2,349        1,832        19.1        (22.0)   

Supplemental Operating Data:

           

Gross auction proceeds(3)

    88,378        96,753        56,077        50,403        9.5        (10.1)   

 

    As of
December 31,
    As of
June 30,

2012
 
    2010     2011    
                (Unaudited)  
    (In thousands)  

Balance Sheet Data:

     

Cash and cash equivalents

  $ 451        26        115   

Working capital (deficit)

    (2,954     (1,953     (1,564

Total assets

    8,569        7,433        7,110   

Long-term debt, less current portion

    2,564        2,271        2,271   

Shareholders’ (deficit) equity

    (187     456        746   

 

(1) 

For all periods indicated, this entity was subject to Subchapter S of the Internal Revenue Code, and, as a result, has not recognized any federal income tax liability at the company level. Consequently, the historical financial information presented for this entity does not include the impact of income-based taxes. However, the pro forma combined financial information does include the impact of income-based taxes.

 

(2)

We have included adjusted EBITDA data because it is a measure used by us to evaluate our auction and reverse logistics business segments. Adjusted EBITDA is not a measure of financial performance determined under generally accepted accounting principles, should not be considered as an alternative to net income as a measure of performance or to cash flows as a measure of liquidity, and is not necessarily comparable to similarly titled measures of other companies. For a definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income, see “Prospectus Summary – Non-GAAP Financial Measure – Adjusted Pro Forma Combined EBITDA and Adjusted EBITDA.”

 

(3) 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Pro Forma Combined – Key Business Metrics” for a discussion of this metric.

 

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Table of Contents

International Enterprises

 

     Year Ended
December 31,
     Six Months
Ended
June 30,
     Percentage
change
between
years ended
December 31,
2010 and
2011
    Percentage
change
between
six months
ended
June 30,
2011 and
2012
 
   2010      2011      2011      2012       
                   (Unaudited)               
     (In thousands)               

Statement of Operations Data:(1)

                

Sales

   $ 24,743         35,521         19,467         21,156         43.6     8.7   

Costs of goods sold

     20,291         27,822         15,330         16,520         37.1        7.8   
  

 

 

    

 

 

    

 

 

    

 

 

      

Gross profit

     4,452         7,699         4,137         4,636         72.9        12.1   

Operating and administrative expenses

     3,242         4,510         1,633         1,828         39.1        12.0   
  

 

 

    

 

 

    

 

 

    

 

 

      

Income from operations

     1,210         3,189         2,505         2,808         163.5        12.1   

Other income

     25         4         2         14         (74.7     744.4   
  

 

 

    

 

 

    

 

 

    

 

 

      

Net income

   $ 1,235         3,193         2,507         2,822         158.5        12.6   
  

 

 

    

 

 

    

 

 

    

 

 

      

Non-GAAP Financial Measure:(2)

                

Adjusted EBITDA (Unaudited)

     1,243         3,212         2,516         2,817         158.4        12.0   

Supplemental Operating Data:

                

Gross merchandise volume(3)

     24,743         35,521         19,468         21,156         43.6        8.7   

 

     As of
December 31,
     As of
June 30,

2012
 
     2010      2011     
                   (Unaudited)  
     (In thousands)  

Balance Sheet Data:

        

Cash

   $ 1,601         4,329         4,096   

Working capital

     6,307         7,386         8,135   

Total assets

     7,274         9,251         9,720   

Shareholders’ equity

     6,761         7,664         8,428   

 

(1) 

For all periods indicated, this entity was subject to Subchapter S of the Internal Revenue Code, and, as a result, has not recognized any federal income tax liability at the company level. Consequently, the historical financial information presented for this entity does not include the impact of income-based taxes. However, the pro forma combined financial information does include the impact of income-based taxes.

 

(2) 

We have included adjusted EBITDA data because it is a measure used by us to evaluate our auction and reverse logistics business segments. Adjusted EBITDA is not a measure of financial performance determined under generally accepted accounting principles, should not be considered as an alternative to net income as a measure of performance or to cash flows as a measure of liquidity, and is not necessarily comparable to similarly titled measures of other companies. For a definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income, see “Prospectus Summary – Non-GAAP Financial Measure – Adjusted Pro Forma Combined EBITDA and Adjusted EBITDA.”

 

(3) 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Pro Forma Combined – Key Business Metrics” for a discussion of this metric.

 

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Table of Contents

Jay Group(1)

 

     Year Ended
December 31,
    Six Months
Ended
June 30,
     Percentage
change
between
years ended
December 31,
2010 and
2011
    Percentage
change
between
six months
ended
June 30,
2011 and
2012
 
   2010     2011     2011      2012       
                 (Unaudited)               
     (In thousands)               

Statement of Operations Data:(2)

              

Net sales

   $ 32,781        35,672        16,142         21,334         8.8     32.2   

Cost of goods sold

     22,891        24,799        11,299         15,233         8.3        34.8   
  

 

 

   

 

 

   

 

 

    

 

 

      

Gross profit

     9,890        10,873        4,843         6,101         9.9        26.0   

Selling, general and administrative expenses

     6,616        8,400        4,178         3,890         27.0        (6.9)   
  

 

 

   

 

 

   

 

 

    

 

 

      

Operating income

     3,274        2,474        665         2,211         (24.5     232.5   

Total other expense

     (1,189     (1,182     (588)         (552)         (0.7     (6.1)   
  

 

 

   

 

 

   

 

 

    

 

 

      

Net income

   $ 2,085        1,292        77         1,658         (38.0     2,062.3   
  

 

 

   

 

 

   

 

 

    

 

 

      

Non-GAAP Financial Measure:(3)

              

Adjusted EBITDA (Unaudited)

     3,569        3,199        1,172         2,053         (10.4     75.2   

Supplemental Operating Data:

              

Gross merchandise volume(4)

     32,781        35,672        16,142         21,334         8.8        32.2   

 

     As of December 31,     As of
June 30,

2012
 
     2010     2011    
                 (Unaudited)  
     (In thousands)  

Balance Sheet Data:

      

Cash

   $ 157        58        105   

Working capital

     7,516        6,879        8,427   

Total assets

     15,788        17,324        18,577   

Long-term debt, less current maturities

     8,239        7,551        7,116   

Total parent company (deficit)

     (1,797     (1,691     (395

 

(1) 

Includes TJG Disc, Ltd., an entity under common control, which is not being acquired by us. Neither the results of operations nor the assets and liabilities of TJG Disc, Ltd. are significant. See Note 1(a) of the notes to combined financial statements of Jay Group included elsewhere in this prospectus.

 

(2) 

For all periods indicated, this entity was subject to Subchapter S of the Internal Revenue Code, and, as a result, has not recognized any federal income tax liability at the company level. Consequently, the historical financial information presented for this entity does not include the impact of income-based taxes. However, the pro forma combined financial information does include the impact of income-based taxes.

 

(3) 

We have included adjusted EBITDA data because it is a measure used by us to evaluate our auction and reverse logistics business segments. Adjusted EBITDA is not a measure of financial performance determined under generally accepted accounting principles, should not be considered as an alternative to net income as a measure of performance or to cash flows as a measure of liquidity, and is not necessarily comparable to similarly titled measures of other companies. For a definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income, see “Prospectus Summary – Non-GAAP Financial Measure – Adjusted Pro Forma Combined EBITDA and Adjusted EBITDA.”

 

(4) 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Pro Forma Combined – Key Business Metrics” for a discussion of this metric.

 

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Table of Contents

Image Microsystems(1)

 

     Year Ended
December 31,
    Six Months
Ended
June 30,
     Percentage
change
between
years ended
December 31,
2010 and
2011
    Percentage
change
between
six months
ended
June 30,
2011 and
2012
 
     2010     2011     2011      2012       
                 (Unaudited)               
     (In thousands)               

Statement of Operations Data:(2)

              

Revenues:

              

Product revenue

   $ 4,748        11,996        5,533         5,744         152.6     3.8   

Reconditioning services

     4,984        7,720        3,359         3,952         54.9        17.6   

Recycling

     61        165        55         182         170.5        230.3   

Plastics manufacturing

            13        8         9           13.3   
  

 

 

   

 

 

   

 

 

    

 

 

      

Total revenues

     9,793        19,894        8,956         9,888         103.1        10.4   
  

 

 

   

 

 

   

 

 

    

 

 

      

Operating expenses:

              

Cost of product sales

     1,958        4,567        2,400         1,754         133.2        (26.9)   

Cost of parts for reconditioning services

     1,217        2,388        795         1,266         96.2        59.2   

Recycling freight

     12        97        35         17         707.4        (51.0)   

Cost of plastics manufacturing

            136        42         103           146.4   

Payroll expenses

     3,045        4,852        2,118         2,600         59.4        22.8   

Contract labor

     1,249        1,895        753         1,322         51.7        75.5   

Payroll taxes and benefits

     492        1,087        452         531         120.8        17.5   

Occupancy expenses

     1,032        1,418        669         949         37.4        41.8   

Selling and administrative expenses

     231        763        328         1,044         229.7        218.2   

Depreciation expenses

     95        119        41         147         25.0        255.3   

Other

     144        179        48         66         24.6        37.3   
  

 

 

   

 

 

   

 

 

    

 

 

      

Total operating expenses

     9,475        17,501        7,682         9,799         84.7        27.6   
  

 

 

   

 

 

   

 

 

    

 

 

      

Other expense:

              

Interest expense

     (1     (10     4         57         2,005.8        1,337.2   
  

 

 

   

 

 

   

 

 

    

 

 

      

Net income

   $ 317        2,383        1,270         32         651.4        (97.5)   
  

 

 

   

 

 

   

 

 

    

 

 

      

Non-GAAP Financial Measure:(3)

              

Adjusted EBITDA (Unaudited)

     443        2,616        1,315         236         489.8        (82.0)   

Supplemental Operating Data:

              

Gross merchandise volume(4)

     4,748        11,996        5,533         5,744         152.6        3.8   

 

     As of
December 31,
     As of
June 30,

2012
 
     2010      2011     
                   (Unaudited)  
     (In thousands)  

Balance Sheet Data:

        

Cash and cash equivalents

   $ 80         305         98   

Working capital

     129         1,332         886   

Total assets

     1,363         5,875         6,791   

Long-term promissory note

             1,237         1,490   

Shareholders’ equity

     178         2,562         2,593   

 

(1) 

Includes assets, liabilities and results of operations attributable to equipment and leasehold improvements that will not be included in the Combinations. See footnote 8 to the consolidated financial statements of Image Microsystems, Inc. included elsewhere in this prospectus.

(2) 

For all periods indicated, this entity was subject to Subchapter S of the Internal Revenue Code, and, as a result, has not recognized any federal income tax liability at the company level. Consequently, the historical financial information presented for this entity does not include the impact of income-based taxes. However, the pro forma combined financial information does include the impact of income-based taxes.

(3) 

We have included adjusted EBITDA data because it is a measure used by us to evaluate our auction and reverse logistics business segments. Adjusted EBITDA is not a measure of financial performance determined under generally accepted accounting principles, should not be considered as an alternative to net income as a measure of performance or to cash flows as a measure of liquidity, and is not necessarily comparable to similarly titled measures of other companies. For a definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income, see “Prospectus Summary – Non-GAAP Financial Measure – Adjusted Pro Forma Combined EBITDA and Adjusted EBITDA.”

(4) 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Pro Forma Combined – Key Business Metrics” for a discussion of this metric.

 

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Table of Contents

TMG Founder Company

 

     Year Ended
December 31,
    Six Months
Ended June 30,
 
     2010     2011     2011     2012  
                 (Unaudited)  
     (In thousands)  

Statement of Operations Data:

  

Revenues

   $                        

Cost of sales

                            

Operating expenses:

        

Accounting fees

            30                 

Sales, general and administrative expenses

     5        85        4          

Operating loss

     (5     (115     (4       

 

     As of
December 31,
    As of June  30,
2012
 
     2010     2011    
                 (Unaudited)  
     (In thousands)  

Balance Sheet Data:

  

Cash and cash equivalents

   $                 

Working capital deficit

     (8     (122     (122

Total assets

            6        6   

Stockholders’ deficit

     (8     (122     (122

Taylor & Martin Group, Inc.

 

     Period from
November 18,
2011
(Inception) to
December 31,
2011
    Six Months
Ended
June 30, 2012
 
          

(Restated)

(Unaudited)

 
     (In thousands)  

Statement of Operations Data:

  

Revenues

   $          

Cost of sales

              

Operating expenses:

    

Sales, general and administrative expenses

     37        1,367   

Operating loss

     (37     (1,367

 

     As of
December 31,
2011
    As of June 30,
2012
 
          

(Restated)

(Unaudited)

 
     (In thousands)  

Balance Sheet Data:

  

Cash and cash equivalents

   $ 1        1   

Working capital deficit

     (36     (1,403

Total assets

     1        623   

Stockholders’ deficit

     (36     (1,403

 

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our unaudited pro forma financial condition and results of operations and the financial condition and results of operations of the Partner Companies should be read in conjunction with the financial statements and pro forma financial statements and the notes thereto included elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. The Partner Companies’ and our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and “Information Regarding Forward-Looking Statements.”

Pro Forma Combined

Overview

The description of the business that follows assumes that the Combinations have occurred and the operations of the Partner Companies have been combined. The following description is prospective only, as the Partner Companies have historically operated independently and will remain independent until the closing of this offering. The Partner Companies have no combined operating history, and Taylor & Martin Group, Inc. has no business operations at this time. The discussion of our business assumes that the operations of our Partner Companies are combined and reflects our expectation for those combined operations; however, there can be no assurance, if we close the Combinations, that our expectations for the combined operations will be realized. We are dependent upon this offering to complete the Combinations and commence operations as a combined business. Unless we close all of the Combinations, we will not close any of the Combinations and will not close this offering.

We are a provider of marketplaces and solutions for the liquidation of pre-owned transportation, agricultural and industrial capital assets and excess inventory and returned consumer goods. We believe that our marketplaces and solutions appeal to a broad base of customers seeking to convert their assets into cash at some of the highest obtainable prices in an efficient and timely manner. We believe that our TMG Complete Solution constitutes a platform with the most comprehensive suite of services available in our targeted markets: pre-owned capital assets such as commercial trucks and trailers and excess inventory and returned consumer goods, such as footwear, apparel and accessories, electronics and general merchandise. We intend to serve these targeted markets through our two operating divisions to be formed in connection with this offering, TMG Auction Services and TMG Reverse Logistics. We believe that combining our TMG Auction Services and TMG Reverse Logistics operating divisions provides us with diversification benefits in the liquidation marketplace by allowing us not to be dependent on a single market, geographic location or asset base.

Pro forma combined revenues increased from $97.8 million in 2010 to $130.8 million in 2011, representing a 33.8% growth rate, and adjusted pro forma combined EBITDA increased from $13.6 million in 2010 to $22.4 million in 2011, representing a 65.2% growth rate. Pro forma combined revenues increased from $64.8 million for the six months ended June 30, 2011 to $73.3 million for the six months ended June 30, 2012, representing a 13.1% growth rate, and adjusted pro forma combined EBITDA increased from $10.9 million for the six months ended June 30, 2011 to $12.8 million for the six months ended June 30, 2012, representing a 16.8% growth rate. We had an adjusted pro forma combined net loss of $2.4 million for the year ended December 31, 2010 compared to adjusted pro forma combined net income of $4.2 million for the year ended December 31, 2011 and for the six months ended June 30, 2011 and 2012 was $1.7 million and $2.9 million, respectively, representing a 71.4% growth rate. Our pro forma results of operations were significantly affected by non-cash stock compensation expense related to the grants of restricted stock to be made upon the consummation of this offering and the amortization of identifiable intangible assets. For a reconciliation of adjusted pro forma combined EBITDA to adjusted pro forma combined net income, see “Prospectus Summary – Non-GAAP Financial Measure – Adjusted Pro Forma Combined EBITDA and Adjusted EBITDA.”

 

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Table of Contents

The pro forma combined statements of operations do not include the following estimated expenses, which will be reflected in our combined statements of operations for the year ending December 31, 2012:

 

   

a pro rata portion of the estimated $3.1 million in expenses associated with our operation as a public company, including audit, legal, accounting, investor relationships and rent;

 

   

an increase of approximately $8.7 million in the charge incurred in connection with the closing of the Combinations, including legal and accounting expenses and other payments to be made to our management and sponsor upon the closing of our initial public offering; and

 

   

a $1.3 million excess purchase price adjustment to the carrying value of our inventory which is expected to be amortized over the first three months following the closing of our initial public offering.

We expect to add back the last two items when we calculate adjusted EBITDA.

Preliminary Third Quarter Operating Data

While no definitive pro forma combined financial statements have been prepared for any period subsequent to June 30, 2012, we have reviewed preliminary unaudited pro forma combined operating data for the three months ended September 30, 2012. Based on this data, we believe that:

 

   

Our pro forma combined revenue for the nine months ended September 30, 2012 is continuing to achieve solid growth, when compared to the comparable period for the preceding year, although at a modestly reduced rate relative to the growth achieved for the six months ended June 30, 2012. This preliminary operating data suggests that for the three months ended September 30, 2012 our pro forma combined costs of sales and services, net income and adjusted EBITDA, each as a percentage of pro forma combined revenue, were in line with the comparable percentages for the six months ended June 30, 2012.

 

   

Our pro forma combined revenue in the TMG Auction Services segment for the nine months ended September 30, 2012, as compared to the same period in 2011, grew slightly. The pro forma combined operating income for this segment for the three months ended September 30, 2012, as a percentage of this segment’s pro forma combined revenue, was in line with the comparable percentage for the six months ended June 30, 2012. This segment’s operating data for the three months ended September 30, 2012 reflect the positive impact of an improved supply of capital assets and significant improvement in sales revenues. This reflects a reversal of the trends that reduced the availability of trucks for sale in our auctions and caused a decline in the average GAP generated by each lot sold in our auctions during the second quarter.

 

   

Our pro forma combined revenue in the TMG Reverse Logistics segment for the nine months ended September 30, 2012, as compared to the same period in 2011, grew at a higher rate than our pro forma combined revenue on a company-wide basis. The pro forma combined operating income for this segment for the three months ended September 30, 2012, as a percentage of this segment’s pro forma combined revenue, was in line with the comparable percentage for the six months ended June 30, 2012. This revenue growth was driven by a substantial increase in the volume of shoes liquidated during the three months ended September 30, 2012 that was partially offset by decreases in revenue resulting from a recent shift in the sales by one of our Partner Companies from higher volume, lower margin soft goods to lower volume, higher margin electronic products, a revenue timing mismatch related to one of our Partner Company’s amended agreement to provide TMG Return Point software, and reduced volume from a large printer manufacturer, which we have taken steps to mitigate with purchases from other sources.

No assurance can be given that the current trends will continue unchanged for the remainder of 2012 or thereafter. The foregoing historical operating data for the three months ended September 30, 2012 are preliminary and subject to additional closing procedures and, as a consequence, may not be reflective of our definitive pro forma combined financial statements for the three months ended September 30, 2012 once they are compiled.

 

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Table of Contents

Taylor & Martin Group, Inc. was formed in Delaware in November 2011 to serve as the parent company of the Partner Companies following the completion of this offering. It has generated no revenues from the date of its formation through June 30, 2012. Taylor & Martin Group, Inc.’s activities prior to the completion of this offering have consisted exclusively of locating the Partner Companies, negotiating and entering into definitive agreements with respect to the Combinations, preparing for this offering and initiating steps to integrate the business operations of the Partner Companies. We cannot assure you that we will be able to generate future profits as a combined business.

The information in this section reflects the pro forma combination of the Partner Companies. For a discussion of the Combinations, see “Combinations and Reorganization.”

Industry Trends and Outlook

We believe that there are several industry trends that are positively impacting, and that we expect will continue to positively impact, our TMG Auction Services operating division, including:

 

   

as a result of the economic downturn, an increase in buyer demand for pre-owned capital assets as buyers look to purchase lower cost capital equipment;

 

   

increasingly more stringent government regulation of emissions that have resulted in new equipment that is significantly more expensive to purchase and operate, thereby making the purchase of used equipment more cost effective;

 

   

technological improvements increasing the pace of product obsolescence and, therefore, the turnover of assets and availability of pre-owned assets; and

 

   

the increasing acceptance by prospective buyers of auctions as honest and reliable marketplaces.

We believe that there are several industry trends that are positively impacting, and that we expect will continue to positively impact, our TMG Reverse Logistics operating division, including:

 

   

the flexible return practices of many large national retailers and online shopping sites result in a continuous supply of excess inventory and returned consumer goods, a significant portion of which must be liquidated;

 

   

increasing sales volume of consumer goods;

 

   

innovation in technology products, such as computer and office equipment, consumer electronics, and personal communication and entertainment devices, results in a continuous flow of excess inventory;

 

   

an increasingly stringent regulatory environment necessitates the verifiable recycling and remarketing of excess inventory and returned consumer goods that would otherwise be disposed of as waste; and

 

   

the need for organizations to be environmentally friendly by improving their management of end of life or excess inventory.

Although we believe that the trends impacting the industries in which our divisions operate are generally positive, our management has identified and continuously monitors the following known potentially adverse trends. Potentially adverse trends impacting our TMG Auction Services operating division include:

 

   

as adverse economic conditions continue, we expect prospective sellers and consigners of pre-owned capital assets to hold those assets longer, which results in fewer consignments and, therefore, lower GAP per auction;

 

   

when the supply of pre-owned capital assets diminishes, our competitors who have more resources than we have may be able to outbid us as we try to acquire these assets for sale at our auctions and further reduce our GAP per auction;

 

   

the current elevated production levels of some categories of capital assets may translate into a higher supply of used assets of these types over the next four to five years as they become replaced and enter the used market, which increased supply may adversely influence demand and pricing on these units;

 

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Table of Contents
   

although interest rates are currently low, credit underwriting standards have tightened over the past several years causing restrictions for some owner/operators to secure the financing needed to buy or replace equipment, which may limit our bidders and consigners in the future; and

 

   

although more stringent emissions regulations have resulted in an increased demand for used equipment that has been “grandfathered” under many of these regulations, the demand for used units that are outfitted with the new emissions controls is currently limited.

Gross auction proceeds and auction revenues are also affected on a period-to-period basis by the timing of major auctions.

Potentially adverse trends impacting our TMG Reverse Logistics operating division include:

 

   

some retail companies are implementing or further developing their own reverse logistics capabilities; and

 

   

some OEMs are sending their returns back to their factories where the goods are either remanufactured or recycled. In each case, this could increase competition for, and reduce our access to, inventory to purchase and sell on the secondary market.

Integration of Partner Companies

We believe one of our key competitive advantages will be our positioning in the marketplace, both in terms of our size and the scope of liquidation services we will provide. In order to realize the benefits of the Combinations, our management must successfully integrate our five Partner Companies into a cohesive, coordinated organization, while at the same time retaining the decentralized operating nature of the various Partner Companies.

Integration of the Partner Companies has commenced and is continuing in advance of the closing of this offering. Taylor & Martin Enterprises has initiated steps to accommodate Deanco Auction on the Taylor & Martin Enterprises auction platform, including providing Deanco Auction with access to www.TMILive.com during auctions conducted by Deanco Auction.

Additionally, members of our senior management have been actively working since May 2012 with our individual reverse logistics Partner Companies to help grow their businesses by sharing experience in selling similar services and leveraging relationships in the market. Since that time our team has successfully attracted the following three sources of additional business:

 

   

Our management team introduced Jay Group to the executive responsible for reverse logistics at a nationwide department store retailer. As a result of this introduction and continued joint business development efforts, Jay Group made its initial purchase of high-end shoes from this retailer.

 

   

Our management team introduced International Enterprises to one of the largest online electronics retailers in the United States. Leveraging its relationships and knowledge of that retailer’s liquidation issues, our management team was able to successfully negotiate purchases of repaired and “as is” electronics from the retailer. These purchases are expected to allow the retailer to realize a significant improvement in its historical overall recovery rates and increased the gross merchandise volume of International Enterprises.

 

   

A senior executive from an electronics warranty company, with whom our management team had previously worked, contacted us looking for repair and liquidation services. Our management team introduced this warranty company to Image Microsystems, assisted in completing a request for proposal and is now assisting in negotiating and finalizing a long-term service contract with the warranty company.

Members of our senior management have also helped identify and recruit three reverse logistics executives to fill open operations and business development positions in our reverse logistics Partner Companies. These

 

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executives, who members of our senior management has known for many years, have had extensive experience in the reverse logistics industry. In addition, members of our senior management have identified five additional candidates with whom they have worked for a number of years and are in the preliminary stages of recruiting these candidates to fill additional positions in business development and operations.

We expect to incur costs in connection with the integration process, which costs we cannot estimate at this time. These costs will relate to, among other things, (i) integrating the software and hardware of the Partner Companies’ computer systems, (ii) integrating and training certain existing personnel of the Partner Companies and (iii) adding personnel in certain functions, including the hiring of sales, marketing, accounting, administrative, operating and technical personnel. This integration will focus not only on operational and financial reporting coordination across the Partner Companies but also include such items as consistency in company values, conformity of personnel practices, and coordination of back office support functions such as payroll administration, legal support, and planning and budgeting. Key aspects of our integration process include:

 

   

We intend to incorporate a portion of Deanco Auction’s operations into the Taylor & Martin Enterprises auction platform, which we believe is highly scalable. This will require a significant commitment of time and effort of our TMG Auction Services management to fully integrate the auction delivery and settlement processes at Deanco Auction. However, we believe that the Deanco Auction operations can be integrated with minimal out of pocket cost.

 

   

We intend to move to a common budgeting and financial reporting process in order to enhance company-wide planning and support appropriate reporting of our financial results to shareholders and management. We intend to deploy the enterprise resource planning system existing at one of the Partner Companies across all of the Partner Companies as our primary financial reporting system. We have determined this financial reporting system has the capacity to accommodate the addition of all the Partner Companies without additional user fees or significant capital investment.

 

   

We intend to evaluate our personnel and benefit practices across all of the Partner Companies and implement company-wide programs where appropriate, while still allowing for the unique needs of each particular location or employee group.

 

   

We intend to leverage existing operations and reputations of the Partner Companies to gain access to larger prospective customers and cross-sell existing customers. This effort will be heavily focused on integrating and coordinating sales and marketing activities among the Partner Companies. Such integration effort, while critical to our future growth strategies, does not require significant operating or capital outlays but is instead driven by process coordination across the Partner Companies, which we expect will require significant time and effort of our management.

As we move forward in our integration efforts, we also intend to do the following to enhance our control over cash management and future returns on investment:

 

   

establish relevant grants of authority involving not only the historical Partner Company management but also the Taylor & Martin Group, Inc. management responsible for TMG Auction Services and TMG Reverse Logistics;

 

   

centralize our cash management processes, leaving with the business units only the minimum amount of cash required to effectively manage each business unit;

 

   

establish what we believe will be achievable performance targets, and monitor the overall performance of the business unit on a “return on invested capital” basis, giving due consideration to growth of the balance sheet; and

 

   

evaluate the proper rationing of capital as we balance the returns across Partner Companies and future acquisitions.

Most of our Partner Companies did not conduct audits or prepare audited financial statements prior to the generation of the audited financial statements included in this prospectus. During the preparation of these

 

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audited financial statements, it became apparent to us that some of our Partner Companies did not have the requisite knowledgeable personnel to record transactions in the general ledger, allocate transactions to the proper account classifications or prepare draft financial statements and the requisite supporting schedules. Accordingly, third-party service providers were retained to assist in discharging some of these accounting tasks. In addition, the independent registered public accounting firm auditing the Partner Companies identified material weaknesses in the internal control over financial reporting for three of our Partner Companies.

In June 2012, we retained a controller and chief accounting officer. Additionally, we are actively interviewing and seeking to retain experienced personnel to staff our controller and internal audit functions as we implement a uniform system of accounts and a suite of financial controls on a company-wide basis that will enable us to efficiently and cost effectively monitor our business operations and accurately report on our financial results without the assistance of third–party service providers. Until we retain and integrate these additional experienced accounting personnel, we will continue to outsource some of these tasks to third-party services providers. While we are transitioning to a fully integrated internal staff of experience accounting personnel, we believe that we will be able to accurately report on our financial results by continuing to rely on outside service providers to augment our internal control capabilities. If we fail to establish and thereafter maintain effective controls over financial reporting, however, our ability to accurately report on our financial results will be adversely affected.

Integrating the Partner Companies is critical to our future success. See “Risk Factors – Risks Related to Our Company” for a discussion of some of the risks we will encounter in attempting to integrate the Partner Companies.

Key Business Metrics

Our management expects to periodically review certain key business metrics used in this prospectus for operational planning purposes and to evaluate the effectiveness of our operational strategies, allocation of resources and our capacity to fund working capital and expand our business. These key business metrics include:

 

   

Total Liquidation Volume.    “Total liquidation volume” represents the sum of the total proceeds from all items sold at our auctions, which industry participants generally refer to as “gross auction proceeds” or “GAP,” and the total sales value of all excess inventory and returned consumer goods sold through our reverse logistics segment during a given period, which industry participants generally refer to as “gross merchandise volume” or “GMV.” Our definition of GAP and GMV may differ from those used by other participants in our industry. Total liquidation volume, GAP and GMV are not measures of our financial performance, liquidity or revenues and are not presented in our consolidated financial statements. However, total liquidation volume, GAP and GMV provide us with a means to evaluate the activity level of our auction and reverse logistics segments. In addition to providing a means for us to evaluate activity level, GAP allows us to assess our net commissions on consignment sales. For the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, we had pro forma combined total liquidation volume of $312.2 million, $346.0 million, $169.1 million and $178.5 million, respectively.

 

   

Auction Service Revenue Rate.    We realize various types of commissions and other fees in the conduct of our auctions. These include commissions or fees paid by the seller, buyers’ premiums, Internet fees for those buyers participating via www.TMILive.com, www.deancoauction.com and bidbuynow.com and other transaction fees. We term these sources of revenues collectively as auction service revenues. The percentage derived from dividing auction service revenues by the sales value of the item being auctioned is termed auction service revenue rate. We monitor this rate as a means to manage the overall profitability of our auction services. We will endeavor to maximize our auction service revenue rate from our various auctions while also providing our high standard of quality customer service and, at the same time, remaining competitive in the auction services marketplace. For the years ended December 31, 2010 and 2011 and the six

 

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months ended June 30, 2011 and 2012, our pro forma combined auction service revenue rate was 6.9%, 8.0%, 8.4%, and 8.4%, respectively.

 

   

Completed Auction Transactions.    Completed auction transactions represents the number of transactions in a given period from which we have recorded revenues. Similar to GAP, we believe that completed auction transactions is a key business metric because it provides an additional measure of the volume of activity flowing through our auction services marketplace. During the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, we completed approximately 28,700, 29,200, 14,600 and 15,600 auction transactions, respectively, on a pro forma combined basis.

 

   

Total Auction Participants.    For each auction we manage, the number of auction participants represents the total number of registrants who have attended one of our live or online auctions and have registered and qualified to bid in that auction. As a result, a registered buyer that participates in more than one auction is counted as an auction participant in each auction in which he or she participates. Thus, total auction participants for a given period is the sum of the auction participants in each auction conducted during that period. We use this metric to allow us to compare our auction activities to our competitors, including online auction sites and traditional on-site auctioneers. In addition, we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered buyers and to measure the performance of our marketing and promotional efforts. For the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, approximately 31,400, 39,300, 19,400 and 21,000, respectively, registered buyers participated in our auctions, on a pro forma combined basis.

 

   

Target Auction Customer Base.     We plan to grow our customer base (consignors and bidders) by a combination of marketing, promotional efforts, direct contact from our nationwide sales force, and from the addition of customers in the specific industries we service such as used equipment dealers, owner-operators, fleet managers, construction companies and end users, bankruptcy trustees, agricultural operators, repair facilities and financial institutions. We collect business and personal information including name, title, company name, business address, contact numbers, and information on how the person might use our auction, appraisal, leasing and consulting services. These customers may already have been a registered participant or may later become a registered participant when they register at one of our auctions either in person or on line. The business and personal information collected as a potential bidder is the same information captured during the registration process and once captured is used subsequently for all marketing and promotional activities and future auction registrations. Our Partner Companies currently, and will continue to, market directly to our potential customer base primarily through direct mail and print ads, email or through our web site notifying them of upcoming auction events and information on our suite of other services. As of June 30, 2012, we had approximately 384,000 potential customers in our data base.

 

   

Adjusted EBITDA.     We define adjusted EBITDA as our net income before interest expenses, income tax, gains and losses on property dispositions, depreciation and amortization, non-cash stock compensation expense and charges associated with the Combinations. Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. We refer to adjusted EBITDA in this prospectus for periods prior to consummation of the Combinations as “adjusted pro forma combined EBITDA,” which measure is defined as our adjusted pro forma combined net income before interest expenses, income tax, gains and losses on property dispositions, depreciation and amortization and non-cash stock compensation expense. See “Prospectus Summary – Non-GAAP Financial Measure – Adjusted Pro Forma Combined EBITDA and Adjusted EBITDA.”

 

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We also use adjusted EBITDA in relation to other financial measures to evaluate our business, such as adjusted EBITDA as a percentage of revenue, which is a common measure of performance in the auction industry. When we calculate adjusted EBITDA as a percentage of revenue, our percentage will be lower than our competitors that are not required to report or are exempted from the requirement to report revenue from purchases and resales of asset packages on a GAAP basis. See “ – Components of Revenues and Expenses – Revenues – Purchase and Resale” immediately below.

Components of Revenues and Expenses

Revenues

We generate revenues by providing marketplaces and solutions to our customers in the secondary market. These revenues result from assistance provided to our customers to efficiently convert their pre-owned capital assets and excess inventory and returned consumer goods into cash. In addition, we provide our customers fee-based support for capital asset appraisal services and also facilitate the financing of pre-owned capital assets purchased at our auctions through our commercial leasing operation.

Our revenues are derived primarily from the following five sources:

 

   

Purchase and Resale.    We generate sales revenues in both our TMG Auction Services and TMG Reverse Logistics segments by selling pre-owned capital assets or excess inventory and returned consumer goods that we purchase from our customers. We subsequently remarket these assets and recognize a trading margin on the resale. Sales revenues from our purchase and resale activities represented approximately 73.2%, 74.5%, 75.1% and 77.1% of our pro forma combined total revenues for the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, respectively.

 

   

Consignments.    We generate services revenues in our TMG Auction Services segment from commissions on sales of pre-owned capital assets owned by others and facilitated by our live capital asset auctions, Internet auction platform, and other activities undertaken in an agent capacity. Commissions are established depending on the various value-added services we provide the sellers in facilitating the transactions. In addition, we also collect buyer premiums upon the sale of auctioned capital assets. Buyer premiums are calculated as a percentage of the sales price of the underlying gross transaction value. Occasionally we guarantee a minimum price to our consignors. We attempt to manage our risk on these guarantees by generally only guaranteeing an amount equal to no more than the low end of our estimated price range for the appraised values of an asset. Service revenues from consignment sales represented approximately 17.7%, 16.5%, 16.7% and 15.1% of our pro forma combined total revenues for the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, respectively.

 

   

Appraisal Services and other Fee-Based Services.    We generate services revenues in our TMG Auction Services segment from fee-based appraisal services for those customers needing independent assessment of capital asset valuations. These customers could include, for example, banks and other lending institutions, insurance companies, bankruptcy courts, and others. In 2011, we believe that we were the largest appraisal company of commercial trucks and trailers in the United States in terms of number of appraisals. We also generate services revenues in our TMG Reverse Logistics segment by providing returns processing, reconditioning and warranty services on consumer electronics for a fee. Services revenues from appraisal services and other fee-based services represented approximately 8.0%, 8.2%, 7.2% and 7.4% of our pro forma combined total revenues for the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, respectively.

 

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Shared Recovery.    We generate sales revenues in our TMG Reverse Logistics segment from shared recovery arrangements that we enter into with our customers where we guarantee a minimum net recovery value for our customers. Under any arrangement of this type, if the actual sales price falls below the guaranteed minimum net recovery value, we recognize a loss to the extent of such shortfall. Sales revenues from shared recovery arrangements represented less than four percent of our pro forma combined total revenues for each of the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012.

 

   

Leasing Operations.    We generate services revenues in our TMG Auction Services segment by offering buyers at our auctions the option of financing their future purchases pursuant to either operating or direct financing lease arrangements which are underwritten by us. We qualify all potential lessees according to our internally-developed credit risk standards. Our appraisals expertise in commercial trucks and trailers provides us with unique opportunities to lease assets when mutually advantageous to both the buyer and us. Services revenues from leasing activities represented less than two percent of our pro forma combined total revenues for each of the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012.

See “– Critical Accounting Policies and Estimates – Revenue Recognition” for a discussion of when and how we recognize revenues. We refer to revenue we generate through purchase and resale and shared recovery as our “at-risk” business. For a discussion of the risks associated with our at-risk business, see “Risk Factors – Risks Related to Our Company – If we fail to accurately predict our ability to sell assets in which we take general and inventory risk, our margins may decline as a result of lower sale prices from such assets.”

The following table presents the historical revenues by Partner Company for the periods indicated, the sum of such historical revenues being equal to our pro forma combined revenues:

 

     Year ended December 31,     Six Months ended June 30,  
     2010     2011     2011     2012  
     Amount     %     Amount     %     Amount     %     Amount     %  
     (Dollars in thousands)  
                             (Unaudited)  

Taylor & Martin Enterprises

   $ 17,473        17.9   $ 21,295        16.3   $ 10,178        15.7   $ 10,813        14.7

Deanco Auction

     13,025        13.3        18,451        14.1        10,098        15.6        10,213        13.9   

International Enterprises

     24,743        25.3        35,521        27.1        19,468        30.0        21,156        28.8   

Jay Group

     32,781        33.5        35,672        27.3        16,142        24.9        21,334        29.1   

Image Microsystems

     9,793        10.0        19,894        15.2        8,956        13.8        9,888        13.5   

Elimination of intercompany sales

                  

  
                         (72)        (0.1)   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 97,815        100.0   $ 130,833        100.0   $ 64,842        100.0   $ 73,332        100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

Cost of Sales.    Cost of sales represents the largest direct cost component of revenues generated through both our TMG Auction Services and TMG Reverse Logistics segments. This amount includes the costs directly associated with purchasing and preparing for resale pre-owned capital assets and excess inventory and returned consumer goods where we are the general obligor in the transaction and assume general, physical inventory and credit risks. Such costs represented approximately 72.5%, 71.8%, 74.5% and 73.3% of our pro forma combined sales revenues for the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, respectively.

Cost of Services.    Cost of services represents the cost directly associated with conducting our live and world-wide Internet-bidding auctions and direct labor, parts and overhead related to our TMG Reverse Logistics reconditioning business. Such costs represented approximately 49.0%, 46.6%, 42.4% and 48.3% of our pro forma combined services revenue for the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, respectively.

 

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Selling, General, and Administrative Expenses.    Selling, general and administrative expenses include all operating costs associated with supporting the generation of our sales and services revenues, as well as depreciation and amortization expenses and non-cash stock compensation. They include the costs of acquiring sellers and buyers for our marketplaces, marketing and promoting our capabilities to our target audiences, and all general and administrative expenses that support our operations and provide the necessary management and organizational infrastructure to drive our future growth, including executive and staff salaries and employee benefits, travel, administrative space rent and occupancy costs, legal, and accounting fees. Costs for salaries, bonus, employee benefits and administrative occupancy costs are generally more fixed in nature than other operating expenses and do not vary directly with the volume of our revenue generating activities. Depreciation and amortization expenses are also generally fixed in nature. We provide for depreciation and amortization of property and equipment, including computer equipment and software, furniture, equipment and leasehold improvements, as well as intangible assets acquired as part of our Combinations, over the useful life of the asset. Selling, general and administrative expenses represented approximately 37.9%, 29.3%, 29.3% and 26.5% of our pro forma combined total revenue for the years ended December 31, 2010 and 2011 and the six months ended June 30, 2011 and 2012, respectively.

Net Interest Expense.    Net interest expense represents the financial costs incurred by us with respect to our credit facilities and includes any imputed interest expense on notes payable and amortization of debt issuance costs, as well as interest income earned on deposits of cash and short-term investments.

Income Taxes.    Our pro forma combined income statements provide for income taxes assuming an estimated statutory income tax rate of 39%. This rate is based on a corporate federal income tax rate of 35% and an estimated blended state and local tax rate of 4% of taxable income based on an analysis of the Partner Companies.

Critical Accounting Policies and Estimates

Pursuant to the Jumpstart Our Business Startups Act of 2012, we will be reporting in accordance with certain reduced public company reporting requirements permitted by this act, namely we will not have our auditor attest to, and report on, management’s assessment of its internal controls over financial reporting. See “Risk Factors – Risks Related to This Offering and Our Common Stock – We are an emerging growth company and our reliance on the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.” As a result of this, our financial statements may not be comparable to companies that are not emerging growth companies or elect not to avail themselves of this provision.

Our discussion and analysis of our financial condition and results of operations are based upon our pro forma combined financial statements derived from the various financial statements of Taylor & Martin Group, Inc. (after giving effect to the Reorganization) and the Partner Companies, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these pro forma combined financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. A “critical accounting estimate” is one that is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We continuously evaluate our critical accounting estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

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Revenue Recognition

Our revenue recognition policies are governed by applicable GAAP pronouncements and other applicable guidance, specifically FASB Accounting Standards Codification (ASC) paragraph 605 and SEC Staff Accounting Bulletin 104. Pursuant to such guidance, for transactions in our marketplaces we recognize revenues when all of the following criteria are met:

 

   

a buyer submits the winning bid in an auction or evidence of an arrangement exists and the sale price has been determined;

 

   

delivery has occurred or services have been rendered;

 

   

title has passed to a buyer and the buyer has assumed risks and rewards of ownership; and

 

   

collection is reasonably assured.

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

We recognize revenues in one of three ways:

Purchase and Resale and Shared Recovery Revenues. We recognize revenue on our purchase and sale arrangements on a “gross” basis, meaning we recognize as revenues the gross proceeds from the sale when the sale occurs, because we are deemed in this type of arrangement to be the primary obligor and bear general, physical, inventory and credit risk. This manner of presentation may differ from one of our competitors in the auction industry, who may recognize revenue on a purchase and sale arrangement on a “net” basis, meaning it recognizes as revenues only the amount by which the sales price exceeds the cost to acquire the asset and recognize such revenue when the recovery value is established. Like the purchase and sale arrangement, we recognize revenues and related costs on our shared recovery arrangement when we sell the asset. For a discussion of some of the risks associated with our purchase and resale arrangements and shared recovery arrangements, see “Risk Factors – Risks Related to Our Company – If we fail to accurately predict our ability to sell assets in which we take general and inventory risk, our margins may decline as a result of lower sale prices from such assets.”

Consignment Sales Revenues. Consignment sales revenues represent arrangements in which we act as an agent or broker without taking general or physical inventory risk. Revenues are recognized based on the sales commissions that are paid to us by the sellers for utilizing our services; in this situation, sales commissions represent a percentage of the gross proceeds from the sale that the seller pays to us upon completion of the transaction. In certain circumstances, we may, on occasion, enter into negotiated arrangements with consignors whereby we guarantee a minimum dollar amount to our consignors related to the items sold where we act as an agent or broker. We endeavor to establish such arrangements to maximize our profit potential while minimizing the related risk of loss due to guaranteeing such minimum consignor returns. However, there may be circumstances where the