As
filed
with the Securities Exchange Commission on September 5, 2008
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Enable
Holdings, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
(State
or other jurisdiction of
incorporation
or organization)
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5961
(Primary
Standard Industrial
Classification
Code Number)
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52-2372260
(I.R.S.
Employer
Identification
Number)
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8725
W Higgins, Suite 900, Chicago, Illinois 60631
,
(773)
272-5000
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Jeffrey
D. Hoffman
Chief
Executive Officer
Enable
Holdings, Inc.
8725
W Higgins, Suite 900
Chicago,
Illinois 60631
(773)
272-5000
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With
a copy to:
Thomas
F. Steichen
Fredrikson
& Byron, P.A.
200
South Sixth Street, Suite 4000
Minneapolis,
MN 55402
(612)
492-7000
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(Name,
address, including zip code, and telephone number, including area code, of
agent
for service)
Approximate
date of commencement of proposed sale to the public:
From
time
to time after the effective date of this registration statement.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act, check the
following box.
þ
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.
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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.
o
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.
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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer
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Accelerated
filer
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Non-accelerated
filer
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(Do
not check if a smaller reporting company)
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Smaller
reporting company
þ
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CALCULATION
OF REGISTRATION FEE
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Proposed
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Proposed
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Maximum
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Maximum
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Offering
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Aggregate
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Amount of
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Title
of Each Class Of
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Amount To Be
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Price
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Offering
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Registration
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Securities
To Be Registered
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Registered (1)
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Per Unit(2)
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Price(2)
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Fee(2)
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Common
Stock, par value $0.001
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2,460,148
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$
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2.22
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$
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5,461,529
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$
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214.64
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(1)
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The
shares of our common stock being registered hereunder are being registered
for sale by the selling stockholder, as defined in the accompanying
prospectus.
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(2)
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Estimated
solely for the purpose of computing the amount of the registration
fee
pursuant to Rule 457(c) under the Securities Act of 1933 based on
the last
sale price of the Registrant’s common stock as reported on the
over-the-counter bulletin board on September 2,
2008.
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The
Registrant hereby amends this Registration Statement on such date or dates
as
may be necessary to delay its effective date until the Registrant shall file
a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a),
may determine.
SUBJECT
TO COMPLETION, DATED SEPTEMBER 5, 2008.
The
information in this 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 prospectus is not an offer to sell
these securities and we are not soliciting offers to buy these securities in
any
state where the offer or sale is not permitted.
PROSPECTUS
Enable
Holdings, Inc.
(formerly
known as uBid.com Holdings, Inc.)
2,460,148
Shares of Common Stock
This
prospectus relates to the sale of up to 2,460,148 shares of our common stock,
$0.001 par value, by Fusion Capital Fund II, LLC (“Fusion Capital”). Fusion
Capital is sometimes referred to in this prospectus as the selling stockholder.
The prices at which Fusion Capital may sell the shares will be determined by
the
prevailing market price for the shares or in negotiated transactions. We will
not receive proceeds from the sale of our shares by Fusion Capital.
Our
common stock is registered under Section 12(g) of the Securities Exchange Act
of
1934 and quoted on the over-the-counter bulletin board under the symbol
“ENAB.OB” On September 2, 2008, the last reported sale price for our common
stock as reported on the over-the-counter bulletin board was $2.22 per
share.
Investing
in the common stock involves certain risks. See “Risk Factors” beginning on page
3 for a discussion of these risks.
The
selling stockholder is an “underwriter” within the meaning of the Securities Act
of 1933, as amended.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is September __, 2008
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
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1
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RISK
FACTORS
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3
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FORWARD-LOOKING
STATEMENTS
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15
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BUSINESS
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15
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MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
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25
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DIVIDEND
POLICY
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SELECTED
FINANCIAL DATA
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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28
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DIRECTORS
AND EXECUTIVE OFFICERS
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46
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COMPENSATION
DISCUSSION AND ANALYSIS
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50
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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58
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SECURITY
OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS AND
OFFICERS
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60
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THE
FUSION TRANSACTION
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62
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THE
SELLING STOCKHOLDER
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65
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USE
OF PROCEEDS
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65
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PLAN
OF DISTRIBUTION
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65
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DESCRIPTION
OF SECURITIES
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67
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WHERE
YOU CAN FIND MORE INFORMATION
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70
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EXPERTS
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71
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LEGAL
MATTERS
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71
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INDEX
TO THE FINANCIAL STATEMENTS
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F-1
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EX-5.1 OPINION OF FREDRIKSON & BYRON, P.A.
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EX-23.1 CONSENT OF BDO SEIDMAN, LLP
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You
should rely only on the information contained in this prospectus and in any
accompanying prospectus supplement. We have not authorized anyone to provide
you
with different information.
We
have
not authorized the selling stockholder to make an offer of these shares of
common stock in any jurisdiction where the offer is not permitted.
You
should not assume that the information in this prospectus or prospectus
supplement is accurate as of any date other than the date on the front of this
prospectus.
You
should rely only on the information contained in this prospectus and in any
prospectus supplement. We have not authorized anyone else to provide you with
different information, and if you receive any unauthorized information you
should not rely on it. We have not authorized the selling stockholder to make
an
offer of these shares in any place where the offer is not permitted. The
information appearing in this prospectus or any prospectus supplement is
accurate only as of its date. Our business, financial condition, results of
operations and prospects may have changed since that date.
Business
Enable
Holdings, Inc. is a holding company for uBid, Inc., Dibu Trading Corp., RedTag,
Inc., RedTag Live, Inc., Enable Payment Systems, Inc. and uSaas, Inc., our
operating businesses. For purposes of this prospectus, unless otherwise
indicated or the context otherwise requires, all references herein to “Enable,”
“we,” “us,” and “our” refer to Enable Holdings, Inc. and our
subsidiaries.
We
are a
Delaware corporation. Our principal executive offices are located at 8725 W
Higgins, Suite 900, Chicago, Illinois 60631. Our telephone number is (773)
272-5000. The address of our website is www.enableholdings.com. Information
on
our website is not part of this prospectus.
We
began
operations as an e-tailer directly procuring merchandise consisting primarily
of
refurbished and overstock computer and consumer electronics inventory for sale
in our auction-style format online marketplace. Initially, we operated as the
sole seller in the marketplace and were solely responsible for all warehousing
and order processing and, therefore, incurred all costs and risks associated
with product procurement.
In
the
first quarter of 2008, we began transforming our business model to an asset
recovery solution. Asset recovery is a rapidly growing industry with revenues
of
$38.5 billion in 2004 and is expected to climb to over $63.1 billion in 2008,
according to D.F. Blumberg Associates Inc., a logistics research and consulting
firm.
For
manufacturers and retailers, we offer excess inventory asset recovery solutions.
For consumers, we are a connection to excess name brand inventory. We have
identified seven proprietary inventory selling solutions. These solutions are
structured as separate operating divisions and include:
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uBid.com
– Our historical auction site which has operated for ten years. This
division will focus solely on auction format rather than the current
auction and fixed price format.
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RedTag.com
– A fixed price internet site that is currently under development with
an
expected launch date in the third quarter of
2008.
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RedTag
Live – An inventory liquidation company dedicated to physical
location sales. RedTag Live was launched in the beginning of the
third
quarter of 2008.
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Dibu
Trading Co. – A wholesale inventory liquidation company dedicated to
Business-to-Business solutions. This division was formed in the fourth
quarter of 2007 and dedicated staff was hired in the first quarter
of
2008.
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Commerce
Innovations – A software service company which licenses auction software
to third party companies. We are currently developing this hosted
solution
which is expected to launch in the middle of the third quarter of
2088.
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The
Offering
On
July
15, 2008, we entered into a common stock purchase agreement (the “Purchase
Agreement”) with Fusion Capital, an Illinois limited liability company. Under
the Purchase Agreement, Fusion Capital is obligated, under certain conditions,
to purchase shares from us in an aggregate amount of $10 million from time
to
time over a twenty-four (24) month period. Under the terms of the Purchase
Agreement, Fusion Capital has received a commitment fee consisting of 230,074
shares of our common stock. Also, we will issue to Fusion Capital an additional
230,074 shares as a commitment fee pro rata as we receive the $10 million of
future funding. As of September 5, 2008, there were 18,676,190 shares
outstanding (7,315,846 shares held by non-affiliates). If all of such 2,460,148
shares offered hereby were issued and outstanding as of the date hereof, the
2,460,148 shares would represent 11.8% of the total common stock outstanding
or
25.7% of the non-affiliates shares outstanding as of the date hereof. The number
of shares ultimately offered for sale by Fusion Capital is dependent upon the
number of shares purchased by Fusion Capital under the Purchase
Agreement.
Under
the
Purchase Agreement and a concurrent registration rights agreement (the
“Registration Rights Agreement”) we are required to register and have included
in the offering pursuant to this prospectus: (1) 230,074 shares which have
already been issued as a commitment fee, (2) an additional 230,074 shares which
we may issue in the future as a commitment fee pro rata as we receive the $10
million of future funding, and (3) 2,000,000 shares which we may sell to Fusion
Capital after this registration statement is declared effective under the
Securities Act. All 2,460,148 shares are being offered pursuant to this
prospectus. Under the Purchase Agreement, we have the right but not the
obligation to sell more than the 2,000,000 shares to Fusion Capital. As of
the
date hereof, we do not have any plans or intent to sell to Fusion Capital any
shares beyond this 2,000,000 shares. However, if we elect to sell more than
the
2,000,000 shares (which we have the right but not the obligation to do), we
must
first register under the Securities Act any additional shares we may elect
to
sell to Fusion Capital before we can sell such additional shares, which could
cause substantial dilution to our stockholders.
We
do not
have the right to commence any sales of our shares to Fusion Capital until
the
SEC has declared effective the registration statement of which this prospectus
is a part. After the SEC has declared effective such registration statement,
generally we have the right but not the obligation from time to time to sell
our
shares to Fusion Capital in amounts between $60,000 and $1.0 million depending
on certain conditions. We have the right to control the timing and amount of
any
sales of our shares to Fusion Capital. The purchase price of the shares will
be
determined based upon the market price of our shares without any fixed discount
at the time of each sale. Fusion Capital shall not have the right nor the
obligation to purchase any shares of our common stock on any business day that
the price of our common stock is below $0.75. There are no negative covenants,
restrictions on future fundings, penalties or liquidated damages in the Purchase
Agreement or the Registration Rights Agreement. The Purchase Agreement may
be
terminated by us at any time at our discretion without any cost to
us.
You
should carefully consider the risks, uncertainties and other factors described
below before you decide whether to buy shares of our common stock. Any of the
factors could materially and adversely affect our business, financial condition,
operating results and prospects and could negatively impact the market price
of
our common stock. Also, you should be aware that the risks and uncertainties
described below are not the only ones we face. Additional risks and
uncertainties, of which we are not yet aware, or that we currently consider
to
be immaterial, may also impair our business operations. You should also refer
to
the other information contained in and incorporated by reference into this
prospectus, including our financial statements and the related
notes.
Risks
Related to Our Company
We
have a limited operating history with significant losses and expect losses
to
continue for the foreseeable future.
We
have
yet to establish any history of profitable operations. We have incurred annual
operating losses of $7,280,000, $7,822,000 and $6,511,000, respectively, during
the past three fiscal years of operation. As a result, at June 30, 2008, we
had
an accumulated deficit of $37,622,000. We have incurred net losses from
continuing operations of $7,555,000 and $7,041,000 for the fiscal years ending
December 31, 2006 and December 31, 2007. Our revenues have not been sufficient
to sustain our operations. We expect that our revenues will not be sufficient
to
sustain our operations for the foreseeable future. Our profitability will
require the successful commercialization of our products. No assurances can
be
given when this will occur or that we will ever be profitable.
Revenues
in prior periods may not be indicative of our future
growth.
Our
revenues have fluctuated significantly in the past as a result of varying
amounts of funds we have spent on advertising and inventory supply and may
fluctuate significantly in the future as a result of changes made in our
business over the past ten years. These changes in our business, including
changes in ownership, prevent the meaningful use of period-to-period comparisons
of financial results. Accordingly, investors should not rely on past revenue
as
a prediction of our future growth. For a discussion of the changes to our
business over the past eight years, see “Business,” beginning on page
15.
Our
financial results fluctuate and may be difficult to
forecast.
General
U. S. and worldwide economic conditions have recently experienced a downturn
due
to slower economic activity, concerns about inflation and deflation, increased
energy costs, decreased consumer confidence, reduced corporate profits and
capital spending, adverse business conditions and liquidity concerns, recent
international conflicts and terrorist and military activity, and the impact
of
natural disasters and public health emergencies. These conditions make it
extremely difficult for our customers, our vendors and us to accurately forecast
and plan future business activities, and they could cause vendors and consumers
to slow spending on our products and services. We cannot predict timing,
strength of duration of any economic slowdown or subsequent economic recovery
in
the U.S. or worldwide. If the economy or markets in which we operate do no
continue at their present levels, our business, financial conditions and results
of operations will likely be materially and adversely affected.
Losing
key personnel
could
affect our ability to successfully grow our business.
Our
future performance depends substantially on the continued service of our senior
management and other key personnel. In particular, our success depends upon
the
continued efforts of our management personnel, including our Chief Executive
Officer, Jeffrey D. Hoffman, our Executive Vice President, Timothy E. Takesue,
and other members of the senior management team. Messrs. Hoffman and Takesue
have executed employment agreements, but these agreements do not guarantee
continued employment. We do not currently maintain key person life insurance.
If
our senior management were to resign or no longer be able to serve as our
management team, it could impair our revenue growth, business and future
prospects.
We
are a holding company that depends on cash flow from uBid, Inc., Dibu Trading
Corp., RedTag, Inc., RedTag Live, Inc., Enable Payment Systems, Inc. and uSaas,
Inc., our wholly-owned subsidiaries, to meet our
obligations.
We
are a
holding company with no material assets other than the stock of our wholly-owned
subsidiaries. Accordingly, all our operations are conducted by uBid, Inc.,
Dibu
Trading Corp., RedTag, Inc., RedTag Live, Inc., Enable Payment Systems, Inc.
and
uSaas, Inc., our wholly-owned subsidiaries. We currently expect that the
earnings and cash flow of our subsidiaries will primarily be retained and used
by it in its operations, including servicing any debt obligations it may have
now or in the future. Accordingly, although we do not anticipate paying any
dividends in the foreseeable future, our subsidiary may not be able to generate
sufficient cash flow to distribute funds to us in order to allow us to pay
future dividends on, or make any distributions with respect to our common stock.
We
have been notified that we are not in compliance with the financial covenants
in
our Credit and Security Agreement with Wells Fargo.
On
May 9,
2006, we and our subsidiaries entered into a Credit and Security Agreement
with
Well Fargo Bank. On July 25, 2008, Wells Fargo Bank notified us of our failure
to meet the minimum excess availability requirement of $3.5 million. Since
we
did not meet the minimum excess availability requirement as stated in the
agreement, the financial covenants went into effect which required that we
demonstrate net earnings at the levels stated in the agreement. Due to the
recent restructuring, we were unable to meet the covenants. Wells Fargo Bank
has
not elected to accelerate or call the loan at this point, but has put into
effect the default interest rate of 11.25% on the outstanding balance of the
loan.
In
response to the notification of violation from Wells Fargo, we are currently
evaluating several options; including, but not limited to, the payment of a
waiver fee of $100,000 to Wells Fargo Bank along with resetting the covenants,
complete the sale of 2.1 million shares of common stock held in treasury in
a
private offering, draw upon the Fusion Capital Equity Line or refinance the
Wells Fargo credit facility with alternative lenders. If we are not able to
come
up with a solution to meet the covenants, our financial conditions and results
of operations could be materially and adversely affected.
Risks
Related to Our Business
We
may not be successful in developing brand awareness, and the failure to do
so
could significantly harm our business and financial
condition.
We
believe that the importance of brand recognition will increase as more companies
engage in commerce over the Internet. Development and awareness of our brand
will depend largely on our ability to increase our customer base. If suppliers
do not perceive us as an effective marketing and sales channel for their
merchandise, or if consumers do not perceive us as offering an entertaining
and
efficient way to purchase merchandise, we may be unsuccessful in promoting
and
maintaining our brand. To attract and retain customers and promote our brand,
we
expect to continue to increase our marketing and advertising budgets. Failure
to
successfully promote our brand in a cost effective manner or achieve a leading
position in Internet commerce could significantly reduce the revenues we are
able to generate from our operations.
Our
failure to remain competitive may significantly hinder our
growth.
The
electronic commerce marketplace is rapidly evolving and intensely competitive,
and we expect competition to intensify in the future. We compete with a variety
of other companies based on the type of merchandise and the sales format they
offer to customers. These competitors include, but are not limited
to:
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Various
online auction houses such as eBay.com, Amazon.com Auctions, and
Bidz.com.
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A
number of e-commerce companies focused primarily on excess and overstock
products with
fixed
price format, including Amazon.com, Overstock.com, Shopping.com,
eCost.com,
BlueFly.com
and SmartBargains.com.
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A
variety of offline auction companies that offer similar merchandise
to
that available in our
marketplace
supply.
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Merchants
that have their own direct distribution channels for excess inventory
or
refurbished products.
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Companies
with substantial customer bases in the computer and peripherals catalog
business, including
CDW
Computer Centers, PC Connection and PC Mall, some of which already
sell
online or may devote more resources to e-commerce in the
future.
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Some
of
our current and potential competitors have established or may establish
cooperative relationships among themselves or directly with suppliers to obtain
exclusive or semi-exclusive sources of merchandise. In addition, there has
been
consolidation in the industry, which may continue in the future. Accordingly,
new competitors or alliances among competitors and suppliers may emerge and
rapidly acquire market share. Further, manufacturers may elect to sell their
products directly. Increased competition is likely to reduce our operating
margins, cause us to lose market share and/or diminish the value of our brand.
The occurrence of any of these events could significantly harm our
business.
Many
of
our current and potential competitors have significantly greater financial,
marketing, customer support, technical and other resources than we have. As
a
result, these competitors may be able to secure merchandise from suppliers
on
more favorable terms than we do. They may also be able to respond more quickly
to changes in customer preferences or devote greater resources to developing
and
promoting their merchandise. We cannot ensure that we will be able to
successfully compete against current and future competitors. Our failure to
operate competitively in the marketplace could reduce the amount of revenue
we
are able to generate in the future.
We
may need to raise additional capital to meet our business requirements in the
future and such
capital
raising may be costly or difficult to obtain and could dilute current
stockholders’ ownership interests.
We
may
need additional capital in the future, which may not be available on reasonable
terms or at all. The raising of additional capital may dilute our current
stockholders’ ownership interests. We may need to raise additional funds through
public or private debt or equity financings to meet various objectives
including, but not limited to:
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pursuing
growth opportunities, including more rapid
expansion;
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acquiring
complementary businesses;
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making
capital improvements to improve our
infrastructure;
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hiring
qualified management and key
employees;
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developing
new services or products;
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responding
to competitive pressures;
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complying
with regulatory requirements such as licensing and registration;
and
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maintaining
compliance with applicable laws.
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Any
additional capital raised through the sale of equity or equity backed securities
may dilute current stockholders’ ownership percentages and could also result in
a decrease in the fair market value of our equity securities because our assets
would be owned by a larger pool of outstanding equity. The terms of those
securities issued by us in future capital transactions may be more favorable
to
new investors, and may include preferences, superior voting rights and the
issuance of warrants or other derivative securities, which may have a further
dilutive effect.
Furthermore,
any additional debt or equity financing that we may need may not be available
on
terms favorable to us, or at all. If we are unable to obtain required additional
capital, we may have to curtail our growth plans or cut back on existing
business and, further, we may not be able to continue operating if we do not
generate sufficient revenues from operations needed to stay in
business.
We
may
incur substantial costs in pursuing future capital financing, including
investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities
we
issue, such as convertible notes and warrants, which may adversely impact our
financial condition.
Our
growth and future success depends on our ability to generate traffic to our
website and we may not be able to effectively do so.
Our
ability to sell products on our online marketplace depends substantially on
our
ability to attract traffic to our website. We have traditionally spent
significant amounts of money for online advertising to attract such traffic.
We
expect that our sales and marketing expenses, including advertising
expenditures, will increase as we attempt to generate increased traffic to
our
website. If we are unable to generate traffic to our website cost effectively,
or if our efforts to promote our auctions using both online and offline media
are not successful, our growth and business prospects may be substantially
limited.
We
depend
to some extent on relationships with other online companies through which we
place our advertising and expect that our dependence on these relationships
will
increase in the future. These relationships include:
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portal
arrangements and agreements for anchor tenancy on other companies’
websites;
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promotional
placements;
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banner
advertisements; and
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other
online advertising including paid
searches.
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Generally,
these arrangements have terms for up to three years, are not exclusive, do
not
provide for guaranteed renewal, and may be terminated by us without cause.
The
risks created by our dependence on these relationships include the
following:
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competitors
may purchase exclusive rights to attractive space on one or more
key
websites;
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our
online partners might be unable to deliver a sufficient number of
customer
visits or impressions;
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significant
spending on these relationships may not increase our revenues in
the time
periods we expect or at all;
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our
online partners could compete with us for limited online auction
revenues;
and
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space
on websites may increase in price or cease to be available to us
on
reasonable terms or at all.
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If
other
online companies terminate any of our arrangements, or if we fail to continue
to
acquire similar arrangements in the future, this could materially reduce the
amount of revenue we are able to generate from our operations.
Our
business channel, uBid Direct, may subject us to risks of decreased or negative
gross margins.
We
currently purchase most of the merchandise to be sold on our marketplace, and
in
doing so assume the inventory and price risks of this merchandise. These risks
are especially significant because most of the merchandise we sell is subject
to
rapid technological change, obsolescence and price erosion. Because we rely
heavily on purchased inventory, our success will depend on our ability to sell
such inventory rapidly through our website. We also rely heavily on the ability
of our buying staff to purchase inventory at attractive prices relative to
resale value and our ability to manage customer returns and the shrinkage
resulting from theft, loss and misrecording of inventory.
Due
to
the inherently unpredictable nature of the auction style format, it is
impossible for us to determine with certainty whether any item will sell for
more than the price we pay for it. Further, because minimum opening bid prices
for the merchandise listed on our website generally are lower than the
acquisition costs for the merchandise, we cannot be certain that we will achieve
positive gross margins on any given sale. If we are unable to liquidate our
purchased inventory rapidly, if our buying staff fails to purchase inventory
at
attractive prices relative to resale value at auction, or if we fail to predict
with accuracy the resale prices for our purchased merchandise, we may have
to
sell our inventory at a discount or at a loss. This could negatively impact
our
revenues and profitability.
Our
business may suffer from capacity constraints or system
interruptions.
A
key
element of our strategy is to generate a high volume of traffic to our website.
Our revenues depend substantially on the number of customers who use our website
to purchase merchandise. Accordingly, the satisfactory performance, reliability
and availability of our website, transaction-processing systems, network
infrastructure and delivery and shipping systems are critical to our operating
results, as well as to our reputation and ability to attract and retain
customers and maintain adequate inventory and customer service
levels.
Periodically,
we have experienced minor systems interruptions, including Internet disruptions,
which we believe may continue to occur from time to time. Any systems
interruptions, including Internet disruptions that make our website inaccessible
or reduce our order fulfillment performance, would reduce the volume of goods
we
are able to sell, which could harm our business. We are continually enhancing
and expanding our transaction processing systems, network infrastructure,
delivery and shipping systems and other technologies to accommodate a
substantial increase in the volume of traffic on our website. We cannot assure
you that we will be successful in these efforts or that we will be able to
project accurately the rate or timing of increases, if any, in the use of our
website or timely expand and upgrade our systems and infrastructure to
accommodate these increases. We cannot assure you that our network or our
suppliers’ networks will be able to timely achieve or maintain a sufficiently
high capacity of data transmission, especially if our website traffic increases.
If we fail to achieve or maintain our capabilities for high capacity data
transmission, consumer demand for our services could decline, negatively
impacting our revenues from operations.
We
may not be able to sustain or grow our business unless we keep up with rapid
technology changes.
The
Internet and electronic commerce industries are characterized by:
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rapidly
changing technology;
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evolving
industry standards and practices that could render our website and
proprietary technology obsolete;
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changes
in consumer demands; and
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frequent
introductions of new services or products that embody new
technologies.
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Our
future performance will depend, in part, on our ability to develop, license
or
acquire leading technologies, enhance our existing services and respond to
technological advances and emerging industry standards and practices on a timely
and cost-effective basis. Developing website and other proprietary technology
involves significant technical and business risks. We also cannot assure you
that we will be able to successfully use new technologies or adapt our website
and proprietary technology to emerging industry standards. We may not be able
to
remain competitive or sustain growth if we do not adapt to changing market
conditions or customer requirements.
We
may suffer disruption in our business because of changes in our systems,
facilities and fulfillment activities.
We
believe that our success is dependent in large part upon our ability to provide
prompt and efficient service to our customers. Any failure of our information
management systems or distribution capabilities could impair our ability to
receive and process customer orders and ship products on a timely
basis.
We
expect
to upgrade our software and hardware systems on a continuing basis. The
transition to, or upgrading of, our hardware and software systems could result
in delays, failures or execution difficulties that could impair our ability
to
receive and process orders and ship products in a timely manner.
We
are
currently planning an upgrade to our enterprise resource planning applications
(“ERP”). These applications support our back office operations. Upgrades may be
required to the ERP applications to ensure that such applications stay current
on the latest applicable version. By design, these upgrades are time consuming,
expensive and intrusive to daily business operations. Conducting such upgrades
could result in a failure to our operating systems or may cause a delay in
fulfillment of orders received through our online auction platform. Undertaking
such an upgrade will require significant capital expenditures that may result
in
a diversion of funds required for general operating expenses, which may result
in an adverse effect to our ongoing business operations.
To
date,
we have had various interruptions to our service because of loss of power and
telecommunications connections. Our insurance coverage may not be adequate
to
compensate for all losses that may occur because of any future service
interruptions. Our servers are vulnerable to computer viruses, physical or
electronic break-ins, attempts by third parties to overload our systems and
similar disruptive problems. Any of these problems could cause interruptions,
delays, loss of data or cessation in service to our users.
Our
inability to adequately protect our proprietary technology could adversely
affect our business.
Our
proprietary technology is one of the keys to our performance and ability to
remain competitive. We rely on a combination of trademark, copyright and trade
secret laws to establish and protect our proprietary rights. We also use
technical measures, confidentiality agreements and non-compete agreements to
protect our proprietary rights. Our “uBid” service mark is registered in the
United States. However, we may not be able to secure significant protection
for
our service marks or trademarks. Our competitors or others could adopt product
or service names similar to “uBid” or our other service marks or trademarks. Any
of these actions by others might impede our ability to build brand identity
and
could lead to customer confusion. Our inability to protect our service mark
or
trademarks adequately could adversely affect our business and financial
condition, and the value of our brand name and other intangible
assets.
We
rely
on copyright laws to protect our proprietary software and trade secret laws
to
protect the source code for our proprietary software. We generally enter into
agreements with our employees and consultants and limit access to and
distribution of our software, documentation and other proprietary information.
The steps we take to protect our proprietary information may not prevent
misappropriation of our technology, and the agreements we enter into for that
purpose might not be enforceable. A third party might obtain and use our
software or other proprietary information without authorization or develop
similar software independently. It is difficult for us to police the
unauthorized use of our technology, particularly because the global nature
of
the Internet makes it difficult to control the ultimate destination or security
of software or other transmitted data. The laws of other countries may not
provide us with adequate or effective protection of our intellectual
property.
We
may experience unexpected expenses or delays in service enhancements if we
are
unable to license third party technology on commercially reasonable
terms.
We
rely
on a variety of technology that we license from third parties, such as Microsoft
and Oracle. These third party technology licenses might not continue to be
available to us on commercially reasonable terms or at all. If we are unable
to
obtain or maintain these licenses on favorable terms, or at all, we could
experience delays in completing and developing our proprietary
software.
The
listing or sale of pirated, counterfeit or illegal items by third parties may
harm our business and reputation.
We
may be
unable to prevent third parties from listing unlawful goods, and we may be
subject to allegations of civil or criminal liability for unlawful activities
carried out by third parties through our website. In the future, we may find
it
necessary to implement additional measures to protect further against the
potential liabilities that could require us to spend substantial resources
and/or to reduce revenues by discontinuing certain service offerings. Any costs
incurred because of liability or asserted liability relating to the sale of
unlawful goods or the unlawful sale of goods could harm our revenues, business,
prospects, financial condition and results of operations. Negative publicity
generated because of the foregoing could damage our reputation, harm our
business and diminish the value of the Enable and uBid brand names.
We
may be liable if third parties misappropriate our customers’ personal
information.
If
third
parties are able to penetrate our network security or otherwise misappropriate
our customers’ personal information or credit card information, or if we give
third parties improper access to our customers’ personal information or credit
card information, we could be subject to liability. This liability could include
claims for unauthorized purchases with credit card information, impersonation
or
other similar fraud claims. This liability could also include claims for other
misuse of personal information, including unauthorized marketing purposes.
These
claims could result in litigation. Liability for misappropriation of this
information could adversely affect our business. In addition, the Federal Trade
Commission and state agencies have been investigating various Internet companies
regarding their use of personal information. We could incur additional expenses
from the introduction of new regulations regarding the use of personal
information or from government agencies investigating our privacy
practices.
We
rely
on encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to effect secure transmission
of confidential information, such as customer credit card numbers. We cannot
assure you that advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments will not result in a compromise
or breach of the algorithms that we use to protect customer transaction data.
If
any such compromise of our security were to occur, it could harm our reputation,
business, prospects, financial condition and results of operations. A party
who
is able to circumvent our security measures could misappropriate proprietary
information or cause interruptions in our operations. We may be required to
expend significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches. We cannot assure
you
that our security measures will prevent security breaches or that failure to
prevent such security breaches will not harm our business, prospects, financial
condition and results of operations.
We
may be subject to product liability claims that could be costly and time
consuming.
We
sell
products manufactured by third parties, some of which may be defective. If
any
product that we sell were to cause physical injury or injury to property, the
injured party or parties could bring claims against us as the retailer of the
product. Our insurance coverage may not be adequate to cover every possible
claim asserted.
We
may encounter barriers to international expansion, which could limit our future
growth and adversely affect our business and financial
condition.
We
do not
currently have any website content localized for foreign markets, and may not
be
able to establish a global presence. Our expansion into international markets
will require significant management attention and financial
resources.
Engaging
in business on a global level carries inherent risks that could adversely affect
our profitability, such as:
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differing
regulatory requirements;
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problems
in collecting accounts receivable;
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difficulties
in staffing and managing foreign
operations;
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difficulties
in protecting our intellectual property
rights;
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fluctuations
in currency exchange rates; and
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potentially
adverse tax consequences.
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In
addition, export laws restrict some types of software that contain encryption
technology and we could become subject to liability for any violations of these
export restrictions. We may not be able to successfully market, sell and
distribute our products in foreign markets. The occurrence of one or more of
these events could have a material adverse effect on our future global
operations, and consequently, on our business and financial condition as a
whole.
Credit
card fraud could adversely affect our business.
We
do not
carry insurance against the risk of credit card fraud, so the failure to control
adequately fraudulent credit card transactions could reduce our net revenues
and
gross margin. We have implemented technology to help us detect the fraudulent
use of credit card information. However, we may in the future suffer losses
because of orders placed with fraudulent credit card data even though the
associated financial institution approved payment of the orders. Under current
credit card practices, we may be liable for fraudulent credit card transactions
because we do not obtain a cardholder’s signature. If we are unable to detect or
control credit card fraud, our liability for these transactions could increase
our cost of doing business and reduce our profitability.
If
one or more states successfully assert that we should collect sales or other
taxes on the sale of our merchandise or the merchandise of third parties that
we
offer for sale on our website, our business could be
harmed
.
We
have
not collected nor do we currently collect sales or other similar taxes for
physical shipments of goods into states other than Illinois. One or more local,
state or foreign jurisdictions may seek to impose sales tax collection
obligations on us and other out-of-state companies that engage in online
commerce. Our business could be harmed if one or more states or any foreign
country successfully asserts that it should collect sales or other taxes on
the
sale of our merchandise.
Failure
to maintain satisfactory relationships with our suppliers, or the inability
to
obtain sufficient quantities of merchandise, could
increase
merchandise costs and/or availability.
We
depend
upon our suppliers to provide merchandise for sale through our online
marketplace. The availability of merchandise can be unpredictable. Since our
inception, we have sourced merchandise from over 3,600 suppliers. Merchandise
acquired from Sony and Hewlett Packard accounted for 15.2% and 8.7% of net
revenues during the year ended December 31, 2007. We do not have long-term
supply contracts with any of our suppliers. We cannot be certain that our
current suppliers will continue to sell or otherwise provide merchandise for
sale in our auctions. We also cannot be certain that we will be able to
establish new supplier relationships that ensure merchandise will be available
for auction on our website.
A
limited
number of our suppliers process and ship merchandise directly to our customers.
We have limited control over their shipping procedures, and factors beyond
our
control could delay shipments by these suppliers. Most merchandise we sell
carries a warranty supplied either by the manufacturer or the supplier. We
could
be compelled to accept returns from customers without receiving reimbursements
from the suppliers or manufacturers if they do not honor their warranties.
If we
are unable to develop and maintain satisfactory relationships with suppliers
on
acceptable commercial terms, if we are unable to obtain sufficient quantities
of
merchandise, if the quality of service provided by these suppliers falls below
a
satisfactory standard or if our level of returns exceeds our expectations,
this
could significantly harm our business.
Risks
Related to our Industry
We
may not be able to attract traditional consumers of goods at reasonable
costs.
In
countries such as the U.S., where online commerce has generally been available
for some time, acquiring new users for our services may be more difficult and
costly than it has been in the past. To expand our user base, we must appeal
to
and acquire consumers who historically have used traditional means of commerce
to purchase goods. If these consumers prove to be less active than our earlier
users, and we are unable to gain efficiencies in our operating costs, including
the cost of acquiring new customers, this could impact our
profitability.
Increasing
governmental regulation of the Internet could
harm
our business.
We
are
subject to the same federal, state and local laws as other companies conducting
business on the Internet. Today there are relatively few laws specifically
directed towards conducting business on the Internet. However, due to the
increasing popularity and use of the Internet, many laws and regulations
relating to the Internet are being debated at the state and federal levels.
These laws and regulations could cover issues such as user privacy, freedom
of
expression, pricing, fraud, quality of products and services, taxation,
advertising, intellectual property rights and information security. Furthermore,
the growth and development of Internet commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on
companies conducting business over the Internet. New laws or regulations may
decrease the growth of the Internet, which, in turn, could decrease the demand
for our Internet auctions and increase our cost of doing business. The
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, auction regulation, sales tax,
libel and personal privacy is uncertain and may take years to
resolve.
Applicability
to the Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy could also harm our business. For example, United States
and foreign laws regulate our ability to use customer information and to
develop, buy and sell mailing lists. The vast majority of these laws were
adopted before the advent of the Internet, and do not contemplate or address
the
unique issues raised by the Internet. The courts are only beginning to interpret
those laws that do reference the Internet, such as the Digital Millennium
Copyright Act and the CAN-SPAM Act of 2003, and their applicability and reach
are therefore uncertain. These current and future laws and regulations could
harm our business, results of operation and financial condition.
Because
our service is available over the Internet in multiple states and because we
sell merchandise to consumers residing in multiple states, we could be required
to qualify to do business as a foreign corporation in each state in which our
services are available. We are qualified to do business in Illinois and our
failure to qualify as a foreign corporation in a jurisdiction where we are
required to do so could subject us to taxes and penalties for the failure to
qualify. Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to our
business, could increase our costs of doing business.
Current
and future laws could affect our auctions business.
Many
states and other jurisdictions have regulations governing the conduct of
traditional “auctions” and the liability of traditional “auctioneers” in
conducting auctions. These types of regulations may become applicable to online
auction sites. We are aware that several states and some foreign jurisdictions
have attempted to impose such regulations on other companies operating online
auction sites or on the users of those sites. In addition, some states have
laws
or regulations that do expressly apply to online auction site services. We
may
incur costs in complying with these laws. We may, from time to time, be required
to make changes in our business that may increase our costs, reduce our
revenues, and cause us to prohibit the listing of some items in certain
locations, or make other changes that may adversely affect our auctions
business.
The
security
risks
of
e-commerce may discourage customers from purchasing goods from
us.
In
order
for the e-commerce market to develop successfully, Enable and other market
participants must be able to transmit confidential information securely over
public networks. Third parties may have the technology or expertise to breach
the security of customer transaction data. Any breach could cause customers
to
lose confidence in the security of our website and choose not to purchase from
our website. If someone is able to circumvent our security measures, he or
she
could destroy or steal valuable information or disrupt our operations. Concerns
about the security and privacy of transactions over the Internet could inhibit
the growth of the Internet and e-commerce. Our security measures may not
effectively prohibit others from obtaining improper access to our information.
Third parties may target our customers directly with fraudulent identity theft
schemes designed to appear as legitimate communications from us. Any security
breach or fraud perpetrated on our customers could expose us to increased costs
and to risks of loss, litigation and liability and could seriously disrupt
our
operations.
Laws
or regulations relating to privacy and data protection may adversely affect
the
growth of our Internet business or marketing efforts.
We
are
subject to increasing regulation at the federal, state and international levels
relating to privacy and the use of personal user information. For example,
we
are subject to various telemarketing laws that regulate the manner in which
we
may solicit future suppliers and customers. Such regulations, along with
increased governmental or private enforcement, may increase the cost of growing
our business. In addition, several states have proposed legislation that would
limit the uses of personal user information gathered online or require online
services to establish privacy policies. The Federal Trade Commission has adopted
regulations regarding the collection and use of personal identifying information
obtained from children under 13. Bills proposed in Congress would extend online
privacy protections to adults. Moreover, proposed legislation in this country
and existing laws in foreign countries require companies to establish procedures
to notify users of privacy and security policies, obtain consent from users
for
collection and use of personal information, and/or provide users with the
ability to access, correct and delete personal information stored by the
company. We could become a party to a similar enforcement proceeding. These
data
protection regulations and enforcement efforts may restrict our ability to
collect demographic and personal information from users, which could be costly
or harm our marketing efforts.
More
individuals are using non-PC devices to access the Internet and versions of
our
service developed or optimized for these devices may not gain widespread
adoption by users of such devices.
The
number of individuals who access the Internet through devices other than a
personal computer, such as personal digital assistants, mobile telephones and
television set-top devices has increased dramatically. We originally designed
our services for rich, graphical environments such as those available on desktop
and laptop computers. The lower resolution, functionality and memory associated
with alternative devices may make the use of our services through such devices
difficult, and the versions of our service developed for these devices may
not
be compelling to users of alternative devices. As we have limited experience to
date in operating versions of our service developed or optimized for users
of
alternative devices, it is difficult to predict the problems we may encounter
in
doing so, and we may need to devote significant resources to the creation,
support and maintenance of such versions. If we are unable to attract and retain
a substantial number of alternative device users to our online services, we
may
fail to capture a sufficient share of an increasingly important portion of
the
market for online services.
Risks
Related to Our Common Stock
The
market price of our common stock is highly volatile.
The
market price of our common stock has been and is expected to continue to be
highly volatile. Factors, including announcements of technological innovations
by us or other companies, regulatory matters, new or existing products or
procedures, concerns about our financial position, operating results,
litigation, government regulation, developments or disputes relating to
agreements, patents or proprietary rights, may have a significant impact on
the
market price of our stock. In addition, potential dilutive effects of future
sales of shares of common stock by shareholders and by the Company, including
Fusion Capital pursuant to this prospectus, and subsequent sale of common stock
by the holders of warrants and options could have an adverse effect on the
market price of our shares.
We
do not anticipate dividends to be paid on our common stock and investors may
lose the entire amount of their investment.
A
dividend has never been declared or paid in cash on our common stock and we
do
not anticipate such a declaration or payment for the foreseeable future. We
expect to use future earnings, if any, to fund business growth. Therefore,
stockholders will not receive any funds absent a sale of their shares. We cannot
assure stockholders of a positive return on their investment when they sell
their shares nor can we assure that stockholders will not lose the entire amount
of their investment.
Investors
may have difficulty trading and obtaining quotations
for
our
common stock, which could impair their investments and our
business.
Our
common stock is currently quoted on the NASD’s OTC bulletin board and had its
first trade since it was approved for quotation on January 4, 2006. As a
result, an investor may find it difficult to dispose of, or to obtain accurate
quotations of the price of, shares of our common stock. The lack of an
established trading market severely limits the liquidity of our common stock,
and could depress the market price of our common stock and limit our ability
to
raise additional capital.
Securities
analysts may not initiate coverage or continue to cover
our
common
stock and this may have a negative impact on its market
price.
The
trading market for our common stock will depend on the research and reports
that
securities analysts publish about us and our business. We do not have any
control over these analysts. There is no guarantee that securities analysts
will
cover our common stock. If securities analysts do not cover our common stock,
the lack of research coverage may adversely affect its market price. If we
are
covered by securities analysts, and our stock is downgraded, our stock price
would likely decline. If one or more of these analysts ceases to cover us or
fails to publish regular reports on us, we could lose visibility in the
financial markets, which could cause our stock price or trading volume to
decline.
You
may experience dilution of your ownership interests because of the future
issuance of additional shares of our common and preferred
stock.
In
the
future, we may issue our authorized but previously unissued equity securities,
resulting in the dilution of the ownership interests of our present stockholders
and the purchasers of common stock offered hereby. We are currently authorized
to issue an aggregate of 225,000,000 shares of capital stock consisting of
200,000,000 shares of common stock and 25,000,000 shares of preferred stock
with
preferences and rights to be determined by our board of directors. As of
September 5, 2008, there were 18,676,190 shares of common stock outstanding,
3,412,398 shares of common stock underlying warrants that have been issued
by
us, 1,984,100 shares of common stock underlying options or other rights that
have been granted under our 2005 Equity Incentive Plan and 515,900 shares of
common stock reserved for issuance under our 2005 Equity Incentive Plan. We
may
also issue additional shares of our common stock or other securities that are
convertible into or exercisable for common stock in connection with hiring
or
retaining employees, future acquisitions, future sales of our securities for
capital raising purposes, or for other business purposes. The future issuance
of
any such additional shares of our common stock may create downward pressure
on
the trading price of our common stock. There can be no assurance that we will
not be required to issue additional shares, warrants or other convertible
securities in the future in conjunction with any capital raising efforts,
including at a price (or exercise prices) below the price at which shares of
our
common stock are currently traded on the OTC bulletin board.
Our
Certificate of Incorporation, Bylaws and the Delaware General Corporation Law
contain anti-takeover provisions, which could discourage or prevent a takeover
even if an acquisition would be beneficial to our
stockholders.
Several
provisions of our Certificate of Incorporation and Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of Enable even if that change in control would be beneficial to our
stockholders. For example, only one-third of the members of the board of
directors will be elected at each annual meeting of stockholders, which will
make it more difficult for a potential acquirer to change our management, even
after acquiring a majority of our common stock. These provisions, which cannot
be amended without the approval of two-thirds of the holders of shares of common
stock, could diminish the opportunities for a holder of common stock to
participate in tender offers, including tender offers at a price above the
then-current market value of our common stock. In addition, the board of
directors, without further stockholder approval, may issue preferred stock,
with
such terms as the board of directors may determine, which could have the effect
of delaying or preventing a change in control of Enable. The issuance of
preferred stock could also adversely affect the voting powers of our common
stockholders, including the loss of voting control to others. We are also
afforded the protections of Section 203 of the Delaware General Corporation
Law.
Section 203 could delay or prevent a change in control of Enable or could
impede a merger, consolidation, takeover or other business combination involving
uBid or discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of Enable.
We
will require additional financing to sustain our operations and without it
we
will not be able to continue operations.
At
June
30, 2008 we had working capital of $4,748,000. We had an operating cash flow
deficit of $6,164,000 and $4,801,000 as of June 30, 2008 and December 31, 2007,
respectively. We do not currently have sufficient financial resources to fund
our operations or those of our subsidiaries. Therefore, we need additional
funds
to continue these operations.
We
only
have the right to receive $60,000 every three business days under the agreement
with Fusion Capital unless our stock price equals or exceeds $1.25, in which
case we can sell greater amounts to Fusion Capital as the price of our common
stock increases. Fusion Capital shall not have the right nor the obligation
to
purchase any shares of our common stock on any business day that the market
price of our common stock is less than $0.75. Since we registered 2,000,000
shares for sale by Fusion Capital pursuant to this prospectus, the selling
price
of our common stock to Fusion Capital will have to average at least $5.00 per
share for us to receive the maximum proceeds of $10 million. Assuming a purchase
price of $2.22 per share (the closing sale price of the common stock on
September 2, 2008) and the purchase by Fusion Capital of the full 2,000,000
shares under the common stock purchase agreement, proceeds to us would only
be
$4,440,000 unless we choose to register and sell more than 2,000,000 shares,
which we have the right, but not the obligation, to do. Subject to approval
by
our board of directors, we have the right but not the obligation to sell more
than 2,000,000 shares to Fusion Capital. In the event we elect to sell more
than
2,000,000 shares offered hereby, we will be required to file a new registration
statement and have it declared effective by the U.S. Securities & Exchange
Commission.
The
extent we rely on Fusion Capital as a source of funding will depend on a number
of factors including the prevailing market price of our common stock and the
extent to which we are able to secure working capital from other sources, such
as through the sale of our products. Specifically, Fusion Capital shall not
have
the right nor the obligation to purchase any shares of our common stock on
any
business days that the market price of our common stock is less than $0.75.
If
obtaining sufficient financing from Fusion Capital were to prove unavailable
or
prohibitively dilutive and if we are unable to commercialize and sell enough
of
our products, we will need to secure another source of funding in order to
satisfy our working capital needs. Even if we are able to access the full $10
million under the common stock purchase agreement with Fusion Capital, we may
still need additional capital to fully implement our business, operating and
development plans. Should the financing we require to sustain our working
capital needs be unavailable or prohibitively expensive when we require it,
the
consequences could be a material adverse effect on our business, operating
results, financial condition and prospects.
The
sale of our common stock to Fusion Capital may cause dilution and the sale
of
the shares of common stock acquired by Fusion Capital could cause the price
of
our common stock to decline.
In
connection with entering into the agreement, we authorized the sale to Fusion
Capital of up to 2,460,148 shares of our common stock. The number of shares
ultimately offered for sale by Fusion Capital under this prospectus is dependent
upon the number of shares purchased by Fusion Capital under the agreement.
The
purchase price for the common stock to be sold to Fusion Capital pursuant to
the
common stock purchase agreement will fluctuate based on the price of our common
stock. All 2,460,148 shares registered in this offering are expected to be
freely tradable. It is anticipated that shares registered in this offering
will
be sold over a period of up to 24 months from the date of this prospectus.
Depending upon market liquidity at the time, a sale of shares under this
offering at any given time could cause the trading price of our common stock
to
decline. Fusion Capital may ultimately purchase all, some or none of the
2,000,000 shares of common stock not yet issued but registered in this offering.
After it has acquired such shares, it may sell all, some or none of such shares.
Therefore, sales to Fusion Capital by us under the agreement may result in
substantial dilution to the interests of other holders of our common stock.
The
sale of a substantial number of shares of our common stock under this offering,
or anticipation of such sales, could make it more difficult for us to sell
equity or equity-related securities in the future at a time and at a price
that
we might otherwise wish to effect sales. However, we have the right to control
the timing and amount of any sales of our shares to Fusion Capital and the
agreement may be terminated by us at any time at our discretion without any
cost
to us.
FORWARD-LOOKING
STATEMENTS
This
prospectus contains forward-looking statements within the meaning of Section
27A
of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements include
statements regarding, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans, and (e) our anticipated needs for
working capital. Forward-looking statements, which involve assumptions and
describe our future plans, strategies, and expectations, are generally
identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of
these words or other variations on these words or comparable terminology. This
information may involve known and unknown risks, uncertainties, and other
factors that may cause our actual results, performance, or achievements to
be
materially different from the future results, performance, or achievements
expressed or implied by any forward-looking statements. These statements may
be
found under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Business,” as well as in this prospectus generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under “Risk Factors” and matters described in
this prospectus generally. In light of these risks and uncertainties, there
can
be no assurance that the forward-looking statements contained in this filing
will in fact occur. In addition to the information expressly required to be
included in this filing, we will provide such further material information,
if
any, as may be necessary to make the required statements, in light of the
circumstances under which they are made, not misleading.
Enable
Holdings, Inc. is a holding company for uBid, Inc., Dibu Trading Corp., RedTag,
Inc., RedTag Live, Inc., Enable Payment Systems, Inc. and uSaas, Inc., our
operating businesses. For purposes of this prospectus, unless otherwise
indicated or the context otherwise requires, all references herein to “Enable,”
“we,” “us,” and “our” refer to Enable Holdings, Inc. and our
subsidiaries.
uBid,
Inc. commenced operations in 1997 primarily selling computer and consumer
electronics on our online auction style marketplace as a wholly-owned subsidiary
of PC Mall. In December 1998, uBid completed an initial public offering. In
April 2000, CMGI, Inc. acquired ownership of uBid in a stock-for-stock merger
transaction valued at approximately $407 million. Upon closing, uBid became
a
wholly-owned subsidiary of CMGI.
On
April
2, 2003, CMGI sold substantially all of the assets and non-related party
liabilities of uBid to Takumi Interactive, Inc., an investment vehicle of
Petters Group Worldwide, LLC (“Petters Group”) formed on March 7, 2003, which
changed its name to uBid, Inc. immediately after the acquisition. As a result
of
the transaction, uBid became a separate stand-alone business owned substantially
by the Petters Group.
On
December 29, 2005, uBid entered into a Merger Agreement and Plan of
Reorganization with Cape Coastal Trading Corporation (the previous public
reporting entity) (“Cape Coastal”), and uBid Acquisition Co., Inc., a
wholly-owned subsidiary of Cape Coastal. Under the Merger Agreement, uBid
Acquisition Co. merged with and into uBid, with uBid remaining as the surviving
corporation and our wholly-owned subsidiary. On the Closing Date, the holders
of
uBid’s issued and outstanding capital stock before the merger surrendered their
shares of uBid’s capital stock and received 8,800,000 shares of our common
stock, with up to 444,444 of such shares of common stock subject to redemption
at a redemption price of $4.50. The holders of Cape Coastal’s issued and
outstanding common stock before the merger retained 599,331 shares of common
stock. Before the merger, Cape Coastal Trading Corporation was a shell
company.
Also
on
December 29, 2005, we completed the first part of a private offering to
accredited investors. We sold 10,000,003 shares of our common stock and warrants
to purchase 2,500,003 shares of our common stock (the “Units”), for aggregate
consideration of $45 million. The warrants issued to the investors are
exercisable for five years at an exercise price of $5.85. Some of the investors
participating in the first part of the private offering held notes that were
issued by uBid before the merger, including $10.5 million of debt held by the
Petters Group and $5.0 million of debt held by certain other lenders. Rather
than accepting cash consideration for the common stock and warrants acquired
by
these investors, we agreed to issue common stock and warrants for consideration
of the note holders’ cancellation of the existing notes. Of the 3,444,444 Units
issued in exchange for debt, 2,222,224 Units were issued to Petters Group with
such common shares that were subject to redemption at a redemption price of
$4.50. For debt exchanged with Units that did not have redeemable common shares,
the value of the securities issued in exchange for the debt equaled the face
value of the debt exchanged, and accordingly, we did not recognize or record
a
gain or loss. Due to the higher value of the redeemable common shares issued
to
Petters Group, we realized a loss of approximately $1.2 million upon the
exchange of such debt. However, as the Petters Group is considered a significant
related party to us, the exchange was treated for accounting purposes as a
capital transaction and the resulting loss was reflected as a dividend to
stockholders rather than as a direct reduction of net earnings. Therefore,
the
consideration we received on December 29, 2005 consisted of approximately $29.5
million in cash and $15.5 million in cancelled debt. In addition, on the Closing
Date, we issued warrants to purchase 333,333 shares of our common stock to
the
bridge note holders as a financing fee, which warrants are exercisable for
three
years at an exercise price of $4.50 and the value of which, $600,000, was
recorded as interest expense. We also issued warrants to purchase 230,000 shares
of our common stock to our placement agents in the offering, which warrants
are
exercisable for five years at an exercise price of $4.50 and the value of which,
$522,000, was recorded as a cost of the equity issuance.
On
February 3, 2006, we completed the second part of a private offering to
accredited investors. In this offering, we sold 3,000,000 shares of our common
stock and warrants to purchase 750,002 shares of our common stock. On
February 6, 2006, we redeemed a total of 2,666,668 shares of common stock
issued earlier subject to redemption to former uBid stockholders and certain
participants in the first part of the offering, at a redemption price of $4.50
per share. We also issued 600,667 shares of common stock to our
financial advisor, Calico Capital Group. Finally, we issued additional
warrants to purchase 90,000 shares of our common stock to our placement agents,
which warrants are exercisable for five years at an exercise price of $4.50
and
the value of which, $162,000, was recorded as additional costs of the equity
issuance.
On
July
26, 2006, Dibu Trading Corp. (“Dibu”) was formed. Dibu is our business to
business trading arm which deals primarily with retailers and other
distributors.
On
April
25, 2007, the Company entered into a stock repurchase agreement with a group
of
private investors under common management to repurchase 2,135,550 shares of
the
Company’s common stock and warrants to purchase 580,937 shares of the Company’s
common stock held by such private investors at a combined price of $1.05 for
the
company’s stock and for the warrants for an aggregate purchase price of $2,242.
These shares and warrants repurchased in this privately negotiated transaction
were originally acquired by the private investors in the Company’s private
placement that initially closed on December 29, 2005. The repurchase represented
11% of the common stock and warrants outstanding.
On
July
3, 2008, RedTag Live, Inc. was formed. RedTag Live, Inc. is a retailer that
runs
close out or going out of business sales.
On
July
3, 2008, Enable Payment Systems, Inc. was formed. Enable Payment has the
responsibility of processing all payments from credit cards, PayPal, ACH and
other such payments.
On
July
3, 2008, uSaas, Inc. was formed. uSaas licenses auction software to companies
and organizations for private auctions.
On
July
8, 2008, RedTag, Inc. was formed. RedTag.com is our fixed price internet site
that is currently under development with an expected launch date in the third
quarter of 2008.
Effective
August 8, 2008, we changed our name to Enable Holdings, Inc. from uBid.com
Holdings, Inc. The amendment to our Certificate of Incorporation was filed
with
the Secretary of State of the State of Delaware on August 4, 2008.
The
name
change was recommended by unanimous consent of our Board of Directors on July
14, 2008, and was approved by the written action of our stockholders owning
more
than a majority of the outstanding shares of our common stock. In connection
with such name change our ticker symbol on the NASDAQ OTC bulletin board has
been changed to ENAB.OB, effective August 12, 2008.
Corporate
Information
Cape
Coastal Trading Corporation (now known as Enable Holdings, Inc.) was
incorporated under the laws of the State of New York in 2002 and reincorporated
under the laws of the State of Delaware in December, 2005. On February 10,
2006,
we amended our Certificate of Incorporation to change our name from Cape Coastal
Trading Corporation to “uBid.com Holdings, Inc.” to reflect that since the
merger with uBid, Inc., our business operations are those of uBid. On August
4,
2008, we amended our Certificate of Incorporation to change our name from
uBid.com Holdings to “Enable Holdings, Inc.” to coincide with the restructuring
project as part of our new business model of being a comprehensive excess
inventory solutions provider, consisting of multiple asset recovery channels.
Our principal executive offices are located at 8725 W Higgins, Suite 900,
Chicago, Illinois 60631. The telephone number at our principal executive offices
is (773) 272-5000. Our website address is www.enableholdings.com.
Our
History
Over
the
past ten years, our business strategy has evolved significantly. We began
operations as an e-tailer directly procuring merchandise consisting primarily
of
refurbished and overstock computer and consumer electronics inventory for sale
in our auction style format online marketplace. Initially, we operated as the
sole seller in the marketplace and were solely responsible for all warehousing
and order processing and, therefore, incurred all costs and risks associated
with product procurement.
Today,
our business model includes our direct product procurement business channel,
uBid Direct, the uBid Certified Merchant, which provides merchants the ability
to sell merchandise in the uBid online marketplace and our B2B Wholesale
Channel.
The
Enable Solution
Our
online marketplace provides merchants with an efficient and economical sales
channel for maximizing revenue on their excess merchandise, while providing
consumers with a convenient method for obtaining these products at substantial
savings. Our online marketplace offers:
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Extensive
Security and Fraud Protection
.
Enable’s online marketplace provides a trustworthy and secure buying
environment in which we minimize fraudulent activity and questionable
product quality frequently associated with purchase transactions
from
unestablished businesses, individual consumers and other non-commercial
parties. All merchants offering goods in our online marketplace are
required to successfully complete our merchant certification process,
which includes verification of the merchant’s trade and bank references
and other information which establishes that the merchant is in good
business standing. As a result of this certification, fraudulent
transactions in our marketplace are minimized. In addition, we require
all
buyers to provide a valid credit card before placing their initial
bid,
resulting in reductions to the occurrence of fraudulent
bidding.
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Strong
Brand and Loyal Customer Base
.
We have strengthened our “trust” positioning over the past year through
advertising, marketing and promotional campaigns and consistent delivery
of quality products at low prices. We have amassed over five million
member registrations since our inception in
1997.
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Broad
and Deep Product Selection
.
We offer over 200,000 high quality, brand-name new, close-out, overstock
and refurbished merchandise in over 200 categories including computer
products, consumer electronics, apparel, housewares, watches, jewelry,
travel, sporting goods, home improvement products and collectible
products
each day.
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Compelling
Value to Consumers and Merchants
.
We attract new consumers and retain existing consumers by offering
low
prices on high quality, brand-name products in a marketplace supported
by
both auction style and fixed price formats. We provide additional
value to
our consumers by providing timely and accurate order processing,
direct
fulfillment where applicable and in-house customer support. Sellers
are
attracted to uBid because of the large and growing number of potential
buyers. The frequency of product offerings and the ability to continuously
add new items allow merchants to liquidate inventory quickly to minimize
the risk of price erosion. In addition, our auction style and fixed
price
formats allow suppliers and sellers the opportunity to optimize sales
value while simultaneously liquidating excess merchandise directly
to a
nationwide audience, without conflicting with their primary distribution
channels.
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Business
Channels
We
currently provide suppliers and merchants the opportunity to offer and sell
their products in the marketplace through two distinct business
channels:
uBid
Direct:
The
uBid
Direct business channel provides us with management control over all aspects
of
product acquisition, sale and distribution process. Through uBid Direct, we
directly source, purchase, warehouse and market surplus inventory from suppliers
and merchants in our established network of approximately 3,600 companies.
uBid
Direct allows suppliers and merchants to achieve immediate cost recovery on
their excess, overstock and close-out merchandise. We direct the offer and
sale
of uBid Direct inventory on our online marketplace through our auction style
or
fixed price formats. Finally, we manage all order processing, order fulfillment
and customer support needs related to uBid Direct inventory. Enable typically
earns the margin difference between our purchase and selling price on the
auction style and fixed price completed transactions. uBid Direct net sales
for
the years ended December 31, 2007 , 2006 and 2005 were $31,135, $50,382
and $72,717 respectively. uBid Direct represented 72.3%, 75.7% and 86.0% of
net
sales for the years ended December 31, 2007, 2006 and 2005,
respectively.
uBid
Certified Merchant Program:
The
uBid
Certified Merchant Program (“UCM Program”) provides merchants with greater
management control over certain aspects of the sale process related to their
products, while maintaining the opportunity to sell their products to our
consumers on our online marketplace through our auction style or fixed price
formats. Merchants participating in the UCM Program manage all warehousing
of
and order fulfillment for their UCM Program inventory. However, Enable manages
all order processing and first response customer service needs related to UCM
Program transactions. In furtherance of our commitment to minimize fraudulent
activity and to provide a trustworthy and credible online marketplace, we
require all merchants, before participating in the UCM Program, to
satisfactorily complete our merchant certification process which verifies each
participating merchant’s business status and trade references. Enable charges
the merchants a commission fee for all completed auction style and fixed price
format transactions.
This
business channel, launched in July 2003, enables certified merchants to sell
their products, while maintaining control over warehousing and fulfillment.
It
also provides Enable with the ability to reduce costs and risk associated with
product procurement while increasing supply and maintaining our trust
positioning. UCM net sales for the years ended December 31, 2007, 2006 and
2005
were $5,533, $4,686 and $3,384 respectively. We earn a commission on all items
sold and this channel generated approximately 12.8%, 7.0% and 4.0% of net
revenue (representing only our earned commissions) in 2007, 2006 and
2005.
Wholesale
Business:
The
Wholesale business to business channel (“B2B”) provides manufacturers and
distributors the ability to sell large quantities of excess inventory. Enable
typically earns the margin difference between our purchases and selling price
on
completed transactions. Wholesale B2B net sales for the years ended December
31,
2007, 2006 and 2005 were $5,258, $10,790 and $8,204, respectively. The Wholesale
B2B channel generated approximately 12.2%, 16.2% and 9.7% of net revenue in
2007, 2006 and 2005, respectively.
The
uBid Online Marketplace
We
have
designed an easy-to-use online marketplace (www.ubid.com) to provide a friendly
and positive shopping experience through interactive auction style and fixed
price formats. Consumers may enter the marketplace directly by typing
“www.ubid.com” or through a link from various online marketing promotions to the
uBid home page, a product category page, sub-category page or individual product
listing. From the home page, an individual may choose a specific item from
one
showcased that day, proceed to a specific category (such as computers or
electronics) or respond to a specific promotion.
Each
item
offered in the marketplace has a unique product page that includes a concise
product description, full-color image and detailed technical specifications.
In
addition, each product page provides a table indicating the quantity available,
bid range, minimum incremental bid, current winning bidders, winning bid amounts
and the remaining time left to bid.
Before
bidding on any product offered in the marketplace, each consumer is required
to
register by completing a simple online registration form and providing a valid
credit card number. Enable verifies all information included on the registration
form and verifies the consumer’s credit card. Pre-registration of all consumers
reduces the number of “non-payment” bidders and contributes to our ability to
minimize fraud in the marketplace. After the consumer successfully completes
pre-screening, the consumer creates a unique login name and password after
which
the pre-screened consumer is allowed to bid on products in the
marketplace.
Pre-screened
consumers participate in the marketplace by reviewing products and setting
bid
prices. After setting a bid price on an item, the consumer’s login name and bid
price are placed on the bidder list provided on that item’s product page.
Bidding continues until expiration of the pre-established open bid time for
that
item. During the open bidding period, consumers may elect to be notified by
e-mail when they are outbid or may use the “Bid Butler” to automatically
increase their bid up to a predetermined maximum dollar amount.
On
the
day that the open bidding period ends, winning bidders are determined and
notified by e-mail. The highest bidders of an item become the “winners.”
Winning bidders may pay different prices, however, in the event of equal winning
bid prices, bids on larger quantities and earlier bid times prevail. The winning
customer’s credit card is then screened for fraud and credit availability, the
purchase is processed, shipped and the customer’s credit card is
charged.
Products
and Merchandising
For
the
year ended December 31, 2007, our product mix based on units sold consisted
of approximately 40% new merchandise and 60% refurbished products. This mix
fluctuates from quarter to quarter depending on the type of products posted
in
our marketplace.
Most
merchandise sold is covered by manufacturer, distributor or refurbisher
warranties. Additionally, in most cases, in those states where third party
warranties are permitted by law, extended warranties on merchandise are
available for purchase. Merchandise from the following categories is offered
in
our marketplace:
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Computer
Products
:
Including items such as desktops, portable computers, computer
accessories, disk drives, modems, monitors/video equipment, components,
printers, scanners, digital cameras, software and home office
products.
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Consumer
Electronics
:
Including items such as home theater equipment, home audio equipment,
speakers, televisions, camcorders, VCRs, DVD players, portable audio
players and automobile audio
equipment.
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Apparel
and Accessories
:
Including items such as men’s, women’s and children’s casual, fitness, and
dress clothing, shoes and
accessories.
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Jewelry
and Gifts
:
Including items such as rings, earrings, watches, bracelets and loose
stones.
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Home
:
Including items such as appliances, vacuum cleaners, furniture, tools,
luggage, furnishings, art and lawn and
garden.
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Sporting
Goods and Memorabilia
:
Including items such as sports memorabilia and equipment for golf,
tennis,
health and fitness, outdoor sports, bicycles, water sports and team
sports.
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Books,
Music and Videos
:
Including items such as books, movies, video games, DVDs and
CDs.
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Collectibles
:
Including items such as dolls, stamps, coins, pottery, glass and
figurines.
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Fulfillment
and Logistics
We
use a
third party logistics warehouse and distribution system. This flexible system
enables us to control warehouse costs and more closely manage the distribution
of our directly procured merchandise because we only pay for the warehousing
used on a per transaction basis. Direct product fulfillment and its related
costs shrink or expand to fit the needs of the business. As a result, we do
not
incur significant overhead costs of owning and operating a
warehouse.
Sales
and Marketing
Our
marketing strategy is aligned with our overall business goals to drive revenue
and margin growth by increasing our consumer and merchant bases.
Our
marketing strategy is focused primarily on four areas: (1) increasing consumer
awareness of uBid as
The
marketplace you can trust™;
(2)
expanding and optimizing customer acquisition efforts; (3) implementing a
scalable, cost-effective customer retention program; and (4) increasing the
availability of qualified merchant leads for the UCM Program.
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Increasing
consumer awareness of uBid’s “trust” position
.
uBid has created a unique position in the marketplace focused on
earning
consumer trust. This position of “trust” is supported by our focus on
business-to-consumer selling (versus consumer-to-consumer selling),
our
efforts to minimize fraudulent sellers by requiring all merchants
participating in the UCM Program to complete a merchant certification
process, significant investments in our customer support services,
internal product warehousing and payment transaction processing and
endorsements from various recognized third party security and privacy
programs. We believe this “trust” positioning will continue to set us
apart from our competitors and provide a meaningful difference in
attracting and maintaining
customers.
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Expanding
and optimizing customer acquisition efforts
.
Our marketing expenditures are primarily spent on attracting traffic
to
our website. Potential new customers are sourced through a range
of online
efforts including affiliate programs, paid search listings, shopping
comparison programs, online partnerships and e-mail marketing. In
addition, we are also evaluating new marketing channels such as offline
direct response television and radio, in-store media, event marketing
and
single partnerships with key online media companies to broaden our
customer demographics and drive larger incremental gains in customer
acquisition.
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Implementing
a scalable, cost-effective customer retention program
.
It is critical to have a program that effectively manages new customer
relationships from acquisition to activation (one time bidding/buying)
to
repeat purchase. We have recently begun investing in the implementation
of
our customer retention management. Our efforts to date have been
focused
on developing programs aimed at improving bidding/buying behavior
among
key customer segments: 1) recent bidders, 2) lapsed and long lapsed
bidders, 3) inactive members (i.e., never bid), 4) registered members
without a credit card on file, and 5) members without an opt-in e-mail
address. In addition, we are working on a long term customer retention
management strategy, which is expected to include development of
a
marketing data warehouse.
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Increasing
the availability of qualified merchants for the UCM
Program
.
The recruiting of merchants to the UCM Program has become a primary
growth
focus. We are marketing to prospective merchants principally through
online media, including e-mail marketing and online trade media (e.g.,
auction industry newsletters), as well as offline through public
relations
and trade show events. We are also building our own merchant prospect
list
from several sources for use in direct solicitations via e-mail and
direct
mail. These efforts have resulted in a significant increase in the
volume
of qualified prospect applications for
processing.
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Customer
Support and Service
Our
ability to establish and maintain long term relationships with our customers
and
encourage repeat visits and purchases is dependent, in part, on the strength
of
our customer support and service operations. We have established multiple
channels for communicating with our customers before and after the sale,
including phone, e-mail and online support.
Customer
Care Center
We
currently employ a staff of in-house customer support personnel responsible
for
handling customer inquiries, tracking shipments, investigating and resolving
problems with merchandise. Our Customer Care Center has a 32 seat capacity
and
is located in Tilton, Illinois. Currently, we utilize less than 78% of the
center’s capacity. Customer Care representatives are available for support from
8 a.m. - 6 p.m. CST Monday through Friday. In addition, our customer
service representatives are trained to cross-sell complementary and ancillary
products and services including extended product warranties and
accessories.
Most
products are covered by manufacturers’ warranties or third party warranties
which customers can purchase through uBid. We will, in specific instances,
accept merchandise returns if a product is defective or does not conform to
the
specifications of the item sold at auction, and we work with our customers
to
resolve complaints about merchandise.
In
addition, we have automated some of our customer service functions including
providing online access to product shipping status.
Certified
Central
Certified
Central is our secure web-based platform that allows our certified merchants
to
build a database of products, create auctions, download orders, and communicate
with our Customer Care Team and Merchandising Department quickly and
easily. We provide many different services through Certified Central at no
additional charge to our merchants. These services, which include the ability
to
upload multiple images and view top selling product reports, are designed to
enhance the merchant’s selling experience and satisfaction with
uBid.
Whether
a
merchant is expanding its marketplace options or entering the online auction
channel for the first time, Certified Central is designed around a simple and
easy-to-use interface. Certified Central is also backed by a live account
management team to assist with planning, problems or inquiries.
uBid
Technology
Our
technology is based on a highly scalable, resilient architecture designed to
maintain increased website availability and improved network
performance.
Our
technology strategy focuses on: scalability to grow the business, increased
availability, flexibility and security.
Scalability
Enable’s
growth strategy focuses on building our buyer and seller bases which will
require our technology to fundamentally support large capacity levels and
provide scalability. Our technology is built on a “distributed architecture
model” which enables our software applications to run parallel on multiple
servers. This technique allows our system to load balance the increased traffic
and workload among a group of servers.
The
website supports several activities such as browsing/searching for items,
registration of customers, auction management tasks (e.g., opening and closing
of auctions or bidding for items in a variety of formats), order processing,
credit card and fraud management.
At
our
peak volume levels, the platform was able to process over $430 million net
revenues per year and 192,000 auctions a day.
Availability
Our
business model dictates that our online marketplace be available 24 hours a
day,
7 days a week. Our data center has a robust, responsive, resilient platform
to
support our growing customer base. Our technology platform is able to achieve
high availability by maintaining redundant components critical to the effective
functioning of the platform. We have built a redundant and cost-efficient
network that is resilient even if a few elements in the network fail. This
has
been achieved by designing a fully meshed network with dual network interfaces,
switches, routers and load balancers. Every key data circuit that is critical
to
the availability of the platform has an alternate path to ensure that the
website is reachable. Our website is connected to the Internet through redundant
DS-3 circuits using AT&T as the back bone.
Flexibility
The
underlying framework that is the core of the website can be reused to build
out
new software applications that are needed to support the new functionality
of
the website. This feature allows us to be flexible in creating new applications
in direct response to the changing needs of merchandising and marketing. Our
UCM
Program merchants rely heavily on Certified Central, a web based system that
enables them to manage their business on our website. This system has a powerful
dashboard that gives visibility into critical data including auctions success,
hot auctions, questions from prospective buyers, etc. We periodically upgrade
this system to offer enhanced real time services which includes an Application
Programming Interface feature using XML (Extensible Markup Language) that is
used by merchants to bulk upload data into our platform. For our UCM Program
merchants, this Application Programming Interface will significantly reduce
the
time to market their inventory.
Security
uBid
operates a “trusted” online marketplace in which we have implemented measures to
minimize buyer and seller fraud including pre-screening of all new bidders
using
anti-fraud detection tools. Our anti-fraud programs are continually updated
to
stay current with the latest evolution of online fraud tools. Additionally,
all
consumer sensitive data such as credit card numbers and passwords are encrypted
and stored behind our secure network. We use Secure Sockets Layer and enhanced
encryption algorithms to protect consumer sensitive data. The network is also
protected with Intrusion Detection Systems and firewalls that allow restricted
ports from the outside network.
Seasonality
Our
results of operations historically have been seasonal because the majority
of
our suppliers build their inventories for the holiday season leading to
post-holiday overstock, which provides us with purchasing opportunities in
the
first quarter. In addition, many of our customers reduce their Internet usage
with the onset of good weather during the summer months, and on and around
national holidays. We have historically experienced our strongest quarter of
online sequential growth in our first and fourth fiscal quarters due to the
holiday season.
Competition
The
online auction services market is relatively new, rapidly evolving, intensely
competitive and has relatively low barriers to entry, as new competitors can
launch new Websites at a relatively low cost. We believe that competition in
the
online auction market is based predominantly on:
|
§
|
price;
|
|
§
|
product
quality and selection;
|
|
§
|
shopping
convenience;
|
|
§
|
order
processing and fulfillment;
|
|
§
|
customer
service; and
|
|
§
|
brand
recognition.
|
Our
auction services compete with other online retailers and traditional liquidation
“brokers,” some of whom may specifically adopt our methods and target our
customers. We currently or potentially compete with a variety of companies
that
can be divided into two broad categories:
|
§
|
liquidation
e-tailers such as SmartBargains; and
|
|
§
|
online
retailers such as Amazon.com auctions, eBay, Inc. and Buy.com,
Inc.
|
As
the
market for online auction grows, we believe that companies involved in online
retail, as well as traditional retailers and liquidation brokers, will increase
their efforts to develop services that compete with our online services. We
also
face potential competition from Internet companies not yet focused on the
auction market. We are unable to anticipate which other companies are likely
to
offer services in the future that will compete with the services and products
we
provide.
In
addition, many of our current and potential competitors have greater brand
recognition, longer operating histories, larger customer bases and significantly
greater financial, marketing and other resources than we do, and may enter
into
strategic or commercial relationships with larger, more established and
well-financed companies. Some of our competitors could enter into exclusive
distribution arrangements with our vendors and deny us access to their products,
devote greater resources to marketing and promotional campaigns and devote
substantially more resources to their website and systems development than
we
do. New technologies and the continued enhancement of existing technologies
also
may increase competitive pressures on us. We cannot assure you that we will
be
able to compete successfully against current and future competitors or address
increased competitive pressures. See “Risk Factors,” starting on page 3 of this
prospectus.
Intellectual
Property and Other Proprietary Rights
We
regard
our domain names and similar intellectual property as critical to our success.
We rely on a combination of laws and contractual restrictions with our
employees, customers, suppliers, affiliates and others to establish and protect
our proprietary rights. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our intellectual property
without authorization. In addition, we cannot assure you that others will not
independently develop similar intellectual property. Although we are pursuing
the registration of our key trademarks in the United States, some of our trade
names are not eligible to receive trademark protection. In addition, effective
trademark protection may not be available or may not be sought by us in every
country in which our products and services are made available online, including
the United States.
The
uBid(SM) service mark is registered in the United States. Our proprietary
software is protected by copyright laws. The source code for our proprietary
software also is protected under applicable trade secret laws. We own the
copyright and other proprietary rights for our auction processing and auction
management applications. We own the patent license for fixed price consignment
that will allow our vendors and our merchants to create auctions with fixed
pricing. We also own the patent license for search agents that will allow us
to
search on inventory of our vendors.
From
time
to time, we may be subject to legal proceedings and claims in the ordinary
course of our business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by
us.
Third
parties may, in the future, recruit our employees who have had access to our
proprietary technologies, processes and operations. These recruiting efforts
expose us to the risk that such employees will misappropriate our intellectual
property.
Litigation
may be necessary in the future to enforce our intellectual property rights,
to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Any litigation, regardless of outcome or merit,
could result in substantial costs and diversion of management and technical
resources, any of which could materially harm our business. See “Risk Factors,”
starting on page 3 of this prospectus.
Employees
As
of
June 30, 2008, we had 82 employees, all of which are full-time employees. None
of our employees is represented by a labor union, and we consider our employee
relations to be good. We believe that our future success will depend in part
on
our continued ability to attract, hire and retain qualified
personnel.
Properties
Our
principal administrative, engineering, merchandising and marketing facilities
total approximately 27,000 square feet and are located in Chicago, Illinois.
We
currently lease such facilities for $35,000 per month. The lease expires in
April 2010.
Our
in-house call center is located in Tilton, Illinois. We currently lease this
facility for $3,250 per month. The lease expires in April 2010.
Legal
Proceedings
From
time
to time we may be named in claims arising in the ordinary course of business.
Currently, no legal proceedings or claims are pending against us or involve
us
that, in the opinion of our management, could reasonably be expected to have
a
material adverse effect on our business or financial condition.
MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market
Information
Our
common stock is currently traded on the over-the-counter bulletin board market
under the symbol “ENAB.OB”. As of September 5, 2008, there were approximately
238 holders of record of shares of our common stock. The following table sets
forth the high and low bid prices for our common stock for the periods
indicated. The prices represent quotations between dealers and do not include
retail mark-up, markdown, or commission, and do not necessarily represent actual
transactions:
|
|
High
|
|
Low
|
|
Fiscal
2006
(1)
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
7.20
|
|
$
|
6.15
|
|
Second
Quarter
|
|
|
6.70
|
|
|
6.25
|
|
Third
Quarter
|
|
|
6.80
|
|
|
4.99
|
|
Fourth
Quarter
|
|
|
3.65
|
|
|
2.15
|
|
Fiscal
2007
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
2.70
|
|
$
|
1.12
|
|
Second
Quarter
|
|
|
2.00
|
|
|
0.90
|
|
Third
Quarter
|
|
|
1.85
|
|
|
1.00
|
|
Fourth
Quarter
|
|
|
1.33
|
|
|
0.55
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.15
|
|
$
|
0.51
|
|
Second
Quarter
|
|
|
2.35
|
|
|
0.56
|
|
Third
Quarter (through September 5, 2008)
|
|
|
3.25
|
|
|
1.10
|
|
(1)
Our
common stock was first cleared for quotation on the NASD OTC bulletin board
on
October 29, 2004 and has been traded on a very limited basis since that time.
On
December 15, 2005, in connection with our stock split, NASDAQ issued a new
ticker symbol, “CCSR.OB” On January 4, 2006, the common stock traded for the
first time. On February 10, 2006, our stock began trading under the ticker
symbol “UBHI.OB.” On August 13, 2008, our stock began trading under the ticker
symbol “ENAB.OB.”
As
of
September 5, 2008, there are 2,669,066 warrants issued for the purchase of
2,669,066 shares of our common stock at an exercise price of $5.85. There are
653,333 warrants issued for the purchase of 653,333 shares of our common stock
at an exercise price of $4.50. There are 90,000 warrants issued for the purchase
of 90,000 shares of our common stock at an exercise price of $0.55, $1.20 and
$4.50 for each tranche of 30,000 shares. In addition, there are 2,500,000 shares
of common stock reserved for issuance of stock options and incentive awards
pursuant to our 2005 Equity Incentive Plan.
DIVIDEND
POLICY
We
have
never declared or paid dividends. We intend to retain earnings, if any, to
support the development of the business and therefore, do not anticipate paying
cash dividends for the foreseeable future. Payment of future dividends, if
any,
will be at the discretion of our board of directors after taking into account
various factors, including current financial condition, operating results and
current and anticipated cash needs. Our board of directors has the authority
to
issue preferred stock and to fix dividend rights that may have preference to
common shares.
SELECTED
FINANCIAL DATA
The
following selected financial data are derived from our audited consolidated
financial statements and interim unaudited consolidated financial statements
for
the periods and at the dates indicated below. The historical results presented
below are not necessarily indicative of the results to be expected for any
future period. You should read the information set forth below in conjunction
with the information contained in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and our consolidated financial
statements and the related notes, beginning on page F-1 of this
prospectus.
(Dollars
in Thousands, except for per share data)
|
|
Enable
(1)
|
|
|
|
Predecessor
Company (2)
|
|
|
|
Year
Ended December 31,
|
|
9
Months
Ended
December 31,
|
|
|
|
8 Months
Ended
March 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
2003
|
|
Net
Revenues
|
|
$
|
43,061
|
|
$
|
66,559
|
|
$
|
84,592
|
|
$
|
87,002
|
|
$
|
65,656
|
|
|
|
$
|
103,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenues
|
|
|
33,333
|
|
|
56,421
|
|
|
73,062
|
|
|
75,837
|
|
|
54,491
|
|
|
|
|
100,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
9,728
|
|
|
10,138
|
|
|
11,530
|
|
|
11,165
|
|
|
11,165
|
|
|
|
|
3,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative (3)
|
|
|
13,255
|
|
|
12,973
|
|
|
13,045
|
|
|
12,112
|
|
|
9,021
|
|
|
|
|
126,527
|
|
Sales
and marketing
|
|
|
3,753
|
|
|
4,987
|
|
|
4,996
|
|
|
4,260
|
|
|
2,484
|
|
|
|
|
5,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
17,008
|
|
|
17,960
|
|
|
18,041
|
|
|
16,372
|
|
|
11,505
|
|
|
|
|
132,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
|
(7,280
|
)
|
|
(7,822
|
)
|
|
(6,511
|
)
|
|
(5,207
|
)
|
|
(340
|
)
|
|
|
|
(129,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
Income
|
|
|
60
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
21
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income (Expense), net
|
|
|
179
|
|
|
267
|
|
|
(2,538
|
)
|
|
(1,102
|
)
|
|
(651
|
)
|
|
|
|
(6,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(7,041
|
)
|
|
(7,555
|
)
|
|
(9,049
|
)
|
|
(6,309
|
)
|
|
(970
|
)
|
|
|
|
(135,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock Dividends
|
|
|
-
|
|
|
-
|
|
|
(1,216
|
)
|
|
(60
|
)
|
|
(60
|
)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Available to Common Shareholders
|
|
$
|
(7,041
|
)
|
$
|
(7,555
|
)
|
$
|
(10,265
|
)
|
$
|
(6,369
|
)
|
$
|
(1,030
|
)
|
|
|
$
|
(135,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per share - Basic and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.37
|
)
|
$
|
(0.37
|
)
|
$
|
(3.88
|
)
|
$
|
(2.56
|
)
|
$
|
(0.41
|
)
|
|
|
$
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares - Basic and Diluted (4)
|
|
|
18,864,777
|
|
|
20,260,689
|
|
|
2,643,936
|
|
|
2,487,107
|
|
|
2,487,107
|
|
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data (as of period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
$
|
14,499
|
|
$
|
22,052
|
|
$
|
36,120
|
|
$
|
11,817
|
|
$
|
11,257
|
|
|
|
$
|
17,349
|
|
Total
assets
|
|
|
15,331
|
|
|
23,578
|
|
|
36,644
|
|
|
12,146
|
|
|
11,653
|
|
|
|
|
22,047
|
|
Total
current liabilities, excluding debt 4,479
|
|
|
3,843
|
|
|
9,652
|
|
|
7,030
|
|
|
7,562
|
|
|
168,882
|
|
|
|
|
|
|
Long-term
debt including current maturities -
|
|
|
-
|
|
|
410
|
|
|
11,320
|
|
|
3,986
|
|
|
1,405
|
|
|
|
|
|
|
Redeemable
Common Stock (5)
|
|
|
-
|
|
|
-
|
|
|
12,000
|
|
|
-
|
|
|
-
|
|
|
|
|
-
|
|
Total
shareholders equity (deficit)
|
|
|
10,852
|
|
|
19,735
|
|
|
14,582
|
|
|
(6,204
|
)
|
|
105
|
|
|
|
|
(148,240
|
)
|
(1)
|
The
current Enable business was substantially acquired by Petters Group
in
April 2003 at which time purchase accounting was applied to adjust
all
carrying values to estimate current market value (after deduction
for
negative goodwill) and the business started accounting for all of
its
costs of operations without allocations of such costs from its prior
parent.
|
(2)
|
Predecessor
financials for the year ended July 31, 2002 and the eight months
ended
March 31, 2003 were derived solely from the accounting records of
CMGI,
the sole shareholder of our predecessor (which acquired our business
in
April 2000), and using historical results of operations, and historical
basis of assets and liabilities of such predecessor's business. The
statements of operations include fees charged for certain corporate
functions historically provided to us by CMGI, including administrative
services (accounting, human resources, tax services, legal and treasury),
inventory management and order fulfillment, information systems operations
and administration, and advertising services. These fees were allocated
on
a specifically identifiable basis or using the relative percentages,
as
compared to CMGI's other business, net of revenues, payroll, net
cost of
goods sold, square footage, headcount, or other.
|
(3)
|
Includes
$0, $30, $360 and $264 of management fees charged to uBid by Petters
Group
for the periods ended December 31, 2007, 2006, 2005 and
2004.
|
(4)
|
Reflects
the retroactive effects of the impact of the Company's December 2005
merger with Cape Coastal and the resulting exchange of the Company's
1,072
shares of common stock outstanding for the stock of Cape
Coastal.
|
(5)
|
At
December 31, 2005, represents 2,666,668 shares of common stock subject
to
redemption after the merger with Cape Coastal Trading Corporation
and the
first private offering. Such shares were redeemed in February
2006.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of
operations should be read together with the discussion under “Selected Financial
Data” and our consolidated financial statements included in this prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties because they are based on current expectations and relate to
future events and our future financial performance. Our actual results may
differ materially from those anticipated in these forward-looking statements
as
a result of many important factors, including those set forth under “Risk
Factors,” “Forward Looking Statements,” and elsewhere in this
prospectus.
Overview
We
operate a leading online marketplace located at www.ubid.com and
www.redtag.com,offering high quality excess, new, overstock, close-out,
refurbished and limited supply brand name merchandise to both consumers and
businesses using auction style and fixed price formats. We offer consumers
a
trustworthy buying environment in which we continually monitor and certify
activity to eliminate the potential for fraud by certifying all merchants and
processing 100% of all transactions between buyers and sellers. Our marketplace
offers brand-name merchandise from over 200 product categories including
computer products, consumer electronics, apparel, house wares, watches, jewelry,
travel, sporting goods, home improvement products and collectibles.
Our
business model provides value for consumers, manufacturers, distributors,
retailers and other approved third party merchants. Consumers shop in a
trustworthy and secure online marketplace and have the opportunity to bid their
own prices on popular, brand-name products realizing product savings of
generally 20% to 80% off retail prices. Our online marketplace provides
merchants with an efficient and economical distribution channel for maximizing
revenue on their merchandise. Merchants can monetize overstock and close-out
inventory, expand their customer base and increase sales without compromising
existing distribution channels.
Our
business model consists of four distinct business channels: uBid Direct, UCM,
Business to Business and Other.
We
purchase merchandise outright in the uBid Direct and Business to Business
channels and sell to consumers and businesses. On this merchandise, we bear
the
inventory, return and credit risk. The full sales amount is recorded as revenue
upon verification of the credit card transaction and shipment of the
merchandise.
We
also
sell merchandise through the UCM Program channel by allowing prescreened third
party merchants to sell their product through our online marketplace to
consumers and business. On this merchandise, we do not take title and therefore
do not bear the related inventory risk. In the UCM Program, we are the primary
obligor to whom payment is due, but we bear no inventory or returns risk, so
we
record only our commission as revenue.
In
all
instances where the credit card authorization has been received but merchandise
has not been shipped, we defer revenue recognition until the merchandise is
shipped.
Our
online marketplace is available 24 hours a day, seven days a week and we
currently offer over 200,000 items each day. Since the first offer of product
in
December 1997, our marketplace has facilitated over $1 billion in net revenues
and has registered over five million members.
In
the
first quarter of 2008, we began transforming our business model from a seller
marketplace to an asset recovery solution. Asset recovery is a rapidly growing
industry with revenues of $38.5 billion in 2004 and is expected to climb to
over
$63.1 billion in 2008, according to D.F. Blumberg Associates Inc., a logistics
research and consulting firm.
As
a
result, we changed our business model from a seller marketplace to an inventory
solutions company. We began restructuring our business operations in the first
quarter of 2008 and continued implementing those changes in the second quarter
of 2008. We, in combination with the following five restructured operating
divisions have identified seven proprietary inventory selling solutions. These
operating divisions include:
|
·
|
uBid.com
– Our historical auction site which has operated for ten years. This
division will focus solely on auction format rather than the current
auction and fixed price format.
|
|
·
|
RedTag.com
– A fixed price internet site that is currently under development with
an
expected launch date in the third quarter of
2008.
|
|
·
|
RedTag
Live – An inventory liquidation company dedicated to physical location
sales. RedTag Live was launched in the beginning of the third quarter
of
2008.
|
|
·
|
Dibu
Trading Co. – A wholesale inventory liquidation company dedicated to
Business-to-Business solutions. This division was formed in the fourth
quarter 2007 and dedicated staff was hired in the first quarter of
2008.
|
|
·
|
Commerce
Innovations – A software service company which licenses auction software
to third party companies. We are currently developing this hosted
solution
which is expected to launch in the middle of the third quarter of
2008.
|
Our
financial results for the six months ended June 30, 2008 have been negatively
impacted by the planned restructuring. To achieve the objective of becoming
the
leading excess inventory provider, we have made significant investments in
increased staffing levels and information technology infrastructure. We have
also made major changes to our traditional operations as we transition to the
new business model.
As
part
of the restructuring efforts, we significantly reduced our marketing spending
while realigning the marketing and advertising resources to better position
them
to each new operating division. The result was a significant decline in the
visitor traffic to our website and decreased revenue volume. The visitor traffic
in the quarter ended June 30, 2008 decreased 26.8% compared to the same period
of the prior year.
We
also
made the strategic decision to eliminate outside advertisement on our website.
Historically advertisement sales have added a revenue stream but have negatively
impacted overall sales by redirecting visitor traffic from our website to
competing websites. As a result of the elimination of advertisement sales,
outside advertisement revenues decreased $416 or 68.5% in the six months ended
June 30, 2008 compared to the same period in 2007.
The
transition from an auction marketplace to an asset solutions company also
required that operationally we improve the efficiency of our platform to enhance
the user experience. We significantly decreased the number of listings,
eliminating the unprofitable listings, while preparing to migrate fixed price
listings to the RedTag platform based on the new business model. The number
of
listings in the quarter ended June 30, 2008 decreased by 73.2% compared to
the
quarter ended June 30, 2007. The reduction in the number of unprofitable
listings improved our auction success rate and provides efficiencies to both
buyers and sellers on our platform.
To
further facilitate the restructuring of the business model we are in the process
of implementing a new ERP system to enable us to expand both in the U.S. and
internationally.
In
line
with the above changes, we have suffered increased losses compared to the prior
year. The losses were consistent with management projections as we strategically
transform us to a leading excess inventory solutions company. We expect all
aspects of the new business model will be fully implemented by the end of
2008.
Executive
Commentary
Success
Measures
:
Our
management believes that the most important financial and non-financial measures
that track our progress include sales, website traffic, total average order
value, gross margin, customer acquisition costs, advertising expense, personnel
costs, and fulfillment costs.
Key
Business Metrics
:
We
periodically review key business metrics to evaluate the effectiveness of our
operational strategies and the financial performance of our business. These
key
metrics include the following:
Gross
Merchandise Sales (GMS):
Gross
Merchandise Sales differ from GAAP revenue in that gross bookings represents
the
gross sales price of goods sold by us (including sales through our UCM Program)
before returns, sales discounts, and cancellations.
Number
of Orders:
This
represents the total number of orders shipped in a specified period. We analyze
the number of orders by category to evaluate the effectiveness of our
merchandising and advertising strategies as well as to monitor our inventory
management.
Average
Order Value:
Average
order value is the ratio of gross sales divided by the number of orders shipped
within a given time period. We analyze average order value by category primarily
to manage costs and other operating expenses.
Visitors:
A
Visitor is a consumer or business that voluntarily clicks through to the website
(uBid.com) using both online and offline advertising stimulus. Visitors don’t
include third party site pops, pop unders, or non converting impressions to
the
website. Examples of online marketing channels we advertise on are: affiliate
banner networks, comparison shopping sites, paid and organic search engines,
and
email.
Bidders:
A Bidder
is a visitor that places a bid on an item up for auction on the website
(uBid.com).
Visitors
to Bidder Conversion:
The
percentage of visitors that bid on an auction item. We use this as a measure
of
the effectiveness of advertising.
Auctions
Closed:
A closed
auction is an auction that has ended because it reached the scheduled closing
time for that auction. Auctions closed includes both successful auctions and
auctions with no bids.
Auction
Success:
A
successful auction is a closed auction that received at least one
bid.
Auction
Success Rate:
The
percentage of closed auctions that were successful and received at least one
bid.
Approved
UCM Program Vendors:
Vendors
that have gone through the approval process to sell merchandise through our
website.
|
|
In
Thousands except Average Order Value and Approved UCM
Vendors
|
|
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
|
|
2008
|
|
2008
|
|
2007
|
|
2007
|
|
2007
|
|
2007
|
|
2006
|
|
2006
|
|
2006
|
|
Measure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
8,061
|
|
$
|
6,240
|
|
$
|
9,646
|
|
$
|
9,296
|
|
$
|
13,289
|
|
$
|
9,110
|
|
$
|
12,477
|
|
$
|
14,952
|
|
$
|
19,735
|
|
uBid
Certified Merchant
|
|
|
11,593
|
|
|
12,645
|
|
|
13,307
|
|
|
14,408
|
|
|
13,079
|
|
|
14,292
|
|
|
13,799
|
|
|
11,576
|
|
|
10,551
|
|
Total
GMS
|
|
$
|
19,654
|
|
$
|
18,885
|
|
$
|
22,953
|
|
$
|
23,704
|
|
$
|
26,368
|
|
$
|
23,402
|
|
$
|
26,276
|
|
$
|
26,528
|
|
$
|
30,286
|
|
Number
of orders (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
|
20
|
|
|
15
|
|
|
21
|
|
|
20
|
|
|
29
|
|
|
21
|
|
|
24
|
|
|
23
|
|
|
37
|
|
uBid
Certified Merchant
|
|
|
71
|
|
|
73
|
|
|
86
|
|
|
101
|
|
|
98
|
|
|
104
|
|
|
99
|
|
|
89
|
|
|
88
|
|
Total
orders
|
|
|
91
|
|
|
88
|
|
|
107
|
|
|
121
|
|
|
127
|
|
|
125
|
|
|
123
|
|
|
112
|
|
|
125
|
|
Average
Order Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
242
|
|
$
|
242
|
|
$
|
370
|
|
$
|
355
|
|
$
|
336
|
|
$
|
390
|
|
$
|
424
|
|
$
|
424
|
|
$
|
416
|
|
uBid
Certified Merchant
|
|
$
|
151
|
|
$
|
160
|
|
$
|
142
|
|
$
|
129
|
|
$
|
119
|
|
$
|
120
|
|
$
|
126
|
|
$
|
128
|
|
$
|
110
|
|
Visitors
(in thousands)
|
|
|
5,050
|
|
|
5,755
|
|
|
5,980
|
|
|
7,224
|
|
|
6,901
|
|
|
6,744
|
|
|
6,529
|
|
|
6,488
|
|
|
7,215
|
|
Bidders
(in thousands)
|
|
|
198
|
|
|
181
|
|
|
173
|
|
|
218
|
|
|
231
|
|
|
235
|
|
|
239
|
|
|
211
|
|
|
255
|
|
Bidders
to Visitors Percentage
|
|
|
3.9
|
%
|
|
3.1
|
%
|
|
2.9
|
%
|
|
3.0
|
%
|
|
3.3
|
%
|
|
3.5
|
%
|
|
3.7
|
%
|
|
3.3
|
%
|
|
3.5
|
%
|
Auctions
Closed (in thousands)
|
|
|
181
|
|
|
455
|
|
|
780
|
|
|
715
|
|
|
619
|
|
|
539
|
|
|
579
|
|
|
562
|
|
|
484
|
|
Auction
Success (in thousands)
|
|
|
56
|
|
|
59
|
|
|
67
|
|
|
78
|
|
|
77
|
|
|
76
|
|
|
65
|
|
|
58
|
|
|
62
|
|
Auction
Success rate
|
|
|
30.9
|
%
|
|
13.0
|
%
|
|
8.6
|
%
|
|
10.9
|
%
|
|
12.4
|
%
|
|
14.1
|
%
|
|
11.2
|
%
|
|
10.3
|
%
|
|
12.8
|
%
|
Approved
UCM Vendors
|
|
|
3,854
|
|
|
3,737
|
|
|
3,588
|
|
|
3,321
|
|
|
2,873
|
|
|
2,513
|
|
|
2,049
|
|
|
1,716
|
|
|
1,307
|
|
Revenue
Source
:
We
derive most of our revenue from sales of products to consumers and businesses
as
well as commission revenue earned for sales of merchandise under revenue sharing
agreements with third party sellers. We believe that the principal drivers
of
our revenue consist of the average order value placed by our customers, the
number of orders placed by both existing and new customers, special offers
we
make available that result in incremental orders, our ability to attract new
customers and advertising that impacts our revenue drivers. Sales consist of
orders placed through our www.ubid.com and www.redtag.com websites and direct
business to business sales. We further generate revenue from shipping fees
we
charge our customers and advertising sales. We record our revenue net of returns
and other discounts. Our revenues may fluctuate from period to period as a
result of special offers we provide such as free shipping, and other special
promotions.
Our
revenue is dependent in part on sales of products produced by or purchased
from
Sony Electronics, Inc. (“Sony”), Hewlett-Packard Company (“HP”), Recoupit,
Inc.(“Recoupit”) and Always at Market, Inc. (“Always at Market”). The following
table represents the respective vendors’ percentage of sales for the three and
six months ended June 30, 2008 and June 30, 2007. No other supplier represented
more than 5% of our net revenues for any period presented.
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
Vendor
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
HP
|
|
|
40.2
|
%
|
|
27.1
|
%
|
|
39.5
|
%
|
|
22.9
|
%
|
Always
at Market
|
|
|
7.1
|
%
|
|
5.2
|
%
|
|
6.9
|
%
|
|
5.8
|
%
|
Recoupit
|
|
|
3.2
|
%
|
|
7.9
|
%
|
|
3.9
|
%
|
|
7.4
|
%
|
Sony
|
|
|
3.2
|
%
|
|
13.6
|
%
|
|
3.0
|
%
|
|
14.7
|
%
|
Cost
of Revenues
:
Cost of
revenues primarily consists of the cost of the product and inbound and outbound
shipping. There is no cost of revenues for UCM Program revenue. Cost of revenues
does not include order fulfillment costs, which are included in general and
administrative expenses.
Gross
Profits
:
Our
gross profit margins are impacted by a number of factors including the category
of merchandise, the introduction of new product categories, the mix of sales
among our product categories, pricing of products by our vendors, pricing
strategies, promotional programs, market conditions, packaging, excess and
obsolete inventory charges and other factors. Gross profits and gross profit
percentages are not comparable to gross profit and gross profit percentages
reported by companies that include order fulfillment costs in the cost of
revenues.
Expenses
:
Sales
and marketing, general and administrative (“SG&A”) expenses consist
primarily of sales and marketing expenses, including online marketing
activities, order fulfillment and other costs, such as personnel, rent,
warehouse and handling, common area maintenance, depreciation, credit card
processing charges, insurance, legal and accounting fees. Interest expense
charges are from our IBM flooring facility at a rate of 1% per month on the
outstanding balances, interest and amortization of loan origination fees related
to our credit facility.
Critical
Accounting Policies and Estimates
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of our
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, net revenues and expenses, as
well
as the disclosure of contingent assets and liabilities. We base our estimates
on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about carrying values of our assets and liabilities that are
not readily apparent from other sources. Actual results could differ from those
estimates, and we include any revisions to our estimates in our results for
the
period in which the actual amounts become known.
Our
management considers an accounting estimate to be critical if it requires
assumptions to be made that were uncertain at the time the estimate was made
or
changes in the estimate or different estimates that could have been selected
that could have a material impact on our results of operations or financial
condition.
We
believe the critical accounting policies described below affect the more
significant judgments and estimates used in the preparation of our financial
statements.
Revenue
Recognition
We
adhere
to the guidelines and principles of sales recognition described in Staff
Accounting Bulletin No. 104, Revenue Recognition. Under SAB 104, sales are
recognized when the title and risk of loss are passed to the customer, there
is
persuasive evidence of an arrangement for the sale, delivery has occurred and/or
services have been rendered, the sales price is fixed or determinable and
collectability is reasonably assured. Under these guidelines, we recognize
a
majority of our sales, including revenue from product sales and gross outbound
shipping and handling charges, upon shipment of the product to the customer.
For
all product sales shipped directly from suppliers to customers, we bear credit
risk. The UCM Program allows certified merchants to sell product through our
website. Therefore, while we are the primary obligor to whom payment is due,
we
bear no inventory or returns risk, so we record only our commission as revenue
at the time of shipment.
Sales
are
reported net of estimated returns and allowances which we estimate based upon
recent historical information such as return rates experience. Management also
considers any other current information and trends in making estimates. If
actual sales return and allowances are greater than estimated by management,
additional expenses may be incurred.
Allowance
for Doubtful Accounts Receivable
We
maintain an allowance for doubtful accounts receivable based upon estimates
of
future collection. We extend credit to our business customers based upon an
evaluation of each business customer’s financial condition and credit history,
and generally do not require collateral. Our business customers’ financial
conditions and credit and payment histories are evaluated in determining the
adequacy of our allowance for doubtful accounts. If estimated allowances for
uncollectible accounts subsequently prove insufficient, additional allowance
may
be required.
Reserve
for Inventory Obsolescence
We
maintain allowances for the valuation of inventory by estimating the obsolete
or
unmarketable inventory based on the difference between inventory cost and market
value determined by general market conditions, nature, age and type of each
product. If the inventory reserve subsequently proves insufficient, additional
inventory write-downs may be required, which are recorded as an increase in
cost
of revenues.
Long
Lived Assets
We
test
certain long-lived assets or groups of assets for recoverability whenever events
or changes in circumstances indicate that we may not be able to recover the
assets’ carrying amount. When events or changes in circumstances dictate an
impairment review of a long-lived asset or group, we will evaluate
recoverability by determining whether the undiscounted cash flows expected
to
result from the use and eventual disposition of that asset or group cover the
carrying value at the evaluation date. If the undiscounted cash flows are not
sufficient to cover the carrying value, we will measure any impairment loss
as
the excess of the carrying amount of the long-lived asset or group over its
fair
value (generally determined by a discounted cash flows model or independent
appraisals).
Stock
Based Compensation
Effective
January 1, 2006, we adopted Statement of Financial Accounting Standards No.
123(R) (“SFAS 123R”). This pronouncement requires companies to measure the cost
of employee service received in exchange for a share based award (typically
stock options) based on the fair value of the award. We have elected to use
the
“modified prospective” transition method for stock options granted prior to
January 1, 2006, but for which the vesting period is not complete. There were
no
options granted prior to December 29, 2005. Under this transition method, we
account for such awards on a prospective basis, with expense being recognized,
net of an estimated forfeiture rate for those shares not expected to vest,
on a
straight-line basis over the requisite service period of the award. Prior to
2006, we accounted for employee stock options using the method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and associated interpretations using the intrinsic method.
Generally, no expense was recognized related to our stock options under this
method because the stock option’s exercise price was set at the stock’s fair
market value on the date the option was granted. We recognize these compensation
costs on a straight-line basis over the requisite service period of the award
which is generally the option vesting term of four years. The total compensation
expense related to the stock option plan for the year ended December 31, 2007
and 2006 was $400 and $708 respectively.
Determining
the appropriate fair value model and calculating the fair value of share-based
payment awards requires the input of subjective assumptions, including the
expected life of the share-based payment awards and stock price volatility.
Expected volatility in 2007 and 2006 was based on a market-based implied
volatility. The assumptions used in calculating the fair value of share-based
payment awards represent management's best estimates, but these estimates
involve inherent uncertainties and the application of management judgment.
As a
result, if factors change and we use different assumptions, our stock-based
compensation expense could be materially different in the future. In addition,
we are required to estimate the expected forfeiture rate and recognize expense
only for those shares expected to vest. If our actual forfeiture rate is
materially different from our estimate, the stock-based compensation expense
could be significantly different from what we have recorded in the current
period.
Prior
to
January 1, 2006, we had a Phantom Stock Appreciation Plan in which certain
employees had been issued phantom shares which were subject to certain vesting
provisions. The plan was implemented on July 1, 2003 and issued phantom shares
were scheduled to vest over four years. Effective July 2005, we terminated
the
Phantom Stock Appreciation Plan. The total expense incurred and recorded in
conjunction with the plan termination was $0.5 million in accordance with the
plan agreement based on an independent third-party valuation. Payouts required
under the plan were made on December 31, 2005.
As
a
result of adopting SFAS 123R, losses before income taxes in 2007 and 2006
were higher by $400 and $708, respectively than if we had continued to
account for stock-based compensation under APB 25. The impact on both basic
and
diluted earnings per share in fiscal 2007 and 2006 was $0.02 and $0.03 per
share, respectively.
Income
Taxes
We
account for income taxes under the liability method, under which we recognize
deferred income taxes by applying enacted statutory tax rates applicable to
future years to differences between the tax bases and financial reporting
amounts of our existing assets and liabilities and net operating loss
carryforwards. We have considered future taxable income and ongoing prudent
and
feasible tax planning strategies in assessing the need for a valuation allowance
against our deferred tax assets. In making this assessment, we are required
to
consider all available positive and negative evidence to determine whether,
based on such evidence, it is more likely than not that some portion or all
of
our net deferred assets will be realized in future periods. We have recorded
a
valuation allowance at December 31, 2007, 2006 and 2005.
Recent
Pronouncements
In
July
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in income taxes by prescribing the
recognition threshold a tax position is required to meet before being recognized
in the financial statements. It also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 was effective for fiscal years beginning
after December 15, 2006 and was required to be adopted by us in the first
quarter of fiscal 2007. We adopted FIN 48 during the first quarter of 2007,
resulting in no impact to the Consolidated Balance Sheet for the period ended
December 31, 2007.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 provides guidance for using fair
value to measure assets and liabilities. It also responds to investors’ requests
for expanded information about the extent to which companies measure assets
and
liabilities at fair value, the information used to measure fair value, and
the
effect of fair value measurements on earnings. SFAS 157 applies whenever
other standards require (or permit) assets or liabilities to be measured at
fair
value, and does not expand the use of fair value in any new circumstances.
SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and is required to be adopted by us in
the first quarter of 2008. FSP (FASB Staff Position) FAS 157-2 deferred the
effective date of SFAS 157 for non-financial assets and lisbilities for fiscal
years beginning after November 15, 2008. We are currently evaluating the effect
that the adoption of SFAS 157 will have on our consolidated results of
operations and financial condition but do not expect it to have a material
impact.
On
February 15, 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement No. 115” (“SFAS 159”). This standard
permits an entity to measure financial instruments and certain other items
at
estimated fair value. Most of the provisions of SFAS No. 159 are elective;
however, the amendment to FASB No. 115, “Accounting for Certain Investments in
Debt and Equity Securities,” applies to all entities that own trading and
available-for-sale securities. The fair value option created by SFAS 159 permits
an entity to measure eligible items at fair value as of specified election
dates. The fair value option (a) may generally be applied instrument by
instrument, (b) is irrevocable unless a new election date occurs, and (c) must
be applied to the entire instrument and not to only a portion of the instrument.
SFAS 159 is effective as of the beginning of the first fiscal year that begins
after November 15, 2007. Early adoption is permitted as of the beginning of
the
previous fiscal year provided that the entity (i) makes that choice in the
first
120 days of that year, (ii) has not yet issued financial statements for any
interim period of such year, and (iii) elects to apply the provisions of FASB
157. We are currently evaluating the impact of SFAS 159, if any, on our
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 158, “Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans—An Amendment of FASB
No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires that
the funded status of defined benefit postretirement plans be recognized on
the
company's balance sheet and changes in the funded status be reflected
in comprehensive income, effective for fiscal years ending after
December 15, 2006. We adopted SFAS No. 158 during the first quarter of 2007
and there was no material effect to the consolidated results of operations
for
the period ended December 31, 2007.
In
June
2007, the FASB also ratified EITF 07-3, “Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and
Development Activities” (“EITF 07-3”). EITF 07-3 requires that
nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities be deferred and
capitalized and recognized as an expense as the goods are delivered or the
related services are performed. EITF 07-3 is effective, on a prospective
basis, for fiscal years beginning after December 15, 2007. We do not expect
the adoption of EITF 07-3 to have a material effect on the consolidated
results of operations and financial condition.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”). SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired.
SFAS 141R also establishes disclosure requirements to enable the evaluation
of the nature and financial effects of the business combination. SFAS 141R
is effective for fiscal years beginning after December 15, 2008, and will
be adopted in the first quarter of fiscal 2009. We are currently evaluating
the
potential impact, if any, of the adoption of SFAS 141R on our consolidated
results of operations and financial condition.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”). SFAS 160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to
the
parent and to the noncontrolling interest, changes in a parent's ownership
interest, and the valuation of retained noncontrolling equity investments when
a
subsidiary is deconsolidated. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the interests of
the
parent and the interests of the noncontrolling owners. SFAS 160 is
effective for fiscal years beginning after December 15, 2008. We are
currently evaluating the potential impact, if any, of the adoption of
SFAS 160 on our consolidated results of operations and financial
condition.
In
addition, we are reviewing the following Emerging Issues Task Force (“EITF”)
consensuses and do not currently expect that the adoption of these will have
a
material impact on our consolidated results of operations and financial
condition:
|
§
|
EITF
06-2, “Accounting for Sabbatical Leave and Other Similar Benefits.” Issued
in June 2006 and effective for us in the first quarter of fiscal
2008,
this EITF applies to compensated absences that require a minimum
service
period but have no increase in the benefit even with additional years
of
service.
|
|
|
|
|
§
|
EITF
06-9, “Reporting a Change in (or the Elimination of) a Previously Existing
Difference between the Fiscal Year End of a Parent Company and That
of a
Consolidated Entity or between the Reporting Period of an Investor
and
That of an Equity Method Investee.” Issued in November 2006 and effective
for us in the second quarter of 2007, this EITF requires certain
disclosures whenever a change is made to modify or eliminate the
time lag
(usually three months or less) used for recording results of consolidated
entities or equity method investees that have a different fiscal
year end
than us.
|
Results
of Operations (Dollars in Thousands, except per share, order and visitor
data)
The
following table sets forth, for the periods presented, certain data from our
statement of operations as a percentage of net revenues. This information should
be read in conjunction with our financial statements and notes thereto included
elsewhere in this report.
|
|
(Dollars in Thousands)
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
4,671
|
|
|
55.4
|
%
|
$
|
9,002
|
|
|
65.9
|
%
|
$
|
8,166
|
|
|
52.5
|
%
|
$
|
16,770
|
|
|
72.1
|
|
UCM
|
|
|
1,182
|
|
|
14.0
|
%
|
|
1,341
|
|
|
9.8
|
%
|
|
2,460
|
|
|
15.8
|
%
|
|
2,797
|
|
|
12.0
|
|
Business
to Business
|
|
|
2,537
|
|
|
30.1
|
%
|
|
3,035
|
|
|
22.2
|
%
|
|
4,750
|
|
|
30.5
|
%
|
|
3,096
|
|
|
13.3
|
|
Other
|
|
|
36
|
|
|
0.4
|
%
|
|
285
|
|
|
2.1
|
%
|
|
191
|
|
|
1.2
|
%
|
|
607
|
|
|
2.6
|
|
Total
Net Revenues
|
|
|
8,426
|
|
|
100
|
%
|
|
13,663
|
|
|
100
|
%
|
|
15,567
|
|
|
100
|
%
|
|
23,270
|
|
|
100
|
|
Gross
Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
|
(190
|
)
|
|
(2.3
|
)%
|
|
873
|
|
|
6.4
|
%
|
|
(138
|
)
|
|
(0.9
|
)%
|
|
1,633
|
|
|
7.0
|
|
UCM
|
|
|
1,182
|
|
|
14.0
|
%
|
|
1,341
|
|
|
9.8
|
%
|
|
2,460
|
|
|
15.8
|
%
|
|
2,797
|
|
|
12.0
|
|
Business
to Business
|
|
|
286
|
|
|
3.4
|
%
|
|
370
|
|
|
2.7
|
%
|
|
673
|
|
|
4.3
|
%
|
|
384
|
|
|
1.7
|
|
Other
|
|
|
36
|
|
|
0.4
|
%
|
|
285
|
|
|
2.1
|
%
|
|
191
|
|
|
1.2
|
%
|
|
607
|
|
|
2.6
|
|
Total
Gross Profit
|
|
|
1,314
|
|
|
15.6
|
%
|
|
2,869
|
|
|
21.0
|
%
|
|
3,186
|
|
|
20.5
|
%
|
|
5,421
|
|
|
23.3
|
|
General
and administrative
|
|
|
3,418
|
|
|
40.6
|
%
|
|
3,326
|
|
|
24.3
|
%
|
|
7,171
|
|
|
46.1
|
%
|
|
6,348
|
|
|
27.3
|
|
Sales
and marketing
|
|
|
799
|
|
|
9.5
|
%
|
|
1,131
|
|
|
8.3
|
%
|
|
1,294
|
|
|
8.3
|
%
|
|
2,200
|
|
|
9.5
|
|
Total
operating expenses
|
|
|
4,217
|
|
|
50.0
|
%
|
|
4,457
|
|
|
32.6
|
%
|
|
8,465
|
|
|
54.4
|
%
|
|
8,548
|
|
|
36.7
|
|
Loss
from operations
|
|
|
(2,903
|
)
|
|
(34.5
|
)%
|
|
(1,588
|
)
|
|
(11.6
|
)%
|
|
(5,279
|
)
|
|
(33.9
|
)%
|
|
(3,127
|
)
|
|
(13.4
|
)
|
Interest
Income / (Expense) & Other, Net
|
|
|
(74
|
)
|
|
(0.9
|
)%
|
|
51
|
|
|
0.4
|
%
|
|
(83
|
)
|
|
(0.5)
|
%
|
|
114
|
|
|
0.5
|
|
Other
Income / (Expense)
|
|
|
-
|
|
|
-
|
%
|
|
-
|
|
|
-
|
%
|
|
-
|
|
|
-
|
%
|
|
60
|
|
|
0.0
|
|
Net
Loss
|
|
$
|
(2,977
|
)
|
|
(35.3
|
)%
|
$
|
(1,537
|
)
|
|
(11.2
|
)%
|
$
|
(5,362
|
)
|
|
(34.4
|
)%
|
$
|
(2,953
|
)
|
|
(12.7
|
)
|
Comparison
of Three Months ended June 30, 2008 and June 30, 2007
Net
loss
for the three months ended June 30, 2008 was $2,977 or $0.16 basic and diluted
loss per share. For the three months ended June 30, 2007, the net loss was
$1,537 or $0.08 basic and diluted loss per share. The net loss increased by
$1,440 or 93.7% from the same period in the prior year.
Direct
Channel:
Direct
channel sales decreased $4,331 or 48.1% to $4,671 for the three months ended
June 30, 2008 compared to direct sales of $9,002 in the same period last year.
In the current period the number of direct orders decreased 9,000 or 31.0%
and
the average order value decreased $94.00 or 28.0% to $242.00 per order.
The
Direct channel gross profit decreased $1,063 or 121.8% for the three months
ended June 30, 2008 compared to the same period in the prior year. The Direct
channel gross profit percentage decreased 13.8% to a negative margin of 4.1%
for
the three months ended June 30, 2008 compared to 9.7% for the three months
ended
June 30, 2007.
As
a
result of decreased advertising, the number of direct orders decreased as
compared to the quarter ended June 2007. We also eliminated unprofitable
auctions to eliminate poor performing vendors and unprofitable product
categories. The result of these changes was a reduction in auctions closed
(181
in the quarter ended June 2008 compared to 619 in the quarter ended June 2007)
but due to the realigned marketing and vendor resources, our auction success
rate improved significantly to 30.9% from 12.5% in the quarters ended June
30,
2008 and June 30, 2007, respectively.
The
gross
profit margin was impacted by certain inventory purchases in the quarter ended
June 2008. We purchased portable computers from various manufacturers but due
to
a shift in consumer demand for brand name merchandise, the computers were sold
at a negative margin. The negative margin attributable to these computers
totaled $215, for the quarter ended June 30, 2008.
UCM
Channel:
UCM
revenues and gross profit decreased $159 or 11.9% to $1,182 for the three months
ended June 30, 2008 compared to revenue and gross profit of $1,341 in the same
period of the prior year. In the current period the number of UCM orders
decreased 27,000 or 27.6% while the average order value increased $32.00 or
26.9% to $151.00 per order. The number of UCM vendors increased 981 or 34.1%
to
3,854 vendors compared to 2,873 for the three months ended June 30, 2007.
The
decrease in UCM orders and revenues is attributable to the improvements outlined
above, where we realigned the marketing efforts and eliminated the unprofitable
auctions and vendors, resulting in an improved auction success rate and a higher
bidder to visitor percentage.
Business
to Business:
Business
to Business revenues decreased $498 or 16.4 % for the three months ended June
30, 2008 compared to the same period in the prior year. Gross profit decreased
$84 or 22.7% to $286 for the quarter ended June 30, 2008 compared to $370 for
the quarter ended June 30, 2007. The gross profit percentage decreased to 11.3%
for the three months ended June 30, 2008 compared to 12.2% in the same period
of
the prior year.
Included
in the Business to Business results are revenues of $406 and gross profit of
$137 from the live liquidation events held in two separate physical locations
in
the State of Florida.
Other
Revenue:
Other
revenue and gross profit primarily comprised of online advertising revenue,
decreased $249 or 87.4% for the three months ended June 30, 2008. The decrease
was due to the strategic elimination of the advertisement revenue department.
In
the past, we sold advertising space on its website to various companies.
Although this strategy added a revenue stream, it impacted sales on our website
since it directed visitors away to competing websites. As a result of the
elimination of advertisement revenue, visitors spent more time shopping on
our
website, as evidenced by the increased bidder to visitor percentage; 3.9%
compared to 3.3% for the quarters ended June, 30 2008 and June 30, 2007,
respectively.
Sales
and Marketing, General and Administrative Expenses:
SG&A
expenses for the quarter ended June 30, 2008 were $4,217, a decrease of $240
or
5.4%, compared to the quarter ended June 30, 2007. Non recurring expenses
incurred in the quarter ended June 30, 2008 consisted of $81 of recruiting
fees,
$30 in severance expenses and $32 in investor relations expense for which 90,000
warrants were issued as payment. The recruiting fees were primarily incurred
as
marketing staffing levels were increased to facilitate strategic marketing
initiatives related to our restructuring plans.
The
following table is a comparison of SG&A expenses:
|
|
(Dollars in Thousands)
|
|
|
|
Three Month Period Ended
|
|
|
|
SG&A Expenses:
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Increase (Decrease)
|
|
Advertising
|
|
$
|
478
|
|
$
|
993
|
|
$
|
(515
|
)
|
Salary
and benefits
|
|
|
1,604
|
|
|
1,245
|
|
|
359
|
|
Stock-based
compensation
|
|
|
114
|
|
|
127
|
|
|
(13
|
)
|
Facilities
|
|
|
73
|
|
|
122
|
|
|
(49
|
)
|
Warehouse
|
|
|
201
|
|
|
185
|
|
|
16
|
|
Credit
card fees
|
|
|
392
|
|
|
531
|
|
|
(139
|
)
|
Telecommunications,
hardware and storage
|
|
|
177
|
|
|
170
|
|
|
7
|
|
Legal,
audit, insurance, and other regulatory fees
|
|
|
379
|
|
|
276
|
|
|
103
|
|
Depreciation
& amortization
|
|
|
103
|
|
|
227
|
|
|
(124
|
)
|
Bad
debt
|
|
|
-
|
|
|
352
|
|
|
(352
|
)
|
Consulting
and outside services
|
|
|
261
|
|
|
174
|
|
|
87
|
|
Redtag
Live
|
|
|
298
|
|
|
-
|
|
|
298
|
|
Dues
& Subscriptions
|
|
|
31
|
|
|
3
|
|
|
28
|
|
Travel
|
|
|
57
|
|
|
48
|
|
|
9
|
|
Other
SG&A
|
|
|
49
|
|
|
4
|
|
|
45
|
|
|
|
$
|
4,217
|
|
$
|
4,457
|
|
$
|
(240
|
)
|
Expense
increases are summarized as follows:
Salary
and benefits expense increased $359 or 28.8% as the result of increased staff
levels, primarily in information technology and marketing, $30 of severance
and
$81 in recruiting fees incurred in the quarter ended June 30, 2008. Stock based
compensation decreased $13 due to the increased number of forfeited stock
options during the three months ended June 30, 2008.
Warehouse
expense increased $16 or 8.6% in the current quarter compared to the same period
of the prior year, primarily due to the purchase of warehouse supplies, special
warehouse receiving requirements and additional storage costs for the live
liquidation events.
Telecommunications,
hardware and storage expenses increased $7 or 4.1% as a result of price
increases on maintenance contract renewals.
Legal,
audit, insurance and other regulatory fees increased $103 or 37.3%. Legal fees
increased $116 due to legal expense incurred in patent registrations,
infringement defense and the tender offer made to eligible employees to convert
eligible options to restricted stock rights. Accounting fees increased $62
primarily due to consulting costs incurred in the evaluation of a new ERP
system. Insurance expense increased $62 as a $63 credit was received from prior
carriers in the quarter ended June 30, 2007 and insurance coverage was increased
in the current quarter.
Consulting
and outside services expense increased $87 or 50.0% as new business initiatives
were launched and outside services were brought in, including; outside services
for the advertising department to facilitate a customer database segmentation
project and to provide increased market research & analysis and, outside
services for the IT department for software development and
restructuring.
RedTag
Live, our physical liquidation unit, was implemented in the first and second
quarter of 2008 which resulted in an increase in operating expenses of $298
compared to the quarter ended June 30, 2007. These expenses related to the
opening of a new facility for the RedTag Live division and consisted primarily
of facility, payroll and advertising expenses.
The
increases in expenses were offset by the following decreases:
Depreciation
and amortization decreased by $124 or 54.6% primarily as the result of a $43
decrease in amortization of intangible assets. At June 30, 2008 the Bidville
intangible asset was fully amortized.
As
part
of our restructuring, we realigned its marketing and advertising efforts to
better position us to manufacturers, retailers and consumers.
Advertising expense decreased $515 or 51.9% and visitor traffic decreased
1,851,000 or 26.8% as we continued to eliminate the least effective marketing
efforts and continue to analyze and segment our database to optimize all future
advertising campaigns. The cost per visitor decreased to $0.09 per visitor
from
$0.14 per visitor in the same period of the prior year. We have increased our
advertising in the third quarter of 2008 realigning the resources to better
fit
the restructured company.
Facilities
expense decreased $49 or 40.2% primarily due to the sublet of unused office
space at our corporate office partially offset by physical store location
rentals.
Credit
card fees decreased $139 or 26.2%. The decrease is primarily due to lower sales
volumes.
Other
Expense:
Net
interest expense was $47 for the quarter ended June 30, 2008 compared to
interest income of $91 for the quarter ended June 30, 2007. The increase in
net
interest expense is attributed to decreased cash equivalent balances and lower
interest rates received in addition to an increased loan balance and borrowing
costs under the terms of the credit facility.
Net
Losses:
We
experienced a net loss of $2,977 or $0.16 per share for the quarter ended June
30, 2008 compared to a net loss of $1,537 or $0.08 per share for the quarter
ended June 30, 2007.
Comparison
of Six Months ended June 30, 2008 and June 30, 2007
Net
loss
for the six months ended June 30, 2008, was $5,362 or $0.29 basic and diluted
loss per share. For the six months ended June 30, 2007, the loss was $2,953
or
$0.15 basic and diluted loss per share. The loss increased by $2,409 or 81.6%
from the same period in the prior year.
Direct
Channel:
Direct
channel sales decreased $8,604 or 51.3% to $8,166 for the six months ended
June
30, 2008 compared to Direct channel sales of $16,770 in the same period of
the
prior year. In the current period the number of direct orders decreased 15,000
or 30.0% and the average order value decreased by $242 or 33.3% per order.
The
Direct channel gross profit decreased by $1,771 or 108.5% for the six months
ended June 30, 2008 compared to the prior year. The Direct channel gross profit
percentage decreased 11.4% to a negative margin of 1.7% for the six months
ended
June 30, 2008 compared to 9.7% for the six months ended June 30,
2007.
As
a
result of decreased advertising, the number of direct orders decreased as
compared to the six months ended June 30, 2007. We also eliminated unprofitable
auctions to eliminate unsuccessful vendors but added certified vendors to the
list. The result of these changes was a reduction in auctions closed (636 in
six
months ended June 2008 compared to 1,158 in six months ended June 30, 2007)
but
due to the realigned marketing and vendor resources, our auction success rate
improved to 18.1% from 13.2%, for the six months ended June 30, 2008 and June
30, 2007, respectively.
The
gross
profit margin was impacted by certain inventory purchases in the six months
ended June 30, 2008. We purchased portable computers from various manufacturers
but due to a shift in consumer demand for brand name merchandise, the computers
were sold at a negative margin. The negative margin attributable to these
computers totaled $215, for the six months quarter ended June 30,
2008.
UCM
Channel:
UCM
revenues and gross profit decreased $337 or 12% to $2,460 for the six months
ended June 30, 2008 compared to revenue and gross profit of $2,797 in the same
period of the prior year. In the current period the number of UCM orders
decreased 58,000 or 28.7% while the average order value increased by $72.0 or
30.1% per order. The number of UCM vendors increased 2,205 or 41.0% to 7,591
vendors compared to 5,386 for the six months ended June 30, 2007.
The
decrease in UCM orders and revenues is attributable to the improvements outlined
above, where we realigned our marketing efforts and eliminated the unprofitable
auctions and vendors, resulting in an improved auction success rate and a higher
bidder to visitor percentage.
Business
to Business:
Business
to Business revenues increased $1,654 or 53.4% for the six months ended June
30,
2008 compared to the same period in the prior year. Gross profit increased
$289
or 75.3% to $673 for the six months ended June 30, 2008 compared to $384 for
the
six months ended June 30, 2007. The gross profit percentage increased to 14.2%
for the six months ended June 30, 2008 compared to 12.4% in the same period
of
the prior year. Included in the Business to Business results are revenues of
$1,086 and gross profit of $377 from the live liquidation events held in three
separate physical locations in State of Florida.
Other
Revenue:
Other
revenue and gross profit primarily comprised of online advertising revenue
decreased $416 or 68.5% for the six months ended June 30, 2008. The decrease
was
due to the strategic elimination of the advertisement revenue
department.
In
the
past, we sold advertising space on our website to various companies. Although
this strategy added a revenue stream, it impacted sales on our website since
it
directed visitors away to competing websites. As a result of the elimination
of
advertisement revenue, visitors spent more time shopping on our website, as
evidenced by the increased bidder to visitor percentage; 3.5% compared to 3.4%
for the six months ended June, 30 2008 and June 30, 2007,
respectively.
Sales
and Marketing, General and Administrative Expenses:
SG&A
expenses for the six months ended June 30, 2008 were $8,465, a decrease of
$83
or 1.0%, compared to the six months ended June 30, 2007. Non recurring expenses
incurred in the six months ended June 30, 2008 consisted of $206 of recruiting
fees, $114 in severance expense and $32 in investor relations expense for which
90,000 warrants were issued as payment. The recruiting fees were primarily
incurred as marketing staffing levels were increased to facilitate strategic
marketing initiatives related to our restructuring plans.
The
following table is a comparison of SG&A expenses:
|
|
(Dollars in Thousands)
|
|
|
|
Six Month Period Ended
|
|
|
|
SG&A
Expenses:
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Increase (Decrease)
|
|
Advertising
|
|
$
|
775
|
|
$
|
1,961
|
|
$
|
(1,186
|
)
|
Salary
and benefits
|
|
|
3,336
|
|
|
2,522
|
|
|
814
|
|
Stock-based
compensation
|
|
|
223
|
|
|
365
|
|
|
(142
|
)
|
Facilities
|
|
|
147
|
|
|
265
|
|
|
(118
|
)
|
Warehouse
|
|
|
391
|
|
|
360
|
|
|
31
|
|
Credit
card fees
|
|
|
793
|
|
|
1,043
|
|
|
(250
|
)
|
Telecommunications,
hardware and storage
|
|
|
347
|
|
|
324
|
|
|
23
|
|
Legal,
audit, insurance, and other regulatory fees
|
|
|
722
|
|
|
423
|
|
|
299
|
|
Depreciation
& amortization
|
|
|
309
|
|
|
409
|
|
|
(100
|
)
|
Bad
debt
|
|
|
-
|
|
|
352
|
|
|
(352
|
)
|
Consulting
and outside services
|
|
|
510
|
|
|
343
|
|
|
167
|
|
Redtag
Live
|
|
|
627
|
|
|
-
|
|
|
627
|
|
Dues
& Subscriptions
|
|
|
56
|
|
|
8
|
|
|
48
|
|
Travel
|
|
|
131
|
|
|
69
|
|
|
62
|
|
Other
SG&A
|
|
|
98
|
|
|
104
|
|
|
(6
|
)
|
|
|
$
|
8,465
|
|
$
|
8,548
|
|
$
|
(83
|
)
|
Expense
increases are summarized as follows:
Salary
and benefits expense increased $814 or 32.3% as a result of increased staff
levels in information technology and marketing, as overall headcount increased
to 82 employees from 77 in prior year. The remaining increase in salary and
benefits is primarily attributable to an increase of $114 of severance and
$206
in recruiting fees incurred in the six months ended June 30, 2008.
Stock
based compensation decreased $142 due to the increased number of forfeited
stock
options during the six months ended June 30, 2008.
Warehouse
expense increased $31 or 8.6% primarily driven by increased Business to Business
sales volume in the current period compared to the same period of the prior
year.
Telecommunications,
hardware and storage expenses increased $23 as a result of price increases
on
maintenance contract renewals.
Legal,
audit, insurance and other regulatory fees increased $299 or 70.7%. Legal fees
increased $115 due to legal expense incurred in patent registrations,
infringement defense and the tender offer made to eligible employees to convert
eligible options to restricted stock rights. Accounting fees increased $72
primarily due to consulting costs incurred in the evaluation of a new ERP
system. Insurance expense increased $61 as a $63 credit was received from prior
carriers in the six months ended June 30, 2007 and insurance coverage was
increased in the current quarter.
Consulting
and outside services expense increased $167 or 48.7% as new business initiatives
were launched and outside services were brought in, including; outside services
for the advertising department to facilitate a customer database segmentation
project and to provide increased market research & analysis and, outside
services for the IT department for software development and
restructuring.
RedTag
Live, our physical liquidation unit, was implemented in 2008 which resulted
in
an increase of $627 of expenses compared to the six months ended June 30 2007.
These expenses related to the opening of a new facility for the RedTag Live
division and consisted primarily of facility, payroll and advertising expenses.
The
increases in expenses were offset by the following decreases:
Depreciation
and amortization decreased by $100 or 24.4% primarily as the result of a $118
decrease in amortization of intangible assets, offset by an increase in
depreciation of $18. At June 30, 2008 the Bidville intangible asset was fully
amortized.
As
part
of our restructuring, we realigned our marketing efforts to better position
us
to manufacturers, retailers and the consumers.
Advertising
expense decreased $1,186 or 60.5% and visitor traffic decreased 2,840,000 or
20.9% as we continued to eliminate the least effective marketing efforts and
continue to analyze and segment our database to optimize all future advertising
campaigns. The cost per visitor decreased to $0.07 per visitor from $0.14 per
visitor in the same period of the prior year. We have increased our advertising
in the third quarter of 2008 realigning the resources to better fit the
restructured company.
Facilities
expense decreased $118 or 44.6% primarily due to the sublet of unused office
space at our corporate office partially offset by physical store location
rentals.
Credit
card fees decreased $250 or 24.0%. The decrease is primarily due to lower sales
volumes.
Other
Expense:
Net
interest expense was $35 for the six months ended June 30, 2008 compared to
interest income of $186 for the six months ended June 30, 2007. The increase
in
net interest expense is attributed to decreased cash equivalent balances and
lower interest rates received in addition to an increased balance and borrowing
costs under the terms of the credit facility.
Net
Losses:
We
experienced a net loss of $5,362 or $0.29 per share for the six months ended
June 30, 2008 compared to a net loss of $2,953 or $0. 15 per share for the
six
months ended June 30, 2007.
Results
of Operations for the Years Ended December 31, 2007, 2006 and 2005 (Dollars
in Thousands, except per share, order and visitor data)
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Net
Revenues
|
|
$
|
43,061
|
|
$
|
66,559
|
|
$
|
84,592
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenues
|
|
|
33,333
|
|
|
56,421
|
|
|
73,062
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
9,728
|
|
|
10,138
|
|
|
11,530
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative (1)
|
|
|
13,255
|
|
|
12,973
|
|
|
13,045
|
|
Sales
and Marketing
|
|
|
3,753
|
|
|
4,987
|
|
|
4,996
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
17,008
|
|
|
17,960
|
|
|
18,041
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
|
(7,280
|
)
|
|
(7,822
|
)
|
|
(6,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
(385
|
)
|
|
(375
|
)
|
|
(2,925
|
)
|
Interest
Income
|
|
|
564
|
|
|
642
|
|
|
124
|
|
Miscellaneous
Income
|
|
|
60
|
|
|
-
|
|
|
263
|
|
Total
Other Income (Expense), Net
|
|
|
239
|
|
|
267
|
|
|
(2,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(7,041
|
)
|
|
(7,555
|
)
|
|
(9,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock and Other Deemed Dividends
|
|
|
-
|
|
|
-
|
|
|
(1,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Available to Common Shareholders
|
|
$
|
(7,041
|
)
|
$
|
(7,555
|
)
|
$
|
(10,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per share - Basic and
|
|
|
|
|
|
|
|
|
|
|
Diluted
(2)
|
|
$
|
(0.37
|
)
|
$
|
(0.37
|
)
|
$
|
(3.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares - Basic and Diluted
|
|
|
18,864,777
|
|
|
20,260,689
|
|
|
2,643,936
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
(1)
|
Includes
$0, $30 and $360 of management fees charged to Enable by Petters
Group for
the years ended December 31, 2007, 2006 and
2005
|
(2)
|
Reflects
the retroactive effects of the impact of our December 2005 merger
with
Cape Coastal and the resulting exchange of our 1,072 shares of common
stock outstanding for the stock of Cape Coastal at an exchange ratio
of
2,320 to 1 for the year ended December 31,
2005.
|
Comparison
of Year Ended December 31, 2007 and Year Ended December 31,
2006
Net
Revenues:
Net
revenues for the year ended December 31, 2007 were $43,061, a decrease of
$23,498 or 35.3%, compared to $66,559 for the year ended December 31, 2006.
The
uBid Direct channel revenues decreased $19,247 or 38.2%, partially offset by
sales increases in the UCM channel. In the UCM channel, we record only our
commission as revenue since we bear no inventory loss or risk of return. UCM
commission revenues increased $847 or 18.1% from the prior year. Visitor traffic
to the website decreased by 3.4 million visitors or 11.2% compared to the same
period of the prior year primarily due to a 25.9% reduction in advertising
spending in 2007. The number of orders for Direct decreased 23.5% from 119,000
to 91,000 orders. The number of UCM orders increased 6.9% from 363,000 to
388,000 orders. The average order value for uBid Direct decreased by 16.4%
from
$434 to $363. The decrease in the average order value was primarily due to
decreased prices in consumer electronics. The average order value for UCM
increased by 9.4% from $115 to $127 primarily due to an increase in the number
of UCM vendors offering higher average order value merchandise. The Wholesale
business channel revenues decreased $5,532 or 51.3%. In November 2006 we
restructured the department and no new staff was added until January
2008.
Gross
Profit:
Gross
profit for the year ended December 31, 2007 was $9,728, a decrease of $410
compared to the year ended December 31, 2006. Gross profit as a percentage
of
net revenues increased to 22.6% from 15.2% in the prior year. Generally, overall
margins fluctuate based on several factors, including our product mix of sales;
sales volumes mix by our direct consumer business, Wholesale and UCM merchants;
vendor pricing; customer pricing and inventory management decisions. The uBid
Direct channel gross profit decreased $1,486 to $2,469 from $3,955 from 2007
to
2006. The $1,486 decrease was primarily due to lower sales volume and lower
average sales prices.
The
UCM
Gross profit increased $847 to $5,533 for the year ended December 31, 2007
from
$4,686 for the year ended December 31, 2006. The UCM gross profit was 56.9%
of
the total gross profit versus 46.2% in the prior year. The UCM average order
size increased $12 or 9.4% at December 31, 2007 from $115 to $127. The number
of
UCM vendors increased 1,539 or 75.1% at December 31, 2007 from 2,049 to
3,588.
Sales
& Marketing, General and Administrative Expenses:
SG&A
expenses for the year ended December 31, 2007 were $17,008, down $952 from
the
year ended December 31, 2006.
Sales
and
Marketing expenses decreased $1,234 to $3,753 in 2007 compared to $4,987 in
2006. During 2007 we eliminated less effective marketing efforts and decreased
the advertising spend by 26.0% resulting in an 11.2% reduction in visitor
traffic. The cost per bidder decreased from $4.62 in the prior year to $3.78
at
December 31, 2007, an 18.2% decrease.
General
and Administrative expenses increased by $282 or 2.2% primarily due to a $615
increase in bad debt expense and a $439 increase in depreciation and
amortization. There were other expense increases of $307 for consulting
expenses. The increases were offset by a $308 decrease in stock-based
compensation as older more expensive shares were forfeited, a decrease of $735
in salary and benefits due to lower headcount and a decrease of $260 in
warehouse expense due to lower volumes.
Other
Expense
:
Net
interest income was $179 for the year ended December 31, 2007 compared to $267
for the year ended December 31, 2006. Net interest income results from interest
received on short term investments of excess cash proceeds less interest
incurred on credit line borrowings. The lower cash balances during 2007 resulted
in decreased interest income.
Comparison
of Year Ended December 31, 2006 and Year Ended December 31,
2005
Net
Revenues:
Net
revenues for the year ended December 31, 2006 were $66,559 a decrease of $18,033
or 21.3%, compared to $84,592 for the year ended December 31, 2005. The uBid
Direct channel revenues were down $22,335 or 30.7%, mitigated by sales increases
in the UCM channel. Under the UCM channel, we record only our commission as
revenue since we bear no inventory loss or risk of return. UCM commission
revenues increased $1,302 or 38.5% from the prior year. Visitors to the website
decreased 3.1 million or 10.4% over the same period. The number of orders for
uBid Direct decreased 27.1% from 163,800 to 119,000. The number of UCM orders
increased 29.8% from 283,000 to 363,000. The average order value for uBid Direct
decreased by 4.8 % from $457 to $434. The decrease in the average order value
is
a result of lower overall prices for consumer electronics, other product lines
remained substantially unchanged. The average order value for UCM increased
from
$111 to $115 due to an increase in the number of UCM vendors and changes in
the
merchandise offered.
Gross
Profit:
Gross
profit for the year ended December 31, 2006 was $10,138, a decrease of $1,392
compared to the year ended December 31, 2005. Gross profit as a percentage
of
net revenues increased to 15.2% from 13.6% in the prior year. Generally, our
overall margins fluctuate based on several factors, including our product mix
of
sales; sales volumes mix by our direct consumer business, direct business to
business and UCM merchants; vendor pricing; customer pricing and inventory
management decisions. The direct channel gross profit decreased $3,284 to $3,955
from $7,239 from 2006 to 2005. A substantial investment was made in certain
inventory categories in the first and second quarter of 2006 in anticipation
of
increased visitors to the website. When the increased visitors did not
materialize and the inventory aged, we took inventory markdowns totaling $1.4
million in response to decreasing order values. The remaining $1.3 million
decrease was primarily due to lower sales volumes and lower average sales
prices.
The
UCM
Gross profit grew $1,302 to $4,686 for the year ended December 31, 2006 from
$3,384 for the year ended December 31, 2005. Gross profit as a percentage of
net
revenues increased to 15.2% from 13.6% in the prior year due to the higher
UCM
revenues primarily due to an increase in the number of approved UCM
vendors.
Sales
& Marketing, General and Administrative Expenses:
SG&A
expenses for the year ended December 31, 2006 were $17,960, down $81 from the
year ended December 31, 2005.
Sales
and
Marketing expenses were unchanged from the prior year. During 2006, we launched
a Direct Response Television (DRTV) test campaign to grow brand awareness and
website traffic. Expenses relating to this campaign totaled $400 for 2006.
We
eliminated less effective marketing efforts to offset this cost. The cost per
bidder increased from $4.37 in the prior year to $4.62 at December 31,
2006.
General
and Administrative expenses decreased by $81 or 0.4% primarily due to a $233
increase in stock based compensation expense and a $179 million increase in
severance pay as a result of eliminating certain positions in the third quarter
of 2006. Depreciation and amortization expense increased $256 as a result of
increased spending on capital assets and amortizable intangible assets. There
were other expense increases of $500 Legal, audit, insurance and other
regulatory fees. The increases were offset by a $300 decrease in related party
management fees which were discontinued in January 2006, a decrease of $310
in
salary and benefits due to lower headcount and a decrease of $554 in credit
card
fees. The decrease in credit card fees was primarily a result of lower volumes
and a $360 settlement in the Visa Check/Master Money antitrust litigation
settlement.
Other
Expense
:
Net
interest income was $267 for the year ended December 31, 2006 versus net
interest expense of $2,538 for the year ended December 31, 2005. We retired
all
of our debt after receiving the capital raised on December 29, 2005. Interest
income results from short term investments of excess cash proceeds from the
capital raise.
Net
Loss:
We
experienced a net loss of $7,555 or $0.37 per share for the year ended December
31, 2006 compared to a net loss of $10,265 or $3.88 per share for the year
ended
December 31, 2005. Net loss per share was dramatically impacted by the issuance
of a net 17.7 million shares in the December 2005 and February 2006 capital
raises. Our 2005 net loss per share reflects a deemed dividend of $1,200 related
to a loss we experienced upon extinguishment of debt held by a significant
stockholder on December 29, 2005.
Liquidity
and Capital Resources
Historically,
our primary sources of capital have been cash flow from operations and loans
from affiliated parties. More recently, our primary sources of cash flow have
been from operations and the $29.5 million raised in the December 29, 2005
private offering of our common stock and warrants.
Net
cash
used in operating activities for the six months ended June 30, 2008 was $6,164
compared to $2,913 used in the six months ended June 30, 2007. The net cash
used
in operating activities in 2008 increased primarily due to the increase in
net
loss, increase in cash used of $580 for inventory purchases and a $636 increase
in accounts receivable. Also contributing to the increases in cash used was
a
$83 increase in prepaid expenses and a $140 decrease in accounts payable.
Partially offsetting the increases in cash used was a $73 increase in accrued
expenses. The increase in inventories is intended to increase products available
for auction. Accounts receivable increased $636 primarily due to the increase
in
credit card receivables and increased open account sales in the Business to
Business sales channel. The increase in credit card receivables is attributable
to the timing of the payments by the credit card processing companies, which
creates a lag between the sale date and the receipt of proceeds from the credit
card processing companies.
Net
cash
used in investing activities was $473 for the six months ended June 30, 2008
due
primarily to the purchase of property and equipment. Net cash used in investing
activities was $102 for the period ended June 30, 2007. The increase in
purchases of property and equipment for the six months ended June 30, 2008
related primarily to hardware and software purchases as IT infrastructure
investment increased for the six months ended June 30, 2008.
Net
cash
provided by financing activities was $3,713 for the six months ended June 30,
2008, compared to the net cash used of $1,415 for the same period last year.
The
cash inflow in 2008 is due to advances on the Wells Fargo Credit Agreement
of
$3,911 offset by $198 of inventory purchases financed through the flooring
facility.
The
non-cash investment transaction relates the purchase of the redtag.com URL
which
accounted for $203 for the six months ended June 30, 2008. This transaction
is
discussed in the intangibles section in Note 1, Basis of
Presentation.
On
May 9, 2006, we entered into a Credit and Security Agreement with Wells
Fargo Bank, National Association acting through Wells Fargo Business Credit
and
related security agreements and other agreements described in the Credit and
Security Agreement (the “Credit Agreement”). The Credit Agreement provides for
advances to us of up to a maximum of $25.0 million. The amount actually
available to the Company will vary from time to time, depending on, among other
factors, the amount of eligible inventory and the amount of eligible accounts
receivable. The obligations under the Credit Agreement and all related
agreements are secured by all of the our assets. The initial term of the
Agreement is three years, expiring on April 28, 2009. Up to $7.0 million of
the maximum amount is available for irrevocable, standby and documentary letters
of credit. Advances under the Credit Agreement bear interest at a base rate
(Wells Fargo Bank's prime rate) or LIBOR plus 2.5%. The Credit Agreement
requires a prepayment fee of $125,000 if we terminate the Credit Agreement
during the third year. The Credit Agreement requires us, among other things,
to
limit capital expenditures and maintain minimum availability on the line. Also,
we are obligated contractually by a restrictive lock box arrangement. The Credit
Agreement also requires us to pay a variety of other fees and expenses,
including minimum annual interest of $125,000. As of June 30, 2008 we had
$35,000 in deferred financing fees being amortized over the life of the Credit
Agreement. As of June 30, 2008, the effective loan rate was 8.25%, we had an
outstanding balance of $3,911,000.
On
July
25, 2008, Wells Fargo Bank notified us or our failure to meet the minimum excess
availability requirement of $3.5 million. Since we did not meet the minimum
excess availability requirement as stated in the agreement, the financial
covenants went into effect which required that we demonstrate net earnings
at
the levels stated in the agreement. Due to the recent restructuring, we were
unable to meet the covenants. Wells Fargo Bank has not elected to accelerate
or
call the loan at this point, but has put into effect the default interest rate
of 11.25% on the outstanding balance of the loan.
In
response to the notification of violation from Wells Fargo, we are currently
evaluating several options; including, but not limited to, the payment of a
waiver fee of $100,000 to Wells Fargo Bank along with resetting the covenants,
complete the sale of 2.1 million shares of common stock held in treasury in
a
private offering, draw upon the Fusion Capital Equity Line or refinance the
Wells Fargo credit facility with alternative lenders.
We
believe that the above options in conjunction with the current working capital,
cash flows from operations and availability under our new equity facility,
discussed below, will be adequate to support our current operating plans for
at
least the next 12 months.
On
July
15, 2008 we signed a $10.0 million common stock purchase agreement with Fusion
Capital Fund II, LLC, an Illinois limited liability company (“Fusion Capital”).
Concurrently with entering into the common stock purchase agreement, we entered
into a registration rights agreement with Fusion Capital. Under the registration
rights agreement, we agreed to file a registration statement related to the
transaction with the U.S. Securities and Exchange Commission (“SEC”) covering
the shares that have been issued or may be issued to Fusion Capital under the
common stock purchase agreement. After the SEC has declared effective the
registration statement related to the transaction, we have the right over a
24-month period to sell shares of common stock to Fusion Capital from time
to
time in amounts between $60,000 to $1.0 million, depending on certain conditions
set forth in the agreement, up to an aggregate of $10.0 million.
In
consideration for entering into the agreement, upon execution of the common
stock purchase agreement we issued to Fusion Capital 230,074 shares of our
restricted common stock as a commitment fee. Also, we will issue to Fusion
Capital an additional 230,074 shares as a commitment fee pro rata as we receive
the $10.0 million of future funding. The purchase price of the shares related
to
the $10.0 million of future funding will be based on the prevailing market
prices of our common stock at the time of sales without any fixed discount,
and
we will control the timing and amount of any sales of shares to Fusion Capital.
Fusion Capital shall not have the right or the obligation to purchase any shares
of our common stock on any business day that the price of our common stock
is
below $0.75 per share. The common stock purchase agreement may be terminated
by
us at any time at our discretion without any cost to us. There are no negative
covenants, restrictions on future funding, penalties or liquidated damages
in
the agreement. The proceeds received by us under the common stock purchase
agreement will be used to provide working capital to further implement our
recently announced strategic change to focus on liquidating excess inventories.
We
issued
the initial 230,074 shares at the agreed upon price of $1.52 per share,
determined based on the 20-day moving average as of the date the agreement
was
accepted. We will record the transaction in the quarter ended September 30,
2008.
Contractual
Obligations
Contractual
Obligations and Commitments
As
of
December 31, 2007, our only contractual obligations are related to operating
leases which consist of base rent under our current leases for both our
corporate office and call center. Under both leases we also pay additional
rent
for our proportionate share of common area maintenance, real estate taxes and
other operating expenses. Minimum payments under these leases are as
follows:
|
|
Total
|
|
Less than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
After
5 Years
|
|
Operating
Leases
|
|
$
|
1,165,999
|
|
$
|
490,749
|
|
$
|
675,250
|
|
$
|
—
|
|
$
|
—
|
|
Impact
of Inflation
Inflation
has not had a material impact upon operating results, and we do not expect
it to
have such an impact in the near future. There can be no assurances, however,
that our business will not be adversely affected by inflation.
Off-Balance
Sheet Arrangements
As
of
March 31, 2008, December 31, 2007, 2006 and 2005, we have no off-balance sheet
arrangements as defined in Item 303(a)(4) of Regulation S-K, promulgated by
the
SEC.
Quantitative
and Qualitative Disclosures about Market Risk
The
Company has little exposure to risks of fluctuating interest rates or
fluctuating currency exchange rates. Accordingly, the Company does not believe
that changes in interest or currency rates will have a material effect on our
liquidity, financial condition or results of operations. It is the Company’s
policy not to enter into derivative financial instruments.
DIRECTORS
AND EXECUTIVE OFFICERS
The
following table sets forth our executive officers and directors, their ages
and
position(s) as of September 5, 2008:
Name
|
|
Age
|
|
Position
|
Jeffrey D. Hoffman
|
|
47
|
|
Chief Executive Officer and Director
|
|
|
|
|
|
Timothy E. Takesue
|
|
40
|
|
Executive Vice President, Merchandising
|
|
|
|
|
|
Miguel A. Martinez, Jr.
|
|
53
|
|
Chief Financial Officer and Secretary
|
|
|
|
|
|
Glenn R. Weisberger
|
|
49
|
|
Executive Vice President, Business Development
|
|
|
|
|
|
Amy Powers
|
|
31
|
|
Vice President, Technology
|
|
|
|
|
|
Bruce Hutchison
|
|
59
|
|
Vice President, Marketing
|
|
|
|
|
|
Steven Sjoblad
|
|
58
|
|
Chairman of the Board
|
|
|
|
|
|
David E. Baer
|
|
35
|
|
Director
|
|
|
|
|
|
Mary L. Jeffries
|
|
51
|
|
Director
|
|
|
|
|
|
Casey L. Gunnell
|
|
61
|
|
Director
|
|
|
|
|
|
Dr. Kenneth J. Roering
|
|
66
|
|
Director
|
Our
directors hold office until the earlier of their death, resignation or removal
or until their successors have been qualified. Officers serve at the discretion
of the Board of Directors.
Jeffrey
D. Hoffman
Mr.
Hoffman was named Chief Executive Officer and joined the Enable Holdings, Inc.
Board of Directors on September 24, 2007. He is an accomplished entrepreneur
and
innovator establishing a long and winning track record in the fields of on-line
auction and retail, software and entertainment. Mr. Hoffman was a founding
partner of Competitive Technologies, Inc (CTI), which offered online travel
reservation tools sold directly to travel agencies and corporations. CTI was
ultimately purchased by American Express. He was also CEO and founding partner
of Virtual Shopping, Inc., a leading developer of patented, proprietary online
retail systems, before joining the founding executive team of his most notable
venture, Priceline.com, where Mr. Hoffman held two CEO titles in the Priceline
family of companies. For his contribution to the creation of the industry’s
first online retail tools, he was twice named by the travel and tourism industry
as one of its “25 Most Influential Executives”. Mr. Hoffman also serves as
Chairman of Adapted Sports, a charity organization dedicated to bringing sports
and team participation to disabled children nationwide. Mr. Hoffman received
his
B.S. in Computer Sciences from Yale University.
Timothy
E. Takesue
has over
21 years of merchandising, retail, mail order and e-commerce experience. On
December 29, 2005, Mr. Takesue was named Executive Vice President,
Merchandising of Enable Holdings, Inc. In 1997, Mr. Takesue joined uBid, Inc.
as
a member of the original management team of officers. During his tenure with
uBid, Inc., he has served in various positions including vice president of
merchandising, senior vice president of merchandising and sales, interim CEO
and
acting chief marketing officer. Mr. Takesue became Executive Vice President,
Merchandising of uBid, Inc. in April 2003. Mr. Takesue was an instrumental
part
of the officer team that led uBid, Inc. in the 1998 IPO, 1999 secondary
offering, subsequent sale in 2000 to CMGI and purchase from CMGI in 2003. Mr.
Takesue sits on the advisory board of The Brave Wings Foundation, a Northwestern
Memorial Foundation charity, and attended Wayne State University in Detroit,
Michigan.
Miguel
A. Martinez, Jr.
was
named Chief Financial Officer in January 2008, prior to that he was Vice
President of Finance of Enable Holdings, Inc. He has served as Vice President
of
Finance of Enable Holdings, Inc. since February 2005. He was appointed as
Secretary of Enable Holdings, Inc. in January 2006. Mr. Martinez brings over
20
years of financial management experience to Enable. Before joining Enable,
from
March of 1999 to November 2004, Mr. Martinez was senior vice president and
chief
financial officer with Hartford Computer Group, a leading PC manufacturer,
distributor and service company. Mr. Martinez is a certified public accountant
and received a BBA degree from Loyola University in Chicago, Illinois and is
actively involved in several professional organizations.
Glenn
R. Weisberger
was
named the Executive Vice President of Business Development on May 15, 2008.
Mr.
Weisberger previously served as Senior Vice President, Chief Financial Officer
and General Counsel of Navio Systems, Inc. Mr. Weisberger also served as Vice
President of Legal and Business Affairs for Universal Television and Networks
Group/MCA Television Limited.
Amy
Powers
is the
Company’s Vice President of Technology, and is responsible for directing
strategic and tactical technology planning for the enterprise. Ms. Powers
previously served as the Company’s Development Manager. Prior to joining the
Company in 2003, Ms. Powers worked as an independent contractor largely in
the
retail sector as a developer. She holds an Applied Information Technology degree
from Information Technology Institute, Halifax, Nova Scotia and a B. S. degree
from Dalhousie University.
Bruce
Hutchison
was
named Vice President of Marketing on May 22, 2008. Mr. Hutchison previously
held
senior marketing positions at Midas International Corporation, Thompson
Multimedia and D’Arcy, Masius, Benton & Bowles. Most recently Mr. Hutchison
worked with Sears Holdings Corporation’s Kmart business.
Steven
Sjoblad
Mr.
Sjoblad was appointed as Chairman of the Board of Enable Holdings of February
13, 2007. He is currently Chairman, CEO of Captira Analytical, a software,
data
and analytics firm serving the criminal justice vertical market. Previously
Mr.
Sjoblad spent 19 years with Fallon McElligott, a preeminent international
advertising agency where he guided strategy and marketing programs for such
industry leaders as Coca-Cola, FedEx and Northwest Airlines; he was an original
member of the firm and served as president for eight years. Mr. Sjoblad held
various positions with Fair Isaac Corporation (NYSE:FIC), an $830 million
creative analytics firm where he served on the executive committee as well
as
Fair Isaac Corporation’s Chief Marketing Officer. He is currently a board member
of Schwan’s Foods, a $3.6 billion international food concern, a board member of
Fluxion, LLC a marketing automation concern and BenNevis, a CRM services firm.
Mr. Sjoblad also served for 12 years as non-executive Chairman of the Board
of
Ellerbe Becket, a leading architectural and engineering firm.
Dr.
Kenneth J. Roering
Dr.
Roering was elected to the board on December 1, 2006. He is currently Professor
of Marketing in the Carlson School of Management of the University of Minnesota
and Executive Vice President, Strategic Management, Marshall BankFirst Corp.
He
previously served as Chairman of the Marketing Department at the University
of
Minnesota for five years, and prior to that, occupied the same position at
the
University of Missouri. In addition, Dr. Roering served as a visiting professor
or distinguished guest lecturer at a number of universities, including
Northwestern University, Harvard University, University of Michigan, University
of Virginia, University of Illinois, University Jean Moulin (Lyon, France)
and
the Warsaw School of Economics (Poland). Over the past 20 years, Dr. Roering
has
been a member of the Board of Directors of several private and public companies,
and has served as an independent consultant to numerous corporations, including
American Express, 3M, Cargill, Carlson Companies and Motorola. He currently
serves on the Board of Directors of Arctic Cat (Lead Director), Innovex Inc.
and
Rave Sports. Dr. Roering obtained his doctorate from the University of Iowa.
Mary
L. Jeffries
Ms.
Jeffries was elected to the board on March 7, 2007. She is currently President
and COO of Petters Group Worldwide, LLC. Ms. Jeffries previously owned her
own
management consulting company focused in the areas of strategy, operations
and
finance. She previously was General Partner and Chief Operating officer for
St.
Paul Venture Capital, a large early-stage venture capital firm and Chief
Operating Officer of WeberShandwick, an international public relations and
marketing communications company. Ms. Jeffries currently serves on the boards
of
several Petters Group Worldwide companies and on the Board of Directors for
Famous Dave’s of America, Childrens Cancer Research and Catholic Charities, as
well as several early-stage venture funded companies. Ms Jeffries received
her
B.A. in Finance and Accounting from the University of Northern
Iowa.
David
E. Baer
Mr. Baer
was elected to the board on March 7, 2007. He is currently Chief Legal Officer
of Petters Group Worldwide and serves on the boards of several Petters Group
Worldwide Companies. Mr. Baer previously was an attorney at Leonard, Street
and
Deinard, where he practiced corporate law. In 2006 he was named one of the
top
15 lawyers in Minnesota by Minnesota Lawyer. Mr. Baer received his B.A. from
the
University of Minnesota and his law degree from the William Mitchell College
of
Law.
Casey
L. Gunnell
Mr.
Gunnell was elected to the board on May 14, 2007. He is currently CEO of Gunnell
Family Corp, a business services corporation providing interim management,
process improvement and restructuring services to a diverse roster of clients,
including: HealthSouth Corp., Charter Communications and Calpine Corp.
Previously Mr. Gunnell served 19 years in high profile positions with a $6
billion privately held automotive distribution group. He has past service on
boards for several private companies and one publicly traded company; he is
currently a board member for US Spinal Technologies, serving on the finance
committee and audit committee chair. Mr. Gunnell is a certified public
accountant and received his B.B.A. from Florida Atlantic University.
Our
above-listed officers and directors have neither been convicted in any criminal
proceeding during the past five years nor parties to any judicial or
administrative proceeding during the past five years that resulted in a
judgment, decree or final order enjoining them from future violations of, or
prohibiting activities subject to, federal or state securities laws or a finding
of any violation of federal or state securities law or commodities law.
Similarly, no bankruptcy petitions have been filed by or against any business
or
property of any of our directors or officers, nor has any bankruptcy petition
been filed against a partnership or business association in which these persons
were general partners or executive officers.
Family
Relationships
There
are
no family relationships among any of our directors, director nominees, or
executive officers.
Board
of Directors and Committees of the Board
The
Board
of Directors for the year of 2007 named 3 committees for corporate governance.
The organization of the committees is as outlined below.
2007
Board Committees
|
|
Audit
|
|
Governance
|
|
Compensation
|
|
Steve Sjoblad
|
|
|
|
|
|
|
|
|
xx
|
|
|
|
|
|
|
|
|
|
|
|
|
Mary L. Jeffries
(1)
|
|
|
x
|
|
|
|
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Kenneth J. Roering
|
|
|
x
|
|
|
xx
|
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
Casey L. Gunnell (1)
|
|
|
xx
|
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David E. Baer
|
|
|
|
|
|
x
|
|
|
|
|
xx
denotes a chairman x denotes a member of the committee
(1)
Casey
L. Gunnell and Mary L. Jeffries are the financial experts serving on the audit
committee.
Director
Independence
Steve
Sjoblad, Dr. Kenneth J. Roering and Casey L. Gunnell are the members of the
Board of Directors who are “independent,” as that term is defined by Section
301(3)(B) of the Sarbanes-Oxley Act of 2002. As independent directors, Messrs.
Sjoblad, Roering and Gunnell serve as members of our Audit and/or Compensation
Committees.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors, executive officers and holders of more than 10% of our common stock
to file with the SEC reports regarding their ownership and changes in ownership
of our equity securities. We believe, during fiscal year 2007, that our
directors, executive officers and 10% stockholders complied with all Section
16(a) filing requirements. In making this statement, we have relied upon
examination of the copies of Forms 3, 4 and 5 provided to us and the written
representations of its directors, officers and 10% stockholders.
Code
of Ethics
We
had
previously adopted a code of ethics that applied to our directors and officers
(including our chief executive officer, chief financial officer, chief
accounting officer, and any person performing similar functions). In connection
with the recent merger, we have adopted a new Code of Ethics and Business
Conduct that now applies to all employees, including our chief executive
officer, chief financial officer, chief accounting officer and any other person
performing that function. A copy of this document is available on our website
at
www.enableholdings.com, free of charge, under the Investor Relations section.
We
will satisfy any applicable SEC disclosure requirements regarding an amendment
to, or waiver from, any provision of the Code with respect to our principal
executive officer, principal financial officer, principal accounting officer
and
persons performing similar functions by disclosing the nature of such amendment
or waiver on our website or in a report on Form 8-K.
COMPENSATION
DISCUSSION AND ANALYSIS
This
compensation discussion and analysis (“CD&A”) is intended to provide
information about our compensation objectives and policies for our principal
executive officer, our principal financial officer and our other most highly
compensated executive officer that will place in perspective the information
contained in the tables that follow this discussion. Our CD&A begins with a
description of our former relationship with Petters Group with respect to the
original determination of compensation and is followed by a general description
of our compensation program and specific information as to its various
components. Immediately following the CD&A is the Compensation Report of the
Board of Directors, who served in the role of the compensation committee for
the
fiscal year ending December 31, 2007 (the “Committee Report”). Following the
Committee Report are compensation tables describing compensation paid in 2007
and outstanding equity awards held by executives. At the end, we have provided
information concerning pension benefits and change-in-control
agreements.
Overview
As
outlined elsewhere in this prospectus, prior to the Merger with Cape Coastal
on
December 29, 2005, uBid, Inc. was a subsidiary owned by the Petters Group.
Prior
to the Merger, Robert H. Tomlinson, Jr. was the president and chief executive
officer and Timothy E. Takesue was our executive vice president of the
merchandising of uBid, Inc. and their compensation was determined in accordance
with negotiated employment contracts negotiated with Petters Group prior to
the
Merger. Miguel Martinez, Jr. was the vice president of finance of uBid, Inc.
prior to the Merger and his compensation was determined by Mr. Tomlinson when
he
was hired. In connection with the Merger, Mr. Tomlinson and Mr. Takesue entered
into new employment contracts with Enable Holdings, Inc. and these agreements
continued the same compensation structure that existed prior to the Merger
except for the grant of certain options that were issued in connection with
the
Merger. Mr. Martinez also continued to receive the same compensation that he
was
paid prior to the Merger and was also granted options after the Merger. The
compensation paid to these officers was determined by Mr. Romenesko, who
was a member of the board of directors of uBid, Inc. in consultation with
human resource representatives from the Petters Group. The compensation payable
to Mr. Tomlinson and Mr. Takesue for fiscal years 2006 and 2007 is set forth
in
their employment agreements with the Company. Mr. Hoffman was appointed CEO
in
September 2007. His compensation was approved by the Compensation Committee
Members.
Messr(s), Hoffman,
Takesue, Martinez and Ms. Powers are provided with the same benefits that are
available to all of uBid’s salaried employees, as described more fully
below.
Objectives
of Compensation
The
compensation for our Named Executive Officers was determined to attract and
retain talented and productive executives who are motivated to protect and
enhance the long-term value of the Company for its stockholders. The objective
is to tie compensation to business and individual performance and to provide
total compensation competitive with our peers. Our compensation levels are
reviewed in light of publicly available information on compensation paid by
companies in our industry that are similar to us, taking into account our size.
The Compensation Committee members of the Board of Directors (the “Committee”)
administer our compensation decisions. The Committee has not adopted any formal
policies for allocating compensation among salaries, bonuses and equity
compensation. As part of its consideration, the Committee reviews and discusses
market data.
Overview
of 2007 Executive Compensation
Base
Salary
Base
salary for Mr. Hoffman was approved in the employment agreement entered
into in September 2007 based on his position and level of responsibility,
individual performance, and market practices. Mr. Hoffman’s salary for 2007 was
set at $350,000.
Base
salary for Mr. Takesue was approved in the employment agreement entered
into in December 2005 based on his position and level of responsibility,
individual performance, and market practices. Mr. Takesue’s salary for 2007 was
set at $300,000.
Base
salary for Mr. Martinez was approved by the Committee in December 2007
based on his position and level of responsibility and market practices. Mr.
Martinez’s salary for 2008 was set at $200,000.
Base
salary for Ms. Powers was approved by the Compensation Committee based on her
position and level of responsibility and market practices. Ms. Powers salary
for
2008 was set at $120,000.
2005
Equity Incentive Plan
Also
on
December 15, 2005, our board approved and adopted the 2005 Equity Incentive
Plan. The 2005 Equity Incentive Plan is an equity-based compensation plan to
provide incentives to, and to attract, motivate and retain the highest qualified
employees, directors, consultants and other third party service providers.
The
2005 Equity Incentive Plan enables the board to provide equity-based incentives
through grants or awards of stock options and restricted stock awards
(collectively, “Incentive Awards”) to our present and future employees,
consultants, directors, and other third party service providers. The board
has
reserved a total of 2,500,000 shares of common stock for issuance under the
2005
Equity Incentive Plan. If an Incentive Award granted pursuant to the 2005 Equity
Incentive Plan expires, terminates, is unexercised or is forfeited, or if any
shares are surrendered to us in connection with an Incentive Award, the shares
subject to such award and the surrendered shares will become available for
further awards under the 2005 Equity Incentive Plan. On December 29, 2005,
we granted options under the 2005 Equity Incentive Plan to purchase 1,721,700
shares of common stock to our Named Executive Officers and other employees.
No
options were issued under the 2005 Equity Incentive Plan to any Named Executives
in 2006. In 2007 under the 2005 Equity Incentive Plan, Mr. Hoffman was granted
options to purchase 600,000 shares of common stock of which 250,000 were
qualified and 350,000 were non-qualified, Ms. Powers was granted options to
purchase 55,000 shares of common stock.
On
February 19, 2008 we offered eligible employees the opportunity to exchange
on a
grant by grant basis, their outstanding eligible options for restricted stock
rights.
Options
eligible for the exchange in this offer were granted under our 2005 Equity
Incentive Plan (the “2005 Equity Incentive Plan”) in 2005 and 2006 and had an
exercise price per share greater than $2.00. Individuals that held 500 or fewer
eligible options were cashed out.
The
number of restricted stock rights granted in exchange for each eligible option
surrendered was based upon an exchange ratio of 3 to 1. The 3 to 1 exchange
ratio was determined based on the fair value of the eligible options which
approximated the share price at a 3 to 1 conversion rate. The incremental stock
compensation expense resulting from the offer is $109 to be amortized over
the
remaining life of the original options granted of approximately 2.5 years.
Pursuant
to the offer, 16,000 options were canceled and cashed out by individuals who
had
500 or fewer options. There were an additional 20 individuals that tendered
765,000 options for an aggregate of 255,000 restricted stock
rights.
At
June
30, 2008 and 2007 we had options to purchase 1,693,500 and 1,762,200 shares,
respectively, of common stock outstanding to certain officers and other
employees.
At
June
30, 2008 we had restricted stock rights outstanding of 253,333, of which 98,333
are vested. There were no restricted stock rights outstanding at June 30,
2007.
On
March
25, 2008, we issued warrants to purchase 90,000 shares of its common stock
to an
unrelated investor relations company. The warrants are exercisable for 10 years
at the exercise price of $0.55, $1.20 and $4.50, for each tranche of 30,000
warrants, respectively. These warrants were issued for services to be provided
over a period of time, as indicated in the agreement and we expensed the entire
fair value of these warrants ($32) during the quarter ended June 30, 2008.
The
fair value was determined in accordance with the Black-Scholes model using
an
expected volatility of 68%, risk free interest rate of 5% and the warrants
expiration of approximately 10 years from the date of issuance.
The
compensation costs charged against income was $114 and $127 for the three months
ended June 30, 2008 and 2007, respectively. Compensation costs are included
in
general and administrative expenses in the consolidated Condensed Statement
of
Operations.
Intangibles
On
June
13, 2008, we agreed with the Petters Group Worldwide, LLC, a holder of greater
than 5% of our voting common stock, for the purchase of an internet domain
name
or Universal Resource Locator or URL, www.redtag.com, in exchange for 150,000
shares of our common stock. The URL has an indefinite useful life and thus
in
accordance with the Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (“SFAS 142”), the intangible asset need not
be amortized. Each reporting period, we will evaluate the useful life of the
intangible asset to determine whether events and circumstances continue to
support an indefinite useful life, and record impairment if needed.
Tax
and Accounting Implications
We
account for the equity compensation expense for our employees and executive
officers, including our Named Executive Officers, under the rules of SFAS
123(R), which requires us to estimate and record an expense for each award
of
equity compensation over the vesting period of the award. Accounting rules
also
require us to record cash compensation as an expense at the time the obligation
is accrued.
Retirement
and Benefit Plans
Our
Named
Executive Officers participate in the same retirement and benefit plans as
all
of our salaried employees.
Compensation
Committee Report
Mr.
Sjoblad served as the Compensation Committee Chairman for fiscal year 2007.
Mr.
Sjoblad has reviewed and discussed the Compensation Discussion and Analysis
required by Item 402(b) of Regulation S-K with management and, based on
such review and discussion, Mr. Sjoblad has concluded that the Compensation
Discussion and Analysis be included in this prospectus.
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
Payouts
|
|
|
|
And nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
Option
|
|
Non - Equity
|
|
deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Annual
|
|
Stock
|
|
Awards
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
Total
|
|
Named Executive Officer
|
|
Annual Compensation
|
|
Compensation
|
|
Award(s)
|
|
($)
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Compensation
|
|
& Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
($) (2)
|
|
($)
|
|
(1)(2)(4)
|
|
($)
|
|
($)
|
|
($)
(3)
|
|
($)
|
|
Jeffrey D. Hoffman
Chief Executive Officer
|
|
|
2007
2006
2005
|
|
|
350,000
-
-
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
36,330
-
-
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
50,000
-
-
|
|
|
436,330
-
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy E. Takesue
President, uBid, Inc.
|
|
|
2007
2006
2005
|
|
|
275,000
250,000
225,000
|
|
|
-
-
-
|
|
|
-
1,500
1,500
|
|
|
-
-
-
|
|
|
-
-
269,760
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
275,000
251,500
496,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miguel A. Martinez, Jr.
Chief Financial Officer
|
|
|
2007
2006
2005
|
|
|
200,000
159,000
129,808
|
|
|
-
-
50,000
|
|
|
-
1,500
1,500
|
|
|
-
-
-
|
|
|
-
-
40,807
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
200,000
160,500
222,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amy Powers V.P.
Technology
|
|
|
2007
2006
2005
|
|
|
120,000
-
-
|
|
|
-
-
-
|
|
|
1,500
-
-
|
|
|
-
-
-
|
|
|
4,453
-
-
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
125,953
-
-
|
|
Former Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert H. Tomlinson, Jr.
President and Chief
Executive Officer
|
|
|
2007
2006
2005
|
|
|
300,000
275,000
250,000
|
|
|
-
-
|
|
|
-
1,500
1,500
|
|
|
-
-
-
|
|
|
-
132,311
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
-
-
31,500
|
|
|
300,000
276,500
415,311
|
|
(1)
|
The
option awards amounts represent the fair value amount expensed in
2007 for
options granted.
|
(2)
|
All
options awards were granted on December 31, 2005 at an exercise price
of
$4.50 per option. Messr(s), and Takesue’s options vest 1/3 at the
completion of two years of service. The remaining 2/3 vest ratably
over
the next two years. Mrs. Power’s options vest ratably over a four year
period. Mr. Hoffman’s options vest ratably over a three year
period.
|
(3)
|
As
part of Mr. Hoffman’s employment agreement he was granted $50,000 in
relocation fees. Mr. Tomlinson was granted $31,500 in relocation
and
housing fees as part of his employment agreement.
|
(4)
|
See
Footnote #18 “2005 Equity Incentive
Plan”.
|
Outstanding
Equity Awards at Fiscal Year-End
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(1)
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(2)
|
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
|
Option
Exercise
Price ($)
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)
(4)
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units
or Other
Rights That
Have Not
Vested (#)
(3)
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units
or Other
Rights That
Have Not
Vested ($)
(5)
|
|
Jeffrey D. Hoffman
Chief Executive Officer
|
|
|
-
|
|
|
600,000
|
|
|
-
|
|
$
|
1.14
|
|
|
September
21,
2017
|
|
|
600,000
|
|
|
834,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy E. Takesue
President, uBid, Inc.
|
|
|
165,000
|
|
|
335,000
|
|
|
-
|
|
$
|
4.50
|
|
|
December
29,
2015
|
|
|
335,000
|
|
|
465,650
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miguel A. Martinez, Jr.
Vice President, Finance
|
|
|
37,500
|
|
|
37,500
|
|
|
-
|
|
$
|
4.50
|
|
|
December
29,
2015
|
|
|
37,500
|
|
|
52,125
|
|
|
-
|
|
|
|
|
(1)
|
Shares
under exercisable awards with no performance condition. In the event
of an
acquisition of the Company through the sale of substantially all
of the
Company’s assets and the consequent discontinuance of its business or
through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divesture or liquidation
of the
Company, the Board may provide for one or more of the following with
respect to unvested options: the equitable acceleration of the
exercisability of any outstanding options; the complete termination
of the
Equity Incentive Plan and the cancellation of outstanding options
not
exercised prior to a date specified by the Board; and the continuance
of
the Equity Incentive Plan with respect to the exercise of options
which
were outstanding as of the date of adoption by the Board for such
transaction and provide to holders of such options the right to exercise
their respective options as to an economically equivalent number
of shares
of stock of the corporation succeeding the Company by reason of such
transaction.
|
(2)
|
Shares
under unexercisable/unvested awards with no performance
conditions.
|
(3)
|
There
are no unvested awards with performance
conditions.
|
(4)
|
Based
on closing stock price of $0.80 on January 31,
2008.
|
(5)
|
There
are no unvested awards with performance
conditions.
|
No
Options were exercised during the year ended December 31, 2007.
The
following table shows the number of options to purchase common stock granted
to
each of the Named Executive Officers during 2007.
Grants
of Plan-Based Awards
|
|
|
|
|
|
Estimated Future Payouts Under Equity Incentive Plan
Awards
|
|
All Other
Stock
Awards
Number of
|
|
All Other
Option
Awards
Number of
|
|
Exercise or
Base Price of
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares of
|
|
Securities
|
|
Option
|
|
|
|
|
|
Non-Equity Incentive Plan Awards (1)
|
|
|
|
Target
|
|
Fair Value
|
|
Maximum
|
|
Stock or
|
|
Underlying
|
|
Awards
|
|
Name
|
|
Grant Date
|
|
Threshold ($)
|
|
Target ($)
|
|
Maximum ($)
|
|
Threshold (#)
|
|
(#)
|
|
($)
|
|
(#)
|
|
Units (#)
|
|
Options (#)
|
|
($/Sh)
|
|
Jeffrey D. Hoffman
Chief Executive
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
600,000
|
|
|
414,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President, uBid, Inc.
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V.P. Technology
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
55,000
|
|
|
44,946
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1.35
|
|
Former Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officer
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
(1)
|
We
do not maintain any Non-Equity Incentive Plan
Awards
|
Compensation
of Directors
For
the
fiscal year ended December 31, 2007, the Chairman of the Board, Mr. Sjoblad,
received aggregate annual compensation of $27,000. As Chairman of the Board,
Mr.
Sjoblad has an annualized compensation of $35,000 plus additional compensation
for committee memberships. Our Board of Directors receive annual compensation
of
$25,000 plus additional compensation for committee memberships for 2007 paid
quarterly. We do not separately pay for attendance at regular meetings or
telephonic calls unless otherwise approved in advance by the Board. Directors
receive an option to purchase 50,000 shares of common stock upon appointment
to
the Board. The exercise price of these options is priced on the date of the
grant and the option vests over 16 equal quarterly installments.
Director
Compensation
Name
|
|
Fees Earned
or Paid in
Cash ($)
|
|
Stock Awards
($)
|
|
Option
Awards
($)(1)(2)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings ($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
Steve Sjoblad
|
|
|
27,000
|
|
|
-
|
|
|
130,185
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
157,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mary L. Jeffries (2)
|
|
|
25,250
|
|
|
-
|
|
|
44,790
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
70,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Kenneth J. Roering
|
|
|
22,875
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
22,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casey L. Gunnell
|
|
|
15,250
|
|
|
-
|
|
|
45,395
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David E. Baer (2)
|
|
|
23,750
|
|
|
-
|
|
|
44,790
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
68,540
|
|
|
(1)
|
The
option awards amounts represent compensation costs charged against
income
for the year ended December 31, 2007 and 2006 included in General
and
Administrative Expenses. Compensation costs exclude the impact of
estimated forfeitures and include the amount of actual forfeitures.
In the
event of an acquisition of us through the sale of substantially all
of our
assets and the consequent discontinuance of its business or through
a
merger, consolidation, exchange, reorganization, reclassification,
extraordinary dividend, divesture or liquidation of us, the Board
may
provide for one or more of the following with respect to unvested
options:
the equitable acceleration of the exercisability of any outstanding
options; the complete termination of the Equity Incentive Plan and
the
cancellation of outstanding options not exercised prior to a date
specified by the Board; and the continuance of the Equity Incentive
Plan
with respect to the exercise of options which were outstanding as
of the
date of adoption by the Board for such transaction and provide to
holders
of such options the right to exercise their respective options as
to an
economically equivalent number of shares of stock of the corporation
succeeding the Company by reason of such
transaction.
|
|
(2)
|
Fees
due to Ms. Jefferies and Mr. Baer are paid directly to Petters Group
Worldwide.
|
Employment
Contracts, Termination of Employment and Change in Control
We
have
entered into executive employment agreements with our President and Chief
Executive Officer, our Executive Vice President of Merchandising, and our
Executive Vice President of Business Development.
Jeffrey
D. Hoffman – Chief Executive Officer
On
September 21, 2007, we entered into an executive employment agreement with
Mr.
Hoffman which provides for an initial annual base salary of $350,000 for the
first 12 months of the agreement and thereafter our Board of Directors shall
review on a yearly basis and the Board shall determine if the base salary shall
increase and the amount of any such increase shall be at the Board’s sole
discretion.
Under
the
agreement, Mr. Hoffman received options to purchase up to 600,000 shares of
common stock under the 2005 Equity Incentive Plan, which vest as follows: 1/3
of
the options will vest on the 12 month anniversary of the date of the grant,
1/3
of the options will vest on the 24 month anniversary of the date of grant and
the remaining 1/3 on the 36 month anniversary of the date of grant. The exercise
price of the options is $1.14 per share. Subsequent grants of stock options
shall vest and be exercisable pursuant to the terms and conditions of the 2005
Equity Incentive Plan.
Mr.
Hoffman’s employment agreement has a term commencing on the execution of the
agreement and continuing for a period of 24 months. Mr. Hoffman’s employment
agreement provides that if Mr. Hoffman is terminated by us without cause or
if
Mr. Hoffman terminates the agreement for good reason, including a change of
control that results in the termination of Mr. Hoffman’s employment with us or a
material adverse change in his duties and responsibilities, he will be entitled,
after execution of our standard separation and release agreement, to severance
payments in the amount of his annual base salary at the time of such termination
and all health insurance coverage for a period of 12 months following
termination. A change of control includes an acquisition of 51% or more of
our
outstanding voting securities or consummation of a tender offer or exchange
offer where the offeree acquires more than 51% of our then-outstanding voting
securities.
Timothy
E. Takesue - Executive Vice President of
Merchandising
On
December 29, 2005, we entered into an executive employment agreement with Mr.
Takesue which provides for an initial annual base salary of $250,000 for the
first 12 months of the agreement increasing to $275,000 during the second 12
months of the agreement and increasing to $300,000 for 2007 or the third 12
months of the agreement.
Under
the
agreement, Mr. Takesue received options to purchase up to 500,000 shares of
common stock under the 2005 Equity Incentive Plan, which vest as follows: 1/3
of
the options will vest on the 24 month anniversary of the date of the grant,
1/3
of the options will vest on the 36 month anniversary of the date of grant and
the remaining 1/3 on the 48 month anniversary of the date of grant. The exercise
price of the options is $4.50 per share. Subsequent grants of stock options
shall vest and be exercisable pursuant to the terms and conditions of the 2005
Equity Incentive Plan.
Mr.
Takesue’s employment agreement has a term commencing on the execution of the
agreement and continuing for a period of 24 months. Mr. Takesue’s employment
agreement provides that if Mr. Takesue is terminated by us without cause, or
if
Mr. Takesue terminates the agreement for good reason, including a change of
control that results in the termination of Mr. Takesue’s employment with us or a
material adverse change in his duties and responsibilities, he will be entitled,
after execution of our standard separation and release agreement, to severance
payments in the amount of his annual base salary at the time of such termination
and all health insurance coverage for a period of 12 months following
termination.
Glenn
D. Weisberger – Executive Vice President of Business
Development
On
May
15, 2008, we entered into an employment agreement net with Mr. Weisberger which
provides for an initial annual base salary of $240,000 for the first 12 months
of the agreement. Thereafter Mr. Weisberger’s base salary shall annually be
reviewed and adjustments, if any, shall be determined by the Board of Directors
in its sole discretion.
Under
the
agreement, Mr. Weisberger received options to purchase 200,000 shares of common
stock under the 2005 Equity Incentive Plan, which vest as follows: ¼ of the
options will vest on the 12 month anniversary of the date of grant, ¼ of the
options will vest on the 24 month anniversary of the date of grant, ¼ of the
options will vest on the 36 month anniversary of the date of grant and ¼ of the
options will vest on the 48 month anniversary of the date of grant. The exercise
price of the options is $0.90 per share. Subsequent grants of stock options
shall vest and be exercisable pursuant to the terms and conditions of the 2005
Equity Incentive Plan.
Mr.
Weisberger’s employment agreement has a term commencing on the execution of the
agreement and continuing for a period of 24 months. Mr. Weisberger’s employment
agreement provides that if Mr. Weisberger is terminated by us without cause,
or
if Mr. Weisberger terminates the agreement for good reason, including a change
of control that results in the termination of Mr. Weisberger’s employment with
us or a material adverse change in his duties and responsibilities, he will
be
entitled, after execution of our standard separation and release agreement,
to
severance payments in the amount of his annual base salary at the time of such
termination and all health insurance coverage for a period of 12 months
following termination.
Mr.
Martinez and Ms. Powers do not have employment agreements.
Change-in-Control
Agreements
The
following table provides the change-in-control awards that are applicable to
our
named executive officers.
Named Executive Officer
|
|
Cash Severance
Multiple
|
|
Years for Continuation of
Medical and Dental Benefits
|
Jeffrey D. Hoffman
|
|
1 times ($350,000)
|
|
1 year ($12,000)
|
Timothy E. Takesue
|
|
1 times ($300,000)
|
|
1 year ($12,000)
|
Compensation
Committee Interlocks and Insider Participation
The
Compensation Committee discharges the Board's responsibilities relating to
the
compensation of Enable's executives and directors; reviews and approves the
report required by the U.S. Securities and Exchange Commission for inclusion
in
the annual report on Form 10-K; provides general oversight of Enable's total
rewards compensation structure; reviews and provides guidance on Enable's human
resources programs; and retains and approves the terms of the retention of
compensation consultants and other compensation experts. Other specific duties
and responsibilities of the Compensation Committee include reviewing senior
management selection and overseeing succession planning, including reviewing
the
leadership development process; reviewing and approving objectives relevant
to
executive officer compensation, evaluating performance and determining the
compensation of executive officers in accordance with those objectives;
approving severance arrangements and other applicable agreements for executive
officers; overseeing Enable's equity-based and incentive compensation and
equity-based rewards; overseeing non-equity based benefit plans and approving
any changes to such plans involving a material financial commitment by Enable;
monitoring workforce management programs; establishing compensation policies
and
practices for service on the Board and its committees and for the Chairman
of
the Board; developing guidelines for and monitoring director and executive
stock
ownership; and annually evaluating its performance and its
charter.
2005
Equity Incentive Plan
On
December 15, 2005, our board approved and adopted the 2005 Equity Incentive
Plan. Also on December 15, 2005, the 2005 Equity Incentive Plan was approved
by
the sole stockholder of Cape Coastal on that date. These actions were announced
in our Current Report on Form 8-K, filed with the SEC on December 23, 2005.
As
disclosed in our definitive Information Statement filed with the SEC on January
30, 2006, on January 12, 2006, the holders of a majority of our outstanding
shares of common stock ratified the Plan. The 2005 Equity Incentive Plan as
an
equity-based compensation plan to provide incentives to, and to attract,
motivate and retain the highest qualified employees, directors, consultants
and
other third party service providers. The 2005 Equity Incentive Plan enables
the
board to provide equity-based incentives through grants or awards of stock
options and restricted stock awards (collectively, “Incentive Awards”) to our
present and future employees, consultants, directors, and other third party
service providers.
The
board
has reserved a total of 2,500,000 shares of common stock for issuance under
the
2005 Equity Incentive Plan. If an Incentive Award granted pursuant to the 2005
Equity Incentive Plan expires, terminates, is unexercised or is forfeited,
or if
any shares are surrendered to us in connection with an Incentive Award, the
shares subject to such award and the surrendered shares will become available
for further awards under the 2005 Equity Incentive Plan. On December 29,
2005, we granted options under the 2005 Equity Incentive Plan to purchase
1,721,700 shares of common stock to our Named Executive Officers and other
employees. No options were issued under the 2005 Equity Incentive Plan to any
Named Executives in 2006. In 2007 under the 2005 Equity Incentive Plan, Mr.
Hoffman was granted options to purchase 600,000 shares of common stock of which
250,000 were qualified and 350,000 were non-qualified, Mr. Martinez was granted
options to purchase 125,000 shares of common stock and Ms. Powers was granted
options to purchase 55,000 shares of common stock.
The
number of shares subject to the 2005 Equity Incentive Plan, any number of shares
subject to any numerical limit in the 2005 Equity Incentive Plan, and the number
of shares and terms of any Incentive Award may be adjusted in the event of
any
change in Enable’s outstanding common stock by reason of any stock dividend,
spin-off, stock split, reverse stock split, recapitalization, reclassification,
merger, consolidation, liquidation, business combination or exchange of shares,
or similar transaction. In the event of an acquisition of the Company through
the sale of substantially all of the Company’s assets and the consequent
discontinuance of its business or through a merger, consolidation, exchange,
reorganization, reclassification, extraordinary dividend, divestiture or
liquidation of the Company, the Board may provide for one or more of the
following: (a) the equitable acceleration of the exercisability of any
outstanding options; (b) the complete termination of the 2005 Equity Incentive
Plan, the cancellation of outstanding options not exercised prior to a date
specified by the Board; and (c) the continuance of the 2005 Equity Incentive
Plan with respect to the exercise of options which were outstanding as of the
date of adoption by the Board of such plan for such transaction and provide
to
the holders of such options the right to exercise their respective Options
as to
an economically equivalent number of shares of stock of the corporation
succeeding the Company by reason of such transaction.
E
quity
Compensation Plan
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
|
|
Weighted-
average
exercise
price of
outstanding
options, warrants
and rights
(b)
|
|
Remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
( c)
|
|
Equity compensation
plans approved by
security holders
|
|
|
1,984,100
|
|
$
|
2.68
|
|
|
515,900
|
|
Equity compensation
plans not approved by
security holders
|
|
|
320,000
|
|
$
|
4.50
|
|
|
—
|
|
Total
|
|
|
2,304,100
|
|
$
|
2.93
|
|
|
515,900
|
|
Equity
compensation plans not approved by our stockholders consist of warrants to
purchase 320,000 shares of common stock, issued to the placement agents in
our
private offering on December 30, 2005, exercisable through December 30,
2010 at $4.50 per share.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On
April
2, 2003, uBid and Petters Group, a holder of greater than 5% of our outstanding
common stock, executed a Shared Resources Agreement with a term of one year
and
automatic renewals of one year until terminated by either party with 60 days’
prior notice. Pursuant to this agreement, Petters Group provides executive,
facilities management, finance, general and administrative, legal, marketing,
merchandising and operations services to uBid for which uBid was charged $0
in
2007, $30,000 in 2006 and $360,000 in 2005. We terminated the Shared Resources
Agreement as of January 31, 2006.
We
purchase products from Petters Group for direct purchase sales. Purchases from
Petters Group were $2,930, $365 and $1,597 for the years ended December 31,
2007, 2006 and 2005, respectively.
In
2003,
we issued a convertible promissory note in the principal amount of $0.5 million
for the benefit of Petters Group. The promissory note bore interest at an annual
rate of 8.0%. This note plus accrued interest was paid in full on April 1,
2005.
On
April
2, 2003, we entered into a secured revolving credit agreement and promissory
note with Petters Group for up to $5.0 million. On November 22, 2004, we entered
into a second secured revolving credit agreement and promissory note for up
to
$4.0 million. In March 2005, the second agreement was increased to $5.5 million.
Both agreements were secured by a subordinated security interest in all of
our
assets. Both agreements expired March 31, 2006. Borrowings under the revolving
line bore an annual interest rate of 14%. There were no financial covenants
provided for in the agreements. In connection with the private offerings, the
note holders cancelled these promissory notes as consideration in the private
offerings for the issuance to Petters Company, Inc. of 1,222,223 shares of
common stock and warrants to purchase 305,556 shares of common stock, and the
issuance to the Petters Group of 1,111,111 shares of common stock and warrants
to purchase 277,778 shares of common stock.
On
July
21, 2004, we entered into an agreement with Banco Popular under which we
obtained a $5.0 million irrevocable letter of credit for the benefit of Sony
Corporation. This letter of credit is used as a security deposit for inventory
purchases from Sony. Sony may draw upon the letter of credit in the event we
are
in payment default. The letter of credit bears an annual interest rate of 2%.
Sony then reimburses us 0.5%. The letter of credit is secured by all of our
assets. Lancelot and Petters Group guaranteed the letter of credit for the
full
$5.0 million in the event Sony drew upon the letter of credit. In addition,
Banco Popular has entered into inventory buy-back agreements with Sony and
Petters Group. Sony and Petters Group have agreed to buy back the Sony product
from uBid in the event of a default. The letter of credit expires on July 21,
2007. On October 14, 2005, the Sony irrevocable letter of credit was reduced
to
$2.5 million. On November 15, 2007, the Sony irrevocable letter of credit was
reduced to $1.0 million. All other terms remain the same.
On
December 30, 2005, we provided a $5.0 million deposit as a restricted cash
security to Banco Popular to release Lancelot and Petters Group from their
obligations under the letter of credit.
On
April
27, 2005, uBid entered into a 90-day debt agreement and promissory note with
Lancelot, which was extended for one year on July 26, 2005. This agreement
provided for borrowings of $5.0 million. The note had an annual interest rate
of
14% due monthly. The note was guaranteed by Petters Company, Inc. and Thomas
J.
Petters. There were no financial covenants provided for in the agreement. The
September 30, 2005 balance of $5.0 million was retired with a portion
of the proceeds from the private offerings.
In
mid-2005, Cape Coastal entered into an agreement with Calico Capital Group,
LLC
to serve as its financial advisor in connection with the merger and the private
offerings. Thomas J. Petters owns 10% of the outstanding membership interests
in
Calico. As consideration for its services, we paid Calico a $550,000 fee on
the
Closing Date. In addition, on February 3, 2006, in connection with the second
private offering, we issued Calico 600,667 shares of our common stock, valued
at
$4.50 per share, with an aggregate value of approximately $2.7 million.
Pursuant to a letter agreement, Calico subsequently transferred a total of
50,000 of its shares to two stockholders of the former Cape Coastal Trading
Corporation. The agreement to serve as financial advisors was terminated on
July
31, 2006.
Review,
Approval or Ratification of Transactions with Related
Persons.
On
an
annual basis, each director and executive officer is obligated to complete
a
director and officer questionnaire that requires disclosure of any transactions
with our Company in which the director or executive officer, or any member
of
his or her immediate family, has a direct or indirect material interest. Our
board of directors reviews such transactions to identify impairments to director
independence and in connection with disclosure obligations under
Item 404(a) of Regulation S-K of the Exchange Act. In addition, our Code of
Ethics includes a conflict of interest policy that applies to our employees,
officers and directors.
Any
transactions with the Petters Group or an entity owned in whole or in part
by
the Petters Group are reviewed by management and presented for approval to
those
members of the Board of Directors who are not a member of management or
otherwise affiliated with the Petters Group.
On
May 7,
2007, Ms. Jeffries and Mr. Baer were elected to the Company’s Board of
Directors. Each of Ms. Jeffries and Mr. Baer are executive officers of Petters
Group.
SECURITY
OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS AND
OFFICERS
Principal
Stockholders
The
following table provides information concerning persons known to us to be the
beneficial owners of more than 5% of our outstanding common stock as of
September 5, 2008. Unless otherwise indicated, the stockholders listed in the
table have sole voting and investment powers with respect to the shares
indicated. The number of shares owned are those beneficially owned, as
determined under the rules of the SEC, and such information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares of common stock as to which a person
has sole or shared voting power or investment power and any shares of common
stock which the person has the right to acquire within 60 days through the
exercise of any option, warrant or right, through conversion of any security
or
pursuant to the automatic termination of a power of attorney or revocation
of a
trust, discretionary account or similar arrangement.
Name
and Address
of
Beneficial Owner
|
|
Number
of Shares
Beneficially Owned
|
|
Percent
of Class
(1)
|
|
Thomas
J. Petters(2)(3)
4400
Baker Road
Minnetonka,
MN 55343
|
|
|
8,434,348
|
|
|
43.79
|
%
|
Petters
Group Worldwide, LLC(3)(4)
4400
Baker Road
Minnetonka,
MN 55343
|
|
|
6,584,603
|
|
|
34.74
|
%
|
Theodore
Deikel(5)
4400
Baker Road
Minnetonka,
MN 55343
|
|
|
2,987,473
|
|
|
16.00
|
%
|
D.E.
Shaw Valence Portfolios, L.L.C.(6)
120
West 45th Street, 39th Floor
New
York, NY 10036
|
|
|
1,250,000
|
|
|
6.60
|
%
|
EBP
Select Holdings, LLC(3)
4400
Baker Road
Minnetonka,
MN 55343
|
|
|
1,111,111
|
|
|
5.95
|
%
|
Alexandra
Global Master Fund Ltd.(7)
Citgo
Building, Wickams Cay
P.O.
Box 662
Road
Town, Tortola, British Virgin Islands.
|
|
|
1,069,446
|
|
|
5.62
|
%
|
(1)
|
Based
on 18,676,190 shares of Common Stock issued and outstanding as of
September 5, 2008. Shares not outstanding but deemed beneficially
owned by
virtue of the right of a person to acquire them as of September 5,
2008,
or within sixty days of such date, are treated as outstanding only
when
determining the percent owned by such individual and when determining
the
percent owned by a group.
|
(2)
|
Includes
6,734,603 shares beneficially owned by Petters Group Worldwide, LLC,
including 277,778 warrants exercisable within 60 days by Petters
Group
Worldwide, LLC and 305,556 warrants exercisable within 60 days by
Petters
Company, Inc. Also includes 1,111,111 shares beneficially owned by
EBP
Select Holdings, L.L.C. Mr. Petters has sole voting power and investment
power over all of the shares indicated in the table as being beneficially
owned by Mr. Petters, Petters Group Worldwide, LLC and EBP Select
Holdings, LLC.
|
(3)
|
Information
regarding the number of shares beneficially owned by Thomas J. Petters,
Petters Group Worldwide and EBP Select Holdings, LLC was provided
in a
report on Schedule 13D filed with the SEC on January 7, 2008, and
a report
on Form 4 filed with the SEC on August 26, 2008.
|
(4)
|
Includes
277,778 warrants exercisable within 60 days.
|
(5)
|
Information
regarding the number of shares beneficially owned by Mr. Deikel was
provided in a report on Schedule 13D filed with the SEC on December
28,
2007, and a report on Form 4 filed with the SEC on August 26,
2008.
|
(6)
|
Includes
250,000 warrants exercisable within 60 days. David E. Shaw does not
own
any shares of common stock directly. By virtue of Mr. Shaw’s position as
President and sole shareholder of D.E. Shaw & Co., Inc., which is the
general partner of D.E. Shaw & Co., L.P. (the managing member and
investment advisor of D.E. Shaw Valence Portfolios, L.L.C.), Mr.
Shaw may
be deemed to have shared power to vote or direct the vote of, and
shared
power to dispose or direct the disposition of, the shares of common
stock,
and therefore, Mr. Shaw may be deemed to be the beneficial owner
of such
shares. Mr. Shaw disclaims beneficial ownership of the shares of
our
common stock. This information was provided in a report on Schedule
13G
filed with the SEC on February 13, 2006.
|
(7)
|
Includes
347,223 warrants exercisable within 60 days. Alexandra Investment
Management, LLC, serves as the investment advisor to Alexandra Global
Master Fund Ltd. By reason of such relationship, Alexandra Investment
Management, LLC, may be deemed to share dispositive power over the
shares
of common stock stated as beneficially owned by Alexandra Global
Master
Fund Ltd. Alexandra Investment Management, LLC disclaims beneficial
ownership of such shares of common stock. Messrs. Mikhail A. Filimonov
and
Dimitri Sogoloff are, respectively, the Chairman, Chief Executive
Officer,
Managing Member and Chief Investment Officer and the President, Managing
Member and Chief Risk Officer, of Alexandra Investment Management,
LLC. By
reason of such relationships, Mr. Filimonov and Mr. Sogoloff may
be deemed
to share dispositive power over the shares of common stock stated
as
beneficially owned by Alexandra Global Master Fund, Ltd. Each of
Messrs.
Filimonov and Sogoloff disclaims beneficial ownership of the shares
of
common stock beneficially owned by Alexandra Global Master Fund Ltd.
The
address of Alexandra Global Master Fund Ltd. is Citgo Building, Wickams
Cay, P.O. Box 662, Road Town, Tortola, British Virgin Islands. The
address
of Alexandra Investment Management, LLC and Messrs. Filimonov and
Sogoloff
is 767 Third Avenue, 39th Floor, New York, New York, 10017. This
information was provided in a report on Schedule 13G filed with the
SEC on
February 14, 2007.
|
Management
Shareholdings
The
following table sets forth the number of shares of Common Stock beneficially
owned as of September 5, 2008, by each of our executive officers, by each
director and by all directors and executive officers as a group. Unless
otherwise indicated, the stockholders listed in the table have sole voting
and
investment powers with respect to the shares indicated. The number of shares
owned are those beneficially owned, as determined under the rules of the SEC,
and such information is not necessarily indicative of beneficial ownership
for
any other purpose. Under such rules, beneficial ownership includes any shares
of
common stock as to which a person has sole or shared voting power or investment
power and any shares of common stock which the person has the right to acquire
within 60 days through the exercise of any option, warrant or right, through
conversion of any security or pursuant to the automatic termination of a power
of attorney or revocation of a trust, discretionary account or similar
arrangement. The address of each executive officer and director is c/o Enable
Holdings, Inc., 8725 W Higgins, Suite 900, Chicago, Illinois 60631.
Name
of Beneficial
Owner
or Identity of Group
|
|
Number
of Shares
Beneficially Owned
|
|
Percent
of Class
(1)
|
|
Timothy
E. Takesue(2)
|
|
|
632,443
|
|
|
3.36
|
%
|
Miguel
A. Martinez, Jr.(3)
|
|
|
81,581
|
|
|
*
|
|
Steven
Sjoblad(4)
|
|
|
62,500
|
|
|
*
|
|
Mary
L. Jeffries(5)
|
|
|
27,500
|
|
|
*
|
|
Amy
Powers(6)
|
|
|
26,250
|
|
|
*
|
|
Dr.
Kenneth J. Roering(7)
|
|
|
15,625
|
|
|
*
|
|
David
E. Baer(8)
|
|
|
12,500
|
|
|
*
|
|
Casey
L. Gunnell
|
|
|
9,375
|
|
|
*
|
|
Jeffrey
D. Hoffman
|
|
|
0
|
|
|
0
|
|
Glenn
R. Weisberger
|
|
|
0
|
|
|
0
|
|
D.
Bruce Hutchison
|
|
|
0
|
|
|
0
|
|
All
current executive officers and directors
as
a group (11 persons)
|
|
|
867,774
|
|
|
4.56
|
%
|
*Less
than 1%
(1)
|
Based
on 18,676,190 shares of Common Stock issued and outstanding as of
September 5, 2008. Shares not outstanding but deemed beneficially
owned by
virtue of the right of a person to acquire them as of September 5,
2008,
or within sixty days of such date, are treated as outstanding only
when
determining the percent owned by such individual and when determining
the
percent owned by a group.
|
(2)
|
Includes
166,667 options exercisable within 60 days.
|
(3)
|
Includes
62,500 options exercisable within 60 days.
|
(4)
|
Includes
37,500 options exercisable within 60 days.
|
(5)
|
Includes
12,500 options and 3,000 warrants exercisable within 60
days.
|
(6)
|
Includes
26,250 options exercisable within 60 days.
|
(7)
|
Includes
15,625 options exercisable within 60 days.
|
(8)
|
Includes
12,500 options exercisable within 60 days.
|
(9)
|
Includes
9,375 options exercisable within 60
days
|
General
On
July
15, 2008, we entered into a Purchase Agreement with Fusion Capital, an Illinois
limited liability company. Under the Purchase Agreement, Fusion Capital is
obligated, under certain conditions, to purchase shares from us in an aggregate
amount of $10 million from time to time over a twenty-four (24) month period.
Under the terms of the Purchase Agreement, Fusion Capital has received a
commitment fee consisting of 230,074 shares of our common stock. Also, we will
issue to Fusion Capital an additional 230,074 shares as a commitment fee pro
rata as we receive the $10 million of future funding. As of September 5, 2008,
there were 18,676,190 shares outstanding (7,315,846 shares held by
non-affiliates). If all of such 2,460,148 shares offered hereby were issued
and
outstanding as of the date hereof, the 2,460,148 shares would represent 11.7%
of
the total common stock outstanding or 25.7% of the non-affiliates shares
outstanding as of the date hereof. The number of shares ultimately offered
for
sale by Fusion Capital is dependent upon the number of shares purchased by
Fusion Capital under the Purchase Agreement.
Under
the
Purchase Agreement and the Registration Rights Agreement we are required to
register and have included in the offering pursuant to this prospectus: (1)
230,074 shares which have already been issued as a commitment fee, (2) an
additional 230,074 shares which we may issue in the future as a commitment
fee
pro rata as we receive the $10 million of future funding, and (3) 2,000,000
shares which we may sell to Fusion Capital after this registration statement
is
declared effective under the Securities Act. All 2,460,148 shares are being
offered pursuant to this prospectus. Under the Purchase Agreement, we have
the
right but not the obligation to sell more than the 2,000,000 shares to Fusion
Capital. As of the date hereof, we do not have any plans or intent to sell
to
Fusion Capital any shares beyond this 2,000,000 shares. However, if we elect
to
sell more than the 2,000,000 shares (which we have the right but not the
obligation to do), we must first register under the Securities Act any
additional shares we may elect to sell to Fusion Capital before we can sell
such
additional shares, which could cause substantial dilution to our
shareholders.
We
do not
have the right to commence any sales of our shares to Fusion Capital until
the
SEC has declared effective the registration statement of which this prospectus
is a part. After the SEC has declared effective such registration statement,
generally we have the right but not the obligation from time to time to sell
our
shares to Fusion Capital in amounts between $60,000 and $1.0 million depending
on certain conditions. We have the right to control the timing and amount of
any
sales of our shares to Fusion Capital. The purchase price of the shares will
be
determined based upon the market price of our shares without any fixed discount
at the time of each sale. Fusion Capital shall not have the right nor the
obligation to purchase any shares of our common stock on any business day that
the price of our common stock is below $0.75. There are no negative covenants,
restrictions on future fundings, penalties or liquidated damages in the Purchase
Agreement or the Registration Rights Agreement. The Purchase Agreement may
be
terminated by us at any time at our discretion without any cost to
us.
Purchase
Of Shares Under The Common Stock Purchase Agreement
Under
the
common stock purchase agreement, on any business day selected by us, we may
direct Fusion Capital to purchase up to $60,000 of our common stock. The
purchase price per share is equal to the lesser of:
•
the
lowest sale price of our common stock on the purchase date; or
•
the
average of the three (3) lowest closing sale prices of our common stock during
the twelve (12) consecutive business days prior to the date of a purchase by
Fusion Capital.
The
purchase price will be equitably adjusted for any reorganization,
recapitalization, non-cash dividend, stock split, or other similar transaction
occurring during the business days used to compute the purchase price. We may
direct Fusion Capital to make multiple purchases from time to time in our sole
discretion; no sooner then every three (3) business days.
Our
Right To Increase the Amount to be Purchased
In
addition to purchases of up to $60,000 from time to time, we may also from
time
to time elect on any single business day selected by us to require Fusion
Capital to purchase our shares in an amount up to $100,000 provided that our
share price is not below $1.25 during the two (2) business days prior to and
on
the purchase date. We may increase this amount to up to $250,000 if our share
price is not below $2.25 during the two (2) business days prior to and on the
purchase date. This amount may also be increased to up to $500,000 if our share
price is not below $4.50 during the two (2) business days prior to and on the
purchase date. This amount may also be increased to up to $1 million if our
share price is not below $9.00 during the two (2) business days prior to and
on
the purchase date. We may direct Fusion Capital to make multiple large purchases
from time to time in our sole discretion; however, at least three (2) business
days must have passed since the most recent large purchase was completed. The
price at which our common stock would be purchased in this type of larger
purchases will be the lesser of (i) the lowest sale price of our common stock
on
the purchase date and (ii) the lowest purchase price (as described above) during
the previous ten (10) business days prior to the purchase date.
Minimum
Purchase Price
Under
the
common stock purchase agreement, we have set a minimum purchase price (“floor
price”) of $0.75. However, Fusion Capital shall not have the right nor the
obligation to purchase any shares of our common stock in the event that the
purchase price would be less the floor price. Specifically, Fusion Capital
shall
not have the right or the obligation to purchase shares of our common stock
on
any business day that the market price of our common stock is below
$0.75.
Events
of Default
Generally,
Fusion Capital may terminate the common stock purchase agreement without any
liability or payment to the Company upon the occurrence of any of the following
events of default:
•
the
effectiveness of the registration statement of which this prospectus is a part
of lapses for any reason (including, without limitation, the issuance of a
stop
order) or is unavailable to Fusion Capital for sale of our common stock offered
hereby and such lapse or unavailability continues for a period of ten (10)
consecutive business days or for more than an aggregate of thirty (30) business
days in any 365-day period;
•
suspension
by our principal market of our common stock from trading for a period of three
(3) consecutive business days;
•
the
de-listing of our common stock from our principal market provided our common
stock is not immediately thereafter trading on the Nasdaq Global Market, the
Nasdaq Capital Market, the New York Stock Exchange or the American Stock
Exchange;
•
the
transfer agent‘s failure for five (5) business days to issue to Fusion Capital
shares of our common stock which Fusion Capital is entitled to under the common
stock purchase agreement;
•
any
material breach of the representations or warranties or covenants contained
in
the common stock purchase agreement or any related agreements which has or
which
could have a material adverse effect on us subject to a cure period of five
(5)
business days; or
•
any
participation or threatened participation in insolvency or bankruptcy
proceedings by or against us.
Our
Termination Rights
We
have
the unconditional right at any time for any reason to give notice to Fusion
Capital terminating the common stock purchase agreement without any cost to
us.
No
Short-Selling or Hedging by Fusion Capital
Fusion
Capital has agreed that neither it nor any of its affiliates shall engage in
any
direct or indirect short-selling or hedging of our common stock during any
time
prior to the termination of the common stock purchase agreement.
Effect
of Performance of the Common Stock Purchase Agreement on Our
Stockholders
All
2,460,148 shares registered in this offering are expected to be freely tradable.
It is anticipated that shares registered in this offering will be sold over
a
period of up to 24 months from the date of this prospectus. The sale by Fusion
Capital of a significant amount of shares registered in this offering at any
given time could cause the market price of our common stock to decline and
to be
highly volatile. Fusion Capital may ultimately purchase all, some or none of
the
2,460,148 shares of common stock not yet issued but registered in this offering.
After it has acquired such shares, it may sell all, some or none of such shares.
Therefore, sales to Fusion Capital by us under the agreement may result in
substantial dilution to the interests of other holders of our common stock.
However, we have the right to control the timing and amount of any sales of
our
shares to Fusion Capital and the agreement may be terminated by us at any time
at our discretion without any cost to us.
In
connection with entering into the agreement, we authorized the sale to Fusion
Capital of up to 2,000,000 shares of our common stock The number of shares
ultimately offered for sale by Fusion Capital under this prospectus is dependent
upon the number of shares purchased by Fusion Capital under the agreement.
The
following table sets forth the amount of proceeds we would receive from Fusion
Capital from the sale of shares at varying purchase prices:
Assumed Average
Purchase Price
|
|
Number of Shares to be
Issued if Full Purchase
|
|
Percentage of Outstanding
Shares After Giving Effect to the
Issuance to Fusion Capital
(1)
|
|
Proceeds from the Sale of Shares
to Fusion Capital Under the
Common Stock Purchase Agreement
|
|
$
|
0.75
|
|
|
2,000,000
|
|
|
11.8
|
%
|
$
|
1,500,000
|
|
$
|
1.00
|
|
$
|
2,000,000
|
|
|
11.8
|
%
|
$
|
2,000,000
|
|
$
|
1.25
|
|
|
2,000,000
|
|
|
11.8
|
%
|
$
|
2,500,000
|
|
$
|
1.50
|
|
|
2,000,000
|
|
|
11.8
|
%
|
$
|
3,000,000
|
|
$
|
1.94
|
(2)
|
|
2,000,000
|
|
|
11.8
|
%
|
$
|
3,888,000
|
|
$
|
2.25
|
|
|
2,000,000
|
|
|
11.8
|
%
|
$
|
4,500,000
|
|
$
|
2.50
|
|
|
2,000,000
|
|
|
11.8
|
%
|
$
|
5,000,000
|
|
|
(1)
|
The
denominator is based on 18,676,190 shares outstanding as of September
5,
2008, which includes the 230,074 shares previously issued to Fusion
Capital and the number of shares set forth in the adjacent column
but
excludes that portion of the 230,074 commitment shares that would
be
issued pro rata as the $10 million is funded. The numerator is based
on
the number of shares issuable under the common stock purchase agreement
at
the corresponding assumed purchase price set forth in the adjacent
column.
|
|
(2)
|
Closing
sale price of our shares September 5,
2008.
|
The
following table presents information regarding the selling stockholder. Neither
the selling stockholder nor any of its affiliates has held a position or office,
or had any other material relationship, with us.
Selling
Stockholder
|
|
Shares
Beneficially
Owned
Before
Offering
|
|
Percentage of
Outstanding
Shares Beneficially
Owned Before
Offering (1)
|
|
Shares to be Sold in the
Offering Assuming The
Company Issues The
Maximum Number of
Shares Under the Purchase
Agreement (1)
|
|
Percentage of
Outstanding Shares
Beneficially Owned
After Offering
|
|
Fusion Capital
Fund II, LLC (2)
|
|
|
230,074
|
(3)
|
|
1.25
|
%
|
|
2,460,148
|
|
|
0
|
%
|
(1)
|
Applicable
percentage of ownership is based on 18,676,190 shares of our common
stock
outstanding as of September 5, 2008, together with securities exercisable
or convertible into shares of Common Stock within sixty (60) days
of
September 5, 2008, for the selling stockholder. Beneficial ownership
is
determined in accordance with the rules of the SEC and generally
includes
voting or investment power with respect to securities. Shares of
common
stock are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of
such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
|
(2)
|
Steven
G. Martin and Joshua B. Scheinfeld, the principals of Fusion Capital,
are
deemed to be beneficial owners of all of the shares of common stock
owned
by Fusion Capital. Messrs. Martin and Scheinfeld have shared voting
and
disposition power over the shares being offered under this prospectus.
|
(3)
|
As
of the date hereof, 230,074 shares of our common stock have been
acquired
by Fusion Capital under the Purchase Agreement, consisting of 230,074
shares which have already been issued as a commitment fee. Under
the
common stock purchase agreement (1) the Company may elect in its
sole
discretion to sell to Fusion Capital up to an additional 2,000,000
shares
and (2) we may issue to Fusion Capital an additional 230,074 shares
in the
future as a commitment fee pro rata as we receive the $10 million
of
future funding. Fusion Capital does not presently beneficially own
any of
these 2,230,074 shares as determined in accordance with the rules
of the
SEC.
|
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by the selling shareholder. We will receive no proceeds from
the sale of shares of common stock in this offering. However, we may receive
up
to $10 million in proceeds from the sale of our common stock to Fusion Capital
under the common stock purchase agreement. Any proceeds from Fusion Capital
we
receive under the common stock purchase agreement will be used for working
capital and general corporate purposes.
The
common stock offered by this prospectus is being offered by Fusion Capital
Fund
II, LLC, the selling shareholder. The common stock may be sold or distributed
from time to time by the selling stockholder directly to one or more purchasers
or through brokers, dealers, or underwriters who may act solely as agents at
market prices prevailing at the time of sale, at prices related to the
prevailing market prices, at negotiated prices, or at fixed prices, which may
be
changed. The sale of the common stock offered by this prospectus may be effected
in one or more of the following methods:
|
•
|
ordinary
brokers’ transactions;
|
|
•
|
transactions
involving cross or block trades;
|
|
•
|
through
brokers, dealers, or underwriters who may act solely as
agents
|
|
•
|
“at
the market” into an existing market for the common
stock;
|
|
•
|
in
other ways not involving market makers or established business markets,
including direct sales to purchasers or sales effected through
agents;
|
|
•
|
in
privately negotiated transactions;
or
|
|
•
|
any
combination of the foregoing.
|
In
order
to comply with the securities laws of certain states, if applicable, the shares
may be sold only through registered or licensed brokers or dealers. In addition,
in certain states, the shares may not be sold unless they have been registered
or qualified for sale in the state or an exemption from the registration or
qualification requirement is available and complied with.
Brokers,
dealers, underwriters, or agents participating in the distribution of the shares
as agents may receive compensation in the form of commissions, discounts, or
concessions from the selling shareholder and/or purchasers of the common stock
for whom the broker-dealers may act as agent. The compensation paid to a
particular broker-dealer may be less than or in excess of customary
commissions.
Fusion
Capital is an “underwriter” within the meaning of the Securities Act.
Neither
we nor Fusion Capital can presently estimate the amount of compensation that
any
agent will receive. We know of no existing arrangements between Fusion Capital,
any other shareholder, broker, dealer, underwriter, or agent relating to the
sale or distribution of the shares offered by this prospectus. At the time
a
particular offer of shares is made, a prospectus supplement, if required, will
be distributed that will set forth the names of any agents, underwriters, or
dealers and any compensation from the selling shareholder, and any other
required information.
We
will
pay all of the expenses incident to the registration, offering, and sale of
the
shares to the public other than commissions or discounts of underwriters,
broker-dealers, or agents. We have also agreed to indemnify Fusion Capital
and
related persons against specified liabilities, including liabilities under
the
Securities Act.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and controlling persons, we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is therefore,
unenforceable.
Fusion
Capital and its affiliates have agreed not to engage in any direct or indirect
short selling or hedging of our common stock during the term of the common
stock
purchase agreement.
We
have
advised Fusion Capital that while it is engaged in a distribution of the shares
included in this prospectus it is required to comply with Regulation M
promulgated under the Securities Exchange Act of 1934, as amended. With certain
exceptions, Regulation M precludes the selling shareholder, any affiliated
purchasers, and any broker-dealer or other person who participates in the
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any
bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the shares offered hereby this prospectus.
This
offering will terminate on the date that all shares offered by this prospectus
have been sold by Fusion Capital.
DESCRIPTION
OF SECURITIES
Our
authorized capital stock consists of 225,000,000 shares, which are divided
into
two classes consisting of 200,000,000 shares of common stock, par value $0.001
per share, and 25,000,000 shares of preferred stock, par value $0.01 per share.
As of September 5, 2008, there were 18,446,116 shares of common stock
outstanding, 3,412,398 shares of common stock underlying warrants that have
been
issued by us, 1,984,100 shares of common stock underlying options or other
rights that have been granted under our 2005 Equity Incentive Plan and 515,900
shares of common stock reserved for issuance under our 2005 Equity Incentive
Plan. No preferred shares were outstanding.
Description
of Common Stock
The
holders of common stock are entitled to one vote per share on all matters
submitted to a vote of the stockholders, including the election of directors.
Generally, all matters to be voted on by stockholders must be approved by a
majority (or, in the case of election of directors, by a plurality) of the
votes
entitled to be cast by all shares of common stock that are present in person
or
represented by proxy, subject to any voting rights granted to holders of
preferred stock. Except as otherwise provided by law, and subject to any voting
rights granted holders of preferred stock, amendments to our certificate of
incorporation generally must be approved by a majority of the votes entitled
to
be cast by all outstanding shares of common stock. Our certificate of
incorporation does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
preferred stock created by the board of directors from time to time, the common
stockholders will be entitled to such cash dividends as may be declared from
time to time by the board of directors from funds available. Subject to any
preferential rights of any outstanding series of preferred stock, upon our
liquidation, dissolution or winding up, the common stockholders will be entitled
to receive pro rata all assets available for distribution to such
holders.
Description
of Preferred Stock
We
are
authorized to issue 25,000,000 shares of “blank check” preferred stock, par
value $0.001 per share, none of which as of the date hereof is designated,
issued or outstanding. The board of directors is vested with authority to divide
the shares of preferred stock into series and to fix and determine the relative
rights and preferences of the shares of any such series. Once authorized, the
dividend or interest rates, conversion rates, voting rights, redemption prices,
maturity dates and similar characteristics of the preferred stock will be
determined by the board of directors, without the necessity of obtaining
approval of the stockholders.
Description
of Options
There
are
currently issued and outstanding options to purchase 1,693,500 shares of our
common stock as of June 30, 2008, issued to our Named Executive Officers and
employees. Except as otherwise described in this prospectus, the options were
issued pursuant our 2005 Equity Incentive Plan at an exercise price of $4.50
per
share and will vest in equal annual increments over the four-year period
following the date of grant. The options generally have a ten-year term from
the
date of grant. The terms of the options are further described under the heading
“Management” herein. The fair value of the options are determined using the
Black-Scholes option-pricing model. The following is a summary of the
assumptions used:
Risk
free interest rate
|
|
|
5.0
|
%
|
Expected
volatility
|
|
|
68.0
|
%
|
Expected
life (years)
|
|
|
4
|
|
Expected
dividend yield
|
|
|
0.0
|
%
|
Description
of Warrants
There
are
presently warrants issued to purchase 3,412,399 shares of common stock as
follows: warrants held by investors purchasing units in the private offerings
providing for the purchase of 2,669,066 shares of common stock for five years
at
an exercise price of $5.85 per share; warrants held by Noteholders, providing
for the purchase of
333,333
shares of common stock for three years at an exercise price of $4.50 per share,
warrants held by placement agents providing for the purchase of 320,000 shares
of common stock for five years at an exercise price of $4.50 per share and
warrants held by public relations agents providing for the purchase of 90,000
shares of common stock for 10 years at exercise prices of $0.55, $1.20 and
$4.50
for each tranche of 30,000 warrants.
The
exercise price and number of shares of common stock issuable on exercise of
the
warrants may be adjusted in certain circumstances including in the event of
a
stock dividend, recapitalization, reorganization, merger or consolidation.
No
fractional shares will be issued upon exercise of the warrants. If, upon
exercise of the warrants, a holder would be entitled to receive a fractional
interest in a share, we will, upon exercise, round up to the nearest whole
number, the number of shares of common stock to be issued to the warrant holder.
The
warrants are valued using a Black-Scholes option-pricing model using the
respective contractual life as the expected life, a risk free interest rate
of
5.0%, no expected dividends and a 68.0% volatility.
Number
Outstanding
|
|
Exercise Price
|
|
Remaining
Contractual Life
|
|
Warrant Fair
Value at issue date
|
|
|
|
|
|
|
|
|
|
2,669,066
|
|
$
|
5.85
|
|
|
5
years
|
|
$
|
2.08
|
|
333,333
|
|
$
|
4.50
|
|
|
3
years
|
|
$
|
1.80
|
|
320,000
|
|
$
|
4.50
|
|
|
5
years
|
|
$
|
2.27
|
|
30,000
|
|
$
|
0.55
|
|
|
5
years
|
|
$
|
0.43
|
|
30,000
|
|
$
|
1.20
|
|
|
5
years
|
|
$
|
0.37
|
|
30,000
|
|
$
|
4.50
|
|
|
5
years
|
|
$
|
0.25
|
|
Registration
Rights
Concurrently
with entering into the common stock purchase agreement, we entered into a
registration rights agreement with Fusion Capital. Under the registration rights
agreement, we agreed to file a registration statement related to the transaction
with the U.S. Securities and Exchange Commission (“SEC”) covering the shares
that have been issued or may be issued to Fusion Capital under the common stock
purchase agreement within 20 days of the closing date of the transaction.
Indemnification
of Officers and Directors
Under
Delaware law, a Delaware corporation may indemnify any person who was or is
a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or
investigative (other than one by or in the right of the corporation) by reason
of the fact that the person is or was a director, officer, employee or agent
of
the corporation, or is or was serving at the request of the corporation as
a
director, officer, employee or agent of another corporation, against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys’
fees actually and necessarily incurred as a result of such action or proceeding,
if such director or officer acted in good faith, for a purpose which such person
reasonably believed to be in or not opposed to the best interests of the
corporation and, in criminal actions or proceedings, had no reasonable cause
to
believe that such conduct was unlawful.
In
the
case of a derivative action, a Delaware corporation may indemnify any such
person against expenses, including attorneys’ fees, actually and necessarily
incurred by such person in connection with the defense or settlement of such
action or suit, if such director or officer acted in good faith for a purpose
which such person reasonably believed to be in or not opposed to the best
interests of the corporation. However, no indemnification will be made in
respect of any claim, issue or matter as to which such person will have been
adjudged to be liable to the corporation unless, and only to the extent that,
the Court of Chancery of the State of Delaware or any other court in which
such
action was brought determines such person is fairly and reasonably entitled
to
indemnity for such expenses.
Delaware
law permits a corporation to include in its certificate of incorporation a
provision eliminating or limiting a director’s liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. Delaware
law
provides, however, that liability for breaches of the duty of loyalty, acts
or
omissions not in good faith or involving intentional misconduct, or knowing
violation of the law, and the unlawful purchase or redemption of stock or
payment of unlawful purchase or redemption of stock or payment of unlawful
dividends or the receipt of improper personal benefits cannot be eliminated
or
limited in this manner.
Our
certificate of incorporation and bylaws provide that we will indemnify our
directors to the fullest extent permitted by Delaware law and may, if and to
the
extent authorized by our board of directors, indemnify our officers and any
other person whom we have the power to indemnify against any liability,
reasonable expense or other matter whatsoever.
Any
amendment, modification or repeal of the foregoing provisions shall be
prospective only, and shall not affect any rights or protections of any of
our
directors existing as of the time of such amendment, modification or
repeal.
We
may
also, at the discretion of our board of directors, purchase and maintain
insurance to the fullest extent permitted by Delaware law on behalf of any
of
our directors, officers, employees or agents against any liability asserted
against such person and incurred by such person in any such
capacity.
On
December 29, 2005, we entered into indemnification agreements with all of
our officers and directors providing for the indemnification of each of them
for
actions brought against any of them by reason of the fact that they are or
were
our agents. The indemnification agreements provide for indemnification of
certain expenses, judgments, fines, and settlement amounts incurred by the
indemnitee in any action or proceeding, including any action by or in the right
of Enable arising out of such person’s services to us, to any of our
subsidiaries, or to any other company or enterprise to which such indemnitee
provides services at our request. The indemnity agreements provide for the
advancement of expenses, make indemnification contingent on the indemnitee’s
good faith in acting or failing to act, and except the obligation to indemnify
for expenses or liabilities paid directly to the indemnitee by directors’ and
officers’ insurance. A form of indemnity agreement was filed as an Exhibit to
our Current Report on Form 8-K, filed with the SEC on January 5,
2006.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted for our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the SEC this indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable
Anti-Takeover
Effects of Provisions of Delaware Law, Our Certificate of Incorporation and
Bylaws
Our
certificate of incorporation, bylaws and the Delaware General Corporation Law
contain certain provisions that could discourage potential takeover attempts
and
make it more difficult for our stockholders to change management or receive
a
premium for their shares.
Delaware
Law
We
are
subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover provision. In general, the provision prohibits a publicly-held
Delaware corporation from engaging in a business combination with an “interested
stockholder” for a period of three years after the date of the transaction in
which the person became an interested stockholder. A “business combination”
includes a merger, sale of 10% or more of our assets and certain other
transactions resulting in a financial benefit to the stockholder. For purposes
of Section 203, an “interested stockholder” is defined to include any
person that is:
|
|
the
owner of 15% or more of the outstanding voting stock of the
corporation;
|
|
|
an
affiliate or associate of the corporation and was the owner of
15% or more
of the voting stock outstanding of the corporation, at any time
within
three years immediately prior to the relevant date; or
|
|
§
|
an
affiliate or associate of the persons described in the foregoing
bullet
points.
|
However,
the above provisions of Section 203 do not apply if:
|
|
our
board of directors approves the transaction that made the stockholder
an
interested stockholder before to the date of that transaction;
|
|
§
|
after
the completion of the transaction that resulted in the stockholder
becoming an interested stockholder, that stockholder owned at least
85% of
our voting stock outstanding at the time the transaction commenced,
excluding shares owned by our officers and directors; or on or subsequent
to the date of the transaction, the business combination is approved
by
our board of directors and authorized at a meeting of our stockholders
by
an affirmative vote of at least two-thirds of the outstanding voting
stock
not owned by the interested
stockholder.
|
Stockholders
may, by adopting an amendment to the corporation’s certificate of incorporation
or bylaws, elect for the corporation not to be governed by Section 203,
effective 12 months after adoption. Neither our certificate of incorporation
nor
our bylaws exempt us from the restrictions imposed under Section 203. It is
anticipated that the provisions of Section 203 may encourage companies
interested in acquiring us to negotiate in advance with our board of directors.
Charter
and Bylaw Provisions
Our
certificate of incorporation, as amended, provides for a staggered board of
directors with three classes of directors. Approximately one-third of the
directors will come up for re-election each year. Having a staggered board
of
directors will make it more difficult for a third-party to obtain control
of our board of directors through a proxy contest, which may be a
necessary step in an acquisition of us that is not favored by our board of
directors.
Directors
may be removed with the approval of the holders of a majority of the shares
then
entitled to vote at an election of directors. Directors may be removed by
stockholders with or without cause. Vacancies and newly-created directorships
resulting from any increase in the number of directors may be filled by a
majority of the directors then in office, though less than a quorum. If there
are no directors in office, then an election of directors may be held in the
manner provided by law.
Listing
Our
common stock is listed on the OTC bulletin board under the symbol
“ENAB.OB.”
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Pacific Stock Transfer
Company.
WHERE
YOU CAN FIND MORE INFORMATION
We
are
subject to the informational reporting requirements of the Exchange Act, which
requires us to file annual, quarterly, and current reports, proxy statements
and
other information with the SEC. The SEC maintains an Internet site that contains
such information regarding issuers that file electronically, such as Enable
Holdings, Inc. The public may inspect our filings over the Internet at the
SEC’s
home page at
www.sec.gov
.
The
public may also read and copy any document we file at the Public Reference
Room
of the SEC at 100 F Street, N.E., Washington, DC 20549. Information on the
operation of the Public Reference Room may be obtained by the public by calling
the SEC at 1-800-SEC-0330.
EXPERTS
The
audited consolidated financial statements of Enable Holdings, Inc. and
subsidiaries for the years ended December 31, 2007, 2006, and 2005 included
in the Registration Statement have been audited by BDO Seidman, LLP, an
independent registered public accounting firm, as set forth in their report
appearing herein. Such financial statements have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The
validity of the shares of our common stock offered by the selling shareholder
will be passed upon by the law firm of Fredrikson & Byron, P.A.,
Minneapolis, Minnesota.
INDEX
TO THE FINANCIAL STATEMENTS
Years
Ended December 31, 2007, 2006, and 2005
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
F-3
|
Consolidated
Statements of Operations for the years ended December 31, 2007,
2006 and
2005
|
F-4
|
Consolidated
Statements of Shareholders’ Equity for the years ended December 31, 2007,
2006 and 2005
|
F-5
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2007,
2006 and
2005
|
F-7
|
Notes
to Consolidated Financial Statements
|
F-8
|
|
|
Three
and Six Months Ended June 30, 2008 and 2007
|
|
|
|
Consolidated
Condensed Balance Sheets (Unaudited) as of June 30, 2008 and December
31,
2007
|
F-25
|
Consolidated
Condensed Statements of Operations (Unaudited) for the three and
six
months ended June 30, 2008 and 2007
|
F-26
|
Consolidated
Condensed Statement of Shareholders' Equity (Unaudited) for the
three
months ended March 31, 2008 and six months ended June 30,
2008
|
F-26
|
Consolidated
Condensed Statements of Cash Flows (Unaudited) for the six months
ended
June 30, 2008 and 2007
|
F-27
|
Notes
to Consolidated Condensed Financial Statements
|
F-28
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON
FINANCIAL STATEMENTS
Board
of
Directors and Stockholders
Enable
Holdings, Inc.
Chicago,
Illinois
We
have
audited the accompanying consolidated balance sheets of Enable Holdings,
Inc. as
of December 31, 2007 and 2006, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2007, 2006 and 2005. These financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required
to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Enable Holdings, Inc.
as of
December 31, 2007 and 2006, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2007,
2006
and 2005 in conformity with accounting principles generally accepted in the
United States of America.
As
described in Note 1 to the consolidated financial statements, effective January
1, 2006, Enable Holdings, Inc. adopted the fair value method of accounting
provisions of Statement of Financial Accounting Standard No. 123 (revised
2004),
“Share Based Payment.”
/s/
BDO
Seidman, LLP
BDO
Seidman, LLP
Chicago,
Illinois
March
17,
2008
Enable
Holdings, Inc and Subsidiaries
Consolidated
Balance Sheets
(Dollars
in Thousands, except par value data)
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
7,724
|
|
$
|
14,785
|
|
Restricted
investments
|
|
|
212
|
|
|
214
|
|
Accounts
receivable, less allowance for doubtful accounts of $467 and $215,
respectively
|
|
|
648
|
|
|
1,810
|
|
Merchandise
inventories
|
|
|
5,156
|
|
|
4,054
|
|
Prepaid
expenses and other current assets
|
|
|
759
|
|
|
1,189
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
14,499
|
|
|
22,052
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, net
|
|
|
725
|
|
|
924
|
|
Purchased
Intangible Assets
|
|
|
107
|
|
|
602
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
15,331
|
|
$
|
23,578
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Flooring
facility
|
|
$
|
314
|
|
$
|
152
|
|
Accounts
payable
|
|
|
2,766
|
|
|
2,239
|
|
Accrued
expenses:
|
|
|
|
|
|
|
|
Advertising
|
|
|
205
|
|
|
428
|
|
Other
|
|
|
1,194
|
|
|
1,024
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
4,479
|
|
|
3,843
|
|
|
|
|
|
|
|
|
|
Redeemable
Common Stock, $.001 par value (2,666,668 shares in 2005)
|
|
|
-
|
|
|
-
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
Common
stock, $.001 par value (200,000,000 shares authorized; 20,333,333
and
19,399,334 issued and outstanding, respectively)
|
|
|
20
|
|
|
20
|
|
Treasury
Stock
|
|
|
(2,242
|
)
|
|
0
|
|
Stock
warrants
|
|
|
8,086
|
|
|
8,086
|
|
Additional
paid-in-capital
|
|
|
37,248
|
|
|
36,848
|
|
Accumulated
deficit
|
|
|
(32,260
|
)
|
|
(25,219
|
)
|
|
|
|
|
|
|
|
|
Total
Shareholders' Equity
|
|
|
10,852
|
|
|
19,735
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
15,331
|
|
$
|
23,578
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Enable
Holdings, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(Dollars
in Thousands, except for per share data)
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Net
Revenues
|
|
$
|
43,061
|
|
$
|
66,559
|
|
$
|
84,592
|
|
Cost
of Revenues
|
|
|
33,333
|
|
|
56,421
|
|
|
73,062
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
9,728
|
|
|
10,138
|
|
|
11,530
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
General
and administrative (1)
|
|
|
13,255
|
|
|
12,973
|
|
|
13,045
|
|
Sales
and marketing
|
|
|
3,753
|
|
|
4,987
|
|
|
4,996
|
|
Total
operating expenses
|
|
|
17,008
|
|
|
17,960
|
|
|
18,041
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
|
(7,280
|
)
|
|
(7,822
|
)
|
|
(6,511
|
)
|
Interest
Income (Expense), net
|
|
|
179
|
|
|
267
|
|
|
(2,538
|
)
|
Miscellaneous
Income
|
|
|
60
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(7,041
|
)
|
|
(7,555
|
)
|
|
(9,049
|
)
|
Preferred
Stock Dividends
|
|
|
-
|
|
|
-
|
|
|
(1,216
|
)
|
Net
Loss Available to Common Shareholders
|
|
$
|
(7,041
|
)
|
$
|
(7,555
|
)
|
$
|
(10,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per share - Basic and
|
|
|
|
|
|
|
|
|
|
|
Diluted
(2)
|
|
$
|
(0.37
|
)
|
$
|
(0.37
|
)
|
$
|
(3.88
|
)
|
Weighted
Average Shares - Basic and Diluted
|
|
|
18,864,777
|
|
|
20,260,689
|
|
|
2,643,936
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
(1)
|
Includes
$0, $30 and $360 of management fees charged to Enable by Petters
Group for
the years ended December 31, 2007, 2006 and 2005.
|
|
|
(2)
|
Reflects
the retroactive effects of the impact of the Company's December
2005
merger with Cape Coastal and the resulting exchange of the Company's
1,072
shares of common stock outstanding for the stock of Cape Coastal
at an
exchange ratio of 2,320 to 1 for the year ended December 31,
2005.
|
Consolidated
Statements of Shareholders' Equity
(Dollars
in Thousands)
|
|
Preferred Stock
|
|
Common Stock
|
|
Stock
|
|
Paid-in
|
|
Treasury Stock
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
Dollars
|
|
Warrants
|
|
Capital
|
|
Shares
|
|
Dollars
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
2,500
|
|
|
1,120
|
|
|
2,487,107
|
|
|
—
|
|
|
75
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,399
|
)
|
|
(6,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
—
|
|
|
60
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(60
|
)
|
|
—
|
|
Conversion
of preferred stock (1)
|
|
|
(2,500
|
)
|
|
(1,180
|
)
|
|
5,800,159
|
|
|
8
|
|
|
—
|
|
|
1,172
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise
of warrants (2)
|
|
|
—
|
|
|
—
|
|
|
436,172
|
|
|
1
|
|
|
(75
|
)
|
|
74
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance
of common stock (3)
|
|
|
—
|
|
|
—
|
|
|
76,562
|
|
|
—
|
|
|
—
|
|
|
444
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
444
|
|
Merger
with Cape Coastal (4)
|
|
|
—
|
|
|
—
|
|
|
599,331
|
|
|
—
|
|
|
—
|
|
|
(2,061
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,061
|
)
|
Private
offering (5)
|
|
|
—
|
|
|
—
|
|
|
10,000,003
|
|
|
8
|
|
|
5,200
|
|
|
29,792
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35,000
|
|
Deemed dividend (6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,156
|
|
|
—
|
|
|
—
|
|
|
(1,156
|
)
|
|
—
|
|
Private
offering costs (7)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
522
|
|
|
(4,670
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,148
|
)
|
Warrants
issuance (8)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
600
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,049
|
)
|
|
(9,049
|
)
|
Balance,
December31, 2005
|
|
|
—
|
|
|
—
|
|
|
19,399,334
|
|
|
17
|
|
|
6,322
|
|
|
25,907
|
|
|
—
|
|
|
—
|
|
|
(17,664
|
)
|
|
14,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
private offering (9)
|
|
|
—
|
|
|
—
|
|
|
333,332
|
|
|
3
|
|
|
1,560
|
|
|
11,937
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,500
|
|
Stock
compensation expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
708
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
708
|
|
Second
private offering costs (9)
|
|
|
—
|
|
|
—
|
|
|
600,667
|
|
|
—
|
|
|
204
|
|
|
(1,704
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,500
|
)
|
Net
Loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,555
|
)
|
|
(7,555
|
)
|
Balance,
December 31, 2006
|
|
|
—
|
|
$
|
—
|
|
|
20,333,333
|
|
$
|
20
|
|
$
|
8,086
|
|
$
|
36,848
|
|
|
—
|
|
$
|
—
|
|
$
|
(25,219
|
)
|
$
|
19,735
|
|
Stock
compensation expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
400
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
400
|
|
Common
stock and warrants repurchase (10)
|
|
|
—
|
|
|
—
|
|
|
(2,135,550
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,135,550
|
|
|
(2,242
|
)
|
|
—
|
|
|
(2,242
|
)
|
Net
Loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,041
|
)
|
|
(7,041
|
)
|
Balance,
December 31, 2007
|
|
|
—
|
|
$
|
—
|
|
|
18,197,783
|
|
$
|
20
|
|
$
|
8,086
|
|
$
|
37,248
|
|
|
2,135,550
|
|
$
|
(2,242
|
)
|
$
|
(32,260
|
)
|
$
|
10,852
|
|
(1)
|
Conversion
of 2,500 shares of convertible voting preferred stock just prior
to the
merger with Cape Coastal and exchange of resulting 2,500 shares
of common
stock for the common stock of Cape Coastal at an exchange ratio
of 2,320
to 1. See Footnote 3. Dividends were not paid and therefore reflected
as a
contribution to paid-in-capital.
|
(2)
|
Exercise
of warrants just prior to the merger with Cape Coastal and exchange
of
resulting 188 shares of common stock for the common stock of Cape
Coastal
at an exchange ratio of 2,320 to 1. See Footnote 3.
|
(3)
|
The
Company issued 33 shares of its non-voting common stock in October
2005
for $444. These shares are also reflected as exchanged common stock
at an
exchange ratio of 2,320 to 1. See Footnote 3.
|
(4)
|
Upon
the December 2005 merger with Cape Coastal, which has been accounted
for
as a reverse acquisition, the previous owners of Cape Coastal retained
599,331 shares of $0.001 par value common stock (out of 200,000,000
authorized shares) and the Company assumed net liabilities of Cape
Coastal
of $61. In addition, 444,444 shares of common stock owned by the
previous
uBid stockholders became subject to redemption and were reclassified
out
of permanent equity. These shares were redeemed during 2006. See
Footnote
3.
|
(5)
|
Concurrent
with the December 2005 merger with Cape Coastal, the Company completed
the
first part of a private placement under which it issued 10,000,003
shares
of common stock and stock warrants valued at $5,200 for an aggregate
of
$45,000. Of the issued shares, 2,222,224 were subject to redemption
and
are therefore not classified as permanent equity. These shares
were
redeemed in 2006.
|
(6)
|
Represents
loss on extinguishment of shareholder debt. See Footnote
8.
|
(7)
|
Private
offering costs included warrants issued to transaction advisors
valued at
$522 and cash expenses of $4,148. See Footnote 3.
|
(8)
|
Concurrent
with the private offering, the Company issued warrants to certain
lenders
valued at $600 as provided in the credit agreement governing such
debt.
See Footnote 3.
|
(9)
|
On
February 3, 2006, the Company completed the second part of the
private
offering of Units to accredited investors. In this offering, the
Company
sold 3,000,000 shares of its common stock and warrants to purchase
750,002
shares of it’s common stock on the same terms as described above for an
aggregate $13,500. The Company also redeemed the 2,666,668 shares
of
common stock issued in connection to the merger and the first private
offering that were subject to redemption at a price of $4.50 per
share
(and then reissued these shares without the redemption feature
as part of
the 3,000,000 shares sold). The Company also issued 600,667 shares
of
common stock (valued at $4.50 per share) to shareholders of Cape
Coastal
prior to merger and uBid’s financial advisor, Calico Capital Group. In
addition, the Company issued additional warrants to purchase 90,000
shares
of it’s common stock to its placement agents on the same terms as
described above. The second part of the private offering resulted
in no
net cash proceeds being retained by the Company. Issuance costs,
including
the value of the warrants and the shares issued to Calico Capital
Group,
were $4,407.
|
(10)
|
On
April 25, 2007, The Company entered into a stock repurchase agreement
with
a group of private investors under common management to repurchase
2,135,550 shares of the Company’s common stock and warrants to purchase
580,937 shares of the Company’s common stock held by such private
investors at a combined price of $1.05 for the company stock and
for the
warrants for an aggregate purchase price of $2,242. These shares
and
warrants repurchased in this privately negotiated transaction were
originally acquired by the private investors in the Company’s private
placement that initially closed on December 29, 2005. The repurchase
represented 11% of the common stock and warrants
outstanding.
|
Enable
Holdings, Inc and Subsidiaries
Consolidated
Statements of Cash Flows
(Dollars
in Thousands)
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,041
|
)
|
$
|
(7,555
|
)
|
$
|
(9,049
|
)
|
Adjustments
to reconcile net loss to net cash used in Operating
activities
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
876
|
|
|
438
|
|
|
181
|
|
Interest
expense paid with warrants
|
|
|
-
|
|
|
-
|
|
|
600
|
|
Non-cash
compensation expense
|
|
|
400
|
|
|
708
|
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
911
|
|
|
(659
|
)
|
|
(712
|
)
|
Provision
for bad debts
|
|
|
251
|
|
|
155
|
|
|
52
|
|
Merchandise
inventories
|
|
|
(1,102
|
)
|
|
1,935
|
|
|
1,217
|
|
Prepaid
expenses and other current assets
|
|
|
430
|
|
|
(542
|
)
|
|
(74
|
)
|
Accounts
payable
|
|
|
526
|
|
|
(2,217
|
)
|
|
(13
|
)
|
Accrued
expenses
|
|
|
(52
|
)
|
|
(2,133
|
)
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(4,801
|
)
|
|
(9,870
|
)
|
|
(6,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(182
|
)
|
|
(717
|
)
|
|
(376
|
)
|
Purchased
intangible assets
|
|
|
-
|
|
|
(723
|
)
|
|
-
|
|
Change
in restricted investments
|
|
|
2
|
|
|
6,789
|
|
|
(5,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
(180
|
)
|
|
5,349
|
|
|
(5,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From financing Activities
|
|
|
|
|
|
|
|
|
|
|
Change
in flooring facility
|
|
|
162
|
|
|
(1,460
|
)
|
|
1,523
|
|
Proceeds
from issuance of related-party debt
|
|
|
-
|
|
|
-
|
|
|
1,500
|
|
Proceeds
from issuance of Bridge notes
|
|
|
-
|
|
|
-
|
|
|
5,000
|
|
Proceeds
from sale of common stock and warrants
|
|
|
-
|
|
|
13,500
|
|
|
29,500
|
|
Redemption
of common stock
|
|
|
-
|
|
|
(12,000
|
)
|
|
-
|
|
Fees
paid in conjunction with Merger and offerings
|
|
|
-
|
|
|
(1,500
|
)
|
|
(4,148
|
)
|
Payments
on notes payable
|
|
|
-
|
|
|
-
|
|
|
(1,000
|
)
|
Proceeds
from sale of non-voting common stock
|
|
|
-
|
|
|
-
|
|
|
444
|
|
Repurchase
of common stock
|
|
|
(2,242
|
)
|
|
-
|
|
|
-
|
|
Repayment
of related-party debt
|
|
|
-
|
|
|
-
|
|
|
(500
|
)
|
Payments
on long-term debt
|
|
|
-
|
|
|
(410
|
)
|
|
(410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(2,080
|
)
|
|
(1,870
|
)
|
|
31,909
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Decrease) Increase in Cash and Cash Equivalents
|
|
|
(7,061
|
)
|
|
(6,391
|
)
|
|
19,442
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents, beginning of year
|
|
|
14,785
|
|
|
21,176
|
|
|
1,734
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents, end of year
|
|
$
|
7,724
|
|
$
|
14,785
|
|
$
|
21,176
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemented
Cash Flow Disclosure
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
260
|
|
$
|
275
|
|
$
|
2,494
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock and warrants issued in exchange for cancellation of related
party
debt
|
|
$
|
-
|
|
$
|
-
|
|
$
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock and warrants issued in exchange for cancellation of
debt
|
|
$
|
-
|
|
$
|
-
|
|
$
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
and stock issued as stock issuance costs
|
|
$
|
-
|
|
$
|
2,907
|
|
$
|
522
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Notes
to
Consolidated Financial Statements
(Dollars
in Thousands, except per share data)
1.
|
Organization
and
Operations
|
|
Enable
Holdings, Inc. (the “Company” or “Enable”), formerly uBid.com
Holdings, Inc. and, prior to uBid.com Holdings, uBid, Inc., operates
a leading on-line marketplace that enables itself, certified merchants,
manufacturers, retailers, distributors and small businesses to
offer high
quality excess, new, overstock, close-out, refurbished and limited
supply
brand name merchandise to consumer and business customers. Through
the
Company’s website, located at
www.ubid.com
,
the Company offers merchandise across a wide range of product categories
including but not limited to computer products, consumer electronics,
apparel, housewares, watches, jewelry, travel, sporting goods,
home
improvement products and collectibles. The Company’s marketplace employs a
combination of auction style and fixed price formats.
|
|
|
|
|
|
|
|
uBid,
Inc. commenced operations in 1997 primarily selling computer and
consumer
electronics on our online auction style marketplace as a wholly-owned
subsidiary of PC Mall. In December 1998, uBid completed an initial
public
offering.
|
|
|
|
|
|
|
|
In
April 2000, CMGI, Inc. (“CMGI”) acquired ownership of uBid, Inc. in a
stock-for-stock merger transaction valued at approximately $407,000.
Upon
closing, uBid, Inc. became a wholly- owned subsidiary of
CMGI.
|
|
|
|
|
|
|
|
On
April 2, 2003, CMGI sold substantially all of the assets and non-related
party liabilities of uBid, Inc. to Takumi Interactive, Inc., an
investment vehicle of Petters Group Worldwide, LLC (“Petters Group”)
formed on March 7, 2003, which changed its name to uBid, Inc. immediately
after the acquisition. As a result of the transaction, uBid became
a
separate stand-alone business owned substantially by the Petters
Group. In
consideration of the asset sale, Takumi paid CMGI (1) $1,613in
cash at
closing, (2) a promissory note in the aggregate principal amount
of $2,000
bearing interest at the prime rate plus 1.5%, payable in two equal
installments on the first and second anniversaries of the closing,
and (3)
a warrant to purchase non-voting common stock of uBid constituting
5% of
the outstanding common stock of uBid on the consummation of the
business
sale.
|
|
|
|
|
|
|
|
On
December 29, 2005 (the “Closing Date”) , uBid entered into a Merger
Agreement and Plan of Reorganization with Cape Coastal Trading
Corporation
(the previous public reporting entity), and uBid Acquisition Co.,
Inc., a
wholly-owned subsidiary of Cape Coastal. Under the Merger Agreement,
uBid
Acquisition Co. merged with and into uBid, with uBid remaining
as the
surviving corporation and our wholly-owned subsidiary.
|
|
|
|
|
|
|
|
Before
the merger, Cape Coastal Trading Corporation was a shell company.
Our
business operations following the merger are those of our wholly-owned
subsidiaries, uBid and Dibu Trading Corporation.
|
|
|
|
|
|
|
|
The
merger was treated as a recapitalization of uBid for financial
accounting
purposes. Accordingly, the historical financial statements of Cape
Coastal
before the merger have been replaced with the historical financial
statements of uBid before the merger. The name Cape Coastal was
subsequently changed to uBid.com Holdings, Inc. in February 2006.
The name
uBid.com Holdings was subsequently changed to Enable Holdings,
Inc. in
August 2008.
|
2.
|
Summary
of Significant
Accounting
Policies
|
|
|
|
|
|
|
|
Use
of Estimates
|
|
The
preparation of financial statements in conformity with generally
accepted
accounting principles in the United States of America requires
management
to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and
liabilities
at the date of the financial statements, and the reported amounts
of
revenues and expenses during the respective reporting periods.
Actual
results could differ from those estimates.
|
|
|
|
|
|
Year-End
|
|
The
Company’s fiscal years end on December 31.
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
The
Company considers all highly liquid investments purchased with
a maturity
of three months or less to be cash equivalents. Cash and cash equivalents
include financial instruments that potentially subject the Company
to a
concentration of credit risk. The Company maintains its cash balances
in
two institutions and has concentration of credit risk to the extent
deposits exceeded the federally insured limits.
|
|
|
|
|
|
Restricted
Investments
|
|
The
Company maintains restricted collateral invested in money market
accounts
and are used as security for the Company’s office lease and purchases from
certain suppliers. Interest on the money market account is earned
at 2.0%
per annum.
|
|
|
|
|
|
|
|
The
Company is required to maintain Letters of Credit collateralized
by
restricted investments to support credit lines with certain suppliers.
For
2007, a maximum of $7,000 was available under the credit line described
in
Note 10 eliminating the need for restricted
investments.
|
|
|
|
|
|
Accounts
Receivable
|
|
Accounts
receivable consist of amounts due from customers, businesses, and
credit
cards billed for which payment has not yet been received at year
end. An
allowance for doubtful accounts is maintained at a level management
believes is sufficient to cover potential losses based on historical
trends and known current factors.
|
|
|
|
|
|
|
|
Activity
relating to the allowance for doubtful accounts is summarized as
follows:
|
December
31,
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
215
|
|
$
|
60
|
|
$
|
8
|
|
Charged
to costs and expenses
|
|
|
282
|
|
|
155
|
|
|
56
|
|
Write-offs,
retirements and recoveries
|
|
|
(30
|
)
|
|
-
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
$
|
467
|
|
$
|
215
|
|
$
|
60
|
|
|
Merchandise
Inventories
|
|
Merchandise
inventories consist of merchandise purchased for resale and are
valued at
the lower of specifically identified cost or market. The Company
establishes allowances for damages, excess and obsolete inventory
equal to
the difference between the cost of inventory and the estimated
market
value based upon assumptions about future demand and market
conditions.
|
|
Property
and Equipment
|
|
Property
and equipment are stated at cost and depreciated/amortized on a
straight-line basis over the estimated useful lives of the related
assets
as follows:
|
|
Furniture
and fixtures
|
7
years
|
|
Computer
equipment
|
3
years
|
|
Leasehold
improvements
|
Life
of Lease
|
|
|
|
Maintenance
and repairs are charged to expense as incurred. Major betterments
are
capitalized and depreciated over the remaining useful lives of
the
respective assets. Gains and losses on disposal of assets are credited
or
charged to income.
|
|
|
|
|
|
Purchased
Intangible
Assets
|
|
Purchased
intangible assets consist primarily of a trademark and customer
relationships. These assets are amortized over their estimated
useful
lives of twelve to twenty-four months.
|
|
|
|
|
|
Long-Lived
Assets
|
|
Long-lived
assets are reviewed for impairment whenever events or circumstances
indicate the remaining useful life of any long-lived assets may
warrant
revision or that the remaining carrying value of such assets may
not be
recoverable. When factors indicate that such assets should be evaluated
for possible impairment, the Company uses an estimate of the undiscounted
cash flows over the remaining life of the asset in measuring whether
the
asset is recoverable. No impairment has been recognized for the
years
ended December 31, 2007 and 2006.
|
|
|
|
|
|
Financial
Instruments
|
|
The
carrying amounts reported in the balance sheet for cash, cash equivalents,
restricted investments, accounts receivable, flooring facility,
accounts
payable, accrued expenses and current maturities of long term debt
approximate fair value because of the short-term nature of these
amounts.
|
|
|
|
|
|
Revenue
Recognition
|
|
The
Company sells merchandise under two types of arrangements, direct
purchase
sales and revenue sharing arrangements.
|
|
|
|
|
|
|
|
For
direct purchase sales, the Company is responsible for conducting
the
auction for merchandise owned by the Company, billing the customer,
shipping the merchandise to the customer, processing merchandise
returns
and collecting accounts receivable. In accordance with the provisions
of
Staff Accounting Bulletin 104, the Company recognizes revenue when
the
following revenue recognition criteria are met: (1) persuasive
evidence of an arrangement exists; (2) the product has been shipped
(FOB Shipping Point) and the customer takes ownership and assumes
the risk
of loss; (3) the selling price is fixed or determinable; and
(4) collection of the resulting receivable is reasonably
assured.
|
|
|
|
|
|
|
|
For
sales of merchandise under revenue-sharing agreements, the Company
is
responsible for conducting the auction for merchandise owned by
third
parties, billing the customer, arranging for a third party to complete
delivery to the customer, processing merchandise returns and collecting
accounts receivable. The Company bears no physical inventory loss
or
returns risk related to these sales. The Company records commission
revenue at the time of shipment. Commission revenues recognized
under
revenue sharing arrangements were $5,533, $4,686 and $3,384 for
the
periods ended December 31, 2007, 2006 and 2005,
respectively.
|
|
|
|
|
|
Shipping
and Handling
Costs
|
|
Shipping
costs that are billable to the customer are included in revenue
and all
shipping costs that are payable to vendors are included in cost
of
revenues in the accompanying consolidated statements of operations.
Handling costs consisting primarily of the third party logistics
warehouse
costs are included in general and administrative expenses and for
the
years ended December 31, 2007, 2006 and 2005 were $560, $767, and
$874 respectively.
|
|
Merchandise
Return Policy
|
|
The
Company’s return policy, for all selling arrangements, is that merchandise
sold by the Company can be returned within 15 days. Returns are
subject to
a 15% restocking fee which are included in revenues. Restocking
fees for
the periods ended December 31, 2007, 2006 and 2005 were $62, $81 and
$71, respectively. However, the Company, although not obligated to do
so, may accept merchandise returns outside the 15-day period if
a product
is defective or does not conform to the specifications of the item
sold at
auction, and attempts to work with its customers to resolve complaints
about merchandise. The Company provides an accrual for estimated
future
returns at the time of shipment based on historical
experience.
|
|
|
|
|
|
|
|
Activity
relating to the merchandise return accrual is summarized as
follows:
|
December
31,
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
(30
|
)
|
$
|
(30
|
)
|
$
|
(30
|
)
|
Charged
to costs and expenses
|
|
|
(958
|
)
|
|
(894
|
)
|
|
(458
|
)
|
Write-offs,
retirements and recoveries
|
|
|
958
|
|
|
894
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
$
|
(30
|
)
|
$
|
(30
|
)
|
$
|
(30
|
)
|
|
Advertising
Costs
|
|
The
Company has marketing relationship agreements with various online
companies such as portal networks, contextual sites, search engines
and
affiliate partners. Agreements have varying terms including 1-14
day
cancellation clauses. Advertising costs are generally charged to
the
Company monthly per vendor agreements, which typically are based
on
visitors and/or registrations delivered to the site or at a set
fee.
Agreements do not provide for guaranteed renewal and may be terminated
by
the Company without cause. Such advertising costs are charged to
expense
as incurred.
|
|
|
|
|
|
|
|
Total
advertising costs included in Sales and Marketing expense in the
Consolidated Statements of Operations for the years ended December
31, 2007, 2006 and 2005 were $3,241, $4,377 and $4,297,
respectively.
|
|
|
|
|
|
Stock-Based
Compensation
|
|
Effective
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R) (“SFAS 123R”). This pronouncement requires companies
to measure the cost of employee service received in exchange for
a
share-based award (typically stock options) based on the fair value
of the
award. The Company has elected to use the “modified prospective”
transition method for stock options granted prior to January 1,
2006, but
for which the vesting period is not complete. There were no options
granted prior to December 29, 2005. Under this transition method,
the
Company accounts for such awards on a prospective basis, with expense
being recognized in its statement of operations beginning in the
first
quarter of 2006 and continuing over the remaining requisite service
period
based on the grant date fair value estimated in accordance with
Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (“SFAS 123”). Prior to 2006, the Company accounted for
employee stock options using the method of accounting prescribed
by
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to
Employees, and associated interpretations using the intrinsic method.
Generally, no expense was recognized related to its stock options
under
this method because the stock option’s exercise price was set at the
stock’s fair market value on the date the option was granted. The Company
recognizes these compensation costs on a straight-line basis over
the
requisite service period of the award which is generally the option
vesting term of four years. The total compensation expense related
to the
stock option plan for the year ended December 31, 2007 and 2006
was $400
and $708 respectively.
|
|
Income
Taxes
|
|
The
Company accounts for income taxes under the liability method. Under
this
method, deferred income taxes are recognized by applying enacted
statutory
tax rates applicable to future years to differences between the
income tax
bases and financial reporting amounts of existing assets and liabilities.
A valuation allowance is provided when it is more likely than not
that all
or some portion of deferred income tax assets will not be
realized.
|
|
|
|
|
|
Net
Loss Per Share
|
|
The
Company computes loss per share under Statement of Financial Accounting
Standards (“SFAS”) No. 128, “Earnings Per Share.” The statement requires
presentation of two amounts: basic and diluted loss per share.
Basic loss
per share is computed by dividing the loss available to common
stockholders by the weighted average common shares outstanding.
Dilutive
earnings per share would include all common stock equivalents unless
anti-dilutive.
|
|
|
|
|
|
|
|
Due
to losses in each period presented, the Company has not included
the
following common stock equivalents in its computation of diluted
loss per
share as their input would have been anti-dilutive. Considering
the
retroactive reflection of the merger with Cape Coastal and the
resulting
share exchange, no common stock equivalents were outstanding until
2005.
|
December
31,
|
|
2007
|
|
2006
|
|
Shares
subject to stock warrants
|
|
|
3,232,939
|
|
|
3,903,336
|
|
Shares
subject to stock options
|
|
|
1,984,100
|
|
|
1,530,600
|
|
|
|
|
5,217,039
|
|
|
5,433,936
|
|
|
New
Accounting
Pronouncements
|
|
In
July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109” (“FIN 48”).
FIN 48 clarifies the accounting for uncertainty in income taxes by
prescribing the recognition threshold a tax position is required
to meet
before being recognized in the financial statements. It also provides
guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is
required to be adopted by the Company in the first quarter of fiscal
2007.
When the Company adopted FIN 48 during the first quarter of 2007,
there
was no impact to the consolidated results of operations and financial
position for the period ended December 31, 2007.
|
|
|
|
|
|
|
|
On
February 15, 2007, the FASB issued Statement of Financial Accounting
Standards No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities - Including an Amendment of FASB Statement
No. 115”
(“SFAS 159”). This standard permits an entity to measure financial
instruments and certain other items at estimated fair value. Most
of the
provisions of SFAS No. 159 are elective; however, the amendment
to FASB
No. 115, “Accounting for Certain Investments in Debt and Equity
Securities,” applies to all entities that own trading and
available-for-sale securities. The fair value option created by
SFAS 159
permits an entity to measure eligible items at fair value as of
specified
election dates. The fair value option (a) may generally be applied
instrument by instrument, (b) is irrevocable unless a new election
date
occurs, and (c) must be applied to the entire instrument and not
to only a
portion of the instrument. SFAS 159 is effective as of the beginning
of
the first fiscal year that begins after November 15, 2007. Early
adoption
is permitted as of the beginning of the previous fiscal year provided
that
the entity (i) makes that choice in the first 120 days of that
year, (ii)
has not yet issued financial statements for any interim period
of such
year, and (iii) elects to apply the provisions of FASB 157. We
are
currently evaluating the impact of SFAS 159, if any, on our consolidated
financial statements.
|
|
|
|
In
September 2006, the FASB issued SFAS No. 158, “Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans—An Amendment of
FASB No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158
requires that the funded status of defined benefit postretirement
plans be
recognized on the company's balance sheet and changes in the funded
status
be reflected in comprehensive income, effective for fiscal years
ending after December 15, 2006. The Company adopted SFAS No. 158
during the first quarter of 2007 and there was no material effect
to the
consolidated results of operations for the period ended December
31,
2007.
|
|
|
|
|
|
|
|
In
June 2007, the FASB also ratified EITF 07-3, “Accounting for Nonrefundable
Advance Payments for Goods or Services Received for Use in Future
Research
and Development Activities” (“EITF 07-3”). EITF 07-3 requires
that nonrefundable advance payments for goods or services that
will be
used or rendered for future research and development activities
be
deferred and capitalized and recognized as an expense as the goods
are
delivered or the related services are performed. EITF 07-3 is
effective, on a prospective basis, for fiscal years beginning after
December 15, 2007.The Company does not expect the adoption of
EITF 07-3 to have a material effect on the consolidated results of
operations and financial condition.
|
|
|
|
|
|
|
|
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”). SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures in
its
financial statements the identifiable assets acquired, the liabilities
assumed, any noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141R also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the
business
combination. SFAS 141R is effective for fiscal years beginning after
December 15, 2008, and will be adopted in the first quarter of fiscal
2009. The Company is currently evaluating the potential impact,
if any, of
the adoption of SFAS 141R on its consolidated results of operations
and financial condition.
|
|
|
|
|
|
|
|
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling
Interests in Consolidated Financial Statements—an amendment of Accounting
Research Bulletin No. 51” (“SFAS 160”). SFAS 160
establishes accounting and reporting standards for ownership interests
in
subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent's ownership interest,
and the
valuation of retained noncontrolling equity investments when a
subsidiary
is deconsolidated. SFAS 160 also establishes disclosure requirements
that clearly identify and distinguish between the interests of
the parent
and the interests of the noncontrolling owners. SFAS 160 is effective
for fiscal years beginning after December 15, 2008.The Company is
currently evaluating the potential impact, if any, of the adoption
of
SFAS 160 on its consolidated results of operations and financial
condition.
|
|
|
|
In
addition, the Company is reviewing the following Emerging Issues
Task
Force (“EITF”) consensuses and does not currently expect that the adoption
of these will have a material impact on its consolidated results
of
operations and financial condition:
|
|
·
|
EITF
06-2, “Accounting for Sabbatical Leave and Other Similar Benefits.” Issued
in June 2006 and effective for the Company in the first quarter
of fiscal
2008, this EITF applies to compensated absences that require a
minimum
service period but have no increase in the benefit even with additional
years of service.
|
|
·
|
EITF
06-9, “Reporting a Change in (or the Elimination of) a Previously Existing
Difference between the Fiscal Year End of a Parent Company and
That of a
Consolidated Entity or between the Reporting Period of an Investor
and
That of an Equity Method Investee.” Issued in November 2006 and effective
for the Company in the second quarter of 2007, this EITF requires
certain
disclosures whenever a change is made to modify or eliminate the
time lag
(usually three months or less) used for recording results of consolidated
entities or equity method investees that have a different fiscal
year end
than the Company.
|
3.
|
Merger
and Private
Offerings
|
|
On
December 29, 2005, Cape Coastal Trading Corporation, uBid Acquisition
Co.,
Inc. (“Acquisition Sub”) and uBid, Inc. entered into a Merger Agreement
and Plan of Reorganization. Under the Merger Agreement, Acquisition
Sub
merged with and into uBid, Inc., with uBid, Inc. remaining as the
surviving corporation and a wholly-owned subsidiary of Cape Coastal
Trading Corporation (or “Cape Coastal”). Just prior to the closing date,
all outstanding convertible preferred shares and warrants to acquire
common shares of uBid were converted and exercised such that, just
prior
to the merger 3,793 common shares were outstanding which were exchanged
on
a 2,320 to 1 basis on the closing date into 8,800,000 shares of
common
stock with up to 444,444 shares of common stock subject to redemption
at a
redemption price of $4.50. The Financial Statements reflect the
impact of
the merger and the resulting exchange of the Company’s common stock
outstanding before the conversion and exercise of the convertible
preferred stock and warrants. The stockholders of Cape Coastal
before the
merger retained 599,331 shares of common stock. Before the merger,
Cape
Coastal was a public shell company. Concurrent with the merger,
the
Company amended its Certificate of Incorporation to change its
name from
Cape Coastal Trading Corporation to “uBid.com Holdings,
Inc.”
|
|
|
|
|
|
|
|
The
merger was treated as a recapitalization of uBid for financial
accounting
purposes. Accordingly, the historical financial statements of Cape
Coastal
before the merger were replaced with the historical financial statements
of uBid before the merger. All share and per share data has been
retroactively restated to reflect the implicit conversion ratio
related to
the exchange of shares in the
merger.
|
|
|
|
Concurrent
with the merger, the Company completed the first part of a private
offering of common stock shares and warrants (the “Units”) to accredited
investors. The Company sold 10,000,003 shares of its common stock
of which
2,222,224 shares were subject to redemption and warrants to purchase
2,500,003 shares of its common stock at $5.85 for a period of 5
years, for
aggregate consideration of approximately $45,000. These warrants
were
valued at $2.08 per warrant for an aggregate of $5,200 using a
Black-Scholes model (see Note 16 for pricing assumptions). Some
of the
investors participating in the first part of the private offering
held
notes that were issued by uBid before the merger, including $10,500
of
debt held by the Petters Group and $5,000 of debt held by the bridge
loan
holders. Rather than accepting cash consideration for the Units
acquired
by these investors, the Company agreed to issue Units at a rate
of one
Unit for each $4.50 of debt for consideration of the note holders’
cancellation of the existing notes. Of the 3,444,444 Units issued
in
exchange for debt, 2,222,224 Units were issued to Petters Group
with
common shares that were subject to redemption at a redemption price
of
$4.50. For debt exchanged with Units that did not have redeemable
common
shares, the value of the securities issued in exchange for the
debt
equaled the face value of the debt exchanged, and accordingly,
no gain or
loss was recognized or recorded by the Company. Due to the higher
value of
the redeemable common shares issued to Petters Group, the Company
realized
a loss of approximately $1,156 upon the exchange of debt for Units
with
those redeemable common shares. However, as the Petters Group is
considered a significant related party to the Company, the exchange
was
treated for accounting purposes as a capital transaction and the
resulting
loss was reflected as a dividend to shareholders rather than as
a direct
reduction of net earnings. Therefore, the consideration the Company
received on the Closing Date consisted of approximately $29,500
in cash
and $15,500 in cancelled debt. In addition, on the Closing Date,
the
Company issued warrants to purchase 333,333 shares of its common
stock to
the bridge note holders as a financing fee, which warrants are
exercisable
for three years at an exercise price of $4.50 and the value of
which,
$600, was recorded as interest expense. The Company also issued
warrants
to purchase 230,000 shares of its common stock to its placement
agents in
the offering, which warrants are exercisable for five years at
an exercise
price of $4.50 and the value of which, $522, was recorded as cost
of the
equity issuance. These warrants were valued at $1.80 and $2.27,
respectively, per warrant for an aggregate of $1,122 using a Black-Scholes
model (see Note 16 for pricing assumptions). Issuance costs, including
the
value of the placement agent warrants, were
$4,670.
|
|
|
|
On
February 3, 2006, the Company completed the second part of the
private
offering to accredited investors. In this offering, the Company
sold on
the same terms as described above for an aggregate of $13,500,
3,000,000
shares of its common stock and warrants to purchase 750,002 shares
of its
common stock. The Company also redeemed the 2,666,668 shares of
common
stock issued in connection with the merger and the first private
offering
that were subject to redemption at a price of $4.50 per share and
issued
600,667 shares of common stock (valued at $4.50 per share) to Cape
Coastal
and uBid’s financial advisor, Calico Capital Group. In addition, the
Company issued additional warrants to purchase 90,000 shares of
its common
stock to its placement agents on the same terms as described above.
The
second part of the private offering resulted in no net cash proceeds
being
retained by the Company. Issuance costs, including the value of
the
placement agent warrants and the shares issued to Calico Capital
Group,
were $4,407.
|
|
|
|
On
April 25, 2007, the Company entered into a stock repurchase agreement
with
a group of private investors under common management to repurchase
2,135,550 shares of the Company’s common stock and warrants to purchase
580,937 shares of the Company’s common stock held by such private
investors at a combined price of $1.05 for the company stock and
for the
warrants for an aggregate purchase price of $2,242. These shares
and
warrants repurchased in this privately negotiated transaction were
originally acquired by the private investors in the Company’s private
placement that initially closed on December 29, 2005. The repurchase
represented 11% of the common stock and warrants
outstanding
|
4.
|
Merchandise
Inventories
|
|
Merchandise
inventories consist of the
following:
|
December
31,
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Merchandise
Inventories
|
|
$
|
5,291
|
|
$
|
4,095
|
|
$
|
5,973
|
|
Inventory
in transit
|
|
|
274
|
|
|
108
|
|
|
331
|
|
Less
reserves
|
|
|
(409
|
)
|
|
(149
|
)
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,156
|
|
$
|
4,054
|
|
$
|
5,989
|
|
|
|
|
Activity
relating to the inventory reserve is summarized as
follows:
|
December
31,
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
(149
|
)
|
$
|
(315
|
)
|
$
|
(521
|
)
|
Charged
to costs and expenses
|
|
|
(431
|
)
|
|
(1,621
|
)
|
|
(1,153
|
)
|
Write-offs
|
|
|
171
|
|
|
1,787
|
|
|
1,359
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
$
|
(409
|
)
|
$
|
(149
|
)
|
$
|
(315
|
)
|
5.
|
Major
Suppliers
|
|
During
the year ended December 31, 2007, Sony and Hewlett Packard Company
(“HP”),
accounted for 25.6% and 29.7%, respectively, of the Company’s inventory
purchases. Amounts due at December 31, 2007 included in accounts
payable
and flooring facility were approximately $404 and $527, respectively,
to
these vendors.
|
|
|
|
|
|
|
|
During
the year ended December 31, 2006, Sony Electronics, Inc. (“Sony”) and HP,
accounted for 12.9% and 7.6%, respectively, of the Company’s inventory
purchases. Amounts due at December 31, 2006 included in accounts
payable
and flooring facility were approximately $883 and $254, respectively,
to
these vendors.
|
|
|
|
|
|
|
|
During
the year ended December 31, 2005, Sony and HP, accounted for
33.2% and 8.9%, respectively, of the Company’s inventory purchases.
Amounts due at December 31, 2005 included in accounts payable and
flooring
facility were approximately $752 and $433, respectively, to these
vendors.
|
|
|
|
|
6.
|
Property
and Equipment
|
|
Property
and equipment consist of the
following:
|
December
31,
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Computer
equipment
|
|
$
|
1,160
|
|
$
|
978
|
|
Furniture
and fixtures
|
|
|
95
|
|
|
95
|
|
Leasehold
improvements
|
|
|
511
|
|
|
511
|
|
|
|
|
1,766
|
|
|
1,584
|
|
Less
accumulated depreciation
|
|
|
(1,041
|
)
|
|
(660
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
725
|
|
$
|
924
|
|
|
|
Depreciation
and amortization expense was $876, $438 and $181 for the years ended
December 31, 2007, 2006 and 2005,
respectively.
|
7
.
|
Purchased
Intangible
Assets
|
|
During
2006, the Company purchased certain intangible assets consisting
of a
trademark and customer list totaling approximately $723. Total
amortization for the years ended December 31, 2007 and 2006 was
$495 and
$122. The carrying value of the intangible assets at December 31,
2007 was
$107.
|
|
|
|
|
8.
|
Related
Party Transactions
|
|
The
following represents significant transactions between the Company
and
Petters Group, a holder of greater than 5% of our voting common
stock
during 2007, 2006 and 2005:
|
|
|
|
|
|
Service
Assistance
|
|
The
Company had entered into an advisory agreement with Petters Group,
whereby
Petters Group provided financial and management consulting services
to the
Company for a fee. General and administrative expenses include
approximately $0, $30 and $360 for management fees payable to the
Petters
Group for services rendered during 2007, 2006 and 2005, respectively.
The
agreement was terminated in January 2006.
|
|
|
|
|
|
Product
Purchases
|
|
The
Company purchases products from Petters Group for direct purchase
sales.
Purchases from Petters Group were $2,930, $365 and $1,597 for the
years
ended December 31, 2007, 2006 and 2005, respectively. At December
31, 2007
and 2006, amounts due to Petters Group included in accounts payable
were
$0 and $36,
respectively.
|
9.
|
Flooring
Facility
|
|
During
2007, 2006 and 2005, the Company maintained a short-term $1,000,
$2,000 and $4,000 secured flooring facility with IBM (the “Flooring
Facility”), respectively, whereby IBM made payments on behalf of the
Company to its vendors. Under the terms of the agreement, the Flooring
Facility does not bear interest if outstanding balances are paid
within
the terms specific to each vendor; otherwise, interest is accrued
on
outstanding balances at the prime rate plus 6.5% (effectively 14.5%
at
December 31, 2007). The Company accounts for all Flooring Facility
purchases as a financing cash inflow, with a corresponding cash
outflow
for the increase in its inventory. Upon repayment, the cash outflow
is
reported as a financing activity. The net effect on operating cash
flow is
the amount of gross profit generated. Interest expense for the
years ended
and December 31, 2007, 2006 and 2005 relating to the Flooring Facility
was
$102, $150 and $140, respectively.
|
|
|
|
|
|
|
|
As
of December 31, 2007 and 2006, amounts outstanding under the Flooring
Facility consist of the
following:
|
December
31,
|
|
2007
|
|
2006
|
|
Face
value
|
|
$
|
317
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
Less
discount
|
|
|
(3
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Present
Value
|
|
$
|
314
|
|
$
|
152
|
|
|
|
|
During
2007 and 2006, the Flooring Facility was secured by security deposits
of
$1,000 and $2,000, respectively. (See Note 2, restricted investments,
for
further explanation.) There are no restrictive covenants on the Flooring
Facility.
|
|
|
|
|
10
|
Long-Term
Debt
|
|
On
October 3, 2005, the Company issued unsecured promissory notes
in the aggregate amount of $5,000 (the “Bridge Notes”) to two
institutional investors (collectively, the “Note Holders”). In connection
with the issuance of the Bridge Notes, the Company, upon the
first closing of our private offering on December 29, 2005, issued
the Note Holders warrants to purchase 333,333 shares of common stock
for a
period of three years at a purchase price of $4.50. These warrants
were
recorded at fair value as interest expense in the accompanying statement
of operations. In conjunction with the first closing, the Bridge
Notes were exchanged for 1,111,111 Units consisting of 1,111,111
shares of
common stock and 277,778 warrants with a five year life with an exercise
price of $5.85. These shares did not have a redeemable feature and
no gain
or loss was recorded in the
exchange.
|
|
|
|
On
May 9, 2006, the Company and its subsidiaries entered into a Credit
and
Security Agreement with Wells Fargo Bank, National Association acting
through Wells Fargo Business Credit and related security agreements
and
other agreements described in the Credit and Security Agreement (the
“Credit Agreement”). The Credit Agreement provides for advances to the
Company of up to a maximum of $25,000. The amount actually available
to
the Company will vary from time to time, depending on, among other
factors, the amount of eligible inventory and the amount of eligible
accounts receivable. The obligations under the Credit Agreement and
all
related agreements are secured by all of the Company’s assets. The initial
term of the Agreement is three years, expiring on April 28, 2009.
Up to
$7,000 of the maximum amount is available for irrevocable, standby
and
documentary letters of credit. At December 31, 2007, the Company
had
$2,000 in letters of credit issued as security for purchases from
certain
suppliers. Advances under the Credit Agreement bear interest at a
base
rate (Wells Fargo Bank’s prime rate) or LIBOR plus 2.5%. The Credit
Agreement requires a prepayment fee of $500 if the Company terminates
the
Credit Agreement during its first year, $400 if it terminates the
Credit
Agreement during its second year and $100 if the Company terminates
the
Credit Agreement during the third year. The Credit Agreement requires
the
Company, among other things, to limit capital expenditures and maintain
minimum availability on the line. Also, the Company is obligated
contractually by a restrictive lock box arrangement. The Credit Agreement
also requires the Company to pay a variety of other fees and expenses,
including minimum monthly interest of $10. The Company, as of December
31,
2007, had $70 in deferred financing fees being amortized over the
life of
the Credit Agreement. As of December 31, 2007, the effective loan
rate was
8.25% and the Company had no outstanding balance and was in compliance
with all the loan covenants.
|
|
|
|
|
11.
|
Employee
Benefit Plans
|
|
Company
employees participate in a 401(k) savings plan. The plan is open
to all
full-time eligible employees who have attained age 21 and have completed
30 days of service. Participants may make tax-deferred contributions
subject to limitations specified by the Internal Revenue Code. Employee
contributions of up to 3% are currently matched by the Company at
a rate
of 50%. Employees are 100% vested in their pretax contributions at
all
times and become fully vested in the employer-matching contribution
after
two years of service. During the years ended December 31, 2007, 2006
and
2005, the Company incurred $44, $69 and $70 of expenses, respectively,
related to the 401(k) matching component of this plan.
|
|
|
|
|
12.
|
Contingent
Liabilities
|
|
From
time to time, the Company is subject to claims and administrative
proceedings, including product liability matters, resulting from
the
conduct of its business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect
on
the financial position or results of operations of the Company. In
addition, the Company maintains product liability insurance that
is
evaluated annually and considered adequate. There were no significant
contingencies as of December 31, 2007.
|
|
|
|
|
13.
|
Income
Taxes
|
|
The
income tax provision for the years presented is as
follows:
|
Year
ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
Current
provision:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Deferred
benefit
|
|
|
(2,791
|
)
|
|
(2,868
|
)
|
|
(3,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
for income taxes
|
|
|
(2,791
|
)
|
|
(2,868
|
)
|
|
(3,572
|
)
|
Less
increase in valuation allowance
|
|
|
2,791
|
|
|
2,868
|
|
|
3,572
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
The
income tax benefit at the federal statutory tax rate is reconciled
to the
actual expense for income taxes for the years presented as
follows:
|
Year
ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
Federal
income tax benefit at federal statutory rate
|
|
$
|
(2,587
|
)
|
$
|
(2,659
|
)
|
$
|
(3,077
|
)
|
Effect
of state income taxes
|
|
|
(204
|
)
|
|
(209
|
)
|
|
(495
|
)
|
Increase
in valuation allowance
|
|
|
2,791
|
|
|
2,868
|
|
|
3,572
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
Components
of deferred income tax assets and liabilities are as
follows:
|
December
31,
|
|
2007
|
|
2006
|
|
Deferred
income tax assets:
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
10,883
|
|
|
8,935
|
|
Inventories
|
|
|
332
|
|
|
177
|
|
Stock-based
compensation
|
|
|
476
|
|
|
320
|
|
Allowance
for doubtful accounts
|
|
|
182
|
|
|
45
|
|
Property
and equipment
|
|
|
347
|
|
|
41
|
|
Other
|
|
|
100
|
|
|
25
|
|
Gross
deferred income tax assets
|
|
|
12,320
|
|
|
9,543
|
|
|
|
|
|
|
|
|
|
Deferred
income tax liabilities
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
0
|
|
|
(43
|
)
|
Prepaid
expenses
|
|
|
(223
|
)
|
|
(208
|
)
|
|
|
|
|
|
|
|
|
Gross
deferred income tax liabilities
|
|
|
(223
|
)
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
Net
deferred income tax assets
|
|
|
12,097
|
|
|
9,292
|
|
|
|
|
|
|
|
|
|
Less
valuation allowance
|
|
|
(12,097
|
)
|
|
(9,292
|
)
|
|
|
|
|
|
|
|
|
Net
deferred income tax asset
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
The
Company has estimated federal net operating loss carryforwards as
of
December 31, 2007 of $29,900 that have expiration dates from 2023
through
2027. Pursuant to section 382 of the Internal Revenue Code, the usage
of
these net operating loss carryforwards may be limited due to changes
in
ownership that have occurred or may occur in the future. The Company
has
not yet determined the impact, if any, that changes in ownership
have had
on net operating loss carryforwards. The Company has provided a valuation
allowance against all of its deferred income tax assets as it is
more
likely than not that the deferred income tax assets will not be
realized.
|
|
|
|
|
14.
|
Leases
|
|
The
Company leases office space and certain equipment under operating
leases
expiring through 2010. Total rent expense from operating leases was
approximately $474, $605 and $591 for the years ended December
31, 2007, 2006 and 2005, respectively.
|
|
|
|
|
|
|
|
The
following is a schedule, by year, of future minimum rental payments
required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of December 31,
2007:
|
2008
|
|
$
|
491
|
|
2009
|
|
|
507
|
|
2010
|
|
|
168
|
|
Total
|
|
$
|
1,166
|
|
15.
|
Phantom
Stock
Appreciation
Plan
|
|
The
Company had a Phantom Stock Appreciation Plan in which certain employees
had been issued phantom shares which were subject to certain vesting
provisions. The plan was implemented on July 1, 2003 and issued phantom
shares were scheduled to vest over four years. Effective July 2005,
the
Company terminated the Phantom Stock Appreciation Plan. The total
expense
incurred and recorded in conjunction with the plan termination was
$463 in
accordance with the plan agreement based on an independent third-party
valuation. Payouts required under the plan were made with a portion
of the
proceeds from the first private offering described in Note 3. The
Company
recorded compensation expense of $463 in the year ended December 31,
2005.
|
|
|
|
|
16.
|
Stock
Warrants
|
|
The
Company entered into a warrant agreement with CMGI pursuant to the
terms
of the asset purchase agreement dated April 2, 2003. The warrant
agreement
provided CMGI with the right to purchase shares of nonvoting common
stock
equal to up to 5% of the total fully converted common shares then
outstanding, representing 436,172 shares (on a post - exchange
basis) as of the acquisition date, at a de minimus exercise price.
The warrant was immediately exercisable and had a term of five years.
The warrant was assigned an estimated fair value of $75 in connection
with
the asset purchase agreement as determined by the board of directors
based
upon the value of the preferred stock issued by the Company in connection
with its initial capitalization. The warrants were exercised on
December 29, 2005 prior to the merger described in Note
3.
|
|
|
|
|
|
|
|
Additional
stock warrants issued in December 2005 and February 2006 are described
in
Note 3. The following table summarizes information about warrants
outstanding as of December 31, 2007:
|
|
|
|
|
Number
Outstanding
|
|
Exercise Price
|
|
Remaining
Contractual Life
|
|
Warrant Fair
Value at issue
date
|
|
|
|
|
|
|
|
|
|
|
|
|
3,250,003
|
|
$
|
5.85
|
|
|
5
years
|
|
$
|
2.08
|
|
|
|
|
|
|
|
|
|
|
|
|
333,333
|
|
$
|
4.50
|
|
|
3
years
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
|
|
|
|
320,000
|
|
$
|
4.50
|
|
|
5
years
|
|
$
|
2.27
|
|
|
|
|
The
warrants were valued using a Black-Scholes model using the respective
expected life, a risk free interest rate of 5.0%, no expected dividends
and a 68.0% volatility. See Note 18 for a description of the
assumptions.
|
|
|
|
|
17.
|
Common
Stock and Series A Convertible
Preferred
Stock
|
|
|
|
|
|
|
|
Common
Stock
|
|
At
December 31, 2007 and 2006 there were 200,000,000 shares of common
stock
$.001 par value authorized and 18,864,777 and 20,333,333 shares issued
and
outstanding, respectively.
|
|
|
|
|
|
|
|
In
conjunction with the Merger Agreement described in Note 3 and in
accordance with the Securities Purchase Agreement, the Company agreed
to
use its reasonable best efforts to prepare and file, within 45 days
of the
closing of the first private offering (December 29, 2005), a registration
statement registering for resale the shares of common stock acquired
by
the investors in the private offerings, the shares of common stock
underlying the warrants acquired by the investors, the shares of
common
stock retained by the Cape Coastal stockholders that have not already
been
registered, the shares issued to former uBid, Inc. stockholders in
the
merger, the shares of common stock underlying the warrants issued
to the
placement agents, and the shares of common stock underlying the warrants
issued to the Note Holders. If the registration statement had not
been
filed within 45 days after the closing of the December 29, 2005 offering,
the Company would have been required to pay each investor liquidated
damages, in cash, absent waivers to the contrary, in the amount of
1.0% of
the purchase price multiplied by the amount of securities held by
such
investor as of the date of default. The registration statement was
filed
within the required time. If the registration statement was not declared
effective by the SEC within 120 days of the closing of the December
2005
offering, the Company would have been required to pay each investor
damages, in cash, absent waivers to the contrary, in the amount of
the
1.0% of the purchase price multiplied by the amount of securities
held by
such investor as of the date of default. In addition, the Company
is
required to use its reasonable best efforts to keep the registration
statement continuously effective under the Securities Act until the
earlier of the date that all registrable securities covered by such
registration statement have been sold or can be sold under Rule 144(k).
If
an investor is not permitted to sell registrable securities for any
reason
other than the fault of such Investor for five or more trading days
whether or not consecutive, the Company will be required to pay liquidated
damages for failing to maintain the effectiveness of the registration
statement. The liquidated damage payments would be due on a monthly
basis
until the applicable event of the default has been cured. Any such
payments shall apply on a pro-rata basis for any portion of a month
before
an event of default is cured. Any late payments shall bear interest
at a
rate of 1.0% per month until paid in full. The maximum liquidated
damages
the Company would have been required to pay is 20% of the purchase
price
multiplied by the amount of securities held by such investor as of
the
date of default. Absent waivers to the contrary, the maximum penalty
the
Company would be required to pay is $11,700 if the Company was in
default
for the entire 24 month period before Rule 144 would take effect.
The
registration statement was declared effective on July 22, 2006 and
the
Company obtained waivers through that date. As of December 31, 2007,
the
Company has not paid any penalties and is in compliance with all
terms of
the agreement.
|
|
Series
A Convertible
Preferred
Stock
|
|
There
are 25,000,000 shares authorized of preferred stock with preferences
and
rights to be determined by our board of directors. No
shares were issued at December 31, 2007 and
2006.
|
|
|
|
|
18.
|
2005
Equity Incentive Plan
|
|
The
2005 Equity Incentive Plan is an equity-based compensation plan to
provide
incentives to, and to attract, motivate and retain the highest qualified
employees, directors, consultants and other third party service providers.
The 2005 Equity Incentive Plan enables the board to provide equity-based
incentives through grants or awards of stock options and restricted
stock
(collectively, “Incentive Awards”) to present and future employees,
consultants, directors, and other third party service
providers.
|
|
|
|
|
|
|
|
A
total of 2,500,000 shares of common stock have been reserved for
issuance
under the 2005 Equity Incentive Plan. If an Incentive Award granted
pursuant to the 2005 Equity Incentive Plan expires, terminates, is
unexercised or is forfeited, or if any shares are surrendered to the
Company in connection with an Incentive Award, the shares subject to
such award and the surrendered shares will become available for future
awards under the 2005 Equity Incentive Plan. Options generally vest
over a
period of four years and have a ten year contractual life. At December
31,
2007 and 2006, the Company had options to purchase 1,530,600 and
1,721,700 shares, respectively, of common stock outstanding to certain
officers and other employees. The compensation costs charged against
income was $400, $708 and $0 for the years ended December 31, 2007,
2006
and 2005, respectively, and are included in General and Administrative
Expenses in the Consolidated Statement of Operations
|
|
|
|
|
|
|
|
None
of the Incentive Awards granted under the 2005 Equity Incentive Plan
were
issued for cash consideration collected from the participants. The
Incentive Awards were granted to participants in the 2005 Equity
Incentive
Plan on the basis of services to be provided to the Company by the
participants.
|
|
|
|
|
|
|
|
The
fair value of the options awarded during the years ended December
31, 2007
and 2006, were estimated using the Black-Scholes option pricing model
with
the following weighted average
assumptions:
|
December
31,
|
|
2007
|
|
2006
|
|
Risk
-free interest rate
|
|
|
5.0
|
%
|
|
5.0
|
%
|
Dividend
yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
Expected
volatility
|
|
|
68.0
|
%
|
|
68.0
|
%
|
Expected
life (years)
|
|
|
6.0
|
|
|
6.0
|
|
Grant
date fair value
|
|
$
|
0.78
|
|
$
|
3.59
|
|
Expected
forfeiture rate
|
|
|
4.9
|
%
|
|
4.9
|
%
|
|
|
|
The
risk-free interest rate is based on the U.S. Treasury Bill rates.
The
dividend reflects the fact that the Company has never paid a dividend
on
its common stock and does not expect to in the future. Expected volatility
was based on a market-based implied volatility. The expected term
of the
options is based on what the Company believes will be representative
of
future behavior. In addition, we are required to estimate the expected
forfeiture rate and recognize expense only for those shares expected
to
vest. If our actual forfeiture rate is materially different from
our
estimate, the stock-based compensation expense could be significantly
different from what we have recorded in the current
period.
|
|
|
|
The
following is a summary of all of the Company’s stock option
activity:
|
|
|
Shares under
option
|
|
Exercise price per
share
|
|
Outstanding at
December 31, 2005
|
|
|
1,721,700
|
|
|
4.50
|
|
Granted
|
|
|
495,300
|
|
|
4.88
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Surrendered
|
|
|
(686,200
|
)
|
|
(4.66
|
)
|
Outstanding
at December 31, 2006
|
|
|
1,530,800
|
|
$
|
4.55
|
|
Granted
|
|
|
1,138,500
|
|
|
1.28
|
|
Exercised
|
|
|
-
|
|
|
|
|
Surrendered
|
|
|
(685,200
|
)
|
|
4.54
|
|
Outstanding
at December 31, 2007
|
|
|
1,984,100
|
|
|
2.68
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2007
|
|
|
366,350
|
|
$
|
4.08
|
|
|
|
|
The
following is a summary of the Company’s nonvested
shares:
|
|
|
Shares under
option
|
|
Weighted-
average
exercise price per
share
|
|
Nonvested at
December 31, 2005
|
|
|
1,721,700
|
|
|
4.50
|
|
Granted
|
|
|
495,300
|
|
|
4.88
|
|
Vested
|
|
|
(78,125
|
)
|
|
(4.50
|
)
|
Surrendered
|
|
|
(686,200
|
)
|
|
(4.66
|
)
|
Nonvested
at December 31, 2006
|
|
|
1,452,675
|
|
$
|
4.55
|
|
Granted
|
|
|
1,138,500
|
|
|
1.28
|
|
Vested
|
|
|
(288,225
|
)
|
|
(3.96
|
)
|
Surrendered
|
|
|
(685,200
|
)
|
|
(4.54
|
)
|
Nonvested
at December 31, 2007
|
|
|
1,617,750
|
|
|
2.37
|
|
|
|
|
As
of December 31, 2007 there was $1,272 of total unrecognized compensation
cost related to the nonvested option awards under the 2005 Equity
Incentive Plan. That cost is expected to be recognized over the 2.1
year
remaining vesting period of the nonvested option awards. The total
fair
value of the option awards that vested during the year ended December
31,
2007 was $626.
|
|
|
|
The
following summarizes information about stock options at December
31,
2007:
|
|
|
Outstanding
|
|
Exercisable
|
|
Exercise
Price
|
|
Number
Outstanding at
December 31,
2007
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable at
December 31,
2007
|
|
Weighted
Average
Exercise
Price
|
|
.01 -
2.00
|
|
|
1,117,100
|
|
|
9.5
|
|
$
|
1.25
|
|
|
53,125
|
|
$
|
1.49
|
|
2.01
- 4.00
|
|
|
72,900
|
|
|
8.8
|
|
$
|
3.10
|
|
|
18,225
|
|
$
|
3.10
|
|
4.01
- 6.00
|
|
|
726,200
|
|
|
8.0
|
|
$
|
4.50
|
|
|
278,025
|
|
$
|
4.50
|
|
6.01+
|
|
|
67,900
|
|
|
8.3
|
|
$
|
6.26
|
|
|
16,975
|
|
$
|
6.26
|
|
|
|
|
1,984,100
|
|
|
|
|
$
|
2.68
|
|
|
366,350
|
|
$
|
4.08
|
|
|
|
|
The
aggregate intrinsic value of the outstanding options (the difference
between the closing stock price on the last trading day of the year
ended
December 31, 2007 of $0.75 per share and the exercise price, multiplied
by
the number of in-the-money options) was zero. This amount will change
based on changes in the fair market value of the Company’s common
stock.
|
|
|
|
|
19.
|
Subsequent
Events
|
|
On
February 19, 2008 the Company filed a schedule TO “tender offer” offering
eligible employees the opportunity to exchange, on a grant by grant
basis,
their outstanding eligible stock options for shares of restricted
stock
that the Company will grant under the 2005 Equity Incentive Plan.
Eligible
employees participating in the offer will receive shares of restricted
stock subject to vesting. The number of restricted stock rights to
be
granted in exchange for each eligible option surrendered in this
offer
will be determined based upon an exchange ratio of 3 to 1, with
approximately 805,000 options eligible for this
exchange.
|
|
|
|
|
|
|
|
The
offer is being conducted to ensure the Company’s compensation programs
continue to facilitate retention and provide incentive to achieve
future
growth and success for the Company. The incremental accounting cost
of
this exchange is not expected to be
significant.
|
Enable
Holdings, Inc. and Subsidiaries
Consolidated
Condensed Balance Sheets
(Dollars
in Thousands, except par value data)
(Unaudited)
|
|
June 30, 2008
|
|
December 31, 2007
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
4,800
|
|
$
|
7,724
|
|
Restricted
investments
|
|
|
212
|
|
|
212
|
|
Accounts
receivable, less allowance for doubtful accounts of $467 and $215,
respectively
|
|
|
1,284
|
|
|
648
|
|
Merchandise
inventories, less reserve for obsolesence of $837 and $409, respectively
|
|
|
5,736
|
|
|
5,156
|
|
Prepaid
expenses and other current assets
|
|
|
841
|
|
|
759
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
12,873
|
|
|
14,499
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, net
|
|
|
997
|
|
|
725
|
|
Purchased
Intangible Assets, net Total Assets
|
|
|
203
|
|
|
107
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
14,073
|
|
$
|
15,331
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Due
on credit line
|
|
$
|
3,911
|
|
$
|
-
|
|
Accounts
payable
|
|
|
2,626
|
|
|
2,766
|
|
Accrued
expenses:
|
|
|
|
|
|
|
|
Advertising
|
|
|
236
|
|
|
205
|
|
Other
|
|
|
1,236
|
|
|
1,194
|
|
Flooring
facility
|
|
|
116
|
|
|
314
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
$
|
8,125
|
|
$
|
4,479
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
Common
stock, $.001 par value (200,000,000 shares authorized as of June
30, 2008
and December 31, 2007; 18,446,116 and 18,197,783 shares issued
and
outstanding, respectively as of June 30, 2008 and December 31,
2007)
|
|
$
|
20
|
|
$
|
20
|
|
Treasury
stock, 2,135,550 shares of common stock and 580,937 warrants at
cost
|
|
|
(2,242
|
)
|
|
(2,242
|
)
|
Stock
warrants
|
|
|
8,274
|
|
|
8,086
|
|
Additional
paid-in-capital
|
|
|
37,518
|
|
|
37,248
|
|
Accumulated
deficit
|
|
|
(37,622
|
)
|
|
(32,260
|
)
|
|
|
|
|
|
|
|
|
Total
Shareholders' Equity
|
|
$
|
5,948
|
|
$
|
10,852
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
14,073
|
|
$
|
15,331
|
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
Enable
Holdings, Inc. and Subsidiaries
Consolidated
Condensed Statements of Operations
(Dollars
in Thousands, except for per share data)
(Unaudited)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
Revenues
|
|
$
|
8,426
|
|
$
|
13,663
|
|
$
|
15,567
|
|
$
|
23,270
|
|
Cost
of Revenues
|
|
|
7,112
|
|
|
10,794
|
|
|
12,381
|
|
|
17,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
1,314
|
|
|
2,869
|
|
|
3,186
|
|
|
5,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
3,418
|
|
|
3,326
|
|
|
7,171
|
|
|
6,348
|
|
Sales
and marketing
|
|
|
799
|
|
|
1,131
|
|
|
1,294
|
|
|
2,200
|
|
Total
operating expenses
|
|
|
4,217
|
|
|
4,457
|
|
|
8,465
|
|
|
8,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
|
(2,903
|
)
|
|
(1,588
|
)
|
|
(5,279
|
)
|
|
(3,127
|
)
|
Interest
Expense
|
|
|
(95
|
)
|
|
(98
|
)
|
|
(158
|
)
|
|
(210
|
)
|
Interest
Income
|
|
|
21
|
|
|
149
|
|
|
75
|
|
|
324
|
|
Other
Income, net
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(2,977
|
)
|
$
|
(1,537
|
)
|
$
|
(5,362
|
)
|
$
|
(2,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per share - Basic and Diluted
|
|
$
|
(0.16
|
)
|
$
|
(0.08
|
)
|
$
|
(0.29
|
)
|
$
|
(0.15
|
)
|
Weighted
Average Shares -Basic and Diluted
|
|
|
18,325,786
|
|
|
18,761,005
|
|
|
18,310,951
|
|
|
19,542,826
|
|
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
Enable
Holdings, Inc. and Subsidiaries
Consolidated
Statements of Shareholders' Equity
(Dollars
in Thousands)
|
|
Common Stock
|
|
Stock
|
|
Paid-in
|
|
Treasury Stock
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Dollars
|
|
Warrants
|
|
Capital
|
|
Shares
|
|
Dollars
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
18,197,783
|
|
$
|
20
|
|
$
|
8,086
|
|
$
|
37,248
|
|
|
2,135,550
|
|
$
|
(2,242
|
)
|
$
|
(32,260
|
)
|
$
|
10,852
|
|
Stock
compensation expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
109
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
109
|
|
Net
Loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,385
|
)
|
|
(2,385
|
)
|
Balance,
March 31, 2008
|
|
|
18,197,783
|
|
$
|
20
|
|
$
|
8,086
|
|
$
|
37,357
|
|
|
2,135,550
|
|
$
|
(2,242
|
)
|
$
|
(34,645
|
)
|
$
|
8,576
|
|
Stock
compensation expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
114
|
|
Warrants
issued for services
|
|
|
—
|
|
|
—
|
|
|
188
|
|
|
(156
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
Common
stock issuance
|
|
|
150,000
|
|
|
—
|
|
|
—
|
|
|
203
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
203
|
|
Net
Loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,977
|
)
|
|
(2,977
|
)
|
Balance,
June 30, 2008
|
|
|
18,347,783
|
|
$
|
20
|
|
$
|
8,274
|
|
$
|
37,518
|
|
|
2,135,550
|
|
$
|
(2,242
|
)
|
$
|
(37,622
|
)
|
$
|
5,948
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Enable
Holdings, Inc. and Subsidiaries
Consolidated
Condensed Statements of Cash Flows
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,362
|
)
|
$
|
(2,953
|
)
|
Adjustments
to reconcile net loss to net cash used in
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
309
|
|
|
409
|
|
Non-cash
stock compensation expense
|
|
|
223
|
|
|
365
|
|
Warrants
issued for services
|
|
|
32
|
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(636
|
)
|
|
(304
|
)
|
Merchandise
inventories
|
|
|
(580
|
)
|
|
(249
|
)
|
Prepaid
expenses and other current assets
|
|
|
(83
|
)
|
|
152
|
|
Accounts
payable
|
|
|
(140
|
)
|
|
146
|
|
Accrued
expenses
|
|
|
73
|
|
|
(479
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(6,164
|
)
|
|
(2,913
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(473
|
)
|
|
(100
|
)
|
Change
in restricted investments
|
|
|
-
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(473
|
)
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows From financing Activities
|
|
|
|
|
|
|
|
Change
in flooring facility
|
|
|
(198
|
)
|
|
827
|
|
Credit
line borrowings
|
|
|
3,911
|
|
|
-
|
|
Common
stock and warrant repurchase
|
|
|
-
|
|
|
(2,242
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
3,713
|
|
|
(1,415
|
)
|
|
|
|
|
|
|
|
|
Net
Decrease in Cash and Cash Equivalents
|
|
|
(2,924
|
)
|
|
(4,430
|
)
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents, beginning of period
|
|
|
7,724
|
|
|
14,785
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents, end of period
|
|
$
|
4,800
|
|
$
|
10,355
|
|
|
|
|
|
|
|
|
|
Supplemented
Cash Flow Disclosure
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
97
|
|
$
|
95
|
|
Non-cash
Investing Activity - Shares issued for domain name
acquisition
|
|
|
203
|
|
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Enable
Holdings, Inc.
Notes
to
Consolidated Condensed Financial Statements
(Dollars
in Thousands, except per share data)
1.
Basis
of Presentation
Enable
Holdings, Inc. and subsidiaries (the “Company”) has operated a leading online
business to consumer and business to business auction marketplace that enables
itself, certified merchants, manufacturers, retailers, distributors and small
businesses to offer high quality excess, new, overstock, close-out, refurbished
and limited supply brand name merchandise to the consumer and business customers
primarily located in the United States. Through the Company’s website, located
at www.ubid.com, the Company offers merchandise across a wide range of product
categories including, but not limited to, computer products, consumer
electronics, apparel, housewares, watches, jewelry, travel, sporting goods,
home
improvement products and collectibles. The Company’s marketplace employs a
combination of auction style and fixed price formats.
In
the
first quarter of 2008, the Company began transforming its business model to
an
asset recovery solution. Asset recovery is a rapidly growing industry with
revenues of $38.5 billion in 2004 and is expected to climb to over $63.1 billion
in 2008, according to D.F. Blumberg Associates Inc., a logistics research and
consulting firm.
For
manufacturers and retailers, the Company offers excess inventory asset recovery
solutions. For consumers, the Company is a connection to excess name brand
inventory. The Company has identified seven proprietary inventory selling
solutions. These solutions are structured as separate operating divisions and
include:
|
·
|
uBid.com
- The Company’s historical auction site which has operated for ten years.
This division will focus solely on auction format rather than the
current
auction and fixed price format.
|
|
·
|
RedTag.com
- A fixed price internet site that is currently under development
with an
expected launch date in the third quarter of
2008.
|
|
·
|
RedTag
Live - An inventory liquidation company dedicated to physical location
sales. RedTag Live was launched in the beginning of the third quarter
of
2008.
|
|
·
|
Dibu
Trading Co. - A wholesale inventory liquidation company dedicated
to
Business-to-Business solutions. This division was formed in the fourth
quarter of 2007 and dedicated staff was hired in the first quarter
of
2008.
|
|
·
|
Commerce
Innovations - A software service company which licenses auction software
to third party companies. The Company is currently developing this
hosted
solution which is expected to launch in the middle of the third quarter
of
2008.
|
The
Company’s unaudited consolidated condensed financial statements reflect normal
recurring adjustments that are necessary to present fairly the Company’s
financial position and results of operations on a basis consistent with that
of
the prior audited consolidated financial statements. As permitted by rules
and
regulations of the Securities and Exchange Commission,, the Company has
condensed or omitted certain information and disclosures normally included
in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). Results for interim periods
are not necessarily indicative of the results that may be expected for a full
year. These interim financial statements should be read along with the audited
consolidated financial statements included in our Form 10-K for the year ended
December 31, 2007. The consolidated condensed financial statements include
the
accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the
Company’s Consolidated Condensed Financial Statements and accompanying notes.
Actual results could differ materially from those estimates.
2.
Summary
of Significant Accounting Policies
Since
December 31, 2007, none of the critical accounting policies, or the Company’s
application thereof, as more fully described in the Company’s 2007 Annual
Report, has significantly changed. Certain critical accounting policies have
been presented below due to the significance of related transactions during
the
six months ended June 30, 2008.
Revenue
Recognition
The
Company sells merchandise under two types of arrangements: direct purchase
sales
and revenue sharing arrangements.
For
direct purchase sales to consumer and business customers, the Company is
responsible for conducting the auction or listing the fixed sale price for
merchandise owned by the Company, billing the customer, shipping the merchandise
to the customer, processing merchandise returns and collecting accounts
receivable. In accordance with the provisions of Staff Accounting Bulletin
104,
the Company recognizes revenue when the following revenue recognition criteria
are met: (1) persuasive evidence of an arrangement exists; (2) the product
has
been shipped (FOB Shipping Point) and the customer takes ownership and assumes
the risk of loss; (3) the selling price is fixed or determinable; and (4)
collection of the resulting receivable is reasonably assured.
For
sales
of merchandise under revenue-sharing agreements, the Company is responsible
for
conducting the auction for merchandise owned by third parties, billing the
customer, arranging for a third party to complete delivery to the customer,
processing merchandise returns and collecting accounts receivable. The Company
bears no physical inventory loss or return risk related to these sales. The
Company records commission revenue at the time of shipment.
Shipping
and Handling Costs
Shipping
costs that are billable to the customer are included in revenue and all shipping
costs that are payable to vendors are included in the cost of revenues in the
accompanying consolidated statements of operations. Handling costs consisting
primarily of the third party logistics warehouse costs are included in general
and administrative expenses and for the quarters ended June 30, 2008 and 2007,
were $153 and $126, respectively.
Stock
Based Compensation
Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123(R) (“SFAS 123R”). This pronouncement requires companies to measure the
cost of employee service received in exchange for a share based award (typically
stock options) based on the fair value of the award. The Company has elected
to
use the “modified prospective” transition method for stock options granted prior
to January 1, 2006, but for which the vesting period is not complete. Under
this
transition method, the Company accounts for such awards on a prospective basis,
with expense being recognized in its statement of operations beginning in the
first quarter of 2006 and continuing over the remaining requisite service period
based on the grant date fair value estimated in accordance with Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(“SFAS 123”). The Company recognizes these compensation costs on a straight-line
basis over the requisite service period of the award which is generally the
option vesting term of four years. The total compensation expense related to
the
stock option plan for the six months ended June 30, 2008 and 2007 was
approximately $223 and $365, respectively.
On
February 19, 2008 the Company offered eligible employees the opportunity to
exchange on a grant by grant basis, their outstanding eligible options for
restricted stock rights.
Options
eligible for the exchange in this offer were granted under the Company’s 2005
Equity Incentive Plan (the “2005 Equity Incentive Plan”) in 2005 and 2006 and
had an exercise price per share greater than $2.00. Individuals that held 500
or
fewer eligible options were cashed out.
The
number of restricted stock rights granted in exchange for each eligible option
surrendered was based upon an exchange ratio of 3 to 1. The 3 to 1 exchange
ratio was determined based on the fair value of the eligible options which
approximated the share price at a 3 to 1 conversion rate. The incremental stock
compensation expense resulting from the offer is $109 to be amortized over
the
remaining life of the original options granted of approximately 2.5 years.
Pursuant
to the offer, 16,000 options were canceled and cashed out by individuals who
had
500 or fewer options. There were an additional 20 individuals that tendered
765,000 options for an aggregate of 255,000 restricted stock
rights.
At
June
30, 2008 and 2007 the Company had options to purchase 1,693,500 and 1,762,200
shares, respectively, of common stock outstanding to certain officers and other
employees.
At
June
30, 2008 the Company had restricted stock rights outstanding of 253,333, of
which 98,333 are vested. There were no restricted stock rights outstanding
at
June 30, 2007.
On
March
25, 2008, the Company issued warrants to purchase 90,000 shares of its common
stock to an unrelated investor relations company. The warrants are exercisable
for 10 years at the exercise price of $0.55, $1.20 and $4.50, for each tranche
of 30,000 warrants, respectively. These warrants were issued for services to
be
provided over a period of time, as indicated in the agreement and the Company
expensed the entire fair value of these warrants ($32) during the quarter ended
June 30, 2008. The fair value was determined in accordance with the
Black-Scholes model using an expected volatility of 68%, risk free interest
rate
of 5% and the warrants expiration of approximately 10 years from the date of
issuance.
The
compensation costs charged against income was $114 and $127 for the three months
ended June 30, 2008 and 2007, respectively. Compensation costs are included
in
general and administrative expenses in the consolidated Condensed Statement
of
Operations.
Intangibles
On
June
13, 2008, the Company agreed with the Petters Group Worldwide, LLC, a holder
of
greater than 5% of our voting common stock, for the purchase of an internet
domain name or Universal Resource Locator or URL, www.redtag.com, in exchange
for 150,000 shares of our common stock. The URL has an indefinite useful life
and thus in accordance with the Statement of Financial Accounting Standards
No.
142, Goodwill and Other Intangible Assets (“SFAS 142”), the intangible asset
need not be amortized. Each reporting period, the Company will evaluate the
useful life of the intangible asset to determine whether events and
circumstances continue to support an indefinite useful life, and record
impairment if needed.
3.
Net Loss Per Share (“EPS”)
The
Company computes loss per share under Statement of Financial Accounting
Standards (“SFAS”) No. 128, “Earnings Per Share.” The statement requires
presentation of two amounts: basic and diluted loss per share. Basic loss per
share is computed by dividing the loss available to common shareholders by
the
weighted average common shares outstanding. Dilutive earnings per share would
include all common stock equivalents unless anti-dilutive.
Due
to
losses in each period presented, the Company has not included the following
common stock equivalents in its computation of diluted loss per share as their
input would have been anti-dilutive.
June
30,
|
|
2008
|
|
2007
|
|
Shares
subject to stock warrants
|
|
|
3,412,398
|
|
|
3,232,939
|
|
Shares
subject to stock options
|
|
|
1,693,500
|
|
|
1,762,200
|
|
|
|
|
5,105,898
|
|
|
4,995,139
|
|
4.
Merger and Private Offerings
On
December 29, 2005 (the “Closing Date”), Cape Coastal Trading Corporation (or
“Cape Coastal”), uBid Acquisition Co., Inc. (“Acquisition Sub”) and uBid, Inc.
entered into a Merger Agreement and Plan of Reorganization (the “Merger
Agreement”). Under the Merger Agreement, Acquisition Sub merged with and into
uBid, Inc., with uBid, Inc. remaining as the surviving corporation and a 100%
owned subsidiary of Cape Coastal Trading Corporation. Just prior to the
Closing Date, all outstanding convertible preferred shares and warrants to
acquire shares of uBid, Inc. before the merger were converted and exercised
such
that, just prior to the merger, 3,793 shares of common stock were outstanding
which were exchanged on a 2,320 to 1 basis on the closing date
into 8,800,000 shares of common stock of Cape Coastal, with up to 444,444
shares of such common stock subject to redemption at a redemption price of
$4.50. The stockholders of Cape Coastal before the merger retained 599,331
shares of common stock of Cape Coastal after the merger. Before the merger,
Cape
Coastal was a public shell company. Concurrent with the merger, the
Company amended its Certificate of Incorporation to change its name
from Cape Coastal Trading Corporation to “uBid.com Holdings, Inc.”
The
merger was treated as a recapitalization of uBid, Inc. for financial accounting
purposes. Accordingly, the historical financial statements of Cape Coastal
before the merger were replaced with the historical financial statements of
uBid, Inc. before the merger. All share and per share data has been
retroactively restated to reflect the implicit conversion ratio related to
the
exchange of shares in the merger.
Concurrent
with the merger, the Company completed the first part of a private offering
to accredited investors. The Company sold 10,000,003 shares of
its common stock (of which 2,222,224 shares were subject to redemption) and
warrants to purchase 2,500,003 shares of its common stock at $5.85 for a period
of 5 years (the shares and warrants are collectively referred to as “Units”),
for aggregate consideration of approximately $45.0 million. These warrants
were valued at $2.08 per warrant for an aggregate of $5.2
million using a Black-Scholes option-pricing model using a 5 year
expected life, a risk free interest rate of 5.0%, no expected dividends and
68.0% volatility. Some of the investors participating in the first part of
the
private offering held notes that were issued by uBid before the merger,
including $10.5 million of debt held by the Petters Group, a holder greater
than
5% of our voting common stock, (“Petters Group”) and $5.0 million of debt held
by the bridge loan holders. Rather than accepting cash consideration for the
Units acquired by these investors, the Company agreed to issue Units at a
rate of one Unit for each $4.50 of debt for consideration of the note holders’
cancellation of the existing notes. Therefore, the consideration the
Company received on the Closing Date consisted of approximately $29.5 million
in
cash and $15.5 million in cancelled debt. In addition, on the Closing
Date, the Company issued warrants to purchase 333,333 shares of our common
stock to the bridge note holders as a financing fee, which warrants are
exercisable for three years at an exercise price of $4.50 and the value of
which, $0.6 million, was recorded as interest expense. The Company also issued
warrants to purchase 230,000 shares of its common stock to its
placement agents in the offering, which warrants are exercisable for five years
at an exercise price of $4.50 and the value of which, $0.5 million, was recorded
as a cost of the equity issuance. These warrants were valued at $1.80 and $2.27
respectively per warrant for an aggregate of $1.1 million using a
Black-Scholes option-pricing model using the warrants respective life, a risk
free interest rate of 5.0%, no expected dividends and 68.0% volatility. Issuance
costs, including the value of the warrants, were $4.7 million.
On
February 3, 2006, the Company completed the second part of the
private offering of Units to accredited investors. In this offering, the
Company sold 3,000,000 shares of its common stock and warrants to
purchase 750,002 shares of its common stock on the same terms as
described above for an aggregate of $13.5 million. The Company also
redeemed the 2,666,668 shares of common stock issued in connection with the
merger and the first private offering that were subject to
redemption at a price of $4.50 per share and issued 600,667 shares of common
stock (valued at $4.50 per share) to Cape Coastal and uBid’s financial advisor,
Calico Capital Group. In addition, the Company issued additional
warrants to purchase 90,000 shares of its common stock to its
placement agents on the same terms as described above. The second part of the
private offering resulted in no net cash proceeds being retained by the Company.
Issuance costs, including the value of the warrants and the shares issued to
Calico Capital Group, were $4.4 million.
On
April
25, 2007, the Company entered into a stock repurchase agreement with a group
of
private investors under common management to repurchase 2,135,550 shares of
the
Company’s common stock and warrants to purchase 580,937 shares of the Company’s
common stock held by such private investors at a combined price of $1.05 for
the
company stock and for the warrants for an aggregate purchase price of
$2,242,000. These shares and warrants repurchased in this privately negotiated
transaction were originally acquired by the private investors in the Company’s
private placement that initially closed on December 29, 2005. The repurchase
represented 11% of the common stock and warrants outstanding.
5.
2005
Equity Incentive Plan
The
2005
Equity Incentive Plan is an equity-based compensation plan to provide incentives
to, and to attract, motivate and retain the highest qualified employees,
directors, consultants and other third party service providers. The 2005 Equity
Incentive Plan enables the board to provide equity-based incentives through
grants or awards of stock options and restricted stock (collectively, “Incentive
Awards”) to present and future employees, consultants, directors, and other
third party service providers.
A
total
of 2,500,000 shares of common stock have been reserved for issuance under the
2005 Equity Incentive Plan. If an Incentive Award granted pursuant to the 2005
Equity Incentive Plan expires, terminates, expires and is unexercised or is
forfeited, or if any shares are surrendered to the Company in
connection with an Incentive Award, the shares subject to such award and the
surrendered shares will become available for future awards under the 2005 Equity
Incentive Plan. Options generally vest over a period of four years and have
a
ten year contractual life.
On
February 19, 2008 the Company offered eligible employees the opportunity to
exchange on a grant by grant basis, their outstanding eligible options for
restricted stock rights.
Options
eligible for the exchange in this offer were granted under the Company’s 2005
Equity Incentive Plan that were granted in 2005 and 2006 and had an exercise
price per share that is greater than $2.00. Individuals that held 500 or fewer
eligible options were cashed out.
The
number of restricted stock rights to be granted in exchange for each eligible
option surrendered was based upon an exchange ratio of 3 to 1. The 3 to 1
exchange ratio was determined because at the origination of the offer the fair
value of the eligible options approximated the share price at a 3 to 1
conversion rate. The incremental stock compensation expense resulting from
the
offer is $109 to be amortized over the remaining life of the original options
granted.
Pursuant
to the offer, 16,000 options were canceled and cashed out by individuals who
had
500 or fewer options. There were an additional 20 individuals that tendered
765,000 options for an aggregate of 255,000 restricted stock rights, of which
98,333 are vested.
At
June
30, 2008 the Company had restricted stock rights outstanding of 253,333, due
to
the forfeiture of 1,667 unvested stock rights during the quarter ended June
30,
2008. There were no restricted stock rights outstanding at June 30,
2007.
|
|
Restricted
Stock Rights
|
|
Outstanding
at 3/31/2008
|
|
|
255,000
|
|
Granted
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
Forfeited
|
|
|
1,667
|
|
Outstanding
at 6/30/2008
|
|
|
253,333
|
|
|
|
|
|
|
Vested
and Exercisable at 6/30/2008
|
|
|
98,333
|
|
At
June
30, 2008 and 2007 the Company had options to purchase 1,693,500 and 1,762,200
shares, respectively, of common stock outstanding to certain officers and other
employees.
The
compensation costs charged against income was $114 and $127 for the three months
ended June 30, 2008 and 2007, respectively. Compensation costs are included
in
general and administrative expenses in the consolidated Condensed Statement
of
Operations.
None
of
the Incentive Awards granted under the 2005 Equity Incentive Plan were issued
for cash consideration collected from the participants. The Incentive Awards
were granted to participants in the 2005 Equity Incentive Plan on the basis
of
services to be provided to the Company by the participants.
The
fair
value of the options awarded for the six months ended June 30, 2008 and 2007,
were estimated using the Black-Scholes option pricing model with the following
weighted average assumptions:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Risk
-free interest rate
|
|
|
5.0
|
%
|
|
5.0
|
%
|
|
5.0
|
%
|
|
5.0
|
%
|
Dividend
yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Expected
volatility
|
|
|
68.0
|
%
|
|
68.0
|
%
|
|
68.0
|
%
|
|
68.0
|
%
|
Expected
life (years)
|
|
|
6.0
|
|
|
6.0
|
|
|
6.0
|
|
|
6.0
|
|
Weighted
average grant date fair value
|
|
$
|
0.56
|
|
$
|
0.85
|
|
$
|
0.51
|
|
$
|
0.92
|
|
Estimated
forfeiture rate
|
|
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
The
risk-free interest rate is based on the U.S. Treasury Bill rates. The dividend
reflects the fact that the Company has never paid a dividend on its common
stock
and does not expect to in the future. Expected volatility was based on a
market-based implied volatility. The expected term of the options is based
on
what the Company believes will be representative of future behavior. In
addition, the Company is required to estimate the expected forfeiture rate
and
recognize expense only for those shares expected to vest. If the Company’s
actual forfeiture rate is materially different from its estimate, the
stock-based compensation expense could be significantly different from what
the
Company has recorded in the current period.
The
following is a summary of all of the Company’s stock option
activity:
|
|
Shares under
option
|
|
Weighted-average
exercise price per
share
|
|
Outstanding
at December 31, 2007
|
|
|
1,984,100
|
|
$
|
2.68
|
|
Granted
|
|
|
214,000
|
|
|
0.74
|
|
Exercised
|
|
|
0.00
|
|
|
0.00
|
|
Surrendered
|
|
|
(31,100
|
)
|
|
4.38
|
|
Converted
|
|
|
(765,000
|
)
|
|
4.60
|
|
Outstanding
at March 31, 2008
|
|
|
1,402,000
|
|
$
|
1.30
|
|
Granted
|
|
|
296,500
|
|
|
0.92
|
|
Excercised
|
|
|
0.00
|
|
|
0.00
|
|
Surrendered
|
|
|
(5,000
|
)
|
|
6.74
|
|
Outstanding
at June 30, 2008
|
|
|
1,693,500
|
|
$
|
1.22
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2008
|
|
|
131,625
|
|
$
|
1.90
|
|
As
of
June 30, 2008 there was $1,898 of total unrecognized compensation cost related
to the non-vested option awards and restricted stock under the 2005 Equity
Incentive Plan. That cost is expected to be recognized over the 3.2 year
remaining vesting period of the non-vested option awards. The total fair value
of the option awards and restricted stock that were vested during the three
months ended June 30, 2008 and 2007 was $145 and $224,
respectively.
The
following table summarizes information about stock options at June 30,
2008:
|
|
Outstanding
|
|
Exercisable
|
|
Exercise
Price
|
|
Number
Outstanding at
June 30, 2008
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable at
June 30, 2008
|
|
Weighted
Average
Exercise
Price
|
|
.01
- 2.00
|
|
|
1,619,500
|
|
|
9.3
|
|
$
|
1.13
|
|
|
101,875
|
|
$
|
1.46
|
|
2.01
- 4.00
|
|
|
62,000
|
|
|
8.4
|
|
$
|
3.02
|
|
|
21,750
|
|
$
|
2.98
|
|
4.01
- 6.00
|
|
|
11,000
|
|
|
7.5
|
|
$
|
4.50
|
|
|
7,500
|
|
$
|
4.50
|
|
6.01+
|
|
|
1,000
|
|
|
7.5
|
|
$
|
6.15
|
|
|
500
|
|
$
|
6.15
|
|
|
|
|
1,693,500
|
|
|
|
|
$
|
1.22
|
|
|
131,625
|
|
$
|
1.90
|
|
The
aggregate intrinsic value of the outstanding options (the difference between
the
closing stock price on the last trading day of the period ended June 30, 2008
of
$1.87 per share and the exercise price, multiplied by the number of in-the-money
options) was $1,204. This amount will change based on changes in the fair market
value of the Company’s common stock.
6.
Note
Payable – Bank
On
May 9, 2006, the Company and its subsidiaries entered into a Credit and
Security Agreement with Wells Fargo Bank, National Association acting through
Wells Fargo Business Credit and related security agreements and other agreements
described in the Credit and Security Agreement (the “Credit Agreement”). The
Credit Agreement provides for advances to the Company of up to a maximum of
$25.0 million. The amount actually available to the Company will vary from
time
to time, depending on, among other factors, the amount of eligible inventory
and
the amount of eligible accounts receivable. The obligations under the Credit
Agreement and all related agreements are secured by all of the Company assets.
The initial term of the Agreement is three years, expiring on April 28,
2009. Up to $7.0 million of the maximum amount is available for irrevocable,
standby and documentary letters of credit. Advances under the Credit Agreement
bear interest at a base rate (Wells Fargo Bank's prime rate) or LIBOR plus
2.5%.
The Credit Agreement requires a prepayment fee of $125,000 if the Company
terminates the Credit Agreement during the third year. The Credit Agreement
requires the Company, among other things, to limit capital expenditures and
maintain minimum availability on the line. Also, the Company is obligated
contractually by a restrictive lock box arrangement. The Credit Agreement also
requires the Company to pay a variety of other fees and expenses, including
minimum annual interest of $120,000. The Company, as of June 30, 2008, had
$35,000 in deferred financing fees being amortized over the life of the Credit
Agreement. As of June 30, 2008, the effective loan rate was 8.25% and the
Company had an outstanding balance of $3,911,000.
On
July
25, 2008, Wells Fargo Bank notified the Company of the Company’s failure to meet
the minimum excess availability requirement of $3.5 million. Since the Company
did not meet the minimum excess availability requirement as stated in the
agreement, the financial covenants went into effect which required that we
demonstrate net earnings at the levels stated in the agreement. Due to the
recent restructuring, the Company was unable to meet the covenants. Wells Fargo
Bank has not elected to accelerate or call the loan at this point, but has
put
into effect the default interest rate of 11.25% on the outstanding balance
of
the loan.
In
response to the notification of violation from Wells Fargo, the Company is
currently evaluating several options; including, but not limited to, the payment
of a waiver fee of $100,000 to Wells Fargo Bank along with resetting the
covenants, complete the sale of 2.1 million shares of common stock held in
treasury in a private offering, draw upon the Fusion Capital Equity Line or
refinance the Wells Fargo credit facility with alternative lenders.
7.
Segment Information
The
Company is currently organized into four operating segments but is changing
its
business model as previously discussed in Note 1 (Basis of Presentation): Direct
sales channel, uBid Certified Merchant (“UCM”) sales channel, Business to
Business sales channel and Other. In classifying its operational entities into
a
particular segment, the Company segregated its operations with similar economic
characteristics, products and services, customers and methods of distribution
into distinct operating groups. Prior to March 31, 2007, all operating segments
were aggregated into one reportable segment. The Company’s management reviews
the four operating segments revenue and gross profits to evaluate segment
performance and allocate resources. Operating expenses are not analyzed by
segment.
For
the
Direct sales channel, the Company is responsible for conducting the auction
or
listing the fixed sale price for merchandise owned by the Company, billing
the
customer, shipping the merchandise to the customer, processing merchandise
returns and collecting accounts receivable.
For
the
UCM sales channel, the Company is responsible for conducting the auction for
merchandise owned by third parties, billing the customer, arranging for a third
party to complete delivery to the customer, processing merchandise returns
and
collecting accounts receivable. The Company bears no physical inventory loss
or
return risk related to these sales. The Company records commission revenue
at
the time of shipment.
For
the
Business to Business sales channel, the Company sells product purchased directly
to other businesses. Revenues are recognized upon shipment.
All
other
revenues consist primarily of advertising revenue. Advertising revenues are
derived principally from the sale of online advertisements. Advertising revenues
on contracts are recognized as “impressions” (i.e., the number of times that an
advertisement appears in pages viewed by users of our websites). Impressions
are
delivered over the term of the agreement where such agreements provide for
minimum monthly, quarterly or annual advertising commitments.
|
|
(Dollars in Thousands)
|
|
|
|
Three months Ended June 30,
|
|
Six months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
4,671
|
|
$
|
9,002
|
|
$
|
8,166
|
|
$
|
16,770
|
|
UCM
|
|
|
1,182
|
|
|
1,341
|
|
|
2,460
|
|
|
2,797
|
|
Business
to Business
|
|
|
2,537
|
|
|
3,035
|
|
|
4,750
|
|
|
3,096
|
|
Other
|
|
|
36
|
|
|
285
|
|
|
191
|
|
|
607
|
|
Total
|
|
$
|
8,426
|
|
$
|
13,663
|
|
$
|
15,567
|
|
$
|
23,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
(190
|
)
|
$
|
873
|
|
$
|
(138
|
)
|
$
|
1,633
|
|
UCM
|
|
|
1,182
|
|
|
1,341
|
|
|
2,460
|
|
|
2,797
|
|
Business
to Business
|
|
|
286
|
|
|
370
|
|
|
673
|
|
|
384
|
|
Other
|
|
|
36
|
|
|
285
|
|
|
191
|
|
|
607
|
|
Total
|
|
$
|
1,314
|
|
$
|
2,869
|
|
$
|
3,186
|
|
$
|
5,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
|
-4.1
|
%
|
|
9.7
|
%
|
|
-1.7
|
%
|
|
9.7
|
%
|
UCM
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Business
to Business
|
|
|
11.3
|
%
|
|
12.2
|
%
|
|
14.2
|
%
|
|
12.4
|
%
|
Other
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Total
|
|
|
15.6
|
%
|
|
21.0
|
%
|
|
20.5
|
%
|
|
23.3
|
%
|
8.
Subsequent Events
On
July
25, 2008, Wells Fargo Bank notified the Company of the Company’s failure to meet
the minimum excess availability requirement of $3.5 million. Since the Company
did not meet the minimum excess availability requirement as stated in the
agreement, the financial covenants went into effect which required that we
demonstrate net earnings at the levels stated in the agreement. Due to the
recent restructuring, the Company was unable to meet the covenants. Wells Fargo
Bank has not elected to accelerate or call the loan at this point, but has
put
into effect the default interest rate of 11.25% on the outstanding balance
of
the loan.
In
response to the notification of violation from Wells Fargo, the Company is
currently evaluating several options; including, but not limited to, the payment
of a waiver fee of $100,000 to Wells Fargo Bank along with resetting the
covenants, complete the sale of 2.1 million shares of common stock held in
treasury in a private offering, draw upon the Fusion Capital Equity Line or
refinance the Wells Fargo credit facility with alternative lenders.
On
July
15, 2008 the Company signed a $10.0 million common stock purchase agreement
with
Fusion Capital Fund II, LLC, an Illinois limited liability company (“Fusion
Capital”). Concurrently with entering into the common stock purchase agreement,
the Company entered into a registration rights agreement with Fusion Capital.
Under the registration rights agreement, the Company agreed to file a
registration statement related to the transaction with the U.S. Securities
and
Exchange Commission (“SEC”) covering the shares that have been issued or may be
issued to Fusion Capital under the common stock purchase agreement. After the
SEC has declared effective the registration statement related to the
transaction, the Company has the right over a 24-month period to sell shares
of
common stock to Fusion Capital from time to time in amounts between $60,000
to
$1.0 million, depending on certain conditions set forth in the agreement, up
to
an aggregate of $10.0 million.
In
consideration for entering into the agreement, upon execution of the common
stock purchase agreement the Company issued to Fusion Capital 230,074 shares
of
the Company’s common stock as a commitment fee. Also, the Company will issue to
Fusion Capital an additional 230,074 shares as a commitment fee pro rata as
the
Company receives the $10.0 million of future funding. The purchase price of
the
shares related to the $10.0 million of future funding will be based on the
prevailing market prices of the Company’s common stock at the time of sales
without any fixed discount, and the Company will control the timing and amount
of any sales of shares to Fusion Capital. Fusion Capital shall not have the
right or the obligation to purchase any shares of the Company’s common stock on
any business day that the price of the Company’s common stock is below $0.75 per
share. The common stock purchase agreement may be terminated by the Company
at
any time at the Company’s discretion without any cost to the Company. There are
no negative covenants, restrictions on future funding, penalties or liquidated
damages in the agreement. The proceeds received by the Company under the common
stock purchase agreement will be used to provide working capital to further
implement the Company’s recently announced strategic change to focus on
liquidating excess inventories.
The
Company issued the initial 230,074 shares at the agreed upon price of $1.52
per
share, determined based on the 20-day moving average as of the date the
agreement was accepted. The Company will record the transaction in the quarter
ended September 30, 2008.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13.
|
|
Other
Expenses of Issuance and Distribution.
|
|
|
|
The
following table sets forth the estimated costs and expenses of the Registrant
in
connection with the offering described in the registration statement.
SEC
registration fee
|
|
$
|
213
|
|
Legal
fees and expenses
|
|
$
|
40,000
|
|
Accounting
fees and expenses
|
|
$
|
7,500
|
|
Miscellaneous
|
|
$
|
7,500
|
|
|
|
|
|
|
TOTAL
|
|
$
|
55,213
|
|
|
|
|
ITEM
14.
|
|
Indemnification
of Directors and Officers.
|
Under
Delaware law, a Delaware corporation may indemnify any person who was or is
a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or
investigative (other than one by or in the right of the corporation) by reason
of the fact that the person is or was a director, officer, employee or agent
of
the corporation, or is or was serving at the request of the corporation as
a
director, officer, employee or agent of another corporation, against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys’
fees actually and necessarily incurred as a result of such action or proceeding,
if such director or officer acted in good faith, for a purpose which such person
reasonably believed to be in or not opposed to the best interests of the
corporation and, in criminal actions or proceedings, had no reasonable cause
to
believe that such conduct was unlawful.
In
the
case of a derivative action, a Delaware corporation may indemnify any such
person against expenses, including attorneys’ fees, actually and necessarily
incurred by such person in connection with the defense or settlement of such
action or suit, if such director or officer acted in good faith for a purpose
which such person reasonably believed to be in or not opposed to the best
interests of the corporation. However, no indemnification will be made in
respect of any claim, issue or matter as to which such person will have been
adjudged to be liable to the corporation unless, and only to the extent that,
the Court of Chancery of the State of Delaware or any other court in which
such
action was brought determines such person is fairly and reasonably entitled
to
indemnity for such expenses.
Delaware
law permits a corporation to include in its certificate of incorporation a
provision eliminating or limiting a director’s liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. Delaware
law
provides, however, that liability for breaches of the duty of loyalty, acts
or
omissions not in good faith or involving intentional misconduct, or knowing
violation of the law, and the unlawful purchase or redemption of stock or
payment of unlawful purchase or redemption of stock or payment of unlawful
dividends or the receipt of improper personal benefits cannot be eliminated
or
limited in this manner.
Our
certificate of incorporation and bylaws provide that we will indemnify our
directors to the fullest extent permitted by Delaware law and may, if and to
the
extent authorized by our board of directors, indemnify our officers and any
other person whom we have the power to indemnify against any liability,
reasonable expense or other matter whatsoever.
Any
amendment, modification or repeal of the foregoing provisions shall be
prospective only, and shall not affect any rights or protections of any of
our
directors existing as of the time of such amendment, modification or
repeal.
We
may
also, at the discretion of our board of directors, purchase and maintain
insurance to the fullest extent permitted by Delaware law on behalf of any
of
our directors, officers, employees or agents against any liability asserted
against such person and incurred by such person in any such
capacity.
On
December 29, 2005, we entered into indemnification agreements with all of
our officers and directors providing for the indemnification of each of them
for
actions brought against any of them by reason of the fact that they are or
were
our agents. The indemnification agreements provide for indemnification of
certain expenses, judgments, fines, and settlement amounts incurred by the
indemnitee in any action or proceeding, including any action by or in the right
of Enable arising out of such person’s services to us, to any of our
subsidiaries, or to any other company or enterprise to which such indemnitee
provides services at our request. The indemnity agreements provide for the
advancement of expenses, make indemnification contingent on the indemnitee’s
good faith in acting or failing to act, and except the obligation to indemnify
for expenses or liabilities paid directly to the indemnitee by directors’ and
officers’ insurance. A form of indemnity agreement was filed as an Exhibit to
our Current Report on Form 8-K, filed with the SEC on January 5,
2006.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted for our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the SEC this indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
ITEM
15.
|
|
Recent
Sales of Unregistered
Securities.
|
Recent
Sales of Unregistered Securities
Upon
the
December 29, 2005 closing of the merger of uBid Acquisition Co., Inc. with
and
into uBid, following which uBid became our wholly-owned subsidiary, the
stockholders of uBid before the merger surrendered all of the issued and
outstanding shares of uBid and received 8,800,000 shares of our common stock.
On
February 6, 2006, 444,444 of such shares of our common stock were redeemed,
at a
price of $4.50 per share. The Cape Coastal stockholders before the merger
retained 599,331 shares of common stock. The offering and sale were deemed
to be
exempt under Rule 506 of Regulation D and Section 4(2) of the Securities Act,
because the shares were sold to less than 35 purchasers, as calculated pursuant
to Rule 501 of the Securities Act. No advertising or general solicitation was
employed in the offering.
Immediately
following the closing of the merger, we granted options to purchase 1,721,700
shares of common stock under our 2005 Equity Incentive Plan to our Named
Executive Officers and other employees. Except as otherwise described herein,
the options are issuable pursuant to the 2005 Equity Incentive Plan at an
exercise price of $4.50 per share and will vest in equal annual increments
over
the four year period following the date of grant.
Also
on
December 29, 2005, we completed the first part of a private offering to
accredited investors. We sold 10,000,003 shares of our common stock and warrants
to purchase 2,500,003 shares of our common stock, for aggregate consideration
of
$45 million. The warrants issued to the investors are exercisable for five
years
at an exercise price of $5.85. Some of the investors participating in the first
part of the private offering held notes that were issued by uBid before the
merger, including $10.5 million of debt held by the Petters Group and $5.0
million of debt held by the bridge loan holders. Rather than accepting cash
consideration for the Units acquired by these investors, we agreed to issue
Units at a rate of one Unit for each $4.50 of debt for consideration of the
note
holders’ cancellation of the existing notes. Of the 3,444,444 Units issued in
exchange for debt, 2,222,224 Units were issued to Petters Group with common
shares that were subject to redemption at a redemption price of $4.50. For
debt
exchanged with Units that did not have redeemable common shares, the value
of
the securities issued in exchange for the debt equaled the face value of the
debt exchanged, and accordingly, we did not recognize or record a gain
or loss. Due to the higher value of the redeemable common shares issued to
Petters Group, we realized a loss of approximately $1.2 million upon the
exchange of debt for Units with those redeemable common shares. However, as
the
Petters Group is considered a significant related party to us, the exchange
was
treated for accounting purposes as a capital transaction and the resulting
loss
was reflected as a dividend to shareholders rather than as a direct reduction
of
net earnings. Therefore, the consideration we received on the Closing Date
consisted of approximately $29.5 million in cash and $15.5 million in cancelled
debt. In addition, on the Closing Date, we issued warrants to purchase 333,333
shares of our common stock to the bridge note holders as a financing fee, which
warrants are exercisable for three years at an exercise price of $4.50 and
the
value of which, $600,000, was recorded as interest expense. We also issued
warrants to purchase 230,000 shares of our common stock to our placement agents
in the offering, which warrants are exercisable for five years at an exercise
price of $4.50 and the value of which, $522,000, was recorded as a cost of
the
equity issuance.
On
February 3, 2006, we completed the second part of our private offering to
accredited investors. In this offering, we sold 3,000,000 shares of our common
stock and warrants to purchase 750,002 shares of our common stock. On
February 6, 2006, we redeemed the 2,666,668 shares of our common stock
issued subject to redemption to former uBid stockholders and certain
participants in the first part of the private offering, at a
redemption price of $4.50 per share and issued 600,667 shares of common
stock to Cape Coastal and uBid’s financial advisor, Calico Capital Group, LLC.
We issued additional warrants to purchase 90,000 shares of our common stock
to
our placement agents, which warrants are exercisable for five years at
an exercise price of $4.50 and the value of which, $162,000, was recorded
as additional costs of the equity issuance.
In
connection with the First Closing, on December 29, 2005, we issued warrants
to
the holders of our bridge notes to purchase 333,333 shares of common stock
for a
period of three years at an exercise price of $4.50. These warrants were issued
as a deferred fee for providing bridge loans to uBid on October 3, 2005.
On
February 3, 2006, we closed another round of financing with accredited investors
(the “Second Closing”). We issued 3,000,000 shares of our common stock and
warrants to purchase 750,002 shares of common stock to various accredited
investors for a purchase price of $13.5 million. We also redeemed 1,000,001
shares from Petters Group for a total of $4.5 million and 1,222,223 shares
from
the Petters Company, Inc. for $5.5 million. On February 6, 2006, in
connection with the Second Closing, we redeemed a total of 444,444 shares of
our
common stock from Robert Tomlinson and Timothy Takesue for a total of $2
million. Additionally, we issued 600,667 shares of our common stock to Calico
Capital Group, LLC, our financial advisors. Pursuant to a letter agreement,
Calico subsequently transferred a total of 50,000 of its shares to two
stockholders of the former Cape Coastal Trading Corporation. Our placement
agents were issued warrants to acquire an additional 90,000 shares of our common
stock for five years at an exercise price $4.50 per share, also in connection
with the Second Closing.
On
July
15, 2008 we issued to Fusion Capital 230,074 shares of our common stock as
a
commitment fee in connection with entering into a common stock purchase
agreement. For more information, see the section titled “The Fusion Transaction”
in this prospectus.
For
the
three months ended June 30, 2008, options to purchase an aggregate of 688,000
shares of the Company’s common stock were granted to individuals, all employees
of Enable. Options to purchase an aggregate of 600,000 shares at $1.14 per
share
were granted on September 21, 2007. The options have a term of ten years and
vest over a three to four year period either quarterly or annually beginning
on
the first quarter or year respectively after the date of grant. The option
grants were exempt from registration under Section 4(2) of the Securities Act
of
1933, as amended, which provides an exemption for transactions not involving
a
public offering.
The
private offerings and related transactions discussed above are exempt from
registration under Section 4(2) of the Securities Act or Rule 506 of Regulation
D, promulgated by the SEC. With respect to the issuance of securities in
connection with the First Closing and the Second Closing, no general
solicitation was made by us or any person acting on our behalf; the securities
were sold subject to transfer restrictions, and the certificates for the shares
and warrants contained an appropriate legend stating that such securities have
not been registered under the Securities Act and may not be offered or sold
absent registration or an exemption therefrom.
|
|
Exhibits
and Financial Statement
Schedules
|
(a)
Exhibits
Exhibit
No.
|
Description
|
|
Reference
|
|
|
|
|
2.1
|
Agreement
and Plan of Merger dated as of December 15, 2005, by and between
Cape
Coastal Trading Corporation, a New York corporation and Cape Coastal
Trading Corporation, a Delaware corporation.
|
|
Incorporated
by reference to Exhibit 2.1 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on December 21, 2005 (File
No.
000-50995).
|
|
|
|
|
2.2
|
Merger
Agreement and Plan of Reorganization dated as of December 29, 2005,
by and
among Cape Coastal Trading Corporation, uBid Acquisition Co., Inc.
and
uBid, Inc.
|
|
Incorporated
by reference to Exhibit 2.2 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File
No.
000-50995).
|
|
|
|
|
3.1
|
Certificate
of Incorporation.
|
|
Incorporated
by reference to Exhibit 3.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 21, 2005
(File No.
000-50995).
|
|
|
|
|
3.2
|
Certificate
of Amendment of Certificate of Incorporation.
|
|
Incorporated
by reference to Exhibit 3.1 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on August 6, 2008 (File
No.
000-50995).
|
|
|
|
|
3.3
|
Amended
and Restated Bylaws.
|
|
Incorporated
by reference to Exhibit 3.2 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 6, 2008 (File
No.
000-50995).
|
|
|
|
|
4.1
|
Form
of Warrant to be issued to the Investors.
|
|
Incorporated
by reference to Exhibit 4.1 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File
No.
000-50995).
|
|
|
|
|
4.2
|
Form
of Warrant to be issued to the Placement Agents.
|
|
Incorporated
by reference to Exhibit 4.2 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File
No.
000-50995).
|
|
|
|
|
4.3
|
Form
of Warrant to be issued to the Note Holders.
|
|
Incorporated
by reference to Exhibit 4.3 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File
No.
000-50995).
|
|
|
|
|
4.4
|
Form
of Lockup Agreement.
|
|
Incorporated
by reference to Exhibit 4.4 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File
No.
000-50995).
|
|
|
|
|
5.1
|
Opinion
of Fredrikson & Byron, P.A.
|
|
Filed
herewith.
|
|
|
|
|
10.1
|
Asset
Purchase Agreement dated as of January 13, 2005, by and between
Cape
Coastal Trading Corporation, a New York corporation and Kwajo
Sarfoh.
|
|
Incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K
filed with
the Securities and Exchange Commission on January 14, 2005 (File
No.
000-50995).
|
|
|
|
|
10.2
|
Form
of Securities Purchase Agreement by and among Cape Coastal Trading
Corporation, uBid, Inc. and the Investors named therein.
|
|
Incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K
filed with
the Securities and Exchange Commission on January 5, 2006 (File
No.
000-50995).
|
10.3
|
Employment
Agreement dated as of December 29, 2005 by and between Cape Coastal
Trading Corporation and Timothy E. Takesue.
|
|
Incorporated
by reference to Exhibit 10.4 to the Current Report on Form 8-K
filed with
the Securities and Exchange Commission on January 5, 2006 (File
No.
000-50995).
|
|
|
|
|
10.4
|
Employment
Agreement dated as of September 21, 2007 by and between uBid.com
Holdings,
Inc and Jeffrey D. Hoffman.
|
|
Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed with
the Securities and Exchange Commission on September 26, 2007 (File
No.
000-50995).
|
|
|
|
|
10.5
|
2005
Equity Incentive Plan, effective as of December 15, 2005.
|
|
Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 23, 2005
(File No.
000-50995).
|
|
|
|
|
10.6
|
Form
of Incentive Stock Option Agreement.
|
|
Incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 23, 2005
(File No.
000-50995).
|
|
|
|
|
10.7
|
Form
of Non-Qualified Stock Option Agreement.
|
|
Incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 23, 2005
(File No.
000-50995).
|
|
|
|
|
10.8
|
Form
of Indemnity Agreement.
|
|
Incorporated
by reference to Exhibit 10.9 to the Current Report on Form 8-K
filed with
the Securities and Exchange Commission on January 5, 2006 (File
No.
000-50995).
|
|
|
|
|
10.9
|
Form
of Amendment Number 1 to Securities Purchase Agreement dated as
of
February 28, 2006.
|
|
Incorporated
by reference to Exhibit 10.10 to the Annual Report on Form 10-K
filed with
the Securities and Exchange Commission on March 28, 2006 (File
No.
000-50995).
|
|
|
|
|
10.10
|
Credit
and Security Agreement between uBid.com Holdings, Inc., uBid, Inc.
and
Wells Fargo Bank, National Association acting through Wells Fargo
Business
Credit dated May 9, 2006 and Revolving Note in the amount of $25,000,000
issued on May 9, 2006 by uBid, Inc and uBid.com Holdings, Inc.
payable to
Wells Fargo Bank, National Association.
|
|
Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed with
the Securities and Exchange Commission on May 10, 2006 (File No.
000-50995).
|
|
|
|
|
10.11
|
Separation
Agreement and Release between uBid.com Holdings, Inc. and Robert
H.
Tomlinson, Jr. dated September 20, 2007.
|
|
Incorporated
by reference to Exhibit 10.11 to the Annual Report on Form 10-K
filed with
the Securities and Exchange Commission on March 28, 2008 (File
No.
000-50995).
|
|
|
|
|
10.12
|
Employment
Agreement by and between uBid.com Holdings, Inc. and Glenn R. Weisberger
dated May 15, 2008.
|
|
Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed with
the Securities and Exchange Commission on May 19, 2008 (File No.
000-50995).
|
|
|
|
|
10.13
|
Incentive
Stock Option Agreement by and between uBid.com Holdings, Inc. and
Glenn R.
Weisberger dated May 15, 2008.
|
|
Incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K
filed with
the Securities and Exchange Commission on May 19, 2008 (File No.
000-50995).
|
|
|
|
|
10.14
|
Common
Stock Purchase Agreement, dated as of July 15, 2008, by and between
uBid.com Holdings, Inc. and Fusion Capital Fund II, LLC.
|
|
Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed with
the Securities and Exchange Commission on July 16, 2008 (File No.
000-50995).
|
|
|
|
|
10.15
|
Registration
Rights Agreement, dated as of July 15, 2008, by and between uBid.com
Holdings, Inc. and Fusion Capital Fund II, LLC
|
|
Incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K
filed with
the Securities and Exchange Commission on July 16, 2008 (File No.
000-50995).
|
16.1
|
Letter
regarding Change in Certifying Accountant.
|
|
Incorporated
by reference to Exhibit 16.1 to the Current Report on Form 8-K
filed with
the Securities and Exchange Commission on January 5, 2006 (File
No.
000-50995).
|
|
|
|
|
16.2
|
Letter
regarding Change in Certifying Accountant.
|
|
Incorporated
by reference to Exhibit 16.2 to the Registration Statement on Form
S-1
filed with the Securities and Exchange Commission on February 10,
2006
(File No. 333-131733).
|
|
|
|
|
21.1
23.1
|
List
of Subsidiaries.
Consent
of BDO Seidman, LLP, an independent registered public accounting
firm.
|
|
Filed
herewith
Filed
herewith
|
23.2
|
Consent
of Fredrikson & Byron, P.A.
|
|
Contained
in the opinion
filed
as Exhibit 5.1 hereof
|
|
a.
|
|
The
undersigned registrant hereby
undertakes:
|
|
1.
|
|
To
file, during any period in which offers or sales are being made,
a
post-effective amendment to this registration
statement:
|
|
i.
|
|
To
include any prospectus required by section 10(a)(3) of the Securities
Act
of 1933;
|
|
ii.
|
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent
a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering
price
set forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
|
|
iii.
|
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
|
|
2.
|
|
That,
for the purpose of determining any liability under the Securities
Act of
1933, each such post-effective amendment shall be deemed to be a
new
registration statement relating to the securities offered therein,
and the
offering of such securities at that time shall be deemed to be the
initial
bona fide offering thereof.
|
|
3.
|
|
To
remove from registration by means of a post-effective amendment any
of the
securities being registered which remain unsold at the termination
of the
offering.
|
|
4.
|
|
That,
for the purpose of determining liability of the registrant under
the
Securities Act of 1933 to any purchaser in the initial distribution
of the
securities: The undersigned registrant undertakes that in a primary
offering of securities of the undersigned registrant pursuant to
this
registration statement, regardless of the underwriting method used
to sell
the securities to the purchaser, if the securities are offered or
sold to
such purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will
be
considered to offer or sell such securities to such
purchaser:
|
|
i.
|
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to
Rule 424;
|
|
ii.
|
|
Any
free writing prospectus relating to the offering prepared by or on
behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
|
|
|
|
iii.
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant
or its
securities provided by or on behalf of the undersigned registrant;
and
|
|
iv.
|
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
|
|
5.
|
Insofar
as indemnification for liabilities arising under the Securities Act
of
1933 may be permitted to directors, officers and controlling persons
of
the registrant pursuant to the foregoing provisions, or otherwise,
the
registrant has been advised that in the opinion of the Securities
and
Exchange Commission such indemnification is against public policy
as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by
a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted
by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication
of
such issue.
|
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies
that
it has reasonable grounds to believe that it meets all of the requirements
for
filing on Form S-1 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on the 5th day of September, 2008.
|
ENABLE
HOLDINGS, INC.
|
|
|
By:
|
/s/
Jeffrey D. Hoffman
|
|
|
|
Jeffrey
D. Hoffman
|
|
|
|
Chief
Executive Officer
|
|
|
POWER
OF ATTORNEY
KNOW
ALL MEN BY THESE PRESENTS
,
that
each person whose signature appears below constitutes and appoints Jeffrey
D.
Hoffman and Miguel A. Martinez, Jr., and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead in any and all
capacities, to sign any or all amendments to this Registration Statement on
Form
S-1 (including post-effective amendments), and to file the same, with all
exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and
to
all intents and purposes as he might or could do in person, hereby ratifying
and
confirming that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Jeffrey D. Hoffman
Jeffrey
D. Hoffman
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
September
5, 2008
|
|
|
|
|
|
/s/
Miguel A. Martinez, Jr.
Miguel
A. Martinez, Jr.
|
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
|
September
5, 2008
|
|
|
|
|
|
/s/
Steven Sjoblad
Steven
Sjoblad
|
|
Director
|
|
September
5, 2008
|
|
|
|
|
|
/s/
David E. Baer
David
E. Baer
|
|
Director
|
|
September
5, 2008
|
|
|
|
|
|
/s/
Mary L. Jeffries
Mary
L. Jeffries
|
|
Director
|
|
September
5, 2008
|
|
|
|
|
|
/s/
Kenneth J. Roering
Kenneth
J. Roering
|
|
Director
|
|
September
5, 2008
|
|
|
|
|
|
/s/
Casey L. Gunnell
Casey
L. Gunnell
|
|
Director
|
|
September
5, 2008
|
|
|
|
|
|
Grafico Azioni Enable (CE) (USOTC:ENAB)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Enable (CE) (USOTC:ENAB)
Storico
Da Lug 2023 a Lug 2024