Attached files
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EX-21.1 - Enable Holdings, Inc. | v179353_ex21-1.htm |
EX-32.2 - Enable Holdings, Inc. | v179353_ex32-2.htm |
EX-31.1 - Enable Holdings, Inc. | v179353_ex31-1.htm |
EX-31.2 - Enable Holdings, Inc. | v179353_ex31-2.htm |
EX-10.3 - Enable Holdings, Inc. | v179353_ex10-3.htm |
EX-32.1 - Enable Holdings, Inc. | v179353_ex32-1.htm |
EX-10.5 - Enable Holdings, Inc. | v179353_ex10-5.htm |
EX-10.12 - Enable Holdings, Inc. | v179353_ex10-12.htm |
EX-10.11 - Enable Holdings, Inc. | v179353_ex10-11.htm |
EX-10.13 - Enable Holdings, Inc. | v179353_ex10-13.htm |
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
x
|
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the fiscal year ended
December 31,
2009
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Commission
file Number: 000-50995
Enable
Holdings, Inc
(Formerly
known as uBid.com Holdings, Inc.)
(Exact
name of registrant as specified in its charter)
Delaware
|
52-2372260
|
(State
or Other Jurisdiction of
|
(IRS
Employer
|
Incorporation
or Organization)
|
Identification
No.)
|
1140
W Thorndale, Itasca, Illinois 60143
(Address
of principal executive offices and zip code)
Registrant’s
telephone number including area code:
(773)
272-5000
Securities
registered pursuant to Section
12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $0.001 per share
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to filing requirements for the past 90
days. Yes x No
o
Indicate
by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such a shorter period that
the registrant was required to submit and post such files.) Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o
Accelerated filer o
Non-accelerated filer o Smaller reporting
company x
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2).
Yes o No x
The
aggregate market value of the registrant’s voting stock held by non-affiliates
of the registrant (based upon the per share closing sale price of $0.55 at June
30, 2009 was approximately $10.4 million).
The
number of shares outstanding of the registrant’s Common Stock, par value $0.001,
as of, March 15, 2010, was 19,726,678
DOCUMENTS
INCORPORATED BY REFERENCE
None
ENABLE
HOLDINGS, INC.
TABLE
OF CONTENTS
PART
I
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||||
Item
1
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Business
|
3
|
||
Item
1A
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Risk
Factors
|
10
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Item
1B
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Unresolved
Staff comments - Not Applicable
|
|
||
Item
2
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Properties
|
21
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Item
3
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Legal
Proceedings
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21
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Item
4
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Reserved
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21
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PART
II
|
|
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Item
5
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
23
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||
Item
6
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Selected
Financial Data
|
24
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||
Item
7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
26
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Item
7A
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Quantitative
and Qualitative Disclosures about Market Risk
|
42
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||
Item
8
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Financial
Statements and Supplementary Data
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42
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Item
9
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
42
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Item
9A
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Controls
and Procedures
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42
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Item
9B
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Other
Information
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43
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||
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PART
III
|
|
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Item
10
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Directors
and Executive Officers of the Registrant
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44
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Item
11
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Executive
Compensation
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46
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Item
12
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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50
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Item
13
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Certain
Relationships and Related Transactions and Director
Independence
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50
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Item
14
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Principal
Accountant Fees and Services
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50
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||
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PART
IV
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Item
15
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Exhibits
and Financial Statement Schedules
|
51
|
2
ENABLE
HOLDINGS, INC
FORM
10-K ANNUAL REPORT
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009
Forward-Looking
Statements
This Annual Report on Form 10-K
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including, without limitation, statements regarding our expectations, beliefs,
intentions or future strategies that are signified by the words “expects,”
“anticipates,” “intends,” “believes,” “estimates” or similar language. All
forward-looking statements included in this document are based on information
available to Enable Holdings on the date hereof. Enable Holdings cautions
investors that its business and financial performance and the matters described
in these forward-looking statements are subject to substantial risks and
uncertainties. For further information regarding these risks and uncertainties,
please refer to publicly available documents that Enable Holdings has filed with
the Securities and Exchange Commission. Because of these risks and
uncertainties, some of which may not be currently ascertainable and many of
which are beyond Enable Holdings’ control, actual results could differ
materially from those projected in the forward-looking statements. Deviations
between actual future events and the Enable Holdings’ estimates and assumptions
could lead to results that are materially different from those expressed in or
implied by the forward looking statements. We do not intend to update these
forward looking statements to reflect actual future
events.
Overview
Enable
Holdings, Inc, along with its subsidiaries, enables manufacturers, retailers and
distributors to liquidate excess inventory by providing them with asset recovery
solutions, through a multi-channel environment. Asset recovery has become a
major market, where consumers demand brand name products at prices that are well
below retail. When manufacturers and retailers are unable to sell inventory from
their warehouses, distribution centers and stores, they contact us to provide
solutions for them to sell their excess inventory and recover their
costs.
Enable
Holdings is organized as five distinct business units. Each business unit
provides a combination of seller solutions for sellers to efficiently liquidate
their excess inventory. The business units are listed below:
|
1.
|
uBid.com: Our flagship
website, which has operated for 12 years. The website allows merchants to
sell excess inventory and allows consumers to buy products online in an
auction price format.
|
|
2.
|
RedTag.com: Our fixed
price internet site offers name brand merchandise with a low shipping and
handling fee of only $1.95.
|
|
3.
|
RedTag Live: Our live
liquidation group, dedicated to selling through the traditional in-store
sales and live liquidation sales.
|
|
4.
|
Dibu Trading Company: A
wholesale inventory liquidation company dedicated to Business-to-Business
solutions, providing manufacturers and distributors the ability to sell
large quantities of excess inventory. For example, when a retailer needs
to liquidate a large quantity of inventory, they contact us to find a
buyer that will buy the entire inventory in a single transaction. Our B2B
experience allows us to present deals to multiple interested buyers to
obtain the highest possible recovery for the
seller.
|
|
5.
|
Commerce Innovations: A
software service company which licenses auction software to third party
companies. Companies, businesses and governments can use our platform to
sell excess furniture, appliances, autos, and other surplus. This allows
them to utilize a trusted platform while reducing live auction costs, as
well as an efficient way to reach a wider target
audience.
|
3
How
we provide value to the sellers
At Enable
Holdings we have developed a multi-channel solution that serves as a one-stop
shop for sellers to liquidate excess inventory, in categories such as apparel,
consumer electronics, personal computers, watches, jewelry, home & garden,
sporting goods and automobiles. Enable Holdings’ multi-channel approach allows
the sellers to avoid any conflicts with their primary distribution
channels.
Our
Company is focused on helping sellers with their asset recovery needs. We assign
a dedicated account manager who ensures that your asset recovery needs are met
in an efficient and timely manner. The account manager will help assess your
situation, identify the best solutions and execute the plan.
We offer
multiple seller solutions that enable sellers to route their excess inventory
through our multi-channel solutions to attain maximum cost
recovery:
|
1.
|
Certified Merchant Program
(CM): CM is a unique seller program whereby sellers can directly
sell their inventory on our website, reaching out to the 5.5 million
customer base we have established over the past twelve
years. Merchants participating in this program manage the
entire warehouse and order fulfillment for their sales while we manage the
order processing and post-order customer service. This greatly reduces any
fraudulent activity by either the seller or the buyer and allows us to act
as an intermediary in any dispute resolution. See below for more detail on
the CM program.
|
|
2.
|
Managed Supply: Managed
Supply is a program, whereby, we sell inventory that is consigned to us.
The inventory is either stored at our warehouse or at the
sellers’.
|
|
3.
|
Cash Recovery: We
purchase inventory directly from sellers, allowing them to dispose of
excess inventory and attain immediate cost recovery. We then direct the
merchandise through one of our multi-channels - our online properties,
located at www.uBid.com
and www.RedTag.com,
our live sales business unit RedTag Live or sell it through a wholesale
transaction to another business.
|
Strong
Brand and Loyal Customer Base
We have
been in operation for over 12 years and have a strong base of more than 5.5
million registered users across our websites. The websites are designed to
provide a friendly and positive shopping experience through interactive auction
and fixed price formats.
CM/Certified
Central
The CM
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 consumers on our online properties through our auction
style or fixed price formats. Merchants participating in the CM Program manage
all warehousing of and order fulfillment for their CM Program inventory.
However, Enable Holdings manages all order processing and first response
customer service needs related to CM Program transactions. In furtherance of our
commitment to minimize fraudulent activity and to provide a trustworthy and
credible online experience, we require all merchants, before participating in
the CM Program, to satisfactorily complete our merchant certification process
which verifies each participating merchant’s business status and trade
references. Enable Holdings charges the merchants a commission fee for all
completed auction style and fixed price format transactions.
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 Certified Merchants. These services, which include the
ability to upload multiple images and view top selling product reports, are
designed to enhance the Certified Merchant’s selling experience and satisfaction
with us. Whether a Certified 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 an account management team to assist with planning, problems or
inquiries.
4
Seller
Support
We
currently employ a staff of in-house customer support personnel responsible for
handling customer inquiries, tracking shipments and investigating and resolving
problems with merchandise. Customer Care representatives are available for
support from 8 a.m. - 6 p.m. Central Standard Time (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. Some of our support functions, order status
and tracking, order verification etc, are automated to provide immediate access
to the customers.
How
we provide value to the buyers
In
today’s market, consumers want greater value for their money than they ever have
in the past; which is why we connect them to the world’s top brands at prices
that are far below retail.
Broad
and Deep Product Selection
We offer
over 200,000 high quality and brand-name, new, close-out, overstock and
recertified merchandise in over 200 categories including personal computers,
consumer electronics, apparel, house wares, watches, jewelry, travel, sporting
goods, home improvement products and collectible products each day.
Extensive
Security and Fraud Protection
Our
websites, at ww.uBid.com and www.RedTag.com, provide a trustworthy and secure
buying environment in which we minimize fraudulent activity and questionable
product quality frequently associated with purchase transactions from
non-established 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, we believe that fraudulent transactions in our marketplace
are minimized.
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 Enable
Holdings 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 sellers
the opportunity to optimize sales value while simultaneously liquidating excess
merchandise directly to a nationwide audience, without conflicting with their
primary distribution channels.
Multiple
Payment options
We accept
all major credit cards for customer purchase.
Products
and Merchandising
Since asset recovery is an
unpredictable business, it is impossible to forecast product supply ahead of
time. The product mix and quantity fluctuates from month-to-month but our main
product categories continue to be as follows, in order of most to least
volume.
|
·
|
Personal
Computer Products: Including items such as desktops, portable computers,
computer accessories, disk drives, modems, monitors/video equipment,
components, printers, scanners, digital cameras and accessories, software
and home office products.
|
5
|
·
|
Consumer
Electronics: Including items such as home theater equipment, home audio
equipment, speakers, televisions, camcorders, digital cameras, VCRs, DVD
players, portable audio players and automobile audio
equipment.
|
|
·
|
Home:
Including items such as appliances, vacuum cleaners, furniture, tools,
luggage, furnishings, art and lawn and
garden.
|
|
·
|
Jewelry
and Gifts: Including items such as rings, earrings, watches, bracelets and
loose stones.
|
|
·
|
Apparel
and Accessories: Including items such as men’s, women’s and children’s
casual, fitness, and dress clothing, shoes and
accessories.
|
|
·
|
Sporting
Goods and Memorabilia: Including items such as sports memorabilia and
collectibles, equipment for golf, tennis, health and fitness, outdoor
sports, bicycles, water sports and team
sports.
|
|
·
|
Books,
Music and Videos: Including items such as books, movies, video games, DVDs
and CDs.
|
|
·
|
Collectibles:
Including items such as dolls, stamps, coins, pottery, glass and
figurines.
|
Customer
Service & Support Center
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.
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 is located in Itasca,
Illinois. 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 us. 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 concerning
merchandise. In addition,
we have automated some of our customer service functions including providing
online access to product shipping status.
Product
Fulfillment and logistics
In August
2009 we began using our own distribution facility in Itasca, Illinois. Prior to
August 2009, we used a third party logistics warehouse and distribution system
to manage inventory.
Marketing
Our
marketing strategy is aligned with our overall business goals to drive revenue
and margin growth by increasing our consumer and merchant bases.
6
Our
marketing strategy is focused primarily on four areas: (1) increasing consumer
awareness of www.uBid.com and www.RedTag.com; (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 CM Program.
|
·
|
Increasing
consumer awareness of Enable Holdings and its online properties -
Enable Holdings 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 CM Program to successfully 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.
|
|
·
|
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 re-evaluating 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.
|
|
·
|
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 increased our investment 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.
|
|
·
|
Increasing
the availability of qualified merchants for the CM Program - The
recruiting of merchants to the CM 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 regularly evaluate Certified Merchants based on
different metrics, including, returns, customer service inquiries and
cancellations, to part with poor performing sellers and promote the ones
that stand out.
|
7
Competition
Asset
recovery is a growing business model, especially in the current economic
conditions. We believe there are a very limited number of companies that provide
a one-stop solution to all the inventory liquidation needs that we provide, in
particular our unique online solutions There are companies that offer either an
online liquidation marketplace or just an in-store model, but our all around
solution gives us an added advantage over those companies.
We face
competition from liquidators, asset recovery companies and retailers that can be
divided in to two broad categories:
Online
liquidators and retailers such as Overstock.com, Ecost.com, Bluefly.com,
Amazon.com, Smartbargains.com and Bidz.com.
In-store
liquidators such as Gordon Brothers and Hilco Trading Co.
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 are
unable to anticipate which other companies, such as Internet companies currently
not focused on the auction market, are likely to offer services in the future
that will compete with the services and products we provide.
In
addition, many of our current 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 Item 1A, “Risk Factors,” starting on page
10 of this Annual Report on Form 10-K.
Information
Technology Infrastructure
Availability
Our
business model dictates that our online properties be available 24 hours a day,
seven 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 cost-efficient network that is
resilient. 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 websites are reachable. Our websites are connected to the
Internet through redundant DS-3 circuits using AT&T as the back
bone.
Scalability
The
Company’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
websites support 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. The platform is able to process hundreds of
thousands of transactions every day.
Security
The
Company operates “trusted” online properties in which it has 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.
8
Intellectual property
We regard
our domain names and other 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 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
and RedTag service marks are registered trademarks in the United States. Our
proprietary software is protected by copyright laws. The source code for our
proprietary software is also 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 inventory of our vendors.
From time
to time, we may be subject to legal proceedings and claims regarding our
intellectual property 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.
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 Item 1A,”Risk
Factors,” starting on page 10 of this Form 10-K.
Employees
As of
December 31, 2009, we had 41employees. At December 31, 2008 we had 72 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.
Executive
officers
9
(Dollars
in thousands, except per share data)
Based on current and known
information, we believe that the following identifies the most significant risk
factors that could affect our business. However, the risks and uncertainties we
face are not limited to those discussed below. There could be other unknown or
unpredictable economic, business, competitive or regulatory factors, including
factors that we currently believe to be immaterial, that could have material
adverse effects on our financial position, liquidity, and results of operations.
Past financial performance may not be a reliable indicator of future performance
and historical trends should not be used to anticipate results or trends in the
future periods.
Risks
Related to Our Company
There
is substantial doubt about our ability to continue as a going
concern.
Our
independent public accounting firm has issued an opinion on our consolidated
financial statements that states that the consolidated financial statements were
prepared assuming we will continue as a going concern and further states that
our recurring losses from operations, stockholders’ deficit and inability to
generate sufficient cash flow to meet our obligations and sustain our operations
raise substantial doubt about our ability to continue as a going concern. Our
plans concerning these matters are discussed in Note 20 to the accompanying
audited consolidated financial statements. Our future is dependent on our
ability to raise additional capital and execute those plans successfully. If we
fail to do so for any reason, we would not be able to continue as a going
concern.
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. If we are unable to secure
additional financing we will not be able to continue as a going
concern.
We may
need additional capital, which may not be available on reasonable terms or at
all. The raising of additional capital will 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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maintaining
enough working capital to run our business;
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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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buying
and selling inventory at profitable margins;
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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.
10
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 12 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.
We
have a history of operating losses which may continue.
We have a
history of losses and may continue to incur operating and net losses for the
foreseeable future. We incurred a net loss of approximately $7,468 for the year
ended December 31, 2009. As of December 31, 2009, our accumulated deficit
was $53,741. We have not achieved profitability on an annual basis. If our
revenues grow more slowly than anticipated or if operating expenses exceed
expectations, then we may not be able to achieve profitability in the near
future or at all, which will depress our stock price.
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, 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. Although there are
signs that this downturn in the economy is subsiding, there is still uncertainty
in the economy. 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, uncertainty or subsequent economic recovery in the U.S. or worldwide.
If the economy or markets in which we operate continue at their present levels,
our business, financial conditions and results of operations will likely be
materially and adversely affected.
Our
revenues, expenses and operating results are unpredictable. We expect that our
operating results will continue to fluctuate in the future due to a number of
factors, some of which are beyond our control. These factors include, but are
not limited to:
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our
ability to increase our brand awareness;
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our
ability to attract visitors to our websites and convert those visitors
into bidders, buyers and customers;
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our
ability to increase our customer base;
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the
amount and timing of costs relating to the expansion of our operations,
including sales and marketing expenditures;
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our
ability to sell products at auction at the price targets we
set;
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our
ability to introduce new types of merchandise, service offerings or
customer services in a competitive environment;
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our
ability to control our gross margins;
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technical
difficulties consumers might encounter in using our
websites;
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our
ability to manage third party outsourced operations;
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our
ability to sell our inventory in a timely manner and maintain customer
satisfaction;
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delays
in shipments as a result of computer systems failures, strikes or other
problems with our delivery service or credit card processing
providers;
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the
availability and pricing of merchandise from manufacturers, suppliers and
vendors;
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the
amount of returns of our merchandise;
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product
obsolescence and price erosion;
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consumer
confidence in encrypted transactions on the Internet;
and
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The
effectiveness of offline advertising in generating additional traffic to
our websites.
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Due to
all of these factors, our operating results may fall below the expectations of
investors, which could cause a decline in the trading price of our
stock.
11
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. 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.
Our
business may suffer if we do not attract and retain additional highly skilled
personnel.
To meet
our expected growth, we believe that our future success will depend upon our
ability to hire, train and retain other highly skilled personnel. Competition
for quality personnel is intense among technology and Internet-related
businesses such as ours. We cannot be sure that we will be successful in hiring,
assimilating or retaining the necessary personnel, and our failure to do so
could cause our operating results to fall below our projected growth and profit
targets.
We
are a holding company that depends on cash flow from uBid.com, RedTag.com,
RedTag Live, Dibu Trading Corp and Commerce Innovations, 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 of our operations are conducted by uBid.com,
Inc., Dibu Trading Corp., RedTag.com and RedTag Live, our wholly-owned
subsidiaries. We currently expect that the earnings and cash flow of our
subsidiaries will primarily be retained and used 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 subsidiaries 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.
Risks
Related to Our Business
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
purchased from Hewlett-Packard accounted for 33.2% of net revenues, during the
year ended December 31, 2009. 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 on our online properties. We
also cannot be certain that we will be able to establish new supplier
relationships that ensure merchandise will be available for sale on our online
properties.
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.
Our
operating results, financial condition and cash flows may be adversely impacted
by the affect the current global economic crisis and uncertainty has on our
customers.
The
current economic crisis has severely impacted banks and other lenders, limiting
the ability of many individuals and businesses to access credit
markets. As a result of the credit crisis and the overall decline in
the economy, our customers may choose to delay or postpone purchases of products
from us until the economy strengthens and this may affect our operating results
and financial condition.
12
The
current capital and credit market conditions may adversely affect our access to
capital, cost of capital and business operations.
The
general economic and capital market conditions in the U.S. have deteriorated
significantly, remain uncertain, and have adversely affected businesses access
to capital as well as an increased cost of such capital. If the
current economic conditions in the U.S. continue to be uncertain or become
worse, our cost of debt and equity capital and the access to capital markets
could be adversely affected.
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.
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 websites such as eBay.com, Amazon.com 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.
13
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 and RedTag service marks are 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 “RedTag” 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 infringe on third party intellectual property rights and could become
involved in costly intellectual property litigation.
Other
parties claiming infringement by our software or other aspects of our business
could sue us. We are not currently involved in any suit that would have a
material effect on our business. However, any future claims, with or without
merit, could impair our business and financial condition because they
could:
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result
in significant litigation costs;
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divert
the attention of management;
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divert
resources; or
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Require
us to enter into royalty and licensing agreements that may not be
available on terms acceptable to us or at
all.
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In the
future, we may also file lawsuits to enforce our intellectual property rights,
to protect our trade secrets, or to determine the validity and scope of the
proprietary rights of others. Litigation over these issues, whether successful
or unsuccessful, could result in substantial costs and diversion of resources,
which could reduce our profitability.
If
the products that we offer do not reflect our customers’ tastes and preferences,
our revenues and profit margins could decrease.
Our
success depends in part on our ability to offer products and services that
reflect consumers’ tastes and preferences. Consumers’ tastes are subject to
frequent, significant and sometimes unpredictable changes. Because the products
that we sell typically consist of manufacturers’ and retailers’ excess
inventory, we have limited control over the specific products that we offer for
sale. If the merchandise we offer for sale fails to satisfy customers’ tastes or
respond to changes in customer preferences, our sales could suffer and we could
be required to mark down unsold inventory which could depress profit margins. In
addition, any failure to offer products and services in line with customers’
preferences could allow competitors to gain market share, which could harm our
business, results of operations and financial condition.
Our
ability to sell products on our online and offline sales channels depends
substantially on our ability to attract traffic to our websites. We expect that
our sales and marketing expenses, including advertising expenditures, will
increase as we attempt to generate increased traffic to our websites. If we are
unable to generate traffic to our websites 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.
14
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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sponsorships;
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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
cash recovery solutions may subject us to risks of decreased or negative gross
margins.
We
currently purchase considerable amount of merchandise to be sold on our online
properties, 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 websites. We
also rely heavily on the ability of our 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 incorrect recording of
inventory.
We
rely on third parties to maintain our critical systems and, if these third
parties fail to perform their services adequately, we could experience
disruptions in our operations.
We rely
on a number of third parties, including our Internet hosting facility and
telephone company, for Internet and telecommunications access, credit card
processing and software services. We have limited control over these third
parties and no long-term relationships with any of them. For example, we do not
own a gateway onto the Internet. From time to time, we have experienced
temporary interruptions in our website connection and our telecommunications
access. Slow Internet transmissions or prolonged interruptions in our website
connection or telecommunications access could materially harm our
business.
We and
our certified merchants use UPS, Federal Express and USPS delivery services for
substantially all of our products. Should any of these third party service
providers be unable to deliver our products for a sustained period because of a
strike or other reason, we may not be able to engage other suitable service
providers on a timely basis, or upon favorable terms, which could harm our
business. In addition, Enable and our certified merchants could experience
delays in shipment due to computer systems failures or other problems related to
third party service providers. Delays in shipment could reduce the volume of
orders that we are able to fulfill, increase our delivery costs or cause
customer dissatisfaction with our business.
15
Our
internally developed software depends on operating systems, database and server
software that was developed and produced by and licensed from third parties. We
have, from time to time, discovered errors and defects in the software from
these third parties and we rely to some extent on these third parties to correct
errors and defects in a timely manner. If we are unable to develop and maintain
satisfactory relationships with these third parties on acceptable commercial
terms, or if the quality of products and services provided by these third
parties falls below a satisfactory standard, we could experience disruptions in
our ability to operate our business.
Increases
in credit card processing fees could increase our costs.
Our
merchant bank processor, Visa, MasterCard, American Express, Discover Card, and
Bill-Me-Later could increase the processing and interchange fees that they
charge for transactions using their cards or service. Increases in processing
and interchange fees may result in increased operating costs and reduced profit
margin. Our merchant bank processor could require reserve deposits to process
our transactions. The requirement of deposits could impact our
liquidity.
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 websites.
Our revenues depend substantially on the number of customers who use our
websites to purchase merchandise. Accordingly, the satisfactory performance,
reliability and availability of our websites, 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 websites
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 websites. 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 websites 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 websites 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 websites 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 websites
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.
16
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.
Technological
or other assaults on our service could harm our business.
We are
vulnerable to coordinated attempts to overload our systems with data, resulting
in denial or reduction of service to some or all of our users for a period. The
occurrence of any such event could reduce our revenue.
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 uBid brand name.
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.
17
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.
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.
Anything that
causes our website users to spend less time on their computers, including
seasonal factors and national events, may impact
profitability.
Anything
that diverts users of our websites from their customary level of usage could
adversely affect our business. Geopolitical events such as war, the threat of
war or terrorist activity, and natural disasters such as hurricanes or
earthquakes all could adversely affect our profitability. Similarly, our results
of operations historically have varied seasonally because many of our users
reduce their activities on our website with the onset of good weather during the
summer months, and on and around national holidays.
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.
In
addition, several telecommunications carriers have requested that the Federal
Communications Commission regulate telecommunications over the Internet. Due to
the increasing use of the Internet and the burden it has placed on the current
telecommunications infrastructure, telephone carriers have requested the FCC to
regulate Internet service providers and impose access fees on those providers.
If the FCC imposes access fees, the costs of using the Internet could increase
dramatically which could result in the reduced use of the Internet as a medium
for commerce and have a material adverse effect on our Internet business
operations.
18
Because
our service is available over the Internet 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.
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.
19
Risks
Related to Our Common Stock
There
has been no established trading market for our common stock, which could impair
the value of our investors’ investments and our business.
There has
been no established trading market for our common stock. The lack of an active
market may impair the ability to sell shares at the time investors wish to sell
them or at a price considered to be reasonable. The lack of an active market may
also reduce the fair market value of the shares. An inactive market may also
impair our ability to raise capital by selling shares of capital stock and may
impair our ability to acquire other companies or technologies by using our
common stock as consideration.
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.
Our
Certificate of Incorporation, Bylaws and the Delaware General Corporation Law
contains 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 our change in control
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. 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 the Company or could impede a merger, consolidation,
takeover or other business combination involving the Company or discourage a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of the Company.
20
Item
2. Properties
Our
principal administrative, call center, engineering, merchandising and
distribution facilities total approximately 48,000 square feet and are located
in Itasca, Illinois. We currently lease the facility for $16,000 per month. The
lease expires in May 2014.
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.
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of the Company’s security holders during the
quarter ended December 31, 2009.
21
EXECUTIVE
OFFICERS
The
following table sets forth our executive officers, their ages and position(s) as
of December 31, 2009:
Name
|
Age
|
Position
|
||
Patrick
L. Neville
|
63
|
Chief
Executive Officer
|
||
Timothy
E. Takesue
|
41
|
EVP,
Account Management
|
||
Miguel
A. Martinez, Jr.
|
54
|
Chief
Financial Officer and Secretary
|
||
Amy
Powers
|
33
|
Vice
President, Technology
|
Patrick L Neville was
appointed as the Company’s Chief Executive Officer as of March 1, 2010. Mr.
Neville is a proven leader who has developed, re-engineered and rolled out many
successful business concepts. From 1997 to 2008, Mr. Neville was President,
Chief Executive Officer and Vice Chairman of Beautyfirst/Purebeauty of Wichita,
Kansas. At Beautyfirst/Purebeauty, Mr. Neville spear-headed strategic planning
and had management responsibility for approximately 2,200 employees, operating
more than 120 stores, across the United States, with annual sales exceeding
$120,000,000. He successfully oversaw the sale of Beautyfirst/Purebeauty. Since
2008, Mr. Neville has been the President and Chief Executive Officer of Paradigm
Advisory Group LLC in Wichita, Kansas. Paradigm provides advisory services with
emphasis on crisis management, CEO coaching and restructurings of E-commerce,
wholesale, retail and manufacturing companies ranging from start-ups to those
with revenues exceeding $500,000,000. Mr. Neville has also served as a member of
the Board of Directors, speaker and consultant to the Chicago Apparel Center,
Men’s Retail Association, National Retail Federation, L.B.A. National Buying
Group, is currently serving on the Board of Directors of the International Salon
Spa Business Network and is an Accredited Associate of the European based
Institute for Independent Business.
Timothy E. Takesue has over 21
years of experience in various capacities involving product sourcing, retail
management and marketing, mail order product sourcing, merchandising, direct
selling product sourcing, and e-commerce. On December 29, 2005, Mr. Takesue
was named Executive Vice President, Account Management. 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, Account Management in April 2003. Mr. Takesue was a
part of the officer team that led uBid, Inc. in the 1998 IPO, 1999 secondary
offering, and subsequent sale in 2000 to CMGI and purchase from CMGI in 2003.
Mr. Takesue 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 uBid.com Holdings, Inc. He has served as Vice President
of Finance of uBid, Inc. since February 2005. He was appointed as Secretary of
uBid.com Holdings, Inc. in January 2006. Mr. Martinez brings over 20 years of
financial management experience to uBid. Before joining uBid, 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.
Amy Powers is the Company’s
Vice President of Technology and Commerce, and is responsible for directing
strategic and tactical technology and commerce planning for the enterprise. She
was appointed Vice President of Technology and Commerce in March 2010. 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.
22
PART
II
Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
PRICE
RANGE OF COMMON STOCK
As of
March 23, 2010, there were approximately 277 holders of record of shares of our
common stock.
On
December 31, 2009, the last reported sales price of our shares on the OTC
bulletin board was $0.17. During the first quarter of 2009 through February 28,
2010, the high sales price of our common stock was $0.89 and the low sales price
was $0.10.
2009
|
2008
|
|||||||||||||||
High
|
Low
|
High
|
Low
|
|||||||||||||
First
Quarter
|
$ | 0.50 | $ | 0.20 | $ | 1.15 | $ | 0.51 | ||||||||
Second
Quarter
|
$ | 0.89 | $ | 0.20 | $ | 2.34 | $ | 0.56 | ||||||||
Third
Quarter
|
$ | 0.76 | $ | 0.31 | $ | 3.25 | $ | 0.75 | ||||||||
Fourth
Quarter
|
$ | 0.50 | $ | 0.17 | $ | 0.85 | $ | 0.20 |
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.
RECENT
SALES OF UNREGISTERED SECURITIES
As of
December 31, 2009 there were 2,497,205 shares of preferred stock issued which
are convertible into 166,905,691 shares of common stock. For a discussion of
recent sales of unregistered securities, (see Note 3. Merger and Private
Offerings, in the Notes to Consolidated Financial Statements beginning on page
55).
23
The
selected financial data of the Company should be read in conjunction with the
Condensed Consolidated Financial Statements and related notes included in this
report.
Enable
Holdings, Inc and Subsidiaries
|
Selected
Yearly Financial Data
|
(Dollars
in Thousands, except per share
amounts)
|
Year
Ended December 31,
|
||||||||||||||||||||
Consolidated
Income Statement Data:
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
Net
Revenues
|
$ | 18,128 | $ | 31,579 | $ | 43,061 | $ | 66,559 | $ | 84,592 | ||||||||||
Cost
of Revenues
|
13,696 | 26,992 | 33,333 | 56,421 | 73,062 | |||||||||||||||
Gross
Profit
|
4,432 | 4,587 | 9,728 | 10,138 | 11,530 | |||||||||||||||
Operating
Expenses
|
||||||||||||||||||||
General
and administrative
|
11,329 | 15,805 | 13,255 | 12,973 | 13,045 | |||||||||||||||
Sales
and marketing
|
906 | 2,820 | 3,753 | 4,987 | 4,996 | |||||||||||||||
Total
operating expenses
|
12,235 | 18,625 | 17,008 | 17,960 | 18,041 | |||||||||||||||
Loss
From Operations
|
(7,803 | ) | (14,038 | ) | (7,280 | ) | (7,822 | ) | (6,511 | ) | ||||||||||
Interest
(Expense) Income, net
|
(2,219 | ) | (1,978 | ) | 179 | 267 | (2,538 | ) | ||||||||||||
Miscellaneous
(Expense) Income
|
(183 | ) | (24 | ) | 60 | - | - | |||||||||||||
Gain
on debt Restructuring
|
2,737 | - | - | - | - | |||||||||||||||
Net
Loss
|
(7,468 | ) | (16,040 | ) | (7,041 | ) | (7,555 | ) | (9,049 | ) | ||||||||||
Preferred
Stock Dividends
|
- | - | - | - | (1,216 | ) | ||||||||||||||
Net
Loss available to Common Shareholders
|
$ | (7,468 | ) | $ | (16,040 | ) | $ | (7,041 | ) | $ | (7,555 | ) | $ | (10,265 | ) | |||||
Net
Loss per share - Basic and Diluted
|
$ | (0.38 | ) | $ | (0.87 | ) | $ | (0.37 | ) | $ | (0.37 | ) | $ | (3.88 | ) | |||||
Weighted
Average Shares - Basic and Diluted
|
19,546,183 | 18,492,477 | 18,864,777 | 20,260,689 | 2,643,936 |
Consolidated
Balance Sheet Data:
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
Total
current assets
|
$ | 2,392 | $ | 4,039 | $ | 14,499 | $ | 22,052 | $ | 36,120 | ||||||||||
Total
assets
|
4,931 | 6,384 | 15,331 | 23,578 | 36,644 | |||||||||||||||
Total
current liabilities, excluding debt
|
9,712 | 7,290 | 4,479 | 3,843 | 9,652 | |||||||||||||||
Long-term
debt, including current maturities
|
1,904 | - | - | - | 410 | |||||||||||||||
Redeemable Common Stock
1
|
- | - | - | - | 12,000 | |||||||||||||||
Total
shareholders equity (deficit)
|
(6,685 | ) | (906 | ) | 10,852 | 19,735 | 14,582 | |||||||||||||
1
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.
|
||||||||||||||||||||
24
Enable
Holdings, Inc and Subsidiaries
|
Selected
Quarterly Financial Data
|
(Dollars
in Thousands, except per share
amounts)
|
(Dollars
in Thousands, except per share data)
|
||||||||||||||||||||||||||||||||
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
|||||||||||||||||||||||||
2009
|
2009
|
2009
|
2009
|
2008
|
2008
|
2008
|
2008
|
|||||||||||||||||||||||||
Net
Revenues
|
$ | 2,615 | $ | 7,441 | $ | 2,979 | $ | 5,094 | $ | 7,095 | $ | 8,917 | $ | 8,426 | $ | 7,141 | ||||||||||||||||
Cost
of Revenues
|
2,007 | 5,891 | 1,934 | 3,865 | 6,183 | 8,428 | 7,112 | 5,269 | ||||||||||||||||||||||||
Gross
Profit
|
608 | 1,550 | 1,045 | 1,229 | 912 | 489 | 1,314 | 1,872 | ||||||||||||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||||||||||
General
and administrative
|
2,327 | 3,278 | 2,857 | 2,867 | 4,717 | 3,916 | 3,418 | 3,753 | ||||||||||||||||||||||||
Sales
and marketing
|
120 | 198 | 293 | 295 | 467 | 1,059 | 799 | 495 | ||||||||||||||||||||||||
Total
operating expenses
|
2,447 | 3,476 | 3,150 | 3,162 | 5,184 | 4,975 | 4,217 | 4,248 | ||||||||||||||||||||||||
Loss
from operations
|
(1,839 | ) | (1,926 | ) | (2,105 | ) | (1,933 | ) | (4,272 | ) | (4,486 | ) | (2,903 | ) | (2,376 | ) | ||||||||||||||||
Interest
(Expense) Income, net
|
(288 | ) | (702 | ) | (537 | ) | (692 | ) | (1,697 | ) | (199 | ) | (74 | ) | (9 | ) | ||||||||||||||||
Miscellaneous
(Loss) Income
|
(19 | ) | 262 | (378 | ) | (48 | ) | (24 | ) | - | - | - | ||||||||||||||||||||
Gain
on Restructure
|
2,737 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Net
Loss
|
$ | 591 | $ | (2,366 | ) | $ | (3,020 | ) | $ | (2,673 | ) | $ | (5,993 | ) | $ | (4,685 | ) | $ | (2,977 | ) | $ | (2,385 | ) | |||||||||
Basic
and Diluted Net Loss per share
|
$ | 0.03 | $ | (0.12 | ) | $ | (0.16 | ) | $ | (0.14 | ) | $ | (0.33 | ) | $ | (0.25 | ) | $ | (0.16 | ) | $ | (0.13 | ) | |||||||||
Weighted
Average Shares-Basic and Diluted
|
19,726,678 | 19,482,722 | 19,358,722 | 18,986,678 | 18,802,142 | 18,638,678 | 18,325,786 | 18,197,783 |
Unaudited
quarterly data above should be read in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations.” This information
has been derived from our unaudited consolidated financial statements that, in
our opinion, reflect all recurring adjustments necessary to fairly present our
financial information when read in conjunction with our Consolidated Financial
Statements and Notes. The results of operations for any quarter are not
necessarily indicative of the results to be expected for any future
period.
25
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
You
should read the following Management’s Discussion and Analysis of Financial
Condition and Results of Operations together with our consolidated financial
statements and notes to those consolidated financial statements included
elsewhere in this Annual Report. This discussion contains forward-looking
statements that are based on our management’s current expectations, estimates
and projections about our business and operations. Our actual results may differ
from those currently anticipated and expressed in such forward-looking
statements. The terms “Enable Holdings” “we,” “us,” and “our,” refer to Enable
Holdings, Inc. and our subsidiaries.
Overview
We
operate leading online websites located at www.uBid.com and
www.RedTag.com,
respectively. The two websites offer high quality excess, new, overstock,
close-out, recertified 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 minimize the potential for fraud by certifying all merchants
and processing 100% of all transactions between buyers and sellers. Our online
properties offer 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
current business model provides value for consumers, manufacturers,
distributors, retailers and other approved third party merchants. Consumers shop
in a trustworthy and secure online environment 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 properties provide 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 currently consists of three distinct business channels: Certified
Merchant (CM), Managed Supply and Cash Recovery.
We sell
merchandise through the CM 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 CM 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. Through the Managed Supply channel, we sell inventory
that is consigned to us. The inventory is either stored at our warehouse or at
the sellers’. We purchase merchandise outright in the Cash Recovery channel 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. 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 properties are 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.
We conduct live liquidation events at
various times throughout the year. Live sales are conducted over a
short period of time (usually a week) and all the merchandise is sold
locally.
The
Company began changing its business model to an asset recovery solution in the
first quarter of 2008 and continued implementing those changes through the end
of 2009. The seven proprietary selling solutions within the five operating
divisions are:
|
·
|
uBid.com: Our flagship
website, which has operated for 12 years. The website allows merchants to
sell excess inventory and allows consumers to buy products in an auction
price format.
|
|
·
|
RedTag.com: Our fixed
price internet site offers name brand merchandise with a low shipping and
handling fee of only $1.95.
|
|
·
|
RedTag Live: Our live
liquidation group, dedicated to selling through the traditional in-store
sales and live liquidation sales.
|
26
|
·
|
Dibu Trading Co.: A
wholesale inventory liquidation company dedicated to Business-to-Business
solutions, providing manufacturers and distributors the ability to sell
large quantities of excess inventory. For example, when a retailer needs
to liquidate a large quantity of inventory, they contact us to find a
buyer that will buy the entire inventory in a single transaction. Our B2B
experience allows us to present deals to multiple interested buyers to
achieve the most profitable
transaction.
|
|
·
|
Commerce Innovations: A
software service company which licenses auction software to third party
companies. Companies, businesses and governments can use our platform to
sell excess furniture, appliances, autos, and other surplus. This allows
them to utilize a trusted platform while reducing live auction costs, as
well as an efficient way to reach a wider target
audience.
|
The
Company’s financial results for the twelve months ended December 31, 2009 have
been negatively impacted by the planned change in the business model and the
severe global economic downturn. We have made major changes to our traditional
operations as we transition to the new business model.
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. The Company significantly decreased the number of listings,
eliminating the unprofitable listings, while migrating fixed price listings to
the RedTag platform based on the new business model. The reduction in the number
of unprofitable listings improved our auction success rate and provides
efficiencies to both buyers and sellers on our platform.
Critical
Accounting Policies and Estimates
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States. 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
The
Company’s business model currently consists of three distinct business channels:
Certified Merchant (CM), Managed Supply and Cash Recovery. The Company sells
merchandise through the CM Program channel by allowing prescreened third party
merchants to sell their product through our online marketplace to consumers and
business. On this merchandise, the Company does not take title and therefore
does not bear the related inventory risk. In the CM Program, the Company is the
primary obligor to whom payment is due, but it bears no inventory or returns
risk, so the Company records only its commission as revenue. Through the Managed
Supply channel, the Company sells inventory that is consigned to it. The
inventory is either stored at the Company’s warehouse or at the sellers’. The
Company purchases merchandise outright in the Cash Recovery channel and sells to
consumers and businesses. On this merchandise, the Company bears 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. In
all instances where the credit card authorization has been received but
merchandise has not been shipped, the Company defers revenue recognition until
the merchandise is shipped.
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.
27
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
The
Company’s 2005 Equity Incentive Plan (“2005 Equity Incentive Plan”) is an
equity-based compensation plan in-place to provide incentives, 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 up to 10,500,000 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.
Effective
January 1, 2006, the Company adopted ASC Topic 718, “Stock- Based Compensation”.
This pronouncement requires companies to measure the cost of employee service
received in exchange for a share based award (stock options and
restricted stock) 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 estimated grant date fair value. 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.
28
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 carry
forwards. 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.
Executive
Commentary
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:
(Auctions
in these metrics refer to auctions and fixed price listings)
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 CM 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 to Bidder %: 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 include both successful auctions and
auctions with no bids.
Auction Success Rate: The
percentage of closed auctions that were successful and received at least one
bid.
2009
|
2008
|
|||||||||||||||||||||||||||||||
uBid.com
|
Quarter
4
|
Quarter
3
|
Quarter
2
|
Quarter
1
|
Quarter
4
|
Quarter
3
|
Quarter
2
|
Quarter
1
|
||||||||||||||||||||||||
GMS
(in thousands)
|
$ | 4,103 | $ | 5,113 | $ | 9,555 | $ | 11,821 | $ | 12,374 | $ | 14,385 | $ | 17,117 | $ | 16,671 | ||||||||||||||||
Number
of Orders (in thousands)
|
43 | 52 | 70 | 81 | 94 | 95 | 97 | 95 | ||||||||||||||||||||||||
Average
Order Value
|
$ | 95 | $ | 98 | $ | 137 | $ | 145 | $ | 131 | $ | 152 | $ | 176 | $ | 175 | ||||||||||||||||
Visitors
to Bidders %
|
2.5 | % | 1.8 | % | 3.3 | % | 3.1 | % | 2.9 | % | 3.3 | % | 3.6 | % | 4.1 | % | ||||||||||||||||
Auctions
Closed (in thousands)
|
367 | 371 | 373 | 377 | 383 | 215 | 181 | 455 | ||||||||||||||||||||||||
Auction
Success Rate
|
9.1 | % | 10.0 | % | 13.0 | % | 14.4 | % | 15.0 | % | 26.6 | % | 30.9 | % | 12.9 | % | ||||||||||||||||
RedTag.com
1
|
||||||||||||||||||||||||||||||||
GMS
(in thousands)
|
$ | 288 | $ | 386 | $ | 140 | $ | 143 | $ | 474 | $ | 304 | - | - | ||||||||||||||||||
Number
of Orders (in thousands)
|
3 | 3 | 2 | 2 | 5 | 3 | - | - | ||||||||||||||||||||||||
Average
Order Value
|
$ | 86 | $ | 122 | $ | 88 | $ | 83 | $ | 96 | $ | 119 | - | - | ||||||||||||||||||
Visitors
to Bidders %
|
17.0 | % | 10.4 | % | 3.5 | % | 9.6 | % | 30.2 | % | 15.1 | % | - | - |
1RedTag.com
was first launched in August 2008
29
Segment
Information and Financial Comparison
During
the first quarter of 2008, Enable Holdings commenced efforts to change its
business model. Concurrent with this change, we reorganized the segments based
on the business units. Each segment provides a combination of seller solutions
for sellers to efficiently liquidate their inventory. The seller solutions
offered by the Company are: Certified Merchant (CM), Managed Supply and Cash
Recovery. Each of the business segments, except commerce innovations, can offer
the three seller solutions. The five business segments are listed
below:
|
1.
|
uBid.com: Our flagship
website, which has operated for 12 years. The website allows merchants to
sell excess inventory and allows consumers to buy products in an auction
price format.
|
|
2.
|
RedTag.com: Our fixed
price internet site offers name brand merchandise with a low shipping and
handling fee of only $1.95.
|
|
3.
|
RedTag Live: Our live
liquidation group, dedicated to selling through the traditional in-store
sales and live liquidation sales.
|
|
4.
|
Dibu Trading Company: A
wholesale inventory liquidation company dedicated to Business-to-Business
solutions, providing manufacturers and distributors the ability to sell
large quantities of excess inventory. For example, when a retailer needs
to liquidate a large quantity of inventory, they contact us to find a
buyer that will buy the entire inventory in a single transaction. Our B2B
experience allows us to present deals to multiple interested buyers to
achieve the most profitable
transaction.
|
|
5.
|
Commerce Innovations: A
software service company which licenses auction software to third party
companies. Companies, businesses and governments can use our platform to
sell excess furniture, appliances, autos, and other surplus. This allows
them to utilize a trusted platform while reducing live auction costs, as
well as an efficient way to reach a wider target
audience.
|
The
revenue and gross profit breakdown of the Company based on the segments after
the transition is as follows:
30
(Dollars
in Thousands)
|
||||||||||||
Year
Ended December 31,
|
||||||||||||
Net
Revenue
|
2009
|
2008
|
2007
|
|||||||||
uBid.com1
|
$ | 6,737 | $ | 18,624 | $ | 37,803 | ||||||
RedTag.com
|
815 | 632 | - | |||||||||
RedTag
LIVE
|
5,485 | 2,999 | - | |||||||||
Dibu
Trading Co.
|
5,091 | 9,324 | 5,258 | |||||||||
Commerce
Innovations
|
- | - | - | |||||||||
Total
|
$ | 18,128 | $ | 31,579 | $ | 43,061 | ||||||
Gross
Profit (Loss)
|
||||||||||||
uBid.com1
|
$ | 2,842 | $ | 4,283 | $ | 9,136 | ||||||
RedTag.com
|
116 | 96 | - | |||||||||
RedTag
LIVE
|
973 | 514 | - | |||||||||
Dibu
Trading Co.
|
501 | (306 | ) | 592 | ||||||||
Commerce
Innovations
|
- | - | - | |||||||||
Total
|
$ | 4,432 | $ | 4,587 | $ | 9,728 | ||||||
Gross
Profit %
|
||||||||||||
uBid.com1
|
42.2 | % | 23.0 | % | 24.2 | % | ||||||
RedTag.com
|
14.2 | % | 15.2 | % | - | |||||||
RedTag
LIVE
|
17.7 | % | 17.1 | % | - | |||||||
Dibu
Trading Co.
|
9.8 | % | (3.3) | % | 11.3 | % | ||||||
Commerce
Innovations
|
- | - | - | |||||||||
Total
|
24.4 | % | 14.5 | % | 22.6 | % |
1 uBid.com Net Revenue and
Gross profit includes $0, $21 and $58 related to Bidville.com and $62, $192 and
$1,077 related to advertising revenues, for 2009, 2008 and 2007,
respectively.
Bidville.com
was an intangible asset bought in 2006 and fully amortized in 2008. See purchased intangible assets
in the notes to the financial statements. Advertising revenues were
eliminated during 2008.
31
(Dollars in thousands,
except per share data and average order value)
During
the first quarter of 2008, the Company initiated the transition of our business
model from a marketplace seller to an asset recovery company. The transition
required us to significantly increase investment in certain business areas
resulting in an increased net loss in 2008. During 2008, the Company incurred
costs of $4,184 in the transitioning. The planned investment in our new business
model required us to utilize available cash and revert to borrowing on our
credit facility to fund operations. Due to increasing losses in the third
quarter of 2008 we were no longer able to meet the minimum availability
requirements on our existing credit facility. Further impacting us was the
broader economic conditions in 2008 when the U.S. and worldwide economies
experienced a severe downturn. Uncertainty in credit markets negatively impacted
the Company’s borrowing and capital raising ability and employment uncertainty
negatively affected consumer spending, leading to declines in revenues and
margins.
As part
of the transition from a seller marketplace to an asset recovery company during
2008, the Company implemented a new ERP system which will allow us to enter
international markets and increase our operational capabilities. The approximate
software and implementation cost of the new ERP system was $1,700. In addition,
to expand into diverse channels, we developed a private auction platform and a
fixed price platform. The cost related to each was $458 and $119, respectively.
The related personnel expense to implement the two projects was approximately
$288.
As the
Company transitioned its business model, it incurred additional expenses related
to business development and investor relations of $504 and $140, respectively.
We also introduced a new business unit– RedTag Live, which facilitates in-store
sales and live events. The operating losses related to the RedTag Live business
unit in 2008 was $1,194.
To
facilitate the above changes the Company increased its staffing levels. The
number of employees at the end of 2007 was 79 employees and reached peak levels
in August of 2008 of 106 employees (including temporary
workforce). We ended 2008 with a staffing level of 72
employees.
In the
first quarter of 2009, the Company continued its efforts to finalize the
business model changes that were substantially completed in 2008. In order to
realize the benefit of all the changes contemplated additional capital was
required.
During
2009, multiple efforts were initiated to raise sufficient working capital to
execute the Company’s revised business plan through the fully implemented new
business model and to repay the short term 90-day bridge loan entered into in
the fourth quarter of 2008 subsequently extended several times through August,
2009. The capital raising efforts were not completed until February,
2010.
The 2009
results were adversely impacted by the extended period required to raise
additional capital. The lack of sufficient capital impacted the Company’s
ability to purchase inventory for sale; to continue the expense structure to
support the new business model; and to timely pay its certified merchants
resulting in a significant decline in merchandise postings effecting operations
and generating losses. Negotiations with the certified merchants were undertaken
and for the most part, successfully completed with the majority of the certified
merchants agreeing to partially settle outstanding balances and establish
extended payment terms. Other major vendors discontinued payment terms requiring
the Company to pay in advance for its purchases, which advance payments were
limited by the available working capital. For the most part, all vendors have
agreed to payment plans but continue to require advance payments for new
purchases. Additional downsizing measures were instituted as capital pressures
mounted including a 31% headcount reduction in addition to salary and benefit
reductions. The Company also consolidated its operations into one
combined multi-use facility and reduced real estate costs and other operating
expenses by over 70%.
32
In the
fourth quarter of 2009 the Company’s Chief Executive Officer resigned his
position effective December 22, 2009 and following an extensive search, the
Company appointed a new Chief Executive Officer to the position effective March
1, 2010.
In the
fourth quarter of 2009 the Company received commitments to purchase 1,700,000
shares of preferred stock for $3,750, increasing $500 to $4,250 in the first
quarter of 2010, from accredited investors, many of which had invested in the
previous bridge loan and convertible debentures. The proceeds were used to pay
the October 9, 2009 loan, restructure the bridge loan, convertible debenture,
pay creditors and fund operations.
Revenue
|
·
|
Web
Properties - consist of uBid.com and
RedTag.com
|
Revenues
for our two web properties decreased $11,704 or 60.8% compared to 2008. The
decrease is explained as follows:
Orders
for both the Cash Recovery and the Certified Merchant channels decreased 93% and
31%, respectively from the prior year. In addition to the decrease in the number
of orders, the average order value for the Cash Recovery channel decreased $43
or18.4% per order. The Certified Merchant channel also experienced an average
order value decline of $25 or 17.5% per order.
The Cash
Recovery and Certified Merchant channels were negatively impacted by the
Company’s cash position as well as the overall economic climate. The Company’s
lack of cash and open credit terms impacted the Company’s ability to purchase
merchandise to offer this solution to its customers. The Company’s delayed
payments to its Certified Merchants impacted their volumes. Certified Merchants
slowed down their posting of products due to the delays in receiving payments.
The decline in the Company’s cash position was primarily due to expenditures in
conjunction with the change in the business model in 2008 as well as continued
operating losses during 2009.
The
advertising revenue in 2009 was $62 compared to $192 in 2008. The company
continued with the strategic decision to eliminate advertising revenue to
increase the customer retention rate on our websites.
Traffic
to the web properties decreased by 3.4 million visitors or 14.9%, primarily due
to the decrease in advertising spends. The number of auctions and items for sale
at fixed prices increased by 269,000 or 21.4% as unprofitable categories and
sellers continued to be eliminated. While auctions and items increased, the
number of successful auctions declined by 50,532 or 23.8%.
|
·
|
Off
Line Sales Channels - consists of Dibu Trading Co. and RedTag
Live
|
Dibu
Trading revenues decreased $4,233 or 45.4% compared to the same period of the
prior year. During 2009 revenues declined as our lack of ability to purchase
inventory due to cash and credit limitations negatively impacted
sales.
Red Tag
Live revenues increased $2,486 or 82.9% compared to the same period of the prior
year. Red Tag Live held two (2) physical liquidation sales in
Florida during 2009. Red Tag Live previously operated a
small outlet store in Port Charlotte, Florida which was closed down in January,
2009.
Gross
Profit
|
·
|
Web
Properties - consists of uBid.com and
RedTag.com
|
Gross
profit decreased $1,421 or 32.5% on a decrease in net revenue volume of 60.8%.
The gross profit percentage increased 19.2% from 23.0% to 42.2% at December 31,
2008 and 2009, respectively. The gross profit percentage increased as the
Certified Merchant program represented a larger percentage of the gross profit
compared to the same period of the prior year.
During
2009 as cash availability decreased we were unable to purchase merchandise to
offer a cash recovery solution to sellers, resulting in an inability to procure
product to generate revenues.
|
·
|
Off
Line Sales Channels - consists of Dibu Trading Co. and RedTag
Live
|
Dibu
Trading gross profit for the year was $501 or 9.8% compared to a loss of $306 or
3.3% in the prior period. During the third and fourth quarters of the prior year
we accepted lower selling prices to expedite sales in an effort to generate
cash, resulting in negative gross profits incurred on certain
sales.
33
RedTag
Live gross profit for the year was $973 and the gross profit percentage was
17.7% compared to $514 or 17.1% in the prior period. The 2009 gross profit
increased compared to the prior period due to larger scale live liquidation
events conducted in 2009.
Expenses
Sales,
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, common area maintenance, depreciation,
credit card processing charges, bad debt expenditures, legal and accounting fees
as follows.
SG&A
expenses for the year ended 2009 were $12,235, a decrease of $6,390 compared to
the year ended 2008.
General
& Administrative (G&A) expense decreased $6,390 to $12,235 primarily in
the following areas:
|
·
|
Stock
based compensation expense, a noncash charge decreased by $1,091. During
the prior period the issuance of approximately 45 million warrants in
conjunction with the October 2008 90-day bridge loan triggered a change of
control provision. The change of control provision required the vesting of
approximately 62% of the employee options and all of the outstanding
shares of restricted stock. The accelerated vesting resulted in an
additional expense in 2008 of $1,006. During 2009, the restructure
triggered a change of control provision accelerating vesting on employee
options issued during the current period. The incremental expense relating
to the 2009 accelerated vesting was $400.
|
|
·
|
RedTag
Live, which was launched as a major operation in 2008, had expenses of
$1,708 in 2008 compared to $850 in 2009. The RedTag Live expenses
primarily consisted of salary, facility and advertising revenues for our
facility and live events held in Florida. The outlet store in Port
Charlotte, Florida was closed down in January, 2009.
|
|
·
|
Salary
and benefit expenses decreased $1,674 or 26.9% due to headcount and salary
reductions. Employee staffing levels decreased from 72 full-time employees
at the end of 2008 to 41 at the end of 2009.
|
|
·
|
Consulting
and outside services decreased by $461 as contracts were favorably
renegotiated and nonessential services were eliminated.
|
|
·
|
Warehouse
and facility expenses decreased $269 in 2009 compared to 2008. During 2009
the Company consolidated its corporate office, distribution center and
customer service center into a single multi-use
facility.
|
|
·
|
Bad
debt expense decreased $199 or 98.5% in 2009 compared to the same period
of the prior year.
|
The
decreases in the G&A expense above were partially offset by:
|
·
|
Increase
of $641 in legal, audit, insurance and regulatory fees in 2009 compared to
2008. The increase in 2009 was primarily attributable to
expenses incurred on capital raising and warrants issued for investor
relations services.
|
|
·
|
Increase
in depreciation & amortization expense of $47, which was primarily due
to the placing in service of implemented
software.
|
Sales and
Marketing decreased primarily as a result of lower advertising expense from
$2,820 to $906 as we continued to eliminate less effective marketing programs.
The cost to acquire a bidder or buyer decreased $0.83 or 32.2% to $1.75 per
bidder during the year ended December 31, 2009 compared to $2.58 per bidder in
2008.
Credit
card processing fees decreased $987 or 66.8% in 2009 compared to 2008 primarily
due to decreased sales volume.
34
Other
Expense
Net
interest expense was $2,219 for the year ended December 31, 2009 versus net
interest expense of $1,978 for the year ended December 31, 2008. The increase in
interest expense is a result of the bridge loan and convertible debenture and
the amortization of the related warrants. The interest expense related to the
bridge loan and convertible debenture warrants was $1,036. Interest
expense incurred was $402 and $114 on the bridge loan and convertible debenture,
respectively. In addition, interest expense of $306 was incurred on inventory
financing. A gain on the debt restructuring of $2,737 was recorded in
2009.
Net
Loss
The
Company experienced a net loss of $7,468 or $0.38 per share for the year ended
December 31, 2009 compared to a net loss of $16,040 or $0.87 per share for the
year ended December 31, 2008. Net loss per share decreased primarily due a
$6,390 reduction in SG&A and a $2,737 restructure gain. The restructuring
gain was recorded for the difference between the fair market value of the
preferred stock issued and the fair value of the debentures and warrants
canceled in the debt restructuring.
35
Comparison
of year ended December 31, 2008 and 2007
(Dollars in thousands,
except per share data and average order value)
In the
year ended December 31, 2008 a number of factors impacted the Company’s
financial result. During the first quarter of 2008, the Company initiated the
transition of our business model from a marketplace seller to an asset recovery
company.
The
transition required us to significantly increase investment in certain business
areas resulting in an increased net loss in 2008 compared to 2007. During 2008,
the Company incurred costs of $4,184 in the transitioning. The planned
investment in our new business model required us to utilize available cash and
revert to borrowing on our credit facility to fund operations. Due to increasing
losses in the third quarter of 2008 we were no longer able to meet the minimum
availability requirements on our existing credit facility. Further impacting us
was the broader economic conditions in 2008 when the U.S. and worldwide
economies experienced a severe downturn. Uncertainty in credit markets
negatively impacted the Company’s borrowing and capital raising ability and
employment uncertainty negatively affected consumer spending, leading to
declines in revenues and margins.
Revenue
|
·
|
Web
Properties - consists of uBid.com and
RedTag.com
|
Revenues
for our two web properties decreased $18,547 or 49.1% compared to 2007. Traffic
to the web properties decreased by 4.2 million visitors or 15.5%, primarily due
to a 51.8% reduction in advertising spending in 2008. The numbers of orders
decreased by 125,155 while the average order value decreased by $13 per order.
The decrease in average order value was primarily due to the decline in the
prices of consumer electronics. RedTag.com was launched in August,
2008.
|
·
|
Off
Line Sales Channels - consists of Dibu Trading Co. and RedTag
Live
|
Dibu
Trading and RedTag Live revenues increased $7,065 or 134.4% in 2008, compared to
2007. RedTag Live commenced operations in 2008 and generated $2,999 or 24.3% of
the 2008 offline channel revenue. Dibu Trading underwent
reorganization in early 2007 with no dedicated sales staff added until November,
2007.
Gross
Profit
|
·
|
Web
Properties - consists of uBid.com and
RedTag.com
|
Gross
profit decreased $4,757 or 52.1% primarily as a result of the decrease in
volume. The gross profit percentage decreased 1.2% from 24.2% to 23.0% for the
year ended December 31, 2007 and 2008, respectively. Generally, overall margins
fluctuate based on several factors, including product mix by our direct consumer
business.
|
·
|
Off
Line Sales Channels - consists of Dibu Trading Co. and RedTag
Live
|
Offline
sales channel gross profit decreased $384 in 2008, compared to
2007.The Dibu Trading gross profit percentage decreased 14.6% in 2008, from
11.3% to a negative 3.3%, in 2007 and 2008, respectively. The negative gross
profit in 2008 was primarily due to the liquidation of inventory to raise cash
needed for operations. RedTag Live commenced operations in 2008 and contributed
$514 or 147.1% of the offline sales channel 2008 gross profit.
Expenses
Total
operating expenses for the year ended December 31, 2008 were $18,625, an
increase of $1,617 from the year ended December 31, 2007.
Sales and
marketing expenses decreased $933 to $2,820 in 2008 compared to $3,753 in 2007.
During 2008 we continued to eliminate less effective marketing efforts and
decreased the advertising spend by 31.2% resulting in a 16.8% reduction in
visitor traffic. The cost per bidder decreased from $4.7 in the prior year to
$2.58 at December 31, 2008, a 45.1% decrease.
General
and administrative expenses increased by $2,550 or19.2% primarily due to a
$1,324 noncash charge in stock based compensation expense as the issuance of
approximately 45 million warrants triggered a change of control provision. The
change of control provision caused acceleration in the vesting of employee stock
options resulting in an incremental increase in stock based compensation of
$1,006 in 2008. RedTag Live was launched as a major operation in 2008 and had
expenses of $1,708 in 2008 compared to none in 2007.
Salary
and benefit expense increased $668 as additional staff was hired to develop the
web properties.
36
The
increases in G&A expense were partially offset by:
Decreases
of $607 and $188 in warehouse and facility, respectively, due to decreased
revenue and inventory levels.
Decreased
bad debt expense of $431 due to the expensing of a $352 uncollectible account
receivable in 2007.
Decrease
in depreciation and amortization expense of $346. The decrease was due to the
Bidville.com intangible asset reaching full amortization in 2008.
Other
Expense
Net
interest expense was $1,978 for the year ended December 31, 2008 compared to net
interest income of $179 for the year ended December 31, 2007. The increase in
interest expense related to the bridge loan warrants, commitment fees and
payments of fees to Wells Fargo.
Net
Loss
The
Company incurred a net loss of $16,040 or $0.87 per share for the year ended
December 31, 2008 compared to a net loss of $7,041 or $0.37 per share for the
year ended December 31, 2007.
37
(Dollars
in thousands, except per share data)
Historically,
our primary sources of capital have been cash flow from operations and from
private offerings of our common stock and warrants to acquire our common stock.
Since 2005, we raised an aggregate of $29,500 from private
offerings.
In
October 2008, we obtained a $2,550, 90-day bridge loan, from accredited
investors. In March 2009, we obtained $1,315 in a secured convertible
debenture from accredited investors. In December 2009, we received commitments
for the purchase of $3,750 in preferred stock from accredited investors of which
$2,396 was received in cash before year end and $1,354 was recorded as stock
subscription receivable. In February 2010, the private placement closed with
further commitments for an additional $500 for a total raise of $4,250 in
preferred stock from accredited investors. In February 2010, $1,854 was received
in cash from these accredited investors.
Net cash
used in operating activities for the years ended December 31, 2009, 2008, and
2007 was $2,545, $8,139, and $4,801, respectively. The 2009 decrease was
primarily due to the operating loss which was partially offset by the cash
provided by an increase in accounts payable and the decrease in merchandise
inventories. The 2009 increase in accounts payable was primarily due to the
negotiating of extended payment terms with several of the Company’s largest
vendors. The 2008 increase was primarily due to increase in net loss and
accounts receivable. Partially offsetting was the cash provided by the increase
in accounts payable as well as a decrease in merchandise inventories. Inventory
levels and accounts payable balances fluctuate based on cash availability as
well as availability of product in the market. The 2007 decrease was primarily
due to decreases in accounts receivable, prepaid expenses, lower net loss and
increases in accounts payable. Partially offsetting the decreases
were increased cash used for inventory and accrued expenses.
During
2009 the Company’s third party credit card processor required a deposit due to
the Company’s financial condition. The deposit was held for 25% of the daily
amount of credit cards processed. The deposit totaled $800 at its highest point
during 2009. The Company switched credit card processor in January 2010. The
current processor is requiring a six month deposit of 5% of the credit card
amount processed. The current processor and prior processor combined currently
hold approximately $569 in deposits.
Net cash
provided by financing activities was $3,885 and $2,606 for the years ended
December 31, 2009 and 2008. Net cash used in financing activities was $2,080 for
the year ended December 31, 2007. The cash provided in 2009 was primarily
attributable to the sale of preferred stock. The cash provided in 2008 is
primarily attributable to the proceeds of $2,550 related to the bridge loan
(described below). The $2,080 cash used in 2007 was primarily due to the
purchase of treasury stock in April 2007.
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 provided for advances to the Company of up to a maximum of $25,000.
The amount actually available to the Company varied 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 were secured by all of the Company’s assets. The initial term
of the Agreement was three years, expiring on April 28, 2009.
On July
25, 2008, Wells Fargo Bank notified the Company of the Company’s failure to meet
the minimum excess availability requirement of $3,500. 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 the Company demonstrate
net earnings at the levels stated in the agreement. Due to the change in the
business model of the Company in 2008, it was unable to meet the covenants. On
October 15, 2008, the Company paid off-the outstanding balance owed to Wells
Fargo Bank terminating the Credit Agreement specified above. Pursuant to the
pay-off agreement, the Company paid a forbearance agreement fee of $50 and early
termination fee of $125. Wells Fargo has also released its security interest in
the Company’s collateral.
38
On July
15, 2008 the Company signed a $10,000 common stock purchase agreement with
Fusion Capital Fund II, LLC, and 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, as long as the Company’s common stock is trading above $0.75 per
share, 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 ranging from $60 to $1,000,
depending on certain conditions set forth in the agreement, up to an aggregate
of $10,000.
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. The common stock purchase
agreement was terminated by the Company on December 4, 2009.
During
the fourth quarter of 2008, the Company received a $2,550 bridge loan provided
by multiple accredited investors, a portion of which was provided by related
parties (See Note 18). The bridge loan was in the form of an Unsecured
Debentures and accrued interest at the rate of 18% per annum. In consideration,
the investors received warrants to purchase an aggregate of 12,750,000,
25,500,000 and 3,200,000 shares of the Company’s common stock at an exercise
price of $0.20, $0.10 and $0.25 per share, respectively, for an aggregate of
41,450,000 shares of the Company’s common stock. The warrants were exercisable
immediately for a period of 5 years from the agreement date. The investors could
elect to convert the accrued and unpaid interest into the common stock of the
Company.
On
January 16, 2009, the Company received extensions from certain accredited
investors who previously made total commitments for an aggregate of $2,550 in
the form of a 90-day bridge loan. The original maturity date of such loans was
January 12, 2009, and the maturities were extended by an additional 90
days. The investors made such extensions pursuant to Debenture
Modification and Extension Agreements which called for an extension of the loans
for 90-days after their original 90-day terms. During the first
quarter of 2009, the Company paid off $100 associated with the bridge loan. On
April 16, 2009 and on July 16, 2009, the Company received extensions from
the accredited investors through July 14, 2009 and August 14, 2009. On December
11, 2009, the Company entered into a restructuring agreement with the bridge
loan secured lenders and as part of the restructuring, the bridge note holders
were paid $700 in cash and received a note for $900 with interest payable at 6%
annually. The interest is paid quarterly and the principal is due quarterly
starting in the second year of the loan. The bridge note holders forgave all
principle and interest due under the original notes and received 877,511 shares
of preferred stock.
In March
2009, the Company completed a private placement offering to accredited
investors. Investors purchased units, with each unit consisting of a senior
convertible debenture for one share of common stock of the Company, and a
warrant, depending on the date of investment, to acquire either two shares or
one share of Common Stock for ten years at a purchase price of $0.25 per share.
The Debentures pay interest at a rate of 12% per annum, have a term of 30 months
and are convertible into the Company’s common stock at any time at the option of
the investor. The Company received investments in aggregate of $1,315 which were
held in an escrow account until April 29, 2009. The Company used the proceeds to
pay operating expenses and to fulfill immediate inventory requirements. Of the
$1,315 proceeds received, $25 was used for legal expenses while $60 was paid to
the brokers who assisted with the offering. On December 11, 2009, the Company
entered into a restructuring agreement with the secured debenture holders and as
part of the restructuring the secured debenture holders received interest due
under the 12% debenture and a note for $821 which bears interest at an annual
rate of 6%. The note and accrued interest are due at the end of 24 months. The
secured debenture holders also received 119,694 shares of preferred stock and
forgave previously issued debt.
On
October 9, 2009, the Company received total commitments for a $500 loan in the
form of 2009 Convertible Promissory Notes provided from a group of accredited
investors. The Company repaid the Investors the loan in full on December 2,
2009, in a timely manner pursuant to the terms of such Loan.
39
Due to
the worldwide economic downturn, the Company continues to experience difficulty
raising capital to finance ongoing operations. The difficulty in raising capital
during this severe economic downturn was compounded by the fact that the
Company’s largest shareholder, The Petters Group Worldwide and in particular
Thomas J. Petters, was the subject of a Federal investigation. Although the
Company is not controlled by the neither Petters Group Worldwide, nor does
Thomas J. Petters have any control over the Company’s management or day to day
operations, the investigation negatively impacted the Company’s financing
efforts. Mr. Petters was convicted of 20 counts of mail and wire fraud in
December of 2009.
In the
fourth quarter of 2009 the Company received commitments to purchase 1,700,000
shares of preferred for $3,750 from accredited investors many of which had
invested in the previous bridge loan and convertible debentures. The Company
raised an additional $500 during the first quarter of 2010. These proceeds were
used to pay the October 9, 2009 $500 loan, to restructure the bridge loan and
convertible debenture, pay the $700 owed to the bridge loan holders, pay down
vendor balances and to fund operations.
As a
result of the tightening credit market (including uncertainties with respect to
financial institutions and the global credit markets), other macro-economic
challenges currently affecting the economy of the United States and other parts
of the world, customers or vendors may experience serious cash flow problems and
as a result, may modify, delay or cancel plans to purchase the Company’s
products and vendors may significantly and quickly increase their prices or
reduce their output.
Throughout
2009 negotiations with vendors were undertaken and for the most part
successfully completed with all creditors to partially settle outstanding
balances and or establish extended payment terms.
Despite
the debt restructuring and preferred stock issuance, there is no assurance that
the Company’s cash flows will be sufficient to meet cash requirements. As a
result of these conditions, there exists substantial doubt about our ability to
continue as a going concern. Our continued operations are contingent on our
ability to be successful in increasing revenue, raising additional capital and
securing adequate financing and there is no assurance that we will be successful
in these efforts, therefore there is substantial doubt as to our ability to have
sufficient cash to meet our operating requirements and continue as a going
concern. The accompanying consolidated financial statements do not reflect
adjustments relating to the recoverability and classification of assets or
liabilities that might result from the outcome of these
uncertainties.
As of
December 31, 2009, our contractual obligations consisted of the $2,795 long term
loan and operating leases.
The
operating lease consists of base rent for our combined corporate office and
distribution facility. Under the lease we also pay additional rent for our
proportionate share of real estate taxes and other operating
expenses.
Minimum
payments for long-term debt and operating leases are as follows:
Total
|
||||||||||||
Year
|
Loans
|
Leases
|
Amount
|
|||||||||
2010
|
$ | - | $ | 194 | $ | 194 | ||||||
2011
|
832 | 210 | 1,042 | |||||||||
2012
|
1,072 | 222 | 1,294 | |||||||||
2013
|
- | 228 | 228 | |||||||||
2014
|
- | 37 | 37 | |||||||||
Total
|
$ | 1,904 | $ | 891 | $ | 2,795 |
40
Off-Balance
Sheet Arrangements
As of
December 31, 2009 and 2008, we had no off-balance sheet arrangements as defined
in Item 303(a) (4) of Regulation S-K, promulgated by the SEC.
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.
Recent
Pronouncements
In
June 2009, the FASB Accounting Standards Codification (Codification) was
issued. The Codification is the source of authoritative U.S. GAAP recognized by
the FASB to be applied by nongovernmental entities. The Codification is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The implementation of this standard did not have
a material impact on our financial position and results of
operations.
In
September 2006, the FASB issued guidance that was codified in Topic 820, “Fair
Value Measurements and Disclosure,” of the ASC which established a common
definition for fair value, established a framework for measuring fair value, and
expanded disclosure about such fair value measurements. In January 2008, the
FASB delayed the effective date of this standard by one year for nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis. The adoption of this
standard for these nonfinancial assets and liabilities in the first quarter of
2009 did not have a material impact on the Company’s consolidated results of
operations or financial condition.
In April
2008, the FASB issued guidance that was codified in Topic 350,
“Intangibles — Goodwill and Other,” of the ASC which amended the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset. This guidance was
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. The
adoption of this guidance in the first quarter of 2009 did not have a material
impact on the Company’s consolidated results of operations or financial
condition.
In May
2009, the FASB issued guidance that was codified in Topic 855, “Subsequent
Events” of the ASC which established principles and disclosure requirements for
subsequent events, which are defined as events that occur after the balance
sheet date but before financial statements are issued or are available to be
issued. This guidance was effective for financial statements issued for interim
and annual periods ending after June 15, 2009. The adoption of this
guidance in the second quarter of 2009 did not have a material impact on the
Company’s consolidated results of operations or financial
condition.
In August
2009, the FASB issued Accounting Standards Update No. 2009-05 (“ASU
2009-05”), an update to Topic 820, “Fair Value Measurements and Disclosures.”
This update provides amendments to reduce potential ambiguity in financial
reporting when measuring the fair value of liabilities. Among other provisions,
this update provides clarification that in circumstances in which a quoted price
in an active market for the identical liability is not available, a reporting
entity is required to measure fair value using one or more of the following
valuation techniques: (1) a valuation technique that uses the quoted market
price of an identical liability or similar liabilities when traded as assets; or
(2) another valuation technique that is consistent with the principles of
Topic 820. This guidance became effective in the first reporting period after
issuance, which for the Company was the fourth quarter of 2009. The adoption of
this guidance did not have a material impact on the Company’s consolidated
results of operations or financial condition.
In
January 2010, the FASB issued Accounting Standards Update No. 2010-06 (“ASU
2010-06”), “Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements.” ASU 2010-06 requires reporting
entities to make new disclosures about recurring or nonrecurring fair value
measurements including significant transfers into and out of Level 1 and
Level 2 fair value measurements and information on purchases, sales,
issuances, and settlements on gross basis in the reconciliation of Level 3
fair value measurements. ASU 2010-06 is effective for annual reporting periods
beginning after December 15, 2009, except for Level 3 reconciliation
disclosures which are effective for annual periods beginning after
December 15, 2010. The adoption of ASU 2010-06 is not expected to have a
material impact on the Company’s consolidated results of operations or financial
condition.
41
Item 7A. Quantitative and
Qualitative Disclosures About Market Risk
We
currently have no exposure to risks associated with foreign currency exchange
rates. It is our policy not to enter into derivative financial instruments.
Accordingly, we do not believe that changes in interest or currency rates will
have a material effect on our liquidity, financial condition or results of
operations.
Item 8. Financial
Statements and Supplementary Data
See Item
15 (a)
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
As
of the date of this report, we have no disagreements with our current
accountants.
Item 9A. Controls and
Procedures
Disclosure Controls and
Procedures. The Company maintains disclosure
controls and procedures (as defined in Rules 13a-15 (e) and 15d-15
(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) that are designed to ensure that information required to be disclosed in
its reports filed or submitted under the Exchange Act is processed, recorded,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to the
Company’s management. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives.
Under
the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended, as of the end of the period
covered by this report (the “Evaluation Date”). Based on this evaluation, our
principal executive officer and principal financial officer concluded as of the
Evaluation Date that our disclosure controls and procedures were effective at
the reasonable assurance level such that the information relating to the
Company, including our consolidated subsidiaries, required to be disclosed in
our Securities and Exchange Commission (“SEC”) reports (i) is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms, and (ii) is accumulated and communicated to the Company’s
management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure.
Management’s
report on internal control over financial reporting.
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rules 13a-15(f). All internal control systems, no
matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Based on
our evaluation under the framework Internal Control Integrated Framework, our
management concluded that our internal control over financial reporting was
effective as of December 31, 2009.
This
report does not include an attestation report of the company’s registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the SEC that permit the
company to provide only management’s report in this annual report.
Internal Control over Financial
Reporting. There have been no changes in our
internal control over financial reporting identified in the evaluation that
occurred during our fourth quarter of fiscal year 2008 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
42
Item 9B. Other
Information
None.
43
Item 10. Directors and
Executive Officers of the Registrant
The
following table sets forth our executive officers and directors, their ages and
position(s):
Name
|
Age
|
Position
|
||
Patrick
L Neville
|
63
|
President,
Chief Executive Officer and Director
|
||
Timothy
E. Takesue
|
41
|
EVP,
Account Management
|
||
Miguel
A. Martinez, Jr.
|
55
|
Chief
Financial Officer and Secretary
|
||
Amy
Powers
|
34
|
Vice
President, Technology
|
||
Steven
Sjoblad
|
60
|
Chairman
of the Board
|
||
Casey
L. Gunnell
|
62
|
Director
|
||
Kenneth
J Roering
|
67
|
Director
|
||
Donald
Miller
|
69
|
Director
|
||
Jeffry
Parell
|
53
|
Director
|
Our
directors hold office until the earlier of their death, resignation or removal
or until their successors have been qualified. Because our Certificate of
Incorporation calls for a staggered board, the terms of half of the current
directors will expire at our annual meeting in 2010. On February 13, 2007,
Steven Sjoblad was appointed Chairman to the Board of Directors by the existing
directors. Officers serve at the discretion of the Board of
Directors.
Patrick L. Neville was
appointed as the Company’s Chief Executive Officer as of March 1, 2010. Mr.
Neville is a proven leader who has developed, re-engineered and rolled out many
successful business concepts. From 1997 to 2008, Mr. Neville was President,
Chief Executive Officer and Vice Chairman of Beautyfirst/Purebeauty of Wichita,
Kansas. At Beautyfirst/Purebeauty, Mr. Neville spear-headed strategic planning
and had management responsibility for approximately 2,200 employees, operating
more than 120 stores, across the United States, with annual sales exceeding
$120,000,000. He successfully oversaw the sale of Beautyfirst/Purebeauty. Since
2008, Mr. Neville has been the President and Chief Executive Officer of Paradigm
Advisory Group LLC in Wichita, Kansas. Paradigm provides advisory services with
emphasis on crisis management, CEO coaching and restructurings of E-commerce,
wholesale, retail and manufacturing companies ranging from start-ups to those
with revenues exceeding $500,000,000. Mr. Neville has also served as a member of
the Board of Directors, speaker and consultant to the Chicago Apparel Center,
Men’s Retail Association, National Retail Federation, L.B.A. National Buying
Group, is currently serving on the Board of Directors of the International Salon
Spa Business Network and is an Accredited Associate of the European based
Institute for Independent Business.
Timothy E. Takesue has over 21
years of experience in various capacities involving product sourcing, retail
management and marketing, mail order product sourcing, merchandising, direct
selling product sourcing, and e-commerce. On December 29, 2005, Mr. Takesue
was named Executive Vice President, Merchandising. 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, Account Management in April 2003. Mr. Takesue was a part of the
officer team that led uBid, Inc. in the 1998 IPO, 1999 secondary offering, and
subsequent sale in 2000 to CMGI and purchase from CMGI in 2003. Mr. Takesue
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 uBid.com Holdings, Inc. He has served as Vice President
of Finance of uBid, Inc. since February 2005. He was appointed as Secretary of
uBid.com Holdings, Inc. in January 2006. Mr. Martinez brings over 20 years of
financial management experience to uBid. Before joining uBid, 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.
44
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.
Steven Sjoblad Chairman of the
Board is the CEO of Captira Analytical, a software, data and analytics firm. Mr.
Sjoblad brings more than thirty five years of corporate strategy and marketing
expertise to the Company. Mr. Sjoblad spent nineteen years building Fallon
McElligott, one of the world’s preeminent advertising agencies, where he guided
global strategy. He was an original member of the firm and served as its
president.
Casey L. Gunnell Director,
Chairman of Audit Committee has thirty five years of broad business experience
and over twenty five years in Senior Executive positions in entrepreneurial and
rapid growth sales based companies. Mr. Gunnell has held pivotal operational and
financial positions in startup, turnaround and mature
organizations.
Dr. Kenneth J. Roering
Director 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 occupied the prestigious Pillsbury
Company-Paul S. Gerot Chair in Marketing from 1983-2002. He served as Chairman
of the Marketing Department at the University of Minnesota for five years and
prior to that at the University of Missouri.
Donald Miller Director spent
39 years building Schwan’s Enterprises from a few million in sales to a few
billion with over 18,000 employees. Mr. Miller worked for Schwan’s Enterprises
from 1962 to 2007, primarily as CFO. He was appointed to the Board of Directors
on January 1, 2008. He is currently the Chairman of the Finance Committee and a
member of the Audit and Risk Committees at Schwan’s Enterprises.
Jeffry Parell Director is the
Senior Vice President, We Car, Enterprise Holdings, Inc.
After
successful transition of the National and Alamo brands to the Enterprise
Holdings company, named Senior Vice President of the new car sharing
brand. Serving as the brand executive and leader in day-to-day
operations.
45
Item 11. Executive
Compensation
The table below sets forth, for the 2009, 2008
and 2007 calendar years, the compensation earned by our Chief Executive Officer
and the three other most highly compensated executive officers who received
annual compensation in excess of $100,000. Such officers are referred to herein
as our “Named Executive Officers.”
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 three other most
highly compensated executive officers (collectively, the “Named Executive
Officers”) that will place in perspective the information contained in the
tables that follow this discussion. Following the CD&A is the
Compensation Committee Report, compensation tables describing compensation paid
in 2009, grants of plan-based awards, and outstanding equity awards held by our
Named Executive Officers at fiscal year end. At the end, we have
provided information concerning pension benefits and change-in-control
agreements, a compensation table for our non-employee directors, and
compensation committee interlock information.
Overview
The
compensation payable to Messrs. Takesue, Martinez and Ms Powers for fiscal years
2009 is set forth in their employment agreements with the
Company. Messrs. Takesue, Martinez and Ms. Powers are provided with
the same benefits that are available to all of Enable Holdings’ 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. The Committee may retain a compensation
consultant to advise the Committee on recommended form and amount of
compensation, and did retain a consultant in 2009 to assist the Company in its
restructuring.
Overview
of 2009 Executive Compensation
We have
entered into executive employment agreements with our President and Chief
Executive Officer, our Executive Vice President of Merchandising our Chief
Financial Officer and our Vice President of Technology and
Commerce.
Patrick
L. Neville – Chief Executive Officer
On March
1, 2010, we entered into an executive employment agreement with Mr. Neville
which provides for an initial annual base salary of $180,000 for the first 12
months of the agreement and thereafter the Company’s 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. Neville received options to purchase up to 1,000,000 shares of
common Stock under the 2005 Equity Incentive Plan, with a vesting schedule of
1/4 of the options vesting on the 12 month anniversary of the date of the grant,
1/4 of the options vesting on the 24 month anniversary of the date of grant and
the remaining 1/4 on the 36 month anniversary of the date of grant and 1/4
vesting on the 48 month anniversary. The option grant is subject to stockholder
approval of an amendment to the Company’s Certificate of Incorporation to
increase the number of authorized shares of common stock. The agreement provided
that all options would vest immediately upon a change of control of the
Company.
46
Timothy
E. Takesue - Executive Vice President of Merchandising
On
December 29, 2009, we entered into an executive employment agreement with Mr.
Takesue which provides for an initial annual base salary of $120,000.Under the
agreement, Mr. Takesue agreed to surrender all outstanding options and
warrants.
Miguel
A. Martinez, Jr. - Vice President Chief Financial Officer
On
December 29, 2009, we entered into an executive employment agreement with Mr.
Martinez which provides for an initial annual base salary of $120,000.Under the
agreement, Mr. Martinez agreed to surrender all outstanding options and
warrants.
Amy
Powers. - Vice President Technology and Commerce
On
December 29, 2009, we entered into an executive employment agreement with Ms.
Powers which provides for an initial annual base salary of $120,000.Under the
agreement, Ms. Powers agreed to surrender all outstanding options and
warrants.
Base
Salary
Base salary for Mr. Neville was
approved in the employment agreement entered into in March 2010 based on his
position and level of responsibility, individual performance, and market
practices.
Base salary for Mr. Takesue was
approved in the employment agreement entered into in December 2009 based on his
position and level of responsibility, individual performance, and market
practices.
Base salary for Mr. Martinez was
approved in the employment agreement dated December, 2009 based on his position
and level of responsibility, individual performance, and market
practices.
Base salary for Ms. Powers was approved
in the employment agreement dated December, 2009 based on his position and level
of responsibility, individual performance, and market
practices.
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. At December 31, 2009 all outstanding options were
canceled.
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.
47
Compensation
Committee Report
The Compensation Committee 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,
the Compensation Committee has concluded that the Compensation Discussion and
Analysis.
Members
of the Compensation Committee:
Steven
Sjoblad (Chair)
Donald
Miller
Jeffry
Parell
Summary
Compensation Table
The table below sets forth certain
information regarding compensation paid during the last three fiscal years to
Enable Holdings’ Named Executive Officers. Named Executive Officers
include persons serving as Chief Executive Officer (our principal executive
officer) and Chief Financial Officer (our principal financial officer) during
fiscal 2009; executive officers who were serving as of December 31, 2009,
received total compensation in excess of $100,000 for fiscal 2009 and, excluding
the Chief Executive Officer, were among our three most highly compensated
individuals (the “Most Highly Compensated Officers”); and additional individuals
who would have been included as the Most Highly Compensated Officers but for the
fact they were not serving at the end of the year.
(1)
|
The
restricted stock award amounts represent the fair value amounts expensed
in the respective years. See footnote 17 to the financial statements in
our Annual Report on Form 10-K for the pricing assumptions used in
determining the fair value of the
awards.
|
(2)
|
Includes
$1,500 Company match for the 401(k) savings plan paid to Mr. Takesue, Mr.
Martinez and Ms. Power in 2008 and
2007.
|
Awards
|
Payouts
|
|||||||||||||||||||||||||||||||||
Named
|
Other
|
Securities
|
Non
- Equity
|
|||||||||||||||||||||||||||||||
Executive |
Annual
|
Restricted
|
Underlying
|
Incentive
|
||||||||||||||||||||||||||||||
Officer |
(2)
|
Stock
|
Options/
|
Option
|
Plan
|
All
Other
|
||||||||||||||||||||||||||||
& Principal |
Annual
Compensation
|
Compensation
|
Award
|
SARs
|
Awards
|
Compensation
|
(3)
|
|||||||||||||||||||||||||||
Position
|
Year
|
Salary
|
Bonus
|
($)
(2)
|
(s)
($)
|
(#)
|
($)
|
($)
|
Compensation
|
|||||||||||||||||||||||||
Jeffrey Hoffman (1)
|
2009
|
360,500 | - | - | - | - | - | - | 38,000 | |||||||||||||||||||||||||
President
and Chief
|
2008
|
350,000 | 33,000 | - | - | - | - | - | - | |||||||||||||||||||||||||
Executive
Officer
|
2007
|
95,577 | - | - | - | - | - | - | 19,000 | |||||||||||||||||||||||||
Timothy
E. Takesue
|
2009
|
244,474 | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Executive
Vice
|
2008
|
275,000 | - | 1,500 | 98,334 | - | - | - | - | |||||||||||||||||||||||||
President,
Merchandising
|
2007
|
274,135 | - | 1,500 | - | - | - | - | - | |||||||||||||||||||||||||
Miguel
A. Martinez, Jr.
|
2009
|
183,564 | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Vice
President
|
2008
|
195,131 | - | 1,500 | 14,750 | - | - | - | - | |||||||||||||||||||||||||
Chief
Financial Officer
|
2007
|
165,673 | - | 1,500 | - | - | - | - | - | |||||||||||||||||||||||||
Amy
Powers
|
2009
|
124,895 | - | - | - | - | - | - | ||||||||||||||||||||||||||
Vice
President,
|
2008
|
120,279 | - | 1,500 | 1,475 | - | - | - | ||||||||||||||||||||||||||
Technology
& Commerce
|
2007
|
93,229 | - | 1,500 | - | - | - | - |
(1) Mr. Hoffman resigned
Effective December 22, 2009
|
|||||||||||||||||||||||||||||
(2) Represents Company
matched 401K contribution amount
|
|||||||||||||||||||||||||||||
(3) Represent relocation
payments
|
48
Grants
of Plan-Based Awards
All outstanding options were canceled
effective December 31, 2009.
Outstanding
Equity Awards at 2009 Fiscal Year End
There were no outstanding options at
December 31, 2009. No options were exercised during the year ended December
31, 2009.
Retirement
and Benefit Plans
Our Named
Officers participate in the same retirement and benefit plan as all of our
salaried employees.
Change-in-Control
Agreements
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 two
months of his annual base salary at the time of such termination and all health
insurance coverage for a period of 2 months following termination.
Mr.
Martinez’s employment agreement provides that if Mr. Martinez is terminated by
us without cause, or if Mr. Martinez terminates the agreement for good reason,
including a change of control that results in the termination of Mr. Martinez’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 two
months of his annual base salary at the time of such termination and all health
insurance coverage for a period of 2 months following termination.
Ms.
Powers’s employment agreement provides that if Ms. Powers is terminated by us
without cause, or if Ms. Powers terminates the agreement for good reason,
including a change of control that results in the termination of Ms. Powers’s
employment with us or a material adverse change in her duties and
responsibilities, she will be entitled, after execution of our standard
separation and release agreement, to severance payments in the amount of two
months of her annual base salary at the time of such termination and all health
insurance coverage for a period of 2 months following termination.
Named
Executive Officer
|
Cash
Severance Multiple
|
Continuation
of medical and dental benefits (1)
|
||
Patrick
L. Neville
|
6
Months ($90,000)
|
6
Months
|
||
Timothy
E. Takesue
|
2
Months ($20,000)
|
2
Months
|
||
Miguel
A. Martinez, Jr.
|
2
Months ($20,000)
|
2
Months
|
||
Amy
Powers
|
2
Months ($20,000)
|
2
Months
|
||
(1)
Effective after December 31, 2009
|
Compensation
to Non-Employee Directors
For the fiscal year ended December 31,
2009, the Chairman of the Board, Mr. Sjoblad, received aggregate annual
compensation of $13,600. As Chairman of the Board, Mr. Sjoblad has an
annualized compensation of $35,000 plus additional compensation for committee
memberships. Each director on the Company’s Board of Directors
receives annual compensation of $25,000 plus additional compensation for
committee memberships for 2009 paid quarterly. The Company separately
pays for attendance at regular meetings and telephonic
calls. Directors receive an option to purchase 50,000 shares of
common stock upon appointment to the Board. The exercise price of
these options is priced on the date of the grant and the option vests over 16
equal quarterly installments. The Board fees for the last three quarters of 2009
have not been paid as of March 15, 2010.
49
2009
Director Compensation Table
The following table sets forth certain
information regarding compensation paid to and earned by the non-employee
directors who served on Enable Holding’s Board of Directors during the fiscal
year 2009. Messrs Miller and Parell joined the Board of Directors in March,
2010.
Director
Compensation
|
||||||||||||||||||||||||||||
Fees
Earned or Paid in Cash ($)
|
Restricted
Stock Awards ($)
|
Options
Awards
|
Non-Equity
Incentive Plan Compensation ($)
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($)
|
All
Other Compensation ($)
|
Total
($)
|
||||||||||||||||||||||
Steve
Sjoblad
|
$ | 26,900 | - | - | - | - | - | $ | 26,900 | |||||||||||||||||||
Dr.
Kenneth J. Roering
|
23,650 | - | - | - | - | - | 23,650 | |||||||||||||||||||||
Casey
L. Gunnell
|
24,400 | - | - | - | - | - | 24,400 |
(1)
|
All
outstanding options were canceled on December 31,
2009.
|
Compensation
Committee Interlocks and Insider Participation
The members of the Compensation
Committee as of the 2009 fiscal year end were Steven Sjoblad (Chair) and Dr.
Kenneth J. Roering. None of the members of the Compensation Committee
during fiscal 2009 is or was an officer or employee of the Company or any of its
subsidiaries. During 2009, no executive officer of the Company served
as a director or member of the compensation committee of any other entity which
had an executive officer serving as a member of our Board or the Compensation
Committee of our Board.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The
information required by Item 12 is incorporated herein by reference to the
sections entitled “principal Stockholders,” and Equity Compensation Plan,” which
appears in our definitive proxy statement for our 2010 Annual
Meeting.
Item 13. Certain
Relationships and Related Transactions and Director
Independence
The information required by Item 13
is incorporated herein by reference to the sections entitled “Corporate
Governance – Independence” and “Certain Transactions and Business
Relationships,” which appears in our definitive proxy statement for our 2010
Annual Meeting.
Item 14. Principal
Accountant Fees and Services
The
information required by Item 14 is incorporated herein by reference to the
sections entitled “Audit Fees,” which appears in our definitive proxy statement
for our 2010 Annual Meeting.
50
PART
IV
Item 15. Exhibits and
Financial Statement Schedules
Page
|
||||
Report
of Independent Registered Public Accounting Firm
|
52 | |||
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
53 | |||
Consolidated
Statements of Operations for the years ended December 31, 2009, 2008 and
2007
|
54 | |||
Consolidated
Statements of Shareholders’ Equity for the years ended December 31, 2009,
2008 and 2007
|
55 | |||
Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007
|
56 | |||
Notes
to Consolidated Financial Statements
|
57 |
(2)
Consolidated
Financial Statement Schedules.
All
schedules have been omitted as the required information is inapplicable or the
information is presented in the consolidated financial statements or related
notes.
(3)
Exhibits
required by Item 601 of Regulation S-K. (Note: Management contracts
and compensatory plans or arrangements are identified with a “+”.)
51
Independent
Auditors’ Report
Board of
Directors and stockholders
Enable
Holdings, Inc.
Chicago,
Illinois
We have
audited the accompanying consolidated balance sheets of Enable
Holdings, Inc. (the “Company”) as of December 31, 2009 and 2008 and
the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2009.
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. at December 31, 2009 and 2008, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 20 to the financial
statements, the Company has a working capital deficit, suffered recurring losses
from operations and has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 20. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ BDO
Seidman, LLP
Chicago,
Illinois
March 31,
2010
52
ENABLE
HOLDINGS, INC. and Subsidiaries
Consolidated
Condensed Balance Sheets
(Dollars
in Thousands, except per share data)
December
31,
|
||||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 1,018 | $ | 99 | ||||
Restricted
investments
|
- | 462 | ||||||
Accounts
receivable, less allowance for doubtful accounts of $3 and $635,
respectively
|
200 | 820 | ||||||
Merchandise
inventories, less reserve for obsolescence of $25 and $548,
respectively
|
433 | 2,274 | ||||||
Reserve
deposit
|
569 | - | ||||||
Prepaid
expenses and other current assets
|
172 | 384 | ||||||
Total
Current Assets
|
2,392 | 4,039 | ||||||
Property
and Equipment, net
|
2,337 | 2,143 | ||||||
Purchased
Intangible Assets, net
|
202 | 202 | ||||||
Total
Assets
|
$ | 4,931 | $ | 6,384 | ||||
Liabilities
and Shareholders' Equity (Deficit)
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$ | 6,977 | $ | 4,016 | ||||
Bridge
loan payable, net of discount of $987
|
- | 1,563 | ||||||
Accrued
expenses:
|
||||||||
Product
cost
|
- | 619 | ||||||
Other
|
1,458 | 692 | ||||||
Due
to former Bridge Note holder
|
700 | - | ||||||
Deferred
rent
|
42 | 30 | ||||||
Flooring
facility
|
535 | 370 | ||||||
Total
Current Liabilities
|
9,712 | 7,290 | ||||||
Long-term
notes payable
|
1,904 | - | ||||||
Shareholders'
Equity (Deficit)
|
||||||||
Common
stock, $.001 par value (200,000,000 shares authorized as of December 31,
2009 and December 31, 2008; 19,726,678 and 18,826,678 shares issued and
outstanding, respectively as of December 31, 2009 and December 31, 2008)
|
$ | 22 | $ | 20 | ||||
Preferred
stock, $.002 par value (2,497,205 issued and outstanding)
|
5 | - | ||||||
Stock
Subscription receivable
|
(1,354 | ) | - | |||||
Treasury
stock, 2,135,550 shares of common stock
|
(2,242 | ) | (2,242 | ) | ||||
Stock
warrants
|
- | 10,249 | ||||||
Additional
paid-in-capital
|
50,625 | 39,368 | ||||||
Accumulated
deficit
|
(53,741 | ) | (48,301 | ) | ||||
Total
Shareholders' Equity (Deficit)
|
$ | (6,685 | ) | $ | (906 | ) | ||
Total
Liabilities and Shareholders' Equity (Deficit)
|
$ | 4,931 | $ | 6,384 |
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
53
ENABLE
HOLDINGS, INC. and Subsidiaries
Consolidated
Condensed Statement of Operations
(Dollars
in Thousands, except per share data)
Year
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Net
Revenues
|
$ | 18,128 | $ | 31,579 | $ | 43,061 | ||||||
Cost
of Revenues
|
13,696 | 26,992 | 33,333 | |||||||||
Gross
Profit
|
4,432 | 4,587 | 9,728 | |||||||||
Operating
Expenses
|
||||||||||||
General
and administrative
|
11,329 | 15,805 | 13,255 | |||||||||
Sales
and marketing
|
906 | 2,820 | 3,753 | |||||||||
Total
operating expenses
|
12,235 | 18,625 | 17,008 | |||||||||
Loss
From Operations
|
(7,803 | ) | (14,038 | ) | (7,280 | ) | ||||||
Interest
(Expense) Income, net
|
(2,219 | ) | (1,978 | ) | 179 | |||||||
Miscellaneous
(Expense) Income
|
(183 | ) | (24 | ) | 60 | |||||||
Gain
on debt Restructuring
|
2,737 | - | - | |||||||||
Net
Loss
|
$ | (7,468 | ) | $ | (16,040 | ) | $ | (7,041 | ) | |||
Net
Loss per share - Basic and Diluted
|
$ | (0.38 | ) | $ | (0.87 | ) | $ | (0.37 | ) | |||
Weighted
Average Shares - Basic and Diluted
|
19,546,183 | 18,492,477 | 18,864,777 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
54
ENABLEHOLDINGS,
INC. and Subsidiaries
Consolidated
Statement of Shareholders' Equity (Defecit)
(Dollars
in Thousands, except per share data)
Common
Stock
|
Preferred
Stock
|
Stock
|
Paid-in
|
Treasury
Stock
|
Subscriptions
|
Accumulated
|
||||||||||||||||||||||||||||
Shares
|
Dollars
|
Shares
|
Dollars
|
Warrant
|
Capital
|
Shares
|
Dollars
|
Receivable
|
Deficit
|
Total
|
||||||||||||||||||||||||
Balance,
January 1, 2007
|
20,333,333 | $ | 20 | - | $ | - | $ | 8,086 | $ | 36,848 | - | $ | - | $ | - | $ | (25,219 | ) | $ | 19,735 | ||||||||||||||
Stock
compensation expense
|
- | - | - | - | 400 | - | - | - | - | 400 | ||||||||||||||||||||||||
Common
stock and warrants repurchase
|
(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 | |||||||||||||||
Stock
compensation expense
|
- | - | - | - | - | 1,723 | - | - | - | - | 1,723 | |||||||||||||||||||||||
Common stock issuance
(1,2,3)
|
628,895 | - | - | - | - | 552 | - | - | - | - | 552 | |||||||||||||||||||||||
Warrant
issuance (4,5)
|
- | - | - | - | 2,163 | (156 | ) | - | - | - | - | 2,007 | ||||||||||||||||||||||
Net
Loss
|
- | - | - | - | - | - | - | - | - | (16,040 | ) | (16,040 | ) | |||||||||||||||||||||
Balance,
December 31, 2008
|
18,826,678 | $ | 20 | - | $ | - | $ | 10,249 | $ | 39,367 | 2,135,550 | $ | (2,242 | ) | $ | - | $ | (48,300 | ) | $ | (906 | ) | ||||||||||||
Cumulative effect of
change in accounting principle – 1/1/2009 reclassification of equity
linked financial instruments to derivative liabilities (6)
|
- | - | - | - | (7,486 | ) | 5,386 | - | - | - | 2,027 | (73 | ) | |||||||||||||||||||||
Stock
compensation expense
|
- | - | - | 632 | - | - | - | - | 632 | |||||||||||||||||||||||||
Common stock issuance
(7)
|
900,000 | 2 | - | - | - | 269 | - | - | - | - | 271 | |||||||||||||||||||||||
Warrants issued for
services (8)
|
- | - | - | - | 765 | (68 | ) | - | - | - | - | 697 | ||||||||||||||||||||||
Warrants issued in
conjunction with debt (9)
|
- | - | - | - | 623 | - | - | - | - | - | 623 | |||||||||||||||||||||||
Preferred stock
issuance (10)
|
- | - | 1,500,000 | 3 | - | 3,747 | - | - | (1,354 | ) | - | 2,396 | ||||||||||||||||||||||
Warrants surrendered
(11)
|
- | - | - | - | (77 | ) | - | - | - | - | - | (77 | ) | |||||||||||||||||||||
Expired warrants
(12)
|
- | - | - | - | (600 | ) | 600 | - | - | - | - | - | ||||||||||||||||||||||
Warrants cancelled in
conjunction with restructure (13)
|
- | - | - | - | (3,474 | ) | 2,497 | - | - | - | - | (977 | ) | |||||||||||||||||||||
Conversion of debt to
preferred stock (13)
|
- | - | 997,205 | 2 | - | (1,805 | ) | - | - | - | - | (1,803 | ) | |||||||||||||||||||||
Net
Loss
|
- | - | - | - | - | - | - | - | - | (7,468 | ) | (7,468 | ) | |||||||||||||||||||||
Balance,
December 31, 2009
|
19,726,678 | $ | 22 | 2,497,205 | $ | 5 | $ | - | $ | 50,625 | 2,135,550 | $ | (2,242 | ) | $ | (1,354 | ) | $ | (53,741 | ) | $ | (6,685 | ) |
(1) 150,000 shares of common stock issued for the acquisition of www.redtag.com URL at $1.35/share.
(2)
230,074 shares of common stock issued as a commitment fee at
$1.52/share.
(3)
248,821 shares of restricted common stock issued in exchange for
previously issued stock options. 767,000 stock options were converted into a
total of 255,657 shares of restricted common stock, of which 248,821 are vested
and 6,836 are forfeited, as of December 31, 2008. The stock options were
cancelled upon issuance of such restricted
(4)
Issued warrants to purchase 90,000 shares of common stock to an investor
relations company. The face value of the warrants is $188, of which $156 was
allocated to paid in capital, based on a $32 fair value.
(5)
Issued warrants to purchase 41,450,000 shares of common stock in conjunction
with the issuance of Bridge Loan. The fair value of the warrants of $8,700 was
allocated to warrants and the debt based on the relative fair value of each. The
fair value allocated to the warrants is $1,975.
(6)
Reclassify warrants from equity to liability. See Note 3 for additional
discussion
(7)
Issued 900,000 shares of common stock to an investor relations firm for
services.
(8)
Warrants issued to purchase 150,000 shares of common stock at $0.10 per share.
(9)
Warrants to purchase 5,260,000 shares of common stock at $0.25 were issued in
conjunction with a 12% convertible debenture.
(10)
Issued 1,500,000 shares of preferred stock in a private placement offering to
accredited investors. In this offering, the Company sold 1,500,000 shares at
$2.50 per share for an aggregate proceeds of $3,750. At December 31,
2009 $1,354 was recorded as a subscription receivable. (See Note 16)
(11)
Warrants of 1,600,000 were surrendered by a Bridge Loan investor and
cancelled.
(12)
Warrants to purchase 333,333 shares of common stock at $4.50 per shareexpired
and were canceled.
(13)
During the fourth quarter the Company restructured its outstanding debt. In
conjunction with the restructuring warrants were canceled and debt was converted
to shares of preferred stock. (see Note 16)
The
accompanying notes are an integral part of these consolidated financial
statements.
55
ENABLE
HOLDINGS, INC. and Subsidiaries
Consolidated
Condensed Statement of Cash Flows
(Dollars
in Thousands, except per share data)
Years
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Cash
Flows From Operating Activities
|
||||||||||||
Net
loss
|
$ | (7,468 | ) | $ | (16,040 | ) | $ | (7,041 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||||||
Depreciation
and amortization
|
578 | 531 | 876 | |||||||||
Loss
on disposal of fixed assets
|
110 | - | - | |||||||||
Provision
for bad debts
|
(632 | ) | 168 | 251 | ||||||||
Non-cash
stock compensation expense
|
632 | 1,723 | 400 | |||||||||
Non
cash gain on debt restructuring
|
(2,737 | ) | - | - | ||||||||
Interest
on warrants issued 90 day Bridge Loan
|
1,036 | 988 | - | |||||||||
Common
stock and warrants issued for services
|
966 | 32 | - | |||||||||
Loss
on derivitive liability
|
8 | - | - | |||||||||
Commitment
fee
|
- | 350 | - | |||||||||
Changes
in assets and liabilities:
|
||||||||||||
Accounts
receivable
|
1,352 | (340 | ) | 911 | ||||||||
Merchandise
inventories
|
1,841 | 2,882 | (1,102 | ) | ||||||||
Prepaid
expenses and other current assets
|
(700 | ) | 375 | 430 | ||||||||
Accounts
payable
|
2,961 | 1,250 | 526 | |||||||||
Accrued
expenses
|
(495 | ) | 170 | (245 | ) | |||||||
Deferred
rent
|
12 | (228 | ) | 193 | ||||||||
Net
cash used in operating activities
|
(2,536 | ) | (8,139 | ) | (4,801 | ) | ||||||
Cash
Flows From Investing Activities
|
||||||||||||
Capital
expenditures
|
(883 | ) | (1,842 | ) | (182 | ) | ||||||
Change
in restricted cash
|
462 | (250 | ) | - | ||||||||
Change
in restricted investments
|
- | - | 2 | |||||||||
Net
cash used in investing activities
|
(421 | ) | (2,092 | ) | (180 | ) | ||||||
Cash
Flows From financing Activities
|
||||||||||||
Change
in flooring facility
|
165 | 56 | 162 | |||||||||
Proceeds
from issuance of preferred stock
|
2,396 | - | - | |||||||||
Common
stock and warrant repurchase
|
- | - | (2,242 | ) | ||||||||
Proceeds
from convertible debenture
|
1,315 | - | - | |||||||||
Proceeds
from 90 day Bridge Loan
|
- | 2,550 | - | |||||||||
Net
cash provided by (used in) financing activities
|
3,876 | 2,606 | (2,080 | ) | ||||||||
Net
Decrease in Cash and Cash Equivalents
|
919 | (7,625 | ) | (7,061 | ) | |||||||
Cash
and Cash Equivalents, beginning of period
|
99 | 7,724 | 14,785 | |||||||||
Cash
and Cash Equivalents, end of period
|
$ | 1,018 | $ | 99 | $ | 7,724 | ||||||
Supplemented
Cash Flow Disclosure
|
||||||||||||
Cash
paid for interest
|
$ | 467 | $ | 425 | $ | 260 | ||||||
Non-cash
Investing Activity1
|
- | 203 | - | |||||||||
Warrants
and stock issued as stock issuance costs
|
- | - | 2,907 |
1
Issuance of common stock for www.RedTag.com URL
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
56
Enable
Holdings, Inc.
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.,
operates leading on-line websites that enable 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
websites, located at www.uBid.com and www.RedTag.com, the Company offers
merchandise across a wide range of product categories including but not limited
to computer products, consumer electronics, apparel, house wares, watches,
jewelry, travel, sporting goods, home improvement products and collectibles. The
Company’s marketplace employs a combination of auction style and fixed price
formats.
During
the first quarter of 2008, Enable Holdings commenced it efforts to change its
business model. Concurrent with this change, the Company changed its name to
Enable Holdings and reorganized the segments based on the business units. Each
segment provides a combination of seller solutions for sellers to efficiently
liquidate their inventory. The segments are listed below:
|
1.
|
uBid.com: Our flagship
website, which has operated for 12 years. The website allows merchants to
sell excess inventory and allows consumers to buy products in an auction
price format.
|
|
2.
|
RedTag.com: Our fixed
price internet site offers name brand merchandise with a low shipping and
handling fee of only $1.95.
|
|
3.
|
RedTag Live: Our live
liquidation group, dedicated to selling through the traditional in-store
sales and live liquidation sales.
|
|
4.
|
Dibu Trading Company: A
wholesale inventory liquidation company dedicated to Business-to-Business
solutions, providing manufacturers and distributors the ability to sell
large quantities of excess inventory. For example, when a retailer needs
to liquidate a large quantity of inventory, they contact us to find a
buyer that will buy the entire inventory in a single transaction. Our B2B
experience allows us to present deals to multiple interested buyers to
achieve the most profitable
transaction.
|
|
5.
|
Commerce Innovations: A
software service company which licenses auction software to third party
companies. Companies, businesses and governments can use our platform to
sell excess furniture, appliances, autos, and other surplus. This allows
them to utilize a trusted platform while reducing live auction costs, as
well as an efficient way to reach a wider target
audience.
|
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
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.
57
Year-End
The
Company’s fiscal year ends 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 may exceed 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 approximately 2.0%
per annum.
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,
|
2009
|
2008
|
2007
|
|||||||||
Balance,
beginning of year
|
$ | 635 | $ | 467 | $ | 215 | ||||||
Charged
to costs and expenses
|
24 | 340 | 282 | |||||||||
Write-offs,
retirements and recoveries
|
(656 | ) | (172 | ) | (30 | ) | ||||||
Balance,
end of year
|
$ | 3 | $ | 635 | $ | 467 |
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 damaged, 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
|
Leased
telecommunications equipment
|
3
years
|
Vehicles
|
5
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.
58
Purchased
Intangible Assets
Each
reporting period, the Company will evaluate the useful life of intangible assets
to determine whether events and circumstances continue to support an indefinite
useful life, and record impairment if needed in accordance with ASC 350. No
impairment was recorded at December 31, 2009 or 2008.
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, 2009 and 2008.
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 three types of arrangements, cost recovery,
managed supply and certified merchant (CM).
For cost
recovery 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. 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 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 managed supply 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. CM is
identical to managed supply sales, except that the Company is not responsible
for conducting the auctions. 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 revenue recognized under managed supply and CM
arrangements were $4,868, $4,544, and $5,533 for the periods ended December 31,
2009, 2008 and 2007, 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, 2009, 2008 and
2007 were $241, $551 and $560, 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, 2009, 2008 and 2007 were $26, $26, and $62, 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.
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.
59
Total
advertising costs included in Sales and Marketing expense in the Consolidated
Statements of Operations for the years ended December 31, 2009, 2008 and 2007
were $992, $1,784 and $3,241, respectively.
Stock-Based
Compensation
Effective
January 1, 2006, the Company adopted ASC Topic 718, “Stock Based Compensation”.
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 statements of operations beginning in the first quarter of 2006 and
continuing over the remaining requisite service period based on the grant date
fair value. 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 years ended December 31, 2009, 2008 and
2007 was $632, $1,723 and $400, 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 ASC 260, “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 includes 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.
December
31,
|
2009
|
2008
|
2007
|
|||||||||
Shares
subject to stock warrants
|
- | 44,862,398 | 3,232,939 | |||||||||
Shares
subject to stock options
|
- | 1,568,500 | 1,984,100 | |||||||||
- | 46,430,898 | 5,217,039 |
New
Accounting Pronouncements
In
June 2009, the FASB Accounting Standards Codification (Codification) was
issued. The Codification is the source of authoritative U.S. GAAP recognized by
the FASB to be applied by nongovernmental entities. The Codification is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The implementation of this standard did not have
a material impact on our financial position and results of
operations.
In
September 2006, the FASB issued guidance that was codified in Topic 820, “Fair
Value Measurements and Disclosure,” of the ASC which established a common
definition for fair value, established a framework for measuring fair value, and
expanded disclosure about such fair value measurements. In January 2008, the
FASB delayed the effective date of this standard by one year for nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis. The adoption of this
standard for these nonfinancial assets and liabilities in the first quarter of
2009 did not have a material impact on the Company’s consolidated results of
operations or financial condition.
In April
2008, the FASB issued guidance that was codified in Topic 350,
“Intangibles — Goodwill and Other,” of the ASC which amended the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset. This guidance was
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. The
adoption of this guidance in the first quarter of 2009 did not have a material
impact on the Company’s consolidated results of operations or financial
condition.
60
In May
2009, the FASB issued guidance that was codified in Topic 855, “Subsequent
Events” of the ASC which established principles and disclosure requirements for
subsequent events, which are defined as events that occur after the balance
sheet date but before financial statements are issued or are available to be
issued. This guidance was effective for financial statements issued for interim
and annual periods ending after June 15, 2009. The adoption of this
guidance in the second quarter of 2009 did not have a material impact on the
Company’s consolidated results of operations or financial
condition.
In August
2009, the FASB issued Accounting Standards Update No. 2009-05 (“ASU
2009-05”), an update to Topic 820, “Fair Value Measurements and Disclosures.”
This update provides amendments to reduce potential ambiguity in financial
reporting when measuring the fair value of liabilities. Among other provisions,
this update provides clarification that in circumstances in which a quoted price
in an active market for the identical liability is not available, a reporting
entity is required to measure fair value using one or more of the following
valuation techniques: (1) a valuation technique that uses the quoted market
price of an identical liability or similar liabilities when traded as assets; or
(2) another valuation technique that is consistent with the principles of
Topic 820. This guidance became effective in the first reporting period after
issuance, which for the Company was the fourth quarter of 2009. The adoption of
this guidance did not have a material impact on the Company’s consolidated
results of operations or financial condition.
In
January 2010, the FASB issued Accounting Standards Update No. 2010-06 (“ASU
2010-06”), “Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements.” ASU 2010-06 requires reporting
entities to make new disclosures about recurring or nonrecurring fair value
measurements including significant transfers into and out of Level 1 and
Level 2 fair value measurements and information on purchases, sales,
issuances, and settlements on gross basis in the reconciliation of Level 3
fair value measurements. ASU 2010-06 is effective for annual reporting periods
beginning after December 15, 2009, except for Level 3 reconciliation
disclosures which are effective for annual periods beginning after
December 15, 2010. The adoption of ASU 2010-06 is not expected to have a
material impact on the Company’s consolidated results of operations or financial
condition.
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. Issuance costs,
including the value of the placement agent warrants, were $4,670.
61
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.
On July
15, 2008 the Company signed a $10,000 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.
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. The Company issued the initial
230,074 shares as a commitment fee, at the agreed upon price of $1.52 per share,
determined based on the 20-day moving average as of the agreement acceptance
date of June 25, 2008. The Company filed the registration statement on September
5, 2008 and recorded the common stock transaction in the quarter ended September
30, 2008. In a letter dated October 3, 2008, the SEC notified the Company that
the S-1 registration statement has been selected for review. The Company elected
not to respond to the SEC notification because the stock price of the Company
was trading well below the agreed upon price of $0.75. In December 2009, the
Company terminated the agreement and notified the SEC that it was withdrawing
the registration statement.
During
the fourth quarter of 2008, the Company received a $2,550 bridge loan provided
by multiple accredited investors, a portion of which was provided by related
parties (See Note 18). The bridge loan was in the form of an Unsecured
Debentures and accrued interest at the rate of 18% per annum. In consideration,
the investors received warrants to purchase an aggregate of 12,750,000,
25,500,000 and 3,200,000 shares of the Company’s common stock at an exercise
price of $0.20, $0.10 and $0.25 per share, respectively, for an aggregate of
41,450,000 shares of the Company’s common stock. The warrants were exercisable
immediately for a period of 5 years from the agreement date. The investors could
elect to convert the accrued and unpaid interest into the common stock of the
Company.
62
On
January 16, 2009, the Company received extensions from certain accredited
investors who previously made total commitments for an aggregate of $2,550 in
the form of a 90-day bridge loan. The original maturity date of such loans was
January 12, 2009, and the maturities were extended by an additional 90
days. The investors made such extensions pursuant to Debenture
Modification and Extension Agreements which called for an extension of the loans
for 90-days after their original 90-day terms. During the first
quarter of 2009, the Company paid off $100 associated with the bridge loan. On
April 16, 2009 and on July 16, 2009, the Company received extensions from
the accredited investors through July 14, 2009 and August 14,
2009.
In March
2009, the Company completed a private placement offering to accredited
investors. Investors purchased 1,315,000 units, for a total of $1,315 with each
unit consisting of a senior convertible debenture for one share of common stock
of the Company, and a warrant, to acquire either two shares or one share of
Common Stock for ten years at a purchase price of $0.25 per share. The
Debentures pay interest at a rate of 12% per annum, have a term of 30 months and
are convertible into the Company’s common stock at any time at the option of the
investor. The Company received investment proceeds of $1,315 which were held in
an escrow account until April 29, 2009. The Company used the proceeds to pay
operating expenses and to fulfill immediate inventory requirements. Of the
$1,315 proceeds received, $25 was used for legal expenses while $60 was paid to
the brokers who assisted with the offering.
On
October 9, 2009, the Company received total commitments for a $500 loan in the
form of 2009 Convertible Promissory Notes provided from a group of accredited
investors. The Company repaid the Investors the Loan in full on December 2,
2009, a timely manner pursuant to the terms of such Loan.
During
the fourth quarter of 2009 the Company received subscriptions for 1,700,000
shares of preferred stock totaling $3,750 and entered into debt restructuring
agreements with the bridge loan holders and the 12% debenture holders. At
December 31, 2009, the Company had received $2,396 in cash and the remaining
$1,354 was recorded as a subscription receivable.
At
December 31, 2009 the bridge note holders were due $700 in cash and were issued
a note for $900 that bears interest at 6% and is payable over 24 months
beginning in March 2011. In addition, the note holders received 877,511 shares
of preferred stock. The bridge note holders forgave all principle and interest
due them under the 18% bridge notes and canceled all warrants they were
previously issued. See Note 16 for details on the restructuring.
In
conjunction with the restructuring, the 12% debenture note holders forgave
previously issued debt and received a note for $823 that bears interest at 6%
and is payable at the end of the 24 month note term. In addition, the debenture
holders received 119,694 shares of preferred stock. The debenture holders
received interest due on their notes through the date of the closing and
canceled all warrants they were previously issued.
The
holders of the October 9, 2009 Convertible Promissory note for $500 were repaid
in full in a timely manner pursuant to the terms of such loan
agreement.
4.
Merchandise
Inventories
Merchandise
inventories consist of the following:
December
31,
|
2009
|
2008
|
2007
|
|||||||||
Merchandise
Inventories
|
$ | 458 | $ | 2,822 | $ | 5,565 | ||||||
Inventory
in transit
|
- | - | - | |||||||||
Less
reserves
|
(25 | ) | (548 | ) | (409 | ) | ||||||
Total
|
$ | 433 | $ | 2,274 | $ | 5,156 |
63
Activity
related to the inventory reserve is summarized as follows:
December
31,
|
2009
|
2008
|
2007
|
|||||||||
Balance,
beginning of year
|
$ | (548 | ) | $ | (409 | ) | $ | (149 | ) | |||
Charged
to costs and expenses
|
(427 | ) | (1,404 | ) | (431 | ) | ||||||
Write-offs
|
950 | 1,265 | 171 | |||||||||
Balance,
end of year
|
$ | (25 | ) | $ | (548 | ) | $ | (409 | ) |
5.
Major
Suppliers
During
the year ended December 31, 2009, Hewlett-Packard Company (“HP”) accounted for
57.83%, of the Company’s inventory purchases. Amount due at December 31, 2009
included in accounts payable was approximately $3,190 to HP.
During
the year ended December 31, 2008, Hewlett-Packard Company (“HP”) accounted for
38.13%, of the Company’s inventory purchases. Amount due at December 31, 2008
included in accounts payable and flooring facility was approximately $903 to
HP.
During
the year ended December 31, 2007, Sony and 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.
6.
Property
and Equipment
Property
and equipment consist of the following:
December
31,
|
2009
|
2008
|
||||||
Computer
equipment
|
$ | 3,837 | $ | 1,523 | ||||
Leased
telecommunications equipment
|
42 | - | ||||||
Furniture
and fixtures
|
5 | 95 | ||||||
Leasehold
improvements
|
- | 511 | ||||||
Vehicles
|
23 | - | ||||||
Construction
in Progress
|
- | 1,479 | ||||||
Less
accumulated depreciation
|
(1,570 | ) | (1,465 | ) | ||||
Total
|
$ | 2,337 | $ | 2,143 |
Computer
equipment increased in 2009 due to the implementation of Microsoft AX Dynamics
software to replace our current ERP system as well as other related consulting
expenditures. The implementation costs were classified as construction in
progress in 2008.
Depreciation
and amortization expense was $578, $531 and $876 for the years ended December
31, 2009, 2008 and 2007, respectively.
64
7.
Purchased
Intangible Assets
During
2008, the Company purchased an internet domain name or Universal Resource
Locator or URL, www.redtag.com, from
a holder of greater than 5% of our voting common stock. The URL has an
indefinite useful life and thus 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. No impairment was
recorded as of December 31, 2009. The carrying value of the URL as of December
31, 2009 was $203.
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, 2009, 2008 and 2007 was $0, $107 and $495, respectively. The
trademark and customer list were fully amortized at of December 31,
2008.
8.
Flooring
Facility
During,
2008 and 2007, the Company maintained a short-term 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%. 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,
2008 and 2007 relating to the Flooring Facility was $44 and $102,
respectively.
December
31,
|
2009
|
2008
|
2007
|
|||||||||
Face
Value
|
$ | 535 | $ | 370 | $ | 317 | ||||||
Less
discount
|
- | - | (3 | ) | ||||||||
Present
Value
|
$ | 535 | $ | 370 | $ | 314 |
During
2008 and 2007, the Flooring Facility was secured by security deposits of $500
and $1,000, respectively. (See Note 2) There are no restrictive covenants on the
Flooring Facility. The IBM flooring facility was terminated in 2008 and hence
there was no balance due as of December 31, 2009.
During
2009 and 2008, the Company entered into multiple short-term inventory financing
arrangements with various investors. The arrangements allow the Company to
finance inventory purchases for which interest is accrued at a rate of .50% per
week to 1% per week. At December 31, 2009 and 2008 the liability related to such
financing arrangements totaled $535 and $370 respectively.
9.
Long-Term
Debt
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 provided for advances to the Company of up to a maximum of
$25,000.
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
change in the business model of the Company in 2008, the Company was unable to
meet the financial covenants.
65
On
October 15, 2008, the Company paid off-the outstanding balance owed to Wells
Fargo Bank terminating the Credit Agreement. Pursuant to the pay-off agreement,
the Company paid a forbearance agreement fee of $50 and early termination fee of
$125. Wells Fargo has also released its security interest in the Company’s
collateral.
On
October 9, 2009, the Company received total commitments for a $500 loan in the
form of 2009 Convertible Promissory Notes provided from a group of accredited
investors. The Company repaid the note holders the loan in full on December 2,
2009, in a timely manner pursuant to the terms of such loan.
In
connection with the Debt Restructuring discussed in Note 16, two long term notes
for $900 and $823 which bear interest at a rate of 6% were issued by the
Company. The first note for $900 was issued to the bridge note holders and is
payable in quarterly installments starting in March, 2011, see Note 8. The
second note for $823 was issued to the 12% debenture holders, interest and
principle is payable on month 24 of the agreement. All previously issued debt
was forgiven in conjunction with the restructuring agreement. See Note 16 for
details of the restructuring.
December
31,
|
Note
1
|
Note
2
|
Total
|
|||||||||
Face
Value
|
$ | 900 | $ | 822 | $ | 1,722 | ||||||
Interest
|
83 | 99 | 182 | |||||||||
Note
Value
|
$ | 983 | $ | 921 | $ | 1,904 |
Long term
debt at December 31, 2009 matures as follows:
Year
|
Loan
|
|||
2010
|
$ | - | ||
2011
|
832 | |||
2012
|
1,072 | |||
2013
|
- | |||
2014
|
- | |||
Total
|
$ | 1,904 |
10.
Bridge
Loan
During
the fourth quarter of 2008, the Company received a $2,550 bridge loan provided
by multiple accredited investors. The bridge loan was in the form of an
Unsecured Debenture and bears interest at the rate of 18% per annum. In
consideration for the loan, the investors received warrants to purchase an
aggregate of 12,750,000, 25,500,000 and 3,200,000 shares of the Company’s common
stock at an exercise price of $0.20, $0.10 and $0.25 per share, respectively,
for an aggregate of 41,450,000 shares of the Company’s common stock. The
warrants are exercisable immediately for a period of five years from the
agreement date. The investors may elect to convert the accrued and unpaid
interest into common stock of the Company.
The
Company engaged an independent valuation company to assist in determining the
fair market value of the warrants that were issued in conjunction with the
bridge loan. The fair market value of the warrants was determined to be $8,752
based on a volatility range of 66.71%-83.60% and an interest rate range of
1.22%-4.08%.
Per ASC
470-20 - Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement), the Company recorded the fair value
of the warrants using the relative fair value of the warrants and the debt. The
resulting discount of $1,975 will be amortized over a period of 6 months. The
Company amortized the discount over 6 months because the loan was extended for
an additional period of 90 days for a total of 180 days (6 months).
66
During
the first quarter of 2009, the Company paid off $100 associated with the bridge
loan.
During
the fourth quarter of 2009 the Company entered into a restructuring agreement
with the Bridge note holders. As part of the restructuring, the Bridge note
holders are to receive $700 in cash and were granted a $900 note to the Company
payable in 24 months. The note bears interest at a 6% annual rate. The note and
accrued interest are payable starting in month 15 of the closing date. The
Bridge loan holders forgave previously issued debt, canceled all the warrants
received and also received 877,511 shares of preferred stock. Per ASC
470-60 – Accounting for Troubled Debt Restructuring a gain was recorded for the
difference between the fair market value of the instrument issued and the fair
value amount of the debt forgiven and warrants surrendered.
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. During 2008 and 2007
employee contributions of up to 3% were matched by the Company at a rate of 50%.
In 2009, the Company discontinued the match. 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, 2008 and 2007, the Company incurred $52, and $44 of expenses,
respectively, related to the 401(k) matching component of this plan. The match
was discontinued in 2009.
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, 2009.
13.
Income
Taxes
The
income tax provision for the years presented is as follows:
Year
ended December 31,
|
2009
|
2008
|
2007
|
|||||||||
Current
provision:
|
||||||||||||
Federal
|
$ | - | $ | - | $ | - | ||||||
State
|
- | - | - | |||||||||
Deferred
benefit
|
(3,291 | ) | (5,808 | ) | (2,791 | ) | ||||||
Benefit
for income taxes
|
(3,291 | ) | (5,808 | ) | (2,791 | ) | ||||||
Less
increase in valuation allowance
|
3,291 | 5,808 | 2,791 | |||||||||
Income
tax provision
|
$ | - | $ | - | $ | - |
Year
ended December 31,
|
2009
|
2008
|
2007
|
|||||||||
Federal
income tax benefit at federal
|
||||||||||||
statutory
rate
|
$ | (3,051 | ) | $ | (5,384 | ) | $ | (2,587 | ) | |||
Effect
of state income taxes
|
(240 | ) | (424 | ) | (204 | ) | ||||||
Increase
in valuation allowance
|
3,291 | 5,808 | 2,791 | |||||||||
Total
|
$ | - | $ | - | $ | - |
67
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:
Components
of deferred income tax assets and liabilities are as follows:
December
31,
|
2009
|
2008
|
||||||
Deferred
income tax assets
|
||||||||
Net
operating loss carryforward
|
$ | 19,718 | $ | 16,106 | ||||
Inventories
|
134 | 381 | ||||||
Stock-based
compensation
|
1,395 | 1,148 | ||||||
Allowance
for doubtful accounts
|
1 | 248 | ||||||
Property
and equipment
|
8 | 135 | ||||||
Other
|
16 | 12 | ||||||
Gross
deferred income tax assets
|
21,272 | 18,030 | ||||||
Deferred
income tax liabilities
|
||||||||
Prepaid
expenses
|
(52 | ) | (125 | ) | ||||
Property
and equipment
|
(25 | ) | - | |||||
Gross
deferred income tax liabilities
|
(77 | ) | (125 | ) | ||||
Net
deferred income tax assets
|
21,195 | 17,905 | ||||||
Less
valuation allowance
|
(21,195 | ) | (17,905 | ) | ||||
Net
deferred income tax asset
|
$ | - | $ | - |
The
Company has estimated federal net operating loss carry forwards as of December
31, 2009 of $42,676 that has expiration dates from 2024 through 2028. Pursuant
to section 382 of the Internal Revenue Code, the usage of these net operating
loss carry forwards 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 carry
forwards. 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 2014. Total rent expense from operating leases was
approximately $523, $470, and $474 for the years ended December 31, 2009, 2008
and 2007, respectively.
The
following is a schedule, by year, of future minimum rental payments required
under operating leases that have initial or remaining non cancelable lease terms
in excess of one year as of December 31, 2009:
Year
|
Amount
|
|||
2010
|
$ | 194 | ||
2011
|
210 | |||
2012
|
222 | |||
2013
|
228 | |||
2014
|
37 | |||
Total
|
$ | 891 |
68
15. Stock
Warrants
Stock
warrants issued in 2005 and 2006 are described in Note 3. 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 $32 of these warrants during 2008. The estimated fair
value was measured using the Black-Scholes pricing model. On March 25, 2008 the
stock traded at $0.60 per share. In December 2009 as part of the overall debt
restructuring, the warrants were canceled.
In the
fourth quarter of 2008, the Company issued warrants to purchase 41,450,000
shares of its common stock to a group of accredited investors in conjunction
with the issuance of a bridge loan. The warrants were exercisable for five years
at the exercise price of $0.25, $0.20 and $0.10. The fair value of
the warrants of $8,700 was allocated to warrants and the debt, based on the
relative value of each. The fair value allocated to the warrants was $1,975. The
fair value of the warrants was recorded as interest expense in the fourth
quarter of 2008 and in the first quarter of 2009. The Company stock traded at
$0.20 to $0.38 during the October 14, 2008 to November 25, 2008 period in which
the warrants were issued. In December 2009, as part of the overall debt
restructuring, the warrants were canceled.
On March
15, 2009, the Company entered into an independent consulting agreement with an
investor relations firm, with a term expiring May 15, 2010. The investor
relations firm will represent the Company in investors’ communications and
public relations with existing shareholders, brokers, dealers and other
investment professionals as to the Company’s current and proposed activities,
and to consult with management concerning such Company
activities. For undertaking the engagement, for previous services
rendered and for other good and valuable consideration, the Company has agreed
to issue the investor relations firm a Commencement Bonus of 900,000 shares of
Common Stock and a five-year warrant to purchase 3,000,000 shares of Common
Stock at $0.25 per share. On March 15, 2009 the date the shares were
issued the Company stock traded at $0.30 per share. Additionally the Company has
agreed to pay the investor relations firm $8,000 cash per month, during the term
of the engagement, unless terminated early. Pursuant to the terms of the
engagement at no time will the investor relations firm beneficially own 5
percent or more of the Company. In November 2009 the Company canceled the
contract with the investor relations firm. As part of the overall debt
restructuring, the warrants were canceled.
There are
no warrants outstanding as of December 31, 2009. All warrants were canceled in
connection with the debt restructuring in December 2009.
16.
Common
Stock and Series A Convertible Preferred Stock
Common
Stock
At
December 31, 2009 and 2008 there were 200,000,000 shares of common stock $.001
par value authorized 19,726,678 and 18,826,678 shares issued and outstanding
respectively.
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,
2008 and 2007. In December 2009, as part of a Debt restructuring, the Board of
Directors approved the issuance of 3,000,000 preferred shares. At December 31,
2009 there were 2,497,205 shares of preferred stock issued and
outstanding.
The preferred stock was issued to the
Bridge note holders and the 12% debenture holders as part of a debt
restructuring during the fourth quarter of 2009. The Bridge Note holders
received 877,511 shares of preferred stock and forgave all previously issued
debt. In addition to the receipt of preferred stock, the Bridge Note holders are
to receive $700 in cash and a note for $900 which bears interest at an annual
rate of 6%. The Bridge Note holders also agreed to cancel all their outstanding
warrants.
In conjunction with the restructuring,
the 12% debenture holders received 119,694 shares of preferred stock. In
addition, they received a note for $823 which bears interest at a rate of 6% at
an annual rate of 6%. The 12% debenture holders received all interest accrued
and payable. The 12% debenture holders also agreed to cancel all of their
outstanding warrants.
69
The remaining 1,500,000 shares of
preferred stock were sold to accredited investors. at $2.50 per share. At
December 31, 2009 we had commitments to purchase all 1,500,000 shares. We
received $2,396 in cash and the remaining $1,354 was recorded as a subscription
receivable. All monies were received by February 24, 2010. The preferred shares
are convertible into 66.83 shares of common stock per preferred share. The
preferred stock has a liquidation preference of a minimum IRR of 25% but no more
than three times the investment amount.
As part
of the debt restructuring, all options issued to employees under the 2005 equity
incentive plan were canceled. Employees received no consideration for the
cancellations.
The
restructuring of the Bridge Note and 12% debenture was accounted for Per ASC
470-60 – Accounting for Troubled Debt Restructuring a gain was recorded for the
difference between the fair market value of the instrument issued and the fair
value amount of the debt forgiven and warrants surrendered.
17.
2005
Equity Incentive Plan
The
Company’s 2005 Equity Incentive Plan (“2005 Equity Incentive Plan”) is an
equity-based compensation plan in-place to provide incentives, 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.
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. As part of the
Debt restructuring in December 2009, the shares of common stock reserved for
issuance under the 2005 Equity Incentive Plan were canceled. The Company plans
to obtain shareholder approval to amend the Company’s Certificate of
Incorporation to increase the number of authorized shares of common stock and to
reserve additional shares for the plan at the annual shareholder
meeting.
Effective
January 1, 2006, the Company adopted ASC Topic 718, “Stock-Based Compensation”.
This pronouncement requires companies to measure the cost of employee service
received in exchange for a share based award (stock options and restricted
stock) 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 ASC 718,
Accounting for Stock-Based Compensation. 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.
70
Stock
options
Stock
option activity under the Company’s 2005 Equity Incentive Plan for the year
ended December 31, 2009 is summarized as follows:
Option
Table:
|
||||||||
Shares
|
Weighted-
Average exercise price per share
|
|||||||
Outstanding
at December 31, 2008
|
1,568,500 | $ | 1.18 | |||||
Granted
|
3,928,194 | $ | 0.38 | |||||
Exercised
|
- | - | ||||||
Forfeited/Cancelled/Surrendered
|
(5,496,694 | ) | $ | (1.18 | ) | |||
Converted
|
- | |||||||
Outstanding
at December 31, 2009
|
- | $ | - | |||||
Exercisable
at December 31, 2009
|
- | $ | - |
The fair
value of the stock options granted under the Company’s 2005 Equity Incentive
Plan was estimated using the Black-Scholes option pricing model with the
following weighted average assumptions:
December
31,
|
||||||||
2009
|
2008
|
|||||||
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 | ||||||
Weighted
average grant date fair value
|
$ | 0.38 | $ | 0.89 | ||||
Estimated
forfeiture rate
|
11.7 | % | 11.7 | % |
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 do so in the foreseeable-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.
At
December 31, 2009 all options outstanding were canceled in connection with the
debt restructuring (see Note 16). No compensation was received by the option
holders for the cancelation.
Restricted
Stock
On
February 19, 2008 the Company offered eligible employees the opportunity to
exchange on a grant by grant basis, their outstanding eligible options for
shares of restricted stock. 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 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 was $109 to
be amortized over the remaining life of the original options
granted.
71
Pursuant
to the offer, 16,000 options were canceled and cashed out by individuals who had
500 or fewer options. There were an additional 22 individuals that tendered
767,000 options for an aggregate of 255,667 shares of restricted common stock of
which 169,277 are vested.
There are
no unvested shares of restricted common stocks outstanding as of December 31,
2009.
Stock
–based Compensation Expense
Stock-based
compensation expense recognized, related to the 2005 Equity Incentive Plan for
the years ended December 31, 2009 and 2008 was as follows:
(Dollars
in Thousands)
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Stock
Options
|
$ | 632 | $ | 708 | ||||
Restricted
Common Stock
|
- | 1,005 | ||||||
Total
Stock-Based compensation expense
|
$ | 632 | $ | 1,713 |
In
October 2008, the Company issued stock warrants in conjunction with a bridge
loan (see Notes 3, 11 & 16). The issuance of stock warrants resulted in a
change of control provision which accelerated the vesting of all senior
management stock options and all of the unvested shares of restricted stock. In 2009, as part of the debt
restructuring all options vested and unvested were canceled and the remaining
unamortized option values were recorded as an expense. Employees received no
compensation for the option canceled.
18.
Related
Party Transactions
The
following represents significant transactions between the Company and a related
party during 2009, 2008 and 2007:
Product
Purchases
The
Company historically purchased products from a related party for direct purchase
sales. Purchases from the related party were $0, $3,753 and $2,930 for the years
ended December 31, 2009, 2008 and 2007, respectively. At December 31, 2009 and
2008, amounts due to the related party included in accounts payable were $0 and
$993, respectively.
On
September 23, 2008, the Company ceased business relationships with the related
party.
Bridge
Loan
During
October 2008, the Company received a $2,550 bridge loan from a group of
accredited investors (See Note10), of which $2,450 was from investors who became
beneficial owners of greater than 5% of our common stock. Of the $850 provided
by one of the investors, management of the Company provided a guarantee for
$250. In return for providing the guarantee, the management received warrants to
purchase 1,880,000 shares of the Company’s common stock. In conjunction with the
restructure of the bridge loan in December, 2009, certain members of management
were released from their guarantees and the warrants received were cancelled
with no cash consideration being received by management.
On
January 16, 2009, the Company received extensions from certain accredited
investors who previously made total commitments for an aggregate of $2,550 in
the form of a 90 day bridge loan. The extensions relate to $2,450 of the $2,550
bridge loan. The original maturity date of such loans was January 12, 2009,
January 29, 2009 and February 19, 2009, and the maturities have been extended by
an additional 90 days. The investors made such extensions pursuant to
Debenture Modification and Extension Agreements which call for an extension of
the loans for 90-days after their original 90-day terms.
The
Company elected not to extend the remaining $100 of the bridge loan which was
subsequently paid on February 26, 2009. During 2009, the Company restructured
the Bridge Loan, see Note 16.
72
Inventory
Financing
A member
of the Company’s Board of Directors has provided inventory financing during the
current year. The Board member was paid $12 in interest during the current
year.
19.
Subsequent
Events
The
Company continued its fund raising efforts and has increased the private
placement offering to accredited investors by an additional $500 to $4,250 from
$3,750.
On February 12, 2010 the Company
announced that Mr. Don Miller and Jeffry Parell were appointed to the Board of
Directors.
The
Company appointed Mr. Patrick L. Neville, Chief Executive Officer effective
March 1, 2010. The Company entered into an executive employment agreement with
Mr. Neville which provides for an initial annual base salary of $180,000 for the
first 12 months of the agreement and thereafter the Company’s 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. Neville received options to purchase up to 1,000,000 shares of
common Stock under the 2005 Equity Incentive Plan, with a vesting schedule of
1/4 of the options vesting on the 12 month anniversary of the date of the grant,
1/4 of the options vesting on the 24 month anniversary of the date of grant and
the remaining 1/4 on the 36 month anniversary of the date of grant and 1/4
vesting on the 48 month anniversary. The option grant is subject to stockholder
approval of an amendment to the Company’s Certificate of Incorporation to
increase the number of authorized shares of common stock. The agreement provided
that all options would vest immediately upon a change of control of the
Company.
The
Company evaluated all subsequent events that occurred after the balance sheet
date and through the date and time its financial statements were
issued.
20.
Going
Concern
The
accompanying consolidated financial statements have been prepared assuming that
we will continue as a going concern, considering we realize the assets and
liquidate the liabilities in the normal course of business. As of December 31,
2009 we had accumulated a deficit of approximately $54 million. Over
the last twelve years and through the first quarter of 2010, we have incurred
losses due to operational problems, capital constraints and a change in our
business model. During 2006 and 2007 the Company’s operations were funded by the
capital raised during our 2005/2006 private offerings. During 2008 the Company
had fully utilized these funds and drew on our bank line of credit. However,
after the second quarter of 2008 the Company did not meet the established bank
covenants and was required to pay off the outstanding balance. Due to the
Company’s recurring losses we could not obtain new bank financing. Instead
during 2008 and 2009 we received financing from our investors to fund our
operations through the issuance of various debt instruments. We have also
utilized short term financing deals in order to make inventory purchases. During
2009 the Company restructured our financing, reducing our debt from $4.6 million
to $1.9 million. We also issued preferred stock, raising approximately $4.2
million. Most of this capital raised was used to pay off our outside vendors
therefore we need to either raise additional capital, obtain financing or
increase revenue in order for operations to continue. The current credit market
remains volatile which affects our ability to raise long-term capital financing
and inventory financing needed to our business. This, coupled with our lack of
cash, significantly reduces the Company’s ability to pursue the plans noted
below. This creates substantial doubt about our ability to continue as a going
concern.
Management’s
plans to continue operations consist of the following:
|
·
|
Increase
available inventory for sale through establishing an asset based lending
credit line (ABL) of approximately
$3,000,
|
|
·
|
Raise
additional long term equity
capital,
|
|
·
|
Increase
revenues through focused marketing to customers in our robust data base
reestablishing our sites as ones that appeal to the diversified
demographics of the group,
|
|
·
|
Increase
revenues through the introduction of diversified product lines to serve
the asset recovery industry,
|
|
·
|
Increase
revenues by completing the installation of our ERP application allowing us
to provide all the requirements necessary for our vendors and Certified
Merchants to sell product through us both domestically and
globally,
|
|
·
|
Increase
revenues through the introduction of transaction fees and restructuring of
CM vendor rate card,
|
|
·
|
Execute
revised business plan with new business model under new leadership and
expanded board.
|
As a
result of the conditions discussed above, and in accordance with generally
accepted accounting principles in the United States, there exists substantial
doubt about our ability to continue as a going concern. Our continued operations
are contingent on our ability to be successful in implementing the above plans.
There is no assurance that we will be successful in these efforts, therefore
there is substantial doubt as to our ability to have sufficient cash to meet our
operating requirements and continue as a going concern. The accompanying
consolidated financial statements do not reflect adjustments relating to the
recoverability and classification of assets or liabilities that might result
from the outcome of these uncertainties.
73
Item 15. Exhibits
and Financial Statement Schedules
(a)(1)
Consolidated Financial statements commence on page 48:
Report of
Independent Registered Public Accounting Firm
Consolidated
Balance Sheet as of December 31, 2009 and 2008
Consolidated
Statements of Operations for the years ended December 31, 2009, 2008 and
2007.
Consolidated
Statement of Shareholders’ Equity for the years ended December 31, 2009,
2008 and 2007.
Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007.
Notes to
Consolidated Financial Statements
74
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), and as amended by reference to Exhibit 3.1 to the Current
Report on Form 8-K filed with the Securities and Exchange Commission on
August 8, 2008 (File No. 000-50993).
|
||
3.1
|
Certificate
of Incorporation, as amended.
|
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), and as amended by reference to Exhibit 3.1 to the Current
Report on Form 8-K filed with the Securities and Exchange Commission on
August 8, 2008 (File No. 000-50993).
|
||
3.2
|
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 8, 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).
|
||
4.5
|
Form
of 18% Unsecured Debentures to be issued to Investors dated October 9,
2008.
|
Incorporated
by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 14, 2008 (File No.
000-50995).
|
||
4.6
|
Form
of Common Stock Purchase Warrant to be issued to Investors dated October
9, 2008.
|
Incorporated
by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 14, 2008 (File No.
000-50995).
|
||
4.7
|
Form
of 18% Senior Secured Debenture dated October 16, 2008 issued to certain
Investors.
|
Incorporated
by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 22, 2008 (File No.
000-50995).
|
||
4.8
|
Form
of Series A Common Stock Purchase Warrant dated October 16, 2008 issued to
certain Investors.
|
Incorporated
by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 22, 2008 (File No.
000-50995).
|
||
4.9
|
Form
of Series B Common Stock Purchase Warrant dated October 16, 2008 issued to
certain Investors.
|
Incorporated
by reference to Exhibit 4.3 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 22, 2008 (File No.
000-50995).
|
75
Description
|
Reference
|
4.10
|
Form
of 18% Senior Secured Debenture dated November 26, 2008 issued to
certain Investors.
|
Incorporated
by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on December 3, 2008 (File No.
000-50995).
|
||
4.11
|
Form
of Series A Common Stock Purchase Warrant dated November 26, 2008 issued
to certain Investors.
|
Incorporated
by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on December 3, 2008 (File No.
000-50995).
|
||
4.12
|
Form
of Series B Common Stock Purchase Warrant dated November 26, 2008 issued
to certain Investors.
|
Incorporated
by reference to Exhibit 4.3 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on December 3, 2008 (File No.
000-50995).
|
||
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 18, 2009 by and between Enable Holdings,
Inc. and Timothy E. Takesue.
|
Filed
herewith
|
||
10.4+
|
Termination
Agreement dated as of December, 29, 2009 by and between Enable Holdings,
Inc. and Jeffrey D. Hoffman.
|
Incorporated
by reference to Exhibit 10.4 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 30, 2009 (File No.
000-50995).
|
||
10.5+
|
Termination
Agreement dated as of August 11, 2009 by and between Enable Holdings, Inc.
and Glenn R. Weisberger.
|
Filed
herewith
|
||
10.6+
|
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).
|
||
10.7+
|
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).
|
||
10.8
|
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).
|
||
10.9
|
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).
|
||
10.10
|
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).
|
||
10.11+
|
Employment
Agreement dated as of December 18, 2009 by and between Enable Holdings,
Inc. and Miguel A. Martinez, Jr.
|
Filed
herewith
|
||
10.12
|
Employment
Agreement dated as of December 18, 2009 by and between Enable Holdings,
Inc. and Amy Powers.
|
Filed
herewith
|
76
Description
|
Reference
|
10.13
|
Employment
Agreement dated as of March 1, 2010 by and between Enable Holdings, Inc.
and Patrick L. Neville.
|
Filed
herewith
|
||
10.15
|
Securities
Purchase Agreement dated October 9, 2008 by and between Enable Holdings,
Inc. and certain Investors.
|
Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 14, 2008 (File No.
000-50995).
|
||
10.16
|
Securities
Purchase Agreement dated October 16, 2008 by and between Enable Holdings,
Inc. and certain Investors.
|
Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 22, 2008 (File No.
000-50995).
|
||
10.17
|
Security
Agreement dated October 16, 2008 issued to certain
Investors.
|
Incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 22, 2008 (File No.
000-50995).
|
||
10.18
|
Securities
Purchase Agreement dated November 26, 2008 by and between Enable Holdings,
Inc. and certain Investors.
|
Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on December 3, 2008 (File No.
000-50995).
|
||
10.19
|
Form
of Debenture Modification and Extension Agreement dated January 16,
2009.
|
Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on January 20, 2009 (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
|
List
of Subsidiaries.
|
Filed
herewith
|
||
31.1
|
Certification
of the President and Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
Filed
herewith
|
||
31.2
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
Filed
herewith
|
||
32.1
|
Certification
of the President and Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
Filed
herewith
|
||
32.2
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
Filed
herewith
|
77
Pursuant
to requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized as of March 30, 2010.
ENABLE
HOLDINGS, INC.
|
|||
|
By:
|
/s/
Patrick L. Neville
|
|
Name:
Patrick L. Neville
|
|||
Title:
Chief Executive Officer
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities indicated as of the dates indicated.
Signature
|
Title
|
Date
|
||
/s/
Patrick L. Neville
|
Chief
Executive Officer and Director
|
|||
Patrick
L. Neville
|
(Principal
Executive Officer)
|
March
30, 2010
|
||
/s/ Miguel
A. Martinez, Jr.
|
Chief
Financial Officer
|
|||
Miguel
A. Martinez, Jr.
|
(Chief
Financial Officer and
Principal
Accounting Officer)
|
March
30, 2010
|
/s/ Steven
Sjoblad
|
||||
Steven
Sjoblad
|
Director
|
March
30, 2010
|
||
/s/ Casey
L. Gunnell
|
Director
|
March
30, 2010
|
||
Casey
L. Gunnell
|
||||
/s/ Kenneth
J. Roering
|
||||
Kenneth
J. Roering
|
Director
|
March
30, 2010
|
||
/s/ Donald
M. Miller
|
||||
Donald
M. Miller
|
Director
|
March
30, 2010
|
||
/s/
Jeffry J. Parell
|
||||
Jeffrey
J. Parell
|
Director
|
March
30, 2010
|
78