2

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ENABLE HOLDINGS, INC

FORM 10-K ANNUAL REPORT

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009

 

 

 

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.

 

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.

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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.

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.

 

 

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.

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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.

 

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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.

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

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

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

 

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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.

 

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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.

 

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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	)

 

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(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.

 

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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.

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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.

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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.

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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.

 

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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.

 

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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.

 

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 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.

 

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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

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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.

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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.

 

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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).

 

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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		$	-			$	-			$	-

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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

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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.

 

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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.

 

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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.

 

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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.

 

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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.

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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

 

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Exhibit No.		Description		Reference
2.1		Agreement and Plan of Merger dated as of December 15, 2005, by and between Cape Coastal Trading Corporation, a New York corporation and Cape Coastal Trading Corporation, a Delaware corporation.		Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 21, 2005 (File No. 000-50995).
2.2		Merger Agreement and Plan of Reorganization dated as of December 29, 2005, by and among Cape Coastal Trading Corporation, uBid Acquisition Co., Inc. and uBid, Inc.		Incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 5, 2006 (File No. 000-50995), 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).

 

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Exhibit No.

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

 

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Exhibit No.

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

 

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