UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549








FORM
10-Q





x         QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the
period ended September 30,
2009





 ̈         TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





Commission
file Number: 000-50995








Enable
Holdings, Inc.


(Formerly
known as uBid.com Holdings, Inc.)


(Exact
name of registrant as specified in its charter)




Delaware
            52-2372260(State
      or Other Jurisdiction of
            (IRS
      EmployerIncorporation
      or Organization)
            Identification
      No.)





1140
W. Thorndale Avenue, Itasca, Illinois 60143


(Address
of principal executive offices and zip code)





Registrant’s
telephone number including area code:


(773)
272-5000





Indicate
by check mark whether the registrant (1) has filed all reports to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to filing requirements for the past 90
days. Yes x No
 ̈





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




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





Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes  ̈ No x





The
number of shares outstanding of the registrant’s Common Stock, par value $0.001,
as of September 30, 2009 was 19,726,678 .







ENABLE
HOLDINGS, INC.


TABLE
OF CONTENTS





PART
      I. FINANCIAL INFORMATIONItem
      1
                              Financial
      StatementsConsolidated
      Condensed Balance Sheets - September 30, 2009 (unaudited) and December 31,
      2008
                              
                              3Consolidated
      Condensed Statements of Operations – Three Months and Nine months Ended
      September 30, 2009 and 2008 (unaudited)
                              
                              4Consolidated
      Condensed Statement of Shareholders’ Equity – Nine Months Ended September
      30, 2009 (unaudited)
                              
                              5Consolidated
      Condensed Statements of Cash Flows – Nine Months ended September 30, 2009
      and 2008 (unaudited)
                              
                              6Notes
      to Consolidated Financial Statements
                              
                              7Item
      2
                              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                              
                              16Item
      3
                              Quantitative
      and Qualitative Disclosures About Market Risk
                              
                              26Item
      4
                              Controls
      and Procedures
                              
                              26PART
      II. OTHER INFORMATIONItem
      1
                              Legal
      Proceedings
                              
                              26Item
      1A
                              Risk
      Factors
                              
                              26Item
      2
                              Unregistered
      Sales of Equity Securities and Use of Proceeds
                              
                              27Item
      3
                              Default
      Upon Senior Securities
                              
                              27Item
      4
                              Submission
      of Matters to a Vote of Security Holders
                              
                              27Item
      5
                              Other
      Information
                              
                              27Item
      6
                              Exhibits
      Index
                              
                              27Signatures
                              
                              28


2




PART
1. FINANCIAL INFORMATION


ITEM
1. FINANCIAL STATEMENTS





ENABLE
HOLDINGS, INC. and Subsidiaries


Consolidated
Condensed  Balance Sheet


(Dollars
in Thousands, except per share amounts)


(Unaudited)




As ofSeptember 30,
                    2009
                  
                  
                  December 31,
                    2008(unaudited)AssetsCurrent
      AssetsCash
      and cash equivalents
                  
                  $
                  293
                  
                  
                  $
                  99Restricted
      investments
                  
                  
                  -
                  
                  
                  
                  462Accounts
      receivable, less allowance for doubtful accounts of $2 and $494,
      respectively
                  
                  
                  546
                  
                  
                  
                  820Merchandise
      inventories, less reserve for obsolescence of $72 and $85,
      respectively
                  
                  
                  920
                  
                  
                  
                  2,274Prepaid
      expenses and other current assets
                  
                  
                  1,400
                  
                  
                  
                  384Total
      Current Assets
                  
                  
                  3,159
                  
                  
                  
                  4,039Property
      and Equipment, net
                  
                  
                  2,363
                  
                  
                  
                  2,143Purchased
      Intangible Assets, net
                  
                  
                  202
                  
                  
                  
                  202Total
      Assets
                  
                  $
                  5,724
                  
                  
                  $
                  6,384Liabilities
      and Shareholders' EquityCurrent
      LiabilitiesAccounts
      payable
                  
                  $
                  7,683
                  
                  
                  $
                  4,016Bridge
      loan payable
                  
                  
                  2,450
                  
                  
                  
                  1,563Accrued
      expenses:Product
      cost
                  
                  
                  -
                  
                  
                  
                  619Other
                  
                  
                  1,156
                  
                  
                  
                  692Deferred
      rent
                  
                  
                  15
                  
                  
                  
                  30Flooring
      facility
                  
                  
                  869
                  
                  
                  
                  370Total
      Current Liabilities
                  
                  
                  12,173
                  
                  
                  
                  7,290Derivative
      liability
                  
                  
                  82
                  
                  
                  
                  -Convertible
      debenture, net of discount of $499
                  
                  
                  816
                  
                  
                  
                  -Total
      Liabilities
                  
                  
                  13,071
                  
                  
                  
                  7,290Shareholders'
      DeficitCommon
      stock, $.001 par value (200,000,000 shares authorized;19,726,678 and
      18,826,678 shares issued and outstanding, respectively
                  
                  
                  21
                  
                  
                  
                  20Treasury
      stock, 2,135,550 shares of common stock, at cost
                  
                  
                  (2,242
                  )
                  
                  
                  (2,242
                  )Stock
      warrants
                  
                  
                  3,474
                  
                  
                  
                  10,249Additional
      paid-in-capital
                  
                  
                  45,131
                  
                  
                  
                  39,368Accumulated
      deficit
                  
                  
                  (53,731
                  )
                  
                  
                  (48,301
                  )Total
      Shareholders' Deficit
                  
                  
                  (7,347
                  )
                  
                  
                  (906
                  )Total
      Liabilities and Shareholders' Equity
                  
                  $
                  5,724
                  
                  
                  $
                  6,384




The
accompanying notes are an integral part of these consolidated condensed
financial statements.


3





ENABLE
HOLDINGS, INC. and Subsidiaries


Consolidated
Condensed Statement of Operations


(Dollars
in Thousands, except per share amounts)


(Unaudited)




Three Months Ended September 30,
                  
                  
                  Nine Months Ended September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      Revenues
                  
                  $
                  7,441
                  
                  
                  $
                  8,917
                  
                  
                  $
                  15,514
                  
                  
                  $
                  24,484Cost
      of Revenues
                  
                  
                  5,891
                  
                  
                  
                  8,428
                  
                  
                  
                  11,689
                  
                  
                  
                  20,809Gross
      Profit
                  
                  
                  1,550
                  
                  
                  
                  489
                  
                  
                  
                  3,825
                  
                  
                  
                  3,675Operating
      ExpensesGeneral
      and administrative
                  
                  
                  3,278
                  
                  
                  
                  3,916
                  
                  
                  
                  9,002
                  
                  
                  
                  11,087Sales
      and marketing
                  
                  
                  198
                  
                  
                  
                  1,059
                  
                  
                  
                  786
                  
                  
                  
                  2,353Total
      operating expenses
                  
                  
                  3,476
                  
                  
                  
                  4,975
                  
                  
                  
                  9,788
                  
                  
                  
                  13,440Loss
      From Operations
                  
                  
                  (1,926
                  )
                  
                  
                  (4,486
                  )
                  
                  
                  (5,963
                  )
                  
                  
                  (9,765
                  )Interest
      Expense, net
                  
                  
                  (702
                  )
                  
                  
                  (219
                  )
                  
                  
                  (1,932
                  )
                  
                  
                  (377
                  )Miscellaneous
      Income/(expense)
                  
                  
                  (134
                  )
                  
                  
                  20
                  
                  
                  
                  (156
                  )
                  
                  
                  95Gain/(loss)
      on financial instruments
                  
                  
                  396
                  
                  
                  
                  -
                  
                  
                  
                  (8
                  )
                  
                  
                  -Net
      Loss
                  
                  $
                  (2,366
                  )
                  
                  $
                  (4,685
                  )
                  
                  $
                  (8,059
                  )
                  
                  $
                  (10,047
                  )Net
      Loss per share - Basic and Diluted
                  
                  $
                  (0.12
                  )
                  
                  $
                  (0.25
                  )
                  
                  $
                  (0.41
                  )
                  
                  $
                  (0.55
                  )Weighted
      Average Shares - Basic and Diluted
                  
                  
                  19,726,678
                  
                  
                  
                  18,638,678
                  
                  
                  
                  19,482,722
                  
                  
                  
                  18,387,426




The
accompanying notes are an integral part of these consolidated condensed
financial statements.


4





ENABLE
HOLDINGS, INC. and Subsidiaries


Consolidated
Statement of Shareholders’ Equity


(Dollars
in Thousands)


(Unaudited)




CommonStock
                            
                            
                            Stock
                            
                            
                            Paid-in
                            
                            
                            TreasuryStock
                            
                            
                            AccumulatedShares
                            
                            
                            Dollars
                            
                            
                            Warrants
                            
                            
                            Capital
                            
                            
                            Shares
                            
                            
                            Dollars
                            
                            
                            Deficit
                            
                            
                            TotalBalance,
      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[1]
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (7,486
                            )
                            
                            
                            5,386
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2,028
                            
                            
                            
                            (72
                            )Stock
      compensation expense
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            177
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            177Common
      stock issuance[2]
                            
                            
                            900,000
                            
                            
                            
                            1
                            
                            
                            
                            -
                            
                            
                            
                            269
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            270Warrants
      issued for services[3]
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            765
                            
                            
                            
                            (68
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            697Warrants
      issued in conjunction with debt [4]
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            623
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            623Warrants
      surrendered[5]
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (77
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (77
                            )Expired
      warrants [6]
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (600
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            600
                            
                            
                            
                            -Net
      Loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (8,059
                            )
                            
                            
                            (8,059
                            )Balance,
      September 30, 2009
                            
                            
                            19,726,678
                            
                            
                            $
                            21
                            
                            
                            $
                            3,474
                            
                            
                            $
                            45,131
                            
                            
                            
                            2,135,550
                            
                            
                            $
                            (2,242
                            )
                            
                            $
                            (53,731
                            )
                            
                            $
                            (7,347
                            )




1
Reclassify warrants from equity to liability in conjunction with ASC
815-10-63-5. See Note 3 for additional discussion.




2 900,000
shares of common stock issued to an investor relations firm.




3 Warrants
issued to purchase 150,000 shares of common stock at $0.10/share.




4
5,260,000 warrants issued in conjunction with convertible
debenture.




5
1,600,000 warrants surrendered by an investor that were originally issued in
conjunction with the bridge loan in October 2008.




6 333,333
warrants expired that were originally issued in December 2005 with an exercise
price of $4.50.


5




ENABLE
HOLDINGS, INC. and Subsidiaries


Consolidated
Condensed Statement of Cash Flows


(Dollars
in Thousands)


(Unaudited)




Nine months ended September 30,2009
                    
                    
                    2008Net
      loss
                    
                    $
                    (8,059
                    )
                    
                    $
                    (10,047
                    )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
      and amortization
                    
                    
                    425
                    
                    
                    
                    419Loss
      on disposal of fixed assets
                    
                    
                    134Stock
      compensation expense
                    
                    
                    177
                    
                    
                    
                    315Common
      stock and warrants issued for services
                    
                    
                    967
                    
                    
                    
                    32Loss
      on derivative liability
                    
                    
                    8
                    
                    
                    
                    -Interest
      on warrants issued for debt
                    
                    
                    1,038
                    
                    
                    
                    -Changes
      in assets and liabilities:Accounts
      receivable
                    
                    
                    274
                    
                    
                    
                    33Merchandise
      inventories
                    
                    
                    1,354
                    
                    
                    
                    1,390Prepaid
      expenses and other current assets
                    
                    
                    (1,016
                    )
                    
                    
                    127Accounts
      payable
                    
                    
                    3,667
                    
                    
                    
                    1,411Accrued
      expenses
                    
                    
                    (171
                    )
                    
                    
                    302Net
      cash used in operating activities
                    
                    
                    (1,202
                    )
                    
                    
                    (6,018
                    )Cash
      Flows From Investing ActivitiesCapital
      expenditures
                    
                    
                    (780
                    )
                    
                    
                    (1,229
                    )Change
      in restricted cash
                    
                    
                    462
                    
                    
                    
                    -Net
      cash used in investing activities
                    
                    
                    (318
                    )
                    
                    
                    (1,229
                    )Cash
      Flows From financing ActivitiesChange
      in flooring facility
                    
                    
                    499
                    
                    
                    
                    (29
                    )Credit
      Line Borrowings
                    
                    
                    -
                    
                    
                    
                    4,550Proceeds
      from convertible debenture
                    
                    
                    1,315
                    
                    
                    
                    -Payments
      on Bridge Loan
                    
                    
                    (100
                    )
                    
                    
                    -Net
      cash provided by financing activities
                    
                    
                    1,714
                    
                    
                    
                    4,521Net
      Increase (decrease) in Cash and Cash Equivalents
                    
                    
                    194
                    
                    
                    
                    (2,726
                    )Cash
      and Cash Equivalents, beginning of period
                    
                    
                    99
                    
                    
                    
                    7,724Cash
      and Cash Equivalents, end of period
                    
                    $
                    293
                    
                    
                    $
                    4,998Supplemented
      Cash Flow DisclosureCash
      paid for interest
                    
                    $
                    1,859
                    
                    
                    $
                    171Non-cash
      Investing Activity - Shares issued for domain name
    acquisition
                    
                    
                    -
                    
                    
                    
                    203




The
accompanying notes are an integral part of these consolidated condensed
financial statements.


6




Notes
to Consolidated Financial Statements





Note
1. Basis of presentation





Enable
Holdings, Inc. (the "Company" or "Enable"), 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, housewares, watches, jewelry, travel, sporting goods, automobiles, home
improvement products and collectibles. The Company's marketplace employs a
combination of auction style and fixed price formats.





During
 2008, Enable Holdings commenced its efforts to change its business model.
Concurrent with this change, the Company changed its name  to Enable
Holdings, Inc. and reorganized the segments based on the business units. Each
segment provides a combination of seller solutions for sellers to efficiently
liquidate their excess inventory. The segments are listed below:





1)
            uBid.com:The
      Company’s flagship website, which has operated for 11 years. The
      website allows merchants to sell excess inventory and allows consumers to
      buy products in an auction as well as fixed price
      format.





2)
            RedTag.com:The Company’s fixed price
      internet site offers name brand merchandise with a low shipping and
      handling fee of only $1.95.





3)
            RedTag
      Live:The Company’s 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 the Company to find a buyer that will
      buy the entire inventory in a single transaction. The Company’s B2B
      experience allows it to present deals to multiple interested buyers to
      attain the most profitable
one.





5)
            Commerce
      Innovations:A software service company which licenses auction
      software to third party companies. Companies, businesses and governments
      can use the Company’s platform to sell excess furniture, appliances,
      autos, and other surplus. This allows them to utilize a trusted platform
      while reducing live auction costs, as well as an efficient way to reach a
      wider target audience.





The
Company’s unaudited consolidated condensed financial statements reflect normal
recurring adjustments that are necessary to present fairly the Company’s
financial position and results of operations on a basis consistent with that of
the prior audited consolidated financial statements. As permitted by rules and
regulations of the Securities and Exchange Commission applicable to quarterly
reports on Form 10-Q, the Company has condensed or omitted certain information
and disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
(“GAAP”). Results for interim periods are not necessarily indicative of the
results that may be expected for a full year. These interim financial statements
should be read along with the audited consolidated financial statements included
in our Form 10-K/A for the year ended December 31, 2008. The consolidated
condensed financial statements include the accounts of the Company and its
wholly owned subsidiaries. All material intercompany accounts and transactions
have been eliminated in the consolidated financial statements.





The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the
Company’s Consolidated Condensed Financial Statements and accompanying notes.
Actual results could differ materially from those estimates.





Note
2. New accounting pronouncements





Throughout
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.


7




In
September 2006, the FASB issued SFAS 157 which is primarily codified into Topic
820, “Fair Value Measurements and Disclosures” which defines fair value, and
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. The provisions of ASC 820-10 were effective
January 1, 2008. The FASB has also issued Staff Position (FSP) SFAS 157-2
(FSP No. 157-2), which delayed the effective date of SFAS 157 for
nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), until fiscal years beginning after November 15, 2008. For
the nine months ended September 30, 2009, the Company used the guidance
provided in ASC 820-10, to value and present the derivative
liability.  In August 2009, the FASB issued Accounting Standards
Update No. 2009-05, "Measuring Liabilities at Fair Value" ("ASU 2009-05").
This update provides amendments to ASC Topic 820, "Fair Value Measurements and
Disclosure" for the fair value measurement of liabilities. The Company will
adopt ASU 2009-05 for all financial liabilities in the fourth quarter of 2009.
The Company will adopt ASU 2009-05 for all non-financial liabilities in the
first quarter of 2010 when the Company fully adopts SFAS 157. Although the
Company will continue to evaluate the application of SFAS 157 and this
update for its non-financial liabilities, the Company does not expect the
adoption of ASU 2009-05 will have a material effect on its consolidated
financial statements.





In
May 2008, the FASB issued ASC 470-20 (formerly FSP APB 14-1), “Accounting
for Debt Instruments with Conversion and Other Options That May Be Settled in
Cash upon Conversion (Including Partial Cash Settlement).” ASC 470-20 requires
issuers of convertible debt that may be settled wholly or partly in cash upon
conversion to account for the debt and equity components
separately.  ASC 470-20 is effective for fiscal years, and interim
reporting periods within those fiscal years, beginning on or after
December 15, 2008. The Company evaluated ASC 470-20 against the outstanding
debt and concluded that it does not need to account for any changes since the
outstanding convertible debt is convertible at the holder’s option but does not
have a settlement option.





In June
2008, the FASB ratified ASC 815-10-65-3 (formerly EITF No. 07-5,
"Determining Whether an Instrument (or an Embedded Feature) is Indexed to an
Entity's Own Stock"). ASC 815-10-65-3 provides that an entity should use a
two-step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the
instrument's contingent exercise and settlement provisions. ASC 815-10-65-3 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. The Company adopted ASC 815-10-65-3 in the first quarter
of fiscal year 2009. In accordance with the pronouncement, the Company
identified three tranches of warrants that were not indexed to the Company’s
common stock and thus were required to be reclassified as a liability, as stated
in Note 3 below.





In June
2008, the FASB issued ASC 260-10 (formerly EITF 03-6-1), “Determining Whether
Instruments Granted in Share-Based Payment Transactions are Participating
Securities.” The provisions of ASC 260-10 require that all outstanding unvested
share-based payment awards that contain rights to non-forfeitable dividends or
dividend equivalents (such as restricted stock units granted by the Company) be
considered participating securities. Because the awards are participating
securities, the Company is required to apply the two-class method of computing
basic and diluted earnings per share (the “Two-Class Method”). The Company
does not have any outstanding unvested restricted stock as all of the Company’s
restricted stock vested in October 2008. Thus, the Company will not state
its earnings per share using the two-class method stated above.




In
June 2009, the FASB issued SFAS No. 168, Accounting Standards Update
(“ASC”) 2009-01 "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles—a replacement of FASB Statement
No. 162 ("SFAS 168"). SFAS 168 establishes the FASB Accounting
Standards Codification ("ASC") as the source of authoritative accounting
principles recognized by the FASB. Following this statement, the FASB will issue
new standards in the form of Accounting Standards Updates ("ASUs").
SFAS 168 is effective for financial statements issued for interim and
annual periods ending after September 15, 2009 and therefore is effective
for the Company in the third quarter of 2009. The issuance of SFAS 168 will
not change GAAP and therefore the adoption of SFAS 168 will only affect the
specific references to GAAP literature in the notes to consolidated financial
statements.





Note
3. Summary of significant accounting policies




1)     Revenue
recognition




The
Company’s business model currently consists of three distinct business channels:
Certified Merchant (CM), Managed Supply and Cash Recovery. The Company sells
merchandise through the CM Program channel by allowing prescreened third party
merchants to sell their product through our online marketplace to consumers and
business. On this merchandise, the Company does not take title and therefore
does not bear the related inventory risk. In the CM Program, the Company is the
primary obligor to whom payment is due, but it bears no inventory or returns
risk, so the Company records only its commission as revenue. Through the Managed
Supply channel, the Company sells inventory that is consigned to it. The
inventory is either stored at the Company’s warehouse or at the sellers’. The
Company purchases merchandise outright in the Cash Recovery channel and sells to
consumers and businesses. On this merchandise, the Company bears the inventory,
return and credit risk. The full sales amount is recorded as revenue upon
verification of the credit card transaction and shipment of the merchandise. In
all instances where the credit card authorization has been received but
merchandise has not been shipped, the Company defers revenue recognition until
the merchandise is shipped.


2)   
Derivative financial instruments





As a
result of the adoption of ASC 815 (formerly EITF 07-5), the Company is required
to “Determine the Fair Value of a Financial Asset When The Market for That Asset
Is Not Active”,  and to disclose the fair value measurements required
by ASC 820-10,


“Fair
Value Measurements and Disclosures.” The derivative liability recorded at fair
value in the balance sheet as of September 30, 2009 is categorized based upon
the level of judgment associated with the inputs used to measure its fair value.
Hierarchical levels, defined by ASC 820-10, are directly related to the amount
of subjectivity associated with the inputs to fair valuations of these
liabilities are as follows:





Level 1 —
Inputs are unadjusted, quoted prices in active markets for identical assets or
liabilities at the measurement date;




Level 2 —
Inputs other than Level 1 inputs that are either directly or indirectly
observable; and




Level 3 —
Unobservable inputs, for which little or no market data exist, therefore require
an entity to develop its own assumptions.





The
following table summarizes the financial liabilities measured at fair value as
of September 30, 2009, segregated by the level of the valuation inputs within
the fair value hierarchy utilized to measure fair value:




Level1
                    
                    
                    Level2
                    
                    
                    Level3
                    
                    
                    TotalDerivative
      Liability
                    
                    
                    -
                    
                    
                    $
                    82
                    
                    
                    
                    -
                    
                    
                    $
                    82


8




The
derivative liability consists of stock warrants issued by the Company that
contain a strike price adjustment feature, as stated below. In accordance with
ASC 815, the Company calculated the fair value of the warrants using the
Black–Scholes–Merton valuation model, at January 1, 2009, with a corresponding
reduction of additional paid in capital of $5,386 and $2,028 to accumulated
deficit.  At September 30, 2009, the Company revalued the estimated
liability and reduced the additional liability on financial instruments in the
Statement of Operations as follows:




(Dollars
in thousands, except per share price)


Warrants
                      
                      Original
                        Exercise
                        Price
                      
                      
                      Adjusted
                        Warrants
                      
                      
                      Adjusted
                        Exercise
                        Price
                      
                      
                      Liability
                        Recorded
                        1/1/2009
                      
                      
                      Additional
                        Liability
                        Recorded
                        9/30/2009
                      
                      
                      FairValue
                        9/30/20092,669,065
                      
                      $
                      5.85
                      
                      
                      
                      9,741,267
                      
                      
                      $
                      1.60
                      
                      
                      $
                      61
                      
                      
                      $
                      7
                      
                      
                      $
                      68320,000
                      
                      $
                      4.50
                      
                      
                      
                      1,157,755
                      
                      
                      $
                      1.24
                      
                      
                      $
                      12
                      
                      
                      $
                      2
                      
                      
                      $
                      14





The
Company used the following assumptions in calculation of the Black-Scholes
model: no expected dividend yield, estimated volatility 66.7%, risk-free
interest rate of 1.82% and maturity of two years.





During
the quarter ended September 30, 2009, a gain of $396 was recorded under ASC 815.
The total loss resulting for the nine months ended September 30, 2009 is $8. The
Company evaluates the liability each reporting period and records the
appropriate gain or loss resulting from the change in the fair value of such
warrants.





3)      Shipping and handling
costs




Shipping
costs that are billable to the customer are included in revenue and shipping
costs that are payable to vendors and are included in the cost of revenues in
the accompanying consolidated statements of operations. Handling costs
consisting primarily of the third party logistics warehouse costs are included
in general and administrative expenses and for the quarters ended September 30,
2009 and 2008, were $44 and $155, respectively. Handling costs for the nine
months ended September 30, 2009 and 2008 were $234 and $434
respectively.





4)      Intangibles




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. No impairment was recorded at
September 30, 2009.





Note
4. Earnings (loss) per share





The
Company computes both the basic and diluted loss per share. Basic loss per share
is computed by dividing the loss available to common shareholders by the
weighted average common shares outstanding. Dilutive earnings per share would
include all common stock equivalents unless anti-dilutive.





Due to
losses in each period presented, the Company has not included the following
common stock equivalents in its computation of diluted loss per share as their
input would have been anti-dilutive.


September30,
                    
                    2009
                    
                    
                    2008Shares
      subject to stock warrants
                    
                    
                    59,249,022
                    
                    
                    
                    3,412,398Shares
      subject to stock options
                    
                    
                    4,296,023
                    
                    
                    
                    1,705,00063,545,045
                    
                    
                    
                    5,117,398





The EPS
for the three months ended September 30, 2009 and 2008 were $(0.12) and $(0.25),
respectively. EPS for the nine months ended September 30, 2009 and 2008 were
$(0.41) and $(0.55) respectively.


9





Note
5. Financing Arrangements





During the fourth quarter of 2008, the
Company received a $2,550,000 bridge loan provided by multiple accredited
investors. The bridge loan is in the form of Senior Secured Debentures and bears
interest at the rate of 18% per annum. In consideration, the investors received
warrants to purchase 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 the common stock of the Company. The Company is in default of this
agreement. See Note 8 for details on the bridge loan.





In March 2009, the Company initiated a
private placement offering to accredited investors. Investors may purchase
units, with each unit consisting of a senior convertible debenture for one share
of common stock of the Company, and a warrant, depending on the date of
investment, to acquire either two shares or one share of Common Stock for ten
years at a purchase price of $0.25 per share. The Debentures will 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
minimum and maximum number of units that may be sold in the private
placement  is 2,000,000 units and 15,000,000 units, respectively. As
of September 30, 2009, the Company has received investments in aggregate of
$1,315,000 which were held in an escrow account until April 29, 2009. The
Company then used the proceeds for inventory needs and for outstanding vendor
payables.





In March 2009, the Company entered into
an independent twelve month consulting agreement with Salzwedel Financial
Communications, Inc (“Salzwedel”), with the term expiring May 15, 2010.
Salzwedel will represent the Company in investors’ communications and 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 issued Salzwedel 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. Additionally the Company has agreed to pay Salzwedel
$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 Salzwedel
beneficially own five percent or more of the Company.





Note
6. 2005 Equity Incentive Plan and Stock Based Compensation





The
Company’s 2005 Equity Incentive Plan (“2005 Equity Incentive Plan”) is an
equity-based compensation plan in-place to provide incentives, and to attract,
motivate and retain the highest qualified employees, directors, consultants and
other third party service providers. The 2005 Equity Incentive Plan enables the
board to provide equity-based incentives through grants or awards of stock
options and restricted stock (collectively, “Incentive Awards”) to present and
future employees, consultants, directors, and other third party service
providers.





A minimum
of 7,000,000 and a maximum of 10,500,000 shares of common stock, subject to the
discretion of the Company’s Board of Directors, have been reserved for issuance
under the 2005 Equity Incentive Plan. If an Incentive Award granted pursuant to
the 2005 Equity Incentive Plan expires, terminates, expires and is unexercised
or is forfeited, or if any shares are surrendered to the Company in
connection with an Incentive Award, the shares subject to such award and the
surrendered shares will become available for future awards under the 2005 Equity
Incentive Plan. Options generally vest over a period of four years and have a
ten year contractual life.


10





Effective
January 1, 2006, the Company adopted ASC Topic 718 , “Stock- Based Compensation”
.. This pronouncement requires companies to measure the cost of employee service
received in exchange for a share based award (stock options  and
restricted stock) based on the fair value of the award. The Company has elected
to use the “modified prospective” transition method for stock options granted
prior to January 1, 2006, but for which the vesting period is not complete.
Under this transition method, the Company accounts for such awards on a
prospective basis, with expense being recognized in its statement of operations
beginning in the first quarter of 2006 and continuing over the remaining
requisite service period based on the estimated grant date fair value . The
Company recognizes these compensation costs on a straight-line basis over the
requisite service period of the award which is generally the option vesting term
of four years.





Stock
options





Stock
option activity under the Company’s 2005 Equity Incentive Plan for the nine
months ended September 30, 2009 is summarized as follows:




Shares
                      
                      
                      Weighted-
                        Average
                        exercise price
                        per shareOutstanding
      at December 31, 2008
                      
                      
                      1,568,500
                      
                      
                      
                      1.18Granted
                      
                      
                      56,000
                      
                      
                      
                      0.29Exercised
                      
                      
                      -
                      
                      
                      
                      -Surrendered
                      
                      
                      (80,000
                      )
                      
                      
                      0.99Outstanding
      at March 31, 2009
                      
                      
                      1,544,500
                      
                      
                      
                      1.15Granted
                      
                      
                      3,872,194
                      
                      
                      
                      0.38Exercised
                      
                      
                      -
                      
                      
                      
                      -Surrendered
                      
                      
                      -
                      
                      
                      
                      -Outstanding
      at June 30, 2009
                      
                      
                      5,416,694
                      
                      
                      
                      0.60Granted
                      
                      
                      -Exercised
                      
                      
                      -Surrendered
                      
                      
                      (1,120,671
                      )
                      
                      
                      0.54Outstanding
      at September 30, 2009
                      
                      
                      4,296,023
                      
                      
                      
                      0.62Exercisable
      at September 30, 2009
                      
                      
                      1,013,875
                      
                      
                      
                      1.24





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:




September 30,2009
                    
                    
                    2008Risk
      - free interest rate
                    
                    
                    4.0
                    %
                    
                    
                    5.0
                    %Dividend
      yield
                    
                    
                    0.0
                    %
                    
                    
                    0.0
                    %Expected
      volatility
                    
                    
                    85.8
                    %
                    
                    
                    68.0
                    %Expected
      life (years)
                    
                    
                    6.0
                    
                    
                    
                    6.0Weighted
      average grant date fair value
                    
                    $
                    0.22
                    
                    
                    $
                    0.77Estimated
      forfeiture rate
                    
                    
                    0.0
                    %
                    
                    
                    31.8
                    %





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.


11




The
following table summarizes additional information regarding outstanding and
exercisable options at September 30, 2009.





Outstanding
                        
                        
                        ExercisableExercise
                          Price
                        
                        Number
                          Outstanding at
                          September 30, 2009
                        
                        
                        Weighted
                          Average
                          Exercise
                          Price
                        
                        
                        Weighted
                          Average
                          Remaining
                          Contractual
                          Life
                        
                        
                        Number Exercisable at
                          September 30, 2009
                        
                        
                        Weighted
                          Average
                          Exercise
                          Price.01-2.00
                        
                        
                        4,231,023
                        
                        
                        $
                        0.58
                        
                        
                        
                        9.6
                        
                        
                        
                        967,625
                        
                        
                        $
                        1.152.01
      - 4.00
                        
                        
                        55,000
                        
                        
                        $
                        2.89
                        
                        
                        
                        8.3
                        
                        
                        
                        38,750
                        
                        
                        $
                        2.904.01
      - 5.00
                        
                        
                        10,000
                        
                        
                        $
                        4.50
                        
                        
                        
                        6.3
                        
                        
                        
                        7,500
                        
                        
                        $
                        4.504,296,023
                        
                        
                        $
                        0.62
                        
                        
                        
                        9.57
                        
                        
                        
                        1,013,875
                        
                        
                        $
                        1.24





As of
September 30, 2009 there was $686,000 of total unrecognized compensation cost
related to the non-vested option awards under the 2005 Equity Incentive Plan.
That cost is expected to be recognized over the remaining vesting period of the
non-vested option awards.





Restricted
Stock





As of
September 2009, there was no unvested restricted common stock
outstanding.





Stock–based
Compensation Expense





Stock-based
compensation expense recognized  related to the 2005 Equity Incentive
Plan for the three months and nine months ended September 30, 2009 and 2008 was
as follows:





Dollars in ThousandsThree Months Ended September
                30, 2009
              
              
              Nine Months Ended
                September 30, 20092009
              
              
              2008
              
              
              2009
              
              
              2008Stock
      Options
              
              $
              78
              
              
              $
              92
              
              
              $
              177
              
              
              $
              315


12





Note
7. Common Stock warrants





Warrants
were issued in conjunction with the private offering in 2005, with a 3-year term
expired in October 2008. These warrants were issued to purchase 333,333 shares
of common stock with an exercise price of $4.50 per share and had a life of
three years.





In March
2009, the Company issued a warrant to purchase 3,000,000 shares of common stock
to an investor relations firm. See Note 5 for further discussion. Pursuant to
this agreement, an investor who owns greater than 5% of our common stock,
surrendered 1.6 million warrants that were issued in conjunction with the bridge
loan in 2008.





In March
2009, the Company issued a five year warrant to purchase 150,000 shares of
common stock to a consultant of the Company as compensation for consulting
services.





In April
2009, the Company issued five year warrants to purchase 5,260,000 shares of
common stock to investors that participated in the senior secured debenture
discussed in note 5 above.





In
conjunction with stock warrant issuances in 2008 and 2009, the Company adjusted
the exercise price and the shares of warrants that were issued in December 2005
and February 2006. The warrants that are adjusted are as follows:





Warrants
                  
                  
                  Original
                    Exercise Price
                  
                  
                  Adjusted
                    Number of
                    Warrants
                  
                  
                  Adjusted
                    Exercise Price2,669,065
                  
                  
                  $
                  5.85
                  
                  
                  
                  9,741,267
                  
                  
                  $
                  1.60320,000
                  
                  
                  $
                  4.50
                  
                  
                  
                  1,157,755
                  
                  
                  $
                  1.24


13




Note 8.  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
$25.0 million. The obligations under the Credit Agreement and all related
agreements were secured by all of the Company assets. The initial term of the
Agreement was three years, expiring on April 28, 2009. Up to $7.0 million
of the maximum amount was available for irrevocable, standby and documentary
letters of credit. The Credit Agreement required a prepayment fee of $125,000 if
the Company terminated the Credit Agreement during the third year. The Credit
Agreement required the Company, among other things, to limit capital
expenditures and maintain minimum availability on the line.  The
Credit Agreement also required the Company to pay a variety of other fees and
expenses, including minimum annual interest of $120,000.





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
restructuring of the Company in 2008, the Company was unable to meet the
financial covenants.





On
October 15, 2008, the Company paid off-the outstanding balance owed to Wells
Fargo Bank terminating the Credit Agreement specified above. Pursuant to the
pay-off agreement, the Company paid a forbearance agreement fee of $50,000 and
early termination fee of $125,000. Wells Fargo Bank has also released its
security interest in the Company’s collateral.




During
the fourth quarter of 2008, the Company received a $2,550,000 bridge loan
provided by multiple accredited investors of which $2,450,000 is currently
outstanding. The bridge loan is in the form of  a Senior Secured
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 $8,752,000 based on a volatility range of 66.71%-83.60% and an
interest rate range of 1.22%-4.08%.





Per ASC
470-20 the Company recorded fair value of the warrants using a relative fair
value of the warrants and debt. The resulting discount of $1,975,000 was
amortized $987,000, $531,000, $303,000 and $154,000 in the three months ended
December 31, 2008, March 31, 2009, June 30, 2009 and September 30, 2009,
respectively. At September 30, 2009 the discount was fully
amortized.





On
January 14, 2009, July 16, 2009 and subsequently on August 19, 2009 the Company
received extensions from certain accredited investors who previously made total
commitments for an aggregate of $2,550,000.  During the first quarter
of 2009, the Company paid off $100,000 associated with the bridge
loan.





In March
2009, the Company initiated a private placement offering to accredited
investors. Investors may purchase units, with each unit consisting of a senior
convertible debenture for one share of common stock of the Company, and a
warrant, depending on the date of investment, to acquire either two shares or
one share of Common Stock for ten years at a purchase price of $0.25 per share.
The Debentures  pay interest at a rate of 12% per annum, have a term
of 30 months and are convertible into the Company’s common stock at any time at
the option of the investor.  The Company  received
investments in aggregate of $1,315,000 which were held in an escrow account
until April 29, 2009. The Company used  the proceeds based on the
corporate strategy and immediate inventory needs. Of the $1,315,000 proceeds
received, $25,000 was used for legal expenses while $60,000 was paid to the
brokers who assisted with the offering.





An
aggregate of 1,600,000 warrants were surrendered by an investor in the bridge
loan financing in conjunction with the agreement with the investor relations
firm, described previously. These warrants were exercisable at $0.25 per
share.





During
the nine months ended September 30, 2009 the Company maintained short term
secured inventory flooring facilities with private individuals. Outstanding
balances on the flooring facilities bear interest between 36.0% to 52.0% on an
annual percentage basis. The balance outstanding as of September 30, 2009 was
$869,000.




Note
9. Segment Information





During  2008,
the Company commenced efforts to change its business model. Concurrent with this
change, the Company reorganized the segments based on the business units. Each
segment provides a combination of seller solutions for sellers to efficiently
liquidate their inventory. The seller solutions offered by the Company are:
Certified Merchant (CM), Managed Supply and Cash Recovery. Each of the business
segments, except commerce innovations, can offer the three seller
solutions.


14




The
revenue and gross profit breakdown of the Company based on the five business
segments, after the transition is as follows:


(The
Company does not summarize expenses based on the segments).




(Dollars in Thousands)Three months Ended September 30,
            
            
            Nine months Ended September 30,2009
            
            
            
            
            
            2008
            
            
            
            
            
            2009
            
            
            
            
            
            2008Net RevenueuBid,com
            
            $
            814
            
            
            
            10.9
            %
            
            $
            4,925
            
            
            
            55.2
            %
            
            $
            5,078
            
            
            
            32.7
            %
            
            $
            15,742
            
            
            
            64.3
            %RedTag.com
            
            
            325
            
            
            
            4.4
            %
            
            
            -
            
            
            
            -
            
            
            
            571
            
            
            
            3.7
            %
            
            
            -
            
            
            
            -RedTag
      Live
            
            
            4,682
            
            
            
            62.9
            %
            
            
            1,284
            
            
            
            14.4
            %
            
            
            5,485
            
            
            
            35.4
            %
            
            
            1,284
            
            
            
            5.2
            %Dibu
      Trading Co.
            
            
            1,620
            
            
            
            21.8
            %
            
            
            2,708
            
            
            
            30.4
            %
            
            
            4,380
            
            
            
            28.2
            %
            
            
            7,458
            
            
            
            30.5
            %Commerce
      Innovations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            7,441
            
            
            
            100.0
            %
            
            $
            8,917
            
            
            
            100.0
            %
            
            $
            15,514
            
            
            
            100.0
            %
            
            $
            24,484
            
            
            
            100.0
            %Gross ProfituBid,com
            
            $
            520
            
            
            
            33.5
            %
            
            $
            1,286
            
            
            
            263.0
            %
            
            $
            2,323
            
            
            
            60.7
            %
            
            $
            3,800
            
            
            
            103.4
            %RedTag.com
            
            
            48
            
            
            
            3.1
            %
            
            
            -
            
            
            
            -
            
            
            
            82
            
            
            
            2.1
            %
            
            
            -
            
            
            
            -RedTag
      Live
            
            
            811
            
            
            
            52.3
            %
            
            
            189
            
            
            
            38.7
            %
            
            
            997
            
            
            
            26.1
            %
            
            
            189
            
            
            
            5.1
            %Dibu
      Trading Co.
            
            
            171
            
            
            
            11.0
            %
            
            
            (986
            )
            
            
            (201.6
            )%
            
            
            423
            
            
            
            11.1
            %
            
            
            (314
            )
            
            
            (9
            )%Commerce
      Innovations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            1,550
            
            
            
            100.0
            %
            
            $
            489
            
            
            
            100.0
            %
            
            $
            3,825
            
            
            
            100.0
            %
            
            $
            3,675
            
            
            
            100.0
            %Gross
      Profit %uBid,com
            
            
            63.9
            %
            
            
            
            
            
            
            26.1
            %
            
            
            
            
            
            
            45.7
            %
            
            
            
            
            
            
            24.1
            %RedTag.com
            
            
            14.8
            %
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            14.4
            %
            
            
            
            
            
            
            -RedTag
      Live
            
            
            17.3
            %
            
            
            
            
            
            
            14.7
            %
            
            
            
            
            
            
            18.2
            %
            
            
            
            
            
            
            14.7
            %Dibu
      Trading Co.
            
            
            10.6
            %
            
            
            
            
            
            
            (36.4
            )%
            
            
            
            
            
            
            9.7
            %
            
            
            
            
            
            
            (4.2
            )%Commerce
      Innovations
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            -Total
            
            
            20.8
            %
            
            
            
            
            
            
            5.5
            %
            
            
            
            
            
            
            24.7
            %
            
            
            
            
            
            
            15.0
            %





Note
10. Going Concern





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern, considering the
Company realizes the assets and liquidates the liabilities in the
normal course of business. As of September 30, 2009 the Company had accumulated
a deficit of approximately $53,731,000. The Company has incurred losses in the
last 11 years, significantly so in the last two years, attributable to
operations and the change in the business model. The Company has managed its
liquidity during this time through a series of cost reduction initiatives and
short-term financing transactions. However, the current credit market remains
volatile which affects the Company’s ability to raise long-term capital
financing and inventory financing needed in its business.





The
Company’s plans to alleviate this condition consist of, but are not limited to
the following:





·
            Restructuring
      all secured and unsecured debt,





·
            Enter into an asset based lending
      credit line (ABL) of approximately
  $3,000,000,





·
            Increase revenues through the
      introduction of diversified product lines to serve the asset recovery
      industry,





·
            Increase revenues through the
      introduction of customer transaction fees and restructuring of CM vendor
      rate card, and





·
            Cost reduction plans including
      completing the consolidation of corporate, warehouse and customer care
      facilities and reducing head
count.





However,
there is no assurance that the Company will be successful in these efforts,
which raises substantial doubt as to its ability to continue as a going
concern.





Note
11. Subsequent Events





The
Company has evaluated subsequent events through November 20 , 2009 the date the
financial statements were issued.





The
existing bridge loan expired on September 15, 2009. The Company is in discussion
with the investors on restructuring the loan.




On August
4, the Company received a notice from the SEC notifying the Company that the
Company’s 2008 Form 10-K and the Form 10-Q for the period ended March 31, 2009
have been selected for review. Management replied to the SEC comments and filed
an amended Form 10-KA  and the Form 10-QA for the period ended March
31, 2009 on October 5, 2009. On October 27, 2009, the Company received a second
notice from the SEC with additional questions on Form 10KA and Form 10QA for the
period ended March 31, 2009. Management has reviewed the SEC comments and does
not anticipate any material adjustments.





On
October 9, 2009 Robert T. Geras resigned from his position as a director of the
Company for personal reasons.  The remaining four members of the
Company’s Board of Directors have initiated the process of replacing this open
board seat as soon as possible.





On
October 9, 2009, the Company received total commitments for a $500,000 loan in
the form of 2009 Convertible Promissory Notes (the “Loan”) provided by Hdibu
LLC, Theodore Deikel and Talos Partners LLC (collectively, the “Investors”). The
Loan bears interest at a rate of the then-posted U. S. Prime Rate plus 500 basis
points per annum and is due on November 30, 2009. The Loan is convertible into
the Company’s Series A Preferred Stock, at the option of the Investors, at a
conversion price of $0.10 per share, upon at least 30 days’ notice to the
Company. The Company intends to use the Loan for working capital. The rights and
preference of the Company’s Series A Preferred Stock is set forth in the
Certificate of Amendment of Certificate of Incorporation which is attached
hereto as Exhibit 3.1, which has not yet been filed with the Delaware Secretary
of State. The Loan was made pursuant to the terms of an Interim Loan Agreement
which was filed along with Form 8-K on October 16, 2009.





The
Company is negotiating a financial restructuring with its secured and unsecured
creditors which is being done at the same time the Company is attempting to
secure further financing.  There is no assurance the Company will be
successful with the financial restructuring. If the Company is not successful,
substantial doubt exists as to its ability to continue as a going
concern.


15





ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.





The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated condensed
financial statements and related notes included in Item 1 of Part 1 of this
Quarterly Report and the audited consolidated financial statements and notes
thereto and Management’s Discussion and Analysis of Financial Condition and
Results of Operations contained in the Company’s Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2008. Enable Holdings, Inc. is a holding
company for uBid, Inc., Dibu Trading Corp., RedTag, Inc., RedTag Live, Inc.,
Enable Payment Systems, Inc. and uSaas, Inc., our operating businesses. For
purposes of this Quarterly Report, unless otherwise indicated or the context
otherwise requires, all references herein to “Enable,” “we,” “us,” and “our”
refer to Enable Holdings, Inc. and our subsidiaries.





Information
in the following Management's Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this Quarterly Report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements provide current expectations or forecasts of future
events and can be identified by the use of terminology such as “believe,”
“estimate,” “expect,” “intend,” “may,” “could,” “will,” and similar words or
expressions. Any statement that is not a historical fact, including statements
regarding estimates, projections, future trends and the outcome of events that
have not yet occurred, is a forward-looking statement. Actual results could
differ materially from those projected in the forward-looking statements as a
result of a number of factors, including but not limited to  the risk
factors detailed in our filings with the SEC, including our Annual Report on
Form 10-K/A for the year ended December 31, 2008. We assume no obligation to
update such forward-looking statements or to update the reasons actual results
could differ materially from those anticipated in such forward-looking
statements.





Overview





We
operate leading online websites located at www.uBid.com and www.RedTag.com . The two
websites offer high quality excess, new, overstock, close-out, recertified and
limited supply brand name merchandise to both consumers and businesses using
auction style and fixed price formats. We offer consumers a trustworthy buying
environment in which we continually monitor and certify activity to minimize the
potential for fraud by certifying all merchants and processing 100% of all
transactions between buyers and sellers. Our online properties offer brand-name
merchandise from over 200 product categories including but not limited to,
computer products, consumer electronics, apparel, housewares, watches, jewelry,
travel, sporting goods, automobiles, home improvement products and
collectibles.





Our
current business model provides value for consumers, manufacturers,
distributors, retailers and other approved third party merchants. Consumers shop
in a trustworthy and secure online environment and have the opportunity to bid
their own prices on popular, brand-name products realizing product savings of
generally 20%-80% off retail prices. Our online properties provide merchants
with an efficient and economical distribution channel for maximizing revenue on
their merchandise. Merchants can monetize overstock and close-out inventory,
expand their customer base and increase sales without compromising existing
distribution channels.





Our
business model currently consists of three distinct business channels: Certified
Merchant (CM), Managed Supply and Cash Recovery.





We
sell merchandise through the CM Program channel by allowing prescreened third
party merchants to sell their products through our online marketplace to
consumers and businesses. On this merchandise, we do not take title and
therefore do not bear the related inventory risk. In the CM Program, we are the
primary obligor to whom payment is due, but we bear no inventory or returns
risk, so we record only our commission as revenue. Through the Managed Supply
channel, we sell inventory that is consigned to us. The inventory is either
stored at our warehouse or at the sellers'. We purchase merchandise outright in
the Cash Recovery channel and sell to consumers and businesses. On this
merchandise, we bear the inventory, return and credit risk. The full sales
amount is recorded as revenue upon verification of the credit card transaction
and shipment of the merchandise. In all instances where the credit card
authorization has been received but merchandise has not been shipped, we defer
revenue recognition until the merchandise is shipped.





Our
online properties are available 24 hours a day; seven days a week and we
currently offer over 200,000 items each day. Since the first offer of product in
December 1997, our marketplace has facilitated over $1 billion in net
revenues and has registered over five million members.





We
conduct live liquidation events at various times throughout the year. Live sales
are conducted over a short period of time (usually a week) and all the
merchandise is sold locally.





In
the first quarter of 2008, the Company began transforming its business model
from a seller marketplace to an asset recovery solution. Asset recovery is a
rapidly growing industry with revenues of $38.5 billion in 2004 and is
expected to climb to over $63.1 billion in 2009, according to D.F. Blumberg
Associates Inc., a logistics research and consulting firm.


16





We began
changing our business model in the first quarter of 2008 and continued
implementing those changes through the end of 2008. The seven proprietary
selling solutions within the five operating divisions are:





·
            uBid.com:Our flagship
      website, which has operated for 11 years. The website allows
      merchants to sell excess inventory and allows consumers to buy products in
      an auction as well as fixed price
format.





·
            RedTag.com:  Our  fixed price internet site offers name brand
      merchandise with a low shipping and handling fee of only
      $1.95.





·
            RedTag
      Live:Our live liquidation group, dedicated to selling through the
      traditional in-store sales and live liquidation
    sales.





·
            Dibu Trading
      Co.:A
      wholesale inventory liquidation company dedicated to Business-to-Business
      solutions, providing manufacturers and distributors the ability to sell
      large quantities of excess inventory. For example, when a retailer needs
      to liquidate a large quantity of inventory, they contact us to find a
      buyer that will buy the entire inventory in a single transaction. Our B2B
      experience allows us to present deals to multiple interested buyers to
      achieve the most profitable
transaction.





·
            Commerce
      Innovations:A software service company which licenses auction software to
      third party companies. Companies, businesses and governments can use our
      platform to sell excess furniture, appliances, autos, and other surplus.
      This allows them to utilize a trusted platform while reducing live auction
      costs, as well as an efficient way to reach a wider target
      audience.




Our financial
results in 2008 and the first three quarters of 2009 were negatively impacted by
the planned change in the business model and the severe global economic
downturn. To achieve the objective of becoming the leading excess inventory
provider, we made significant investments in increased staffing levels and
information technology infrastructure, specifically in the first nine months of
2008. We also made major changes to our traditional operations as we
transition to the new business model.




As
part of the transition to a new business model, we significantly reduced our
marketing spending while realigning the marketing and advertising resources to
better position them to each new operating division. We also made the
strategic decision to eliminate outside advertisement on our website.
Historically advertisement sales have added a revenue stream but have negatively
impacted overall sales by redirecting visitor traffic from our website to
competing websites.




The
transition from an auction marketplace to an asset solutions company also
required that operationally we improve the efficiency of our platform to enhance
the user experience. We significantly decreased the number of listings,
eliminating the unprofitable listings, while preparing to migrate fixed price
listings to the RedTag platform based on the new business model. The reduction
in the number of unprofitable listings improved our auction success rate and
provides efficiencies to both buyers and sellers on our
platform.


17





Executive
Commentary





Our
management believes that the most important financial and non-financial measures
that track our progress include sales, website traffic, total average order
value, gross margin, customer acquisition costs, advertising expense, personnel
costs, and fulfillment costs.




Key Business
Metrics : We
periodically review key business metrics to evaluate the effectiveness of our
operational strategies and the financial performance of our business. These key
metrics include the following:





2009
              
              
              2008
              
              
              2007Q3
              
              
              
              Q2
              
              
              
              Q1
              
              
              
              Q4
              
              
              
              Q3
              
              
              
              Q2
              
              
              
              Q1
              
              
              
              Q4uBid.comGMS
      (in Thousands)
              
              $
              5,113
              
              
              $
              9,555
              
              
              $
              11,821
              
              
              $
              12,374
              
              
              $
              14,385
              
              
              $
              17,117
              
              
              $
              16,671
              
              
              $
              21,765Number
      of orders (in thousands)
              
              
              52
              
              
              
              70
              
              
              
              81
              
              
              
              94
              
              
              
              95
              
              
              
              97
              
              
              
              95
              
              
              
              115Average
      Order Value
              
              $
              98
              
              
              $
              137
              
              
              $
              145
              
              
              $
              131
              
              
              $
              152
              
              
              $
              176
              
              
              $
              175
              
              
              $
              188Bidders
      to Visitors Percentage
              
              
              1.8
              %
              
              
              3.3
              %
              
              
              3.1
              %
              
              
              2.9
              %
              
              
              3.3
              %
              
              
              3.6
              %
              
              
              4.1
              %
              
              
              3.1
              %Auctions
      Closed (in Thousands)
              
              
              371
              
              
              
              373
              
              
              
              377
              
              
              
              383
              
              
              
              215
              
              
              
              181
              
              
              
              455
              
              
              
              780Auction
      Success rate
              
              
              10.0
              %
              
              
              13.0
              %
              
              
              14.4
              %
              
              
              15.0
              %
              
              
              26.6
              %
              
              
              30.9
              %
              
              
              12.9
              %
              
              
              8.6
              %RedTag.comGMS
      (in Thousands)
              
              $
              386
              
              
              $
              140
              
              
              $
              143
              
              
              $
              474
              
              
              $
              304
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Number
      of orders (in thousands)
              
              
              3
              
              
              
              2
              
              
              
              2
              
              
              
              5
              
              
              
              3
              
              
              
              -
              
              
              
              -
              
              
              
              -Average
      Order Value
              
              $
              122
              
              
              $
              88
              
              
              $
              83
              
              
              $
              96
              
              
              $
              119
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Bidders
      to Visitors Percentage
              
              
              10.4
              %
              
              
              3.5
              %
              
              
              9.6
              %
              
              
              30.2
              %
              
              
              15.1
              %
              
              
              -
              
              
              
              -
              
              
              
              -





(1)            RedTag.com was first launched in August
2008.




(Auctions
in these metrics refer to auctions and fixed price listings)




Gross
Merchandise Sales (GMS):     Gross Merchandise Sales
differ from GAAP revenue in that gross bookings represents the gross sales price
of goods sold by us (including sales through our CM Program) before returns,
sales discounts, and cancellations.




Number
of Orders:This represents the total number of orders shipped in a
specified period. We analyze the number of orders by category to evaluate the
effectiveness of our merchandising and advertising strategies as well as to
monitor our inventory management.




Average
Order Value: Average order value is the ratio of gross sales divided by
the number of orders shipped within a given time period. We analyze average
order value by category primarily to manage costs and other operating
expenses.




Visitors
to Bidder %: The percentage of visitors that bid on an auction item. We
use this as a measure of the effectiveness of advertising.




Auctions
Closed: A closed auction is an auction that has ended because it reached
the scheduled closing time for that auction. Auctions closed include both
successful auctions and auctions with no bids.




Auction
Success Rate: The percentage of closed auctions that were successful and
received at least one bid.





Revenue
Source: We derive most of our revenue from sales of products to consumers
and businesses as well as commission revenue earned for sales of merchandise
under revenue sharing agreements with third party sellers. We believe that the
principal drivers of our revenue consist of the average order value placed by
our customers, the number of orders placed by both existing and new customers,
special offers we make available that result in incremental orders, our ability
to attract new customers and advertising that impacts our revenue drivers. Sales
consist of orders placed through our uBid.com and RedTag.com websites, live
sales events and direct business to business sales. We further generate revenue
from shipping fees we charge our customers and advertising sales. We record our
revenue net of returns and other discounts. Our revenues may fluctuate from
period to period as a result of special offers we provide such as free shipping,
and other special promotions.


18





Our
revenue is dependent in part on sales of products produced by or purchased from
several vendors.  The following vendors accounted for revenues greater
than 5% of our total revenues in the nine months ended September 2009 and 2008.
No other supplier represented more than 5% of our net revenues for any period
presented.


Three Months Ended
              
              
              Nine Months EndedSeptember 30,
              
              
              September 30,Vendor
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008Always
      - at - Market
              
              
              10.5
              %
              
              
              5.5
              %
              
              
              7.1
              %
              
              
              6.3
              %Hewlett
      Packard Company
              
              
              7.9
              %
              
              
              29.8
              %
              
              
              35.3
              %
              
              
              36.7
              %Ecom
      Electronics
              
              
              6.2
              %
              
              
              0.6
              %
              
              
              2.2
              %
              
              
              0.3
              %Recoupit
              
              
              5.2
              %
              
              
              1.9
              %
              
              
              1.7
              %
              
              
              3.2
              %Westinghouse
      Digital
              
              
              0.3
              %
              
              
              5.4
              %
              
              
              1.7
              %
              
              
              2.0
              %Dealtree
              
              
              0.1
              %
              
              
              6.8
              %
              
              
              0.0
              %
              
              
              4.3
              %





Cost of
Revenues : Cost
of revenues primarily consists of the cost of the product and inbound and
outbound shipping. There is no cost of revenues for UCM Program revenue. Cost of
revenues does not include order fulfillment costs, which are included in general
and administrative expenses.





Gross
Profits: Our gross profit margins are impacted by a number of factors
including the category of merchandise, the introduction of new product
categories, the mix of sales among our product categories, pricing of products
by our vendors, pricing strategies, promotional programs, market conditions,
packaging, excess and obsolete inventory charges and other factors. Gross
profits and gross profit percentages are not comparable to gross profit and
gross profit percentages reported by companies that include order fulfillment
costs in the cost of revenues.





Results
of Operations (Dollars in Thousands)





Comparison
of three months ended September 30, 2009 and 2008


(Dollars
in thousands, except per share data and average order value)





The  below
sets forth certain data from our statement of operations as a percentage of net
revenues as well as the increase (decrease) in quarter ended September 2009 as
compared to September 2008. This information should be read in conjunction with
our financial statements and notes thereto included elsewhere in this
report.


19




(Dollars in Thousands)Three months ended September 30,2009
                        
                        
                        2008
                        
                        
                        Increase (Decrease)Net
      Revenues:uBid.com
                        
                        $
                        814
                        
                        
                        
                        10.9
                        %
                        
                        $
                        4,925
                        
                        
                        
                        55.2
                        %
                        
                        $
                        (4,111
                        )
                        
                        
                        (83.5
                        )%RedTag.com
                        
                        
                        325
                        
                        
                        
                        4.4
                        %
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        325
                        
                        
                        
                        100.0
                        %RedTag
      LIVE
                        
                        
                        4,682
                        
                        
                        
                        62.9
                        %
                        
                        
                        1,284
                        
                        
                        
                        14.4
                        %
                        
                        
                        3,398
                        
                        
                        
                        264.6
                        %Dibu
      Trading Co.
                        
                        
                        1,620
                        
                        
                        
                        21.8
                        %
                        
                        
                        2,708
                        
                        
                        
                        30.4
                        %
                        
                        
                        (1,088
                        )
                        
                        
                        (40.2
                        )%Total
      Net Revenues
                        
                        
                        7,441
                        
                        
                        
                        100.0
                        %
                        
                        
                        8,917
                        
                        
                        
                        100.0
                        %
                        
                        
                        (1,476
                        )
                        
                        
                        (16.6
                        )%Gross
      Profit:uBid.com
                        
                        
                        520
                        
                        
                        
                        7.0
                        %
                        
                        
                        1,286
                        
                        
                        
                        14.4
                        %
                        
                        
                        (766
                        )
                        
                        
                        (59.6
                        )%RedTag.com
                        
                        
                        48
                        
                        
                        
                        0.6
                        %
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        48
                        
                        
                        
                        100.0
                        %RedTag
      LIVE
                        
                        
                        811
                        
                        
                        
                        10.9
                        %
                        
                        
                        189
                        
                        
                        
                        2.1
                        %
                        
                        
                        622
                        
                        
                        
                        329.1
                        %Dibu
      Trading Co.
                        
                        
                        171
                        
                        
                        
                        2.3
                        %
                        
                        
                        (986
                        )
                        
                        
                        (11.1
                        )%
                        
                        
                        1,157
                        
                        
                        
                        117.3
                        %Total
      Gross Profit
                        
                        
                        1,550
                        
                        
                        
                        20.8
                        %
                        
                        
                        489
                        
                        
                        
                        5.5
                        %
                        
                        
                        1,061
                        
                        
                        
                        217.0
                        %General
      and administrative
                        
                        
                        3,278
                        
                        
                        
                        44.1
                        %
                        
                        
                        3,916
                        
                        
                        
                        43.9
                        %
                        
                        
                        (638
                        )
                        
                        
                        (16.3
                        )%Sales
      and marketing
                        
                        
                        198
                        
                        
                        
                        2.7
                        %
                        
                        
                        1,059
                        
                        
                        
                        11.9
                        %
                        
                        
                        (861
                        )
                        
                        
                        (81.3
                        )%Total
      operating expenses
                        
                        
                        3,476
                        
                        
                        
                        46.7
                        %
                        
                        
                        4,975
                        
                        
                        
                        55.8
                        %
                        
                        
                        (1,499
                        )
                        
                        
                        (30.1
                        )%Loss
      from operations
                        
                        
                        (1,926
                        )
                        
                        
                        (25.9
                        )%
                        
                        
                        (4,486
                        )
                        
                        
                        (50.3
                        )%
                        
                        
                        2,560
                        
                        
                        
                        57.1
                        %Interest
      Expense, net
                        
                        
                        (702
                        )
                        
                        
                        (9.4
                        )%
                        
                        
                        (199
                        )
                        
                        
                        (2.2
                        )%
                        
                        
                        503
                        
                        
                        
                        252.8
                        %Other
      Expense
                        
                        
                        (134
                        )
                        
                        
                        (1.8
                        )%
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (134
                        )
                        
                        
                        100.0
                        %Gain/(loss)
      on financial instruments
                        
                        
                        396
                        
                        
                        
                        5.3
                        %
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        396
                        
                        
                        
                        100.0
                        %Net
      Loss
                        
                        $
                        (2,366
                        )
                        
                        
                        (31.8
                        )%
                        
                        $
                        (4,685
                        )
                        
                        
                        (52.5
                        )%
                        
                        $
                        2,319
                        
                        
                        
                        (49.5
                        )%





Revenue




Web
Properties:  uBid.com and RedTag.com




Net
revenue decreased 83.5% and gross profit decreased 59.6% in the quarter ended
September 30, 2009 compared to the same period in 2008. The decreased revenue
was primarily attributable to capital constraints impacting the Company’s
ability to purchase inventory for sale and pay the certified merchants on a
timely basis. Inventory available for website sales decreased 59.5% to $920 at
September 30, 2009 compared to $2,274 at September 30, 2008. The liquidity
constraints were the primary factor causing a decrease in the number of orders
to 52 in the three months ended September 30, 2009 compared to 95 in the three
months ended September 30, 2008. Reduced product offerings due to the decrease
in inventory availability during the three months ended September 2009 resulted
in a decrease in the number of visitors which negatively impacted the average
order value, visitor to bidder ratio and auctions closed.





Offline
Sales Channels: Dibu Trading Co. and RedTag Live




Net
revenue for the offline sales channels increased approximately 224.5% in the
third quarter of 2009 as compared to 2008, which was due to a higher number of
live liquidation events in 2009 versus 2008. Dibu trading revenues decreased
$1,088 or 40.2% as a result of the liquidity constraints.


20





Sales,
General and Administrative Expenses




Sales and
marketing, general and administrative (“SG&A”) expenses consist primarily of
sales and marketing expenses, including online marketing activities, order
fulfillment and other costs, such as personnel, rent, warehouse and handling,
common area maintenance, depreciation, credit card processing charges,
insurance, legal and accounting fees. The following is a summary of the SG&A
expenses:


(Dollars in Thousands)Three Months EndedIncreaseSG&A Expenses:
                    
                    September 30, 2009
                    
                    
                    September 30, 2008
                    
                    
                    (Decrease)Salary
      and benefits
                    
                    $
                    1,155
                    
                    
                    $
                    1,596
                    
                    
                    $
                    (441
                    )Advertising
                    
                    
                    153
                    
                    
                    
                    752
                    
                    
                    
                    (599
                    )RedTag
      Live Events
                    
                    
                    744
                    
                    
                    
                    386
                    
                    
                    
                    358Credit
      card fees
                    
                    
                    145
                    
                    
                    
                    366
                    
                    
                    
                    (221
                    )Legal,
      audit, insurance, and other regulatory fees
                    
                    
                    525
                    
                    
                    
                    335
                    
                    
                    
                    190Consulting
      and outside services
                    
                    
                    84
                    
                    
                    
                    267
                    
                    
                    
                    (183
                    )Warehouse
                    
                    
                    58
                    
                    
                    
                    237
                    
                    
                    
                    (179
                    )Stock-based
      compensation
                    
                    
                    78
                    
                    
                    
                    92
                    
                    
                    
                    (14
                    )Telecommunications,
      hardware and storage
                    
                    
                    156
                    
                    
                    
                    171
                    
                    
                    
                    (15
                    )Depreciation
      & amortization
                    
                    
                    146
                    
                    
                    
                    110
                    
                    
                    
                    36Other
      SG&A
                    
                    
                    75
                    
                    
                    
                    257
                    
                    
                    
                    (182
                    )Facilities
                    
                    
                    103
                    
                    
                    
                    65
                    
                    
                    
                    38Bad
      Debt
                    
                    
                    -
                    
                    
                    
                    200
                    
                    
                    
                    (200
                    )Travel
                    
                    
                    50
                    
                    
                    
                    80
                    
                    
                    
                    (30
                    )Dues
      & Subscriptions
                    
                    
                    4
                    
                    
                    
                    61
                    
                    
                    
                    (57
                    )$
                    3,476
                    
                    
                    $
                    4,975
                    
                    
                    $
                    (1,499
                    )





SGA
expenses decreased $1,499 or 30.14% in the quarter ended September 2009 as
compared to the quarter ended September 2008.  The primary reason for
the decrease in these expenses was the company-wide transition to an asset
recovery model, and the implementations of several cost reduction projects. The
primary categories contributing to the decrease are as follows:





·
            Advertising expenses decreased
      $599 or 79.6% due to the elimination of unprofitable and ineffective
      advertising campaigns, as previously
  described.





·
            Salary and benefits expenses
      decreased $441 or 27.6% due to staff reductions and salary
      reductions.





·
            RedTag Live event expenses
      increased $358 or 92.7% as a result of an increase in live liquidation
      events.





·
            Credit card fees decreased $221
      or 60.4% due to the decrease in sales volume at the web
      properties.





·
            Legal, audit, insurance, and
      other regulatory fees increased $190 or 56.7% primarily due to fees
      incurred in the convertible debt
  issuance.





·
            Consulting and outside services
      decreased $183 or 68.5% as we eliminated outside services related to
      market research and analysis that were engaged in
    2008.





·
            Warehouse
      expense decreased $179 or 75.5% as a result of the lower sales volumes and
      the move to a multi use facility that includes a
  warehouse.





·
            Bad
      Debt decreased $200.  During September 2008 the Company wrote
      off an aged receivable.





·
            Other
      SG&A decreased $182 or 70.8%. During the prior year the Company paid
      $175 to Wells Fargo to terminate their loan
  agreement.





Net
Losses




The
Company experienced a net loss of $2,366 or $0.12 per share for the three months
ended September 30, 2009 compared to a net loss of $4,685 or $0.25 per share for
the three months ended September 30, 2008. Net loss increased due to the
aforementioned change in the business model and the capital constraints
resulting in an increase in interest expense.





Interest
expense


Interest
expense increased $483 due to higher rates being charged on inventory
loans.


21




Comparison
of nine months ended September 30, 2009 and 2008


(Dollars
in thousands, except per share data and average order value)





The below
sets forth certain data from our statement of operations as a percentage of net
revenues as well as the increase (decrease) in the nine months ended September
2009 as compared to September 2008. This information should be read in
conjunction with our financial statements and notes thereto included elsewhere
in this report.




Nine
      months ended September 30,2009
                                                                                            
                                                                                            
                                                                                            2008
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            Increase (Decrease)Net
      Revenues:uBid.com
                                                                                            
                                                                                            $
                                                                                            5,078
                                                                                            
                                                                                            
                                                                                            
                                                                                            32.7
                                                                                            %
                                                                                            
                                                                                            $
                                                                                            15,742
                                                                                            
                                                                                            
                                                                                            
                                                                                            64.3
                                                                                            %
                                                                                            
                                                                                            $
                                                                                            (10,664
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (67.7
                                                                                            )%RedTag.com
                                                                                            
                                                                                            
                                                                                            571
                                                                                            
                                                                                            
                                                                                            
                                                                                            3.7
                                                                                            %
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            571
                                                                                            
                                                                                            
                                                                                            
                                                                                            100.0
                                                                                            %RedTag
      LIVE
                                                                                            
                                                                                            
                                                                                            5,485
                                                                                            
                                                                                            
                                                                                            
                                                                                            35.4
                                                                                            %
                                                                                            
                                                                                            
                                                                                            1,284
                                                                                            
                                                                                            
                                                                                            
                                                                                            5.2
                                                                                            %
                                                                                            
                                                                                            
                                                                                            4,201
                                                                                            
                                                                                            
                                                                                            
                                                                                            327.2
                                                                                            %Dibu
      Trading Co.
                                                                                            
                                                                                            
                                                                                            4,380
                                                                                            
                                                                                            
                                                                                            
                                                                                            28.2
                                                                                            %
                                                                                            
                                                                                            
                                                                                            7,458
                                                                                            
                                                                                            
                                                                                            
                                                                                            30.5
                                                                                            %
                                                                                            
                                                                                            
                                                                                            (3,078
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (41.3
                                                                                            )%Total
      Net Revenues
                                                                                            
                                                                                            
                                                                                            15,514
                                                                                            
                                                                                            
                                                                                            
                                                                                            100.0
                                                                                            %
                                                                                            
                                                                                            
                                                                                            24,484
                                                                                            
                                                                                            
                                                                                            
                                                                                            100.0
                                                                                            %
                                                                                            
                                                                                            
                                                                                            (8,970
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (36.6
                                                                                            )%Gross
      Profit:uBid.com
                                                                                            
                                                                                            
                                                                                            2,323
                                                                                            
                                                                                            
                                                                                            
                                                                                            15.0
                                                                                            %
                                                                                            
                                                                                            
                                                                                            3,800
                                                                                            
                                                                                            
                                                                                            
                                                                                            15.5
                                                                                            %
                                                                                            
                                                                                            
                                                                                            (1,477
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (38.9
                                                                                            )%RedTag.com
                                                                                            
                                                                                            
                                                                                            82
                                                                                            
                                                                                            
                                                                                            
                                                                                            0.5
                                                                                            %
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            82
                                                                                            
                                                                                            
                                                                                            
                                                                                            100.0
                                                                                            %RedTag
      LIVE
                                                                                            
                                                                                            
                                                                                            997
                                                                                            
                                                                                            
                                                                                            
                                                                                            6.4
                                                                                            %
                                                                                            
                                                                                            
                                                                                            189
                                                                                            
                                                                                            
                                                                                            
                                                                                            0.8
                                                                                            %
                                                                                            
                                                                                            
                                                                                            808
                                                                                            
                                                                                            
                                                                                            
                                                                                            427.5
                                                                                            %Dibu
      Trading Co.
                                                                                            
                                                                                            
                                                                                            423
                                                                                            
                                                                                            
                                                                                            
                                                                                            2.7
                                                                                            %
                                                                                            
                                                                                            
                                                                                            (314
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (1.3
                                                                                            )%
                                                                                            
                                                                                            
                                                                                            737
                                                                                            
                                                                                            
                                                                                            
                                                                                            234.7
                                                                                            %Total
      Gross Profit
                                                                                            
                                                                                            
                                                                                            3,825
                                                                                            
                                                                                            
                                                                                            
                                                                                            24.7
                                                                                            %
                                                                                            
                                                                                            
                                                                                            3,675
                                                                                            
                                                                                            
                                                                                            
                                                                                            15.0
                                                                                            %
                                                                                            
                                                                                            
                                                                                            150
                                                                                            
                                                                                            
                                                                                            
                                                                                            4.1
                                                                                            %General
      and administrative
                                                                                            
                                                                                            
                                                                                            9,002
                                                                                            
                                                                                            
                                                                                            
                                                                                            58.0
                                                                                            %
                                                                                            
                                                                                            
                                                                                            11,087
                                                                                            
                                                                                            
                                                                                            
                                                                                            45.3
                                                                                            %
                                                                                            
                                                                                            
                                                                                            (2,085
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (18.8
                                                                                            )%Sales
      and marketing
                                                                                            
                                                                                            
                                                                                            786
                                                                                            
                                                                                            
                                                                                            
                                                                                            5.1
                                                                                            %
                                                                                            
                                                                                            
                                                                                            2,353
                                                                                            
                                                                                            
                                                                                            
                                                                                            9.6
                                                                                            %
                                                                                            
                                                                                            
                                                                                            (1,567
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (66.6
                                                                                            )%Total
      operating expenses
                                                                                            
                                                                                            
                                                                                            9,788
                                                                                            
                                                                                            
                                                                                            
                                                                                            63.1
                                                                                            %
                                                                                            
                                                                                            
                                                                                            13,440
                                                                                            
                                                                                            
                                                                                            
                                                                                            54.9
                                                                                            %
                                                                                            
                                                                                            
                                                                                            (3,652
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (27.2
                                                                                            )%Loss
      from operations
                                                                                            
                                                                                            
                                                                                            (5,963
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (38.4
                                                                                            )%
                                                                                            
                                                                                            
                                                                                            (9,765
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (39.9
                                                                                            )%
                                                                                            
                                                                                            
                                                                                            3,802
                                                                                            
                                                                                            
                                                                                            
                                                                                            (38.9
                                                                                            )%Interest
      Expense, net
                                                                                            
                                                                                            
                                                                                            (1,932
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (12.5
                                                                                            )%
                                                                                            
                                                                                            
                                                                                            (282
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (1.2
                                                                                            )%
                                                                                            
                                                                                            
                                                                                            (1,650
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (585.1
                                                                                            )%Other
      Expense
                                                                                            
                                                                                            
                                                                                            (156
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (1.0
                                                                                            )%
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            (156
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (100.0
                                                                                            )%Gain/(loss)
      on financial instruments
                                                                                            
                                                                                            
                                                                                            (8
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (0.1
                                                                                            )%
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            -
                                                                                            
                                                                                            
                                                                                            
                                                                                            (8
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (100.0
                                                                                            )%Net
      Loss
                                                                                            
                                                                                            $
                                                                                            (8,059
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (51.9
                                                                                            )%
                                                                                            
                                                                                            $
                                                                                            (10,047
                                                                                            )
                                                                                            
                                                                                            
                                                                                            (41.0
                                                                                            )%
                                                                                            
                                                                                            $
                                                                                            1,988
                                                                                            
                                                                                            
                                                                                            
                                                                                            (19.8
                                                                                            )%




Revenue




Web
Properties:  uBid.com and RedTag.com




Net
revenue decreased 67.7% and gross profit decreased 38.9% in the nine months
ended September 30, 2009 compared to the same period in 2008. The decreased
revenue was primarily attributable to capital constraints impacting the
Company’s ability to purchase inventory for sale and pay certified merchants on
a timely basis. The liquidity constraints were the primary factor causing a
decrease in the number of orders to 203 in the nine months ended September 30,
2009 compared to 287 in the nine months ended September 30, 2008. The Company
launched a fixed price online property (RedTag.com) in August 2008 which added
$571 in revenue for the nine months ended September 2009.





Offline
Sales Channels: Dibu Trading Co. and RedTag Live




Net
revenue for the offline sales channels increased 285.9% in the nine months ended
September 30, 2009 as compared to 2008. The lower inventories in the offline
channels resulted in lower Dibu revenues. RedTag Live revenue increased $4,201
or 427.5% in the nine months ended September 30, 2009 compared to September
2008.  The increase resulted from an increased number of live
liquidation events conducted in the current period compared to the same period
of the prior year.




22




Sales,
General and Administrative Expenses




Sales and
marketing, general and administrative (“SG&A”) expenses consist primarily of
sales and marketing expenses, including online marketing activities, order
fulfillment and other costs, such as personnel, rent, warehouse and handling,
common area maintenance, depreciation, credit card processing charges,
insurance, legal and accounting fees. The following is a summary of the SG&A
expenses:





(Dollars
      in Thousands)Nine
      Months EndedSG&A
      Expenses:
                                        
                                        September 30, 2009
                                        
                                        
                                        September 30, 2008
                                        
                                        
                                        Increase(Decrease)Salary
      and benefits
                                        
                                        $
                                        3,531
                                        
                                        
                                        $
                                        4,934
                                        
                                        
                                        $
                                        (1,403
                                        )Advertising
                                        
                                        
                                        589
                                        
                                        
                                        
                                        1,524
                                        
                                        
                                        
                                        (935
                                        )RedTag
      Live Events
                                        
                                        
                                        1,205
                                        
                                        
                                        
                                        1,012
                                        
                                        
                                        
                                        193Credit
      card fees
                                        
                                        
                                        683
                                        
                                        
                                        
                                        1,161
                                        
                                        
                                        
                                        (478
                                        )Legal,
      audit, insurance, and other regulatory fees
                                        
                                        
                                        1,423
                                        
                                        
                                        
                                        1,057
                                        
                                        
                                        
                                        366Consulting
      and outside services
                                        
                                        
                                        318
                                        
                                        
                                        
                                        776
                                        
                                        
                                        
                                        (458
                                        )Warehouse
                                        
                                        
                                        361
                                        
                                        
                                        
                                        646
                                        
                                        
                                        
                                        (285
                                        )Stock-based
      compensation
                                        
                                        
                                        177
                                        
                                        
                                        
                                        315
                                        
                                        
                                        
                                        (138
                                        )Telecommunications,
      hardware and storage
                                        
                                        
                                        495
                                        
                                        
                                        
                                        518
                                        
                                        
                                        
                                        (23
                                        )Depreciation
      & amortization
                                        
                                        
                                        424
                                        
                                        
                                        
                                        419
                                        
                                        
                                        
                                        5Other
      SG&A
                                        
                                        
                                        121
                                        
                                        
                                        
                                        356
                                        
                                        
                                        
                                        (235
                                        )Facilities
                                        
                                        
                                        275
                                        
                                        
                                        
                                        194
                                        
                                        
                                        
                                        81Travel
                                        
                                        
                                        119
                                        
                                        
                                        
                                        211
                                        
                                        
                                        
                                        (92
                                        )Bad
      Debt
                                        
                                        
                                        -
                                        
                                        
                                        
                                        200
                                        
                                        
                                        
                                        (200
                                        )Dues
      & Subscriptions
                                        
                                        
                                        67
                                        
                                        
                                        
                                        117
                                        
                                        
                                        
                                        (50
                                        )$
                                        9,788
                                        
                                        
                                        $
                                        13,440
                                        
                                        
                                        $
                                        (3,652
                                        )




SGA
expenses decreased $3,652 or 27.2% for the nine months ended September 2009 as
compared to the same period September 2008. The primary categories contributing
to the decrease are as follows:





·
            Advertising
      expenses decreased $935 or 61.4% due to the elimination of unprofitable
      and ineffective advertising campaigns, as previously
      described.·
            Salary
      and benefits expenses decreased $1,403 or 28.4% due to staff reductions
      and salary cuts.·
            Credit
      card fees decreased $478 or 41.2% due to the decrease in sales volume at
      the web properties.·
            Legal,
      audit, insurance, and other regulatory fees increased $366 or 34.6%
      primarily due to fees incurred in the convertible debt
      issuance.·
            Consulting
      and outside services decreased $458 or 59% as we eliminated outside
      services related to market research and analysis that were engaged in
      2008.·
            Warehouse
      expense decreased $285 or 44.1% primarily as a result of the decreased
      sales volumes.·
            Bad
      Debt decreased $200 from the prior period as the Company wrote off an aged
      receivable in 2008.·
            Other
      SG&A decreased $235 or 66.0%. During 2008 the Company paid termination
      fees on its loan.





Interest
Expense


Interested
expense increased $1,932 primarily due to the aforementioned capital
constraints. The interest  expense related to the amortization of
bridge loan discount is $988 and $0 for the nine months ended September 2009 and
2008 respectively. Interest expense related to inventory financing was $472 and
$0 for the nine months ended September 2009 and 2008, respectively.





Net
Losses




The
Company experienced a net loss of $8,059 or $0.41 per share for the nine months
ended September 30, 2009 compared to a net loss of $10,047 or $0.55 per share
for the nine months ended September 30, 2008. The net loss decreased primarily
due to cost reductions as gross profit remained relatively
constant.





Liquidity
and Capital Resources





Net cash
used in operating activities for the nine months ended September 30, 2009 was
$1,202 compared to $6,018 used in the nine months ended September 30, 2008. Net
losses decreased $1,988 from reported for September 30, 2009 and 2008 operating
cash flows improved due to non cash charges of $2,749 for the nine months ended
September 30, 2009. Cash was also provided by changes in working capital items
of approximately $3,686.




Net
cash used in investing activities was $318 and $1,229 for the nine months ended
September 30, 2009 and 2008, respectively. Restricted cash changed by $462 as a
$212 security deposit for real estate was returned to the Company and credit
line guarantees of $250 were cancelled. The net cash used was due to capital
expenditures. The Company continues to implement a new back office system which
will eliminate costs and provide greater efficiencies. Restricted cash decreased
$462 due to the reduction of existing letters of credit.





Net cash
provided by financing activities was $1,714 for the nine months ended September
30, 2009, compared to $4,521 for the same period last year. The cash provided
was primarily from the proceeds of the convertible debenture discussed in Note 5
and proceeds from inventory financing.


23




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
$25,000,000. The amount actually available to the Company varied from time to
time, depending on, among other factors, the amount of eligible inventory and
the amount of eligible accounts receivable. The obligations under the Credit
Agreement and all related agreements were secured by all of the Company's
assets. The initial term of the Agreement was three years, expiring on April 28,
2009. Up to $7,000,000 of the maximum amount was available for irrevocable,
standby and documentary letters of credit. Advances under the Credit Agreement
incurred interest at a base rate (Wells Fargo Bank's prime rate) or LIBOR plus
2.5%. The Credit Agreement required a prepayment fee of $500,000 if the Company
terminated the Credit Agreement during its first year, $400,000 if it terminated
the Credit Agreement during its second year and $100,000 if the Company
terminated the Credit Agreement during the third year. The Credit Agreement
required the Company, among other things, to limit capital expenditures and
maintain minimum availability on the line. Also, the Company was obligated
contractually by a restrictive lock box arrangement. The Credit Agreement also
required the Company to pay a variety of other fees and expenses, including
minimum monthly interest of $10,000.





On July
25, 2008, Wells Fargo Bank notified the Company of the Company's failure to meet
the minimum excess availability requirement of $3,500,000. Since the Company did
not meet the minimum excess availability requirement as stated in the agreement,
the financial covenants went into effect which required that the Company
demonstrate net earnings at the levels stated in the agreement. Due to the
change in the business model of the Company in 2008, it was unable to meet the
covenants. On October 15, 2008, the Company paid off-the outstanding
balance owed to Wells Fargo Bank terminating the Credit Agreement specified
above. Pursuant to the pay-off agreement, the Company paid a forbearance
agreement fee of $50,000 and early termination fee of $125,000. Wells Fargo Bank
has also released its security interest in the Company's
collateral.




Due
to the recent worldwide economic downturn, the Company continues to experience
difficulty raising capital to finance ongoing operations. The difficulty in
raising capital during this severe economic downturn was compounded by the fact
that the Company's largest shareholder, The Petters Group Worldwide and in
particular Thomas J. Petters, is currently the subject of a Federal
investigation. Although the Company is not controlled by the Petters Group
Worldwide, nor does Thomas J. Petters have any control over the Company's
management or day to day operations, the investigation negatively impacted the
Company's financing efforts.




During
the fourth quarter of 2008, the Company received a $2,550,000 bridge loan
provided by multiple accredited investors, a portion of which was provided by
related parties (See Note 18). The bridge loan is in the form of Senior
Secured Debentures and bear 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 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 the
common stock of the Company.




As a
result of the tightening credit market (including uncertainties with respect to
financial institutions and the global credit markets), extreme volatility in
energy costs and other macro-economic challenges currently affecting the economy
of the United States and other parts of the world, customers or vendors may
experience serious cash flow problems and as a result, may modify, delay or
cancel plans to purchase the Company’s products and vendors may significantly
and quickly increase their prices or reduce their output. Additionally, if the
Company has not been successful in securing financing, we may not be able to
pay, or may delay payment of, accounts payables owed to our vendors which may
adversely affect the Company’s ability to procure additional materials and
services needed to meet our customers’ requirements. If the Company is unable to
secure long-term financing or capital, the operations will be difficult to
continue for the near term. However, there is no assurance that we will be
successful in these efforts, which raises substantial doubt as to our ability to
continue as a going concern.




24


On April
6, 2009, in conjunction with the issuance of our annual report, our auditors
issued a qualified opinion which raised substantial doubt about our ability to
continue as a going concern. Management’s plans to alleviate this condition
consist of, but are not limited to the following:




·
                Enter
      into an asset based lending credit line (ABL) of approximately
      $3,000,000,·
                Increase
      revenues through the introduction of diversified product lines to serve
      the asset recovery industry,·
                Increase
      revenues through the introduction of customer transaction fees and
      restructuring of CM vendor rate card, and·
                Cost
      reduction plans include completing the consolidation of corporate,
      warehouse and customer care facilities and reducing head
      count.





In March
2009, the Company completed a private placement offering to accredited
investors. Investors  purchased units, with each unit consisting of a
senior convertible debenture for one share of common stock of the Company, and a
warrant, depending on the date of investment, to acquire either two shares or
one share of Common Stock for ten years at a purchase price of $0.25 per share.
The Debentures pay interest at a rate of 12% per annum, have a term of 30 months
and are convertible into the Company’s common stock at any time at the option of
the investor. The Company  received investments in aggregate of
$1,315,000 which were held in an escrow account until April 29, 2009. The
Company used  the proceeds based on the corporate strategy and
immediate inventory needs. Of the $1,315,000 proceeds received, $25,000 was used
for legal expenses while $60,000 was paid to the brokers who assisted with the
offering.




On
April 16, 2009 and on July 16, 2009, the Company received extensions from
certain accredited investors who previously made total commitments for an
aggregate of $2,550,000 in the form of a 90 day bridge loan. The original
maturity date of such loans was January 12, 2009, January 29,
2009,   February19, 2009, April 16, 2009, July 14, 2009 and
August 14, 2009. 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.  During the first
quarter of 2009, the Company paid off $100,000 associated with the bridge
loan.





On
October 9, 2009, the Company received total commitments for a $500,000 loan in
the form of 2009 Convertible Promissory Notes  provided by Hdibu LLC,
Theodore Deikel and Talos Partners LLC.




25




ITEM 3.   QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK




The
Company has little exposure to risks of fluctuating interest rates or
fluctuating currency exchange rates. Accordingly, the Company does not believe
that changes in interest or currency rates will have a material effect on the
Company’s liquidity, financial condition or results of operations. It is the
Company’s policy not to enter into derivative financial
instruments.




ITEM 4.   CONTROLS AND
PROCEDURES




Under
the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the
end of the period covered by this report (the "Evaluation Date"). Based on this
evaluation, our principal executive officer and principal financial officer
concluded as of the Evaluation Date that our disclosure controls and procedures
were effective such that the information relating to the Company, including our
consolidated subsidiaries, required to be disclosed in our SEC reports
(i) is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and (ii) is accumulated and
communicated to the Company’s management, including our principal executive
officer and principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.




Under
the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of any changes in our internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) that occurred during our most recently completed fiscal quarter. Based on
that evaluation, our principal executive officer and principal financial officer
concluded that there has not been any change in our internal control over
financial reporting during that quarter that ended September 30, 2009 has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.





PART
II OTHER INFORMATION





ITEM 1.   LEGAL PROCEEDINGS





From time
to time the Company may be named in claims arising in the ordinary course of
business. Currently, no legal proceedings or claims are pending against the
Company or involve the Company that, in the opinion of the Company’s management,
could reasonably be expected to have a material adverse effect on its business
or financial condition.





ITEM
1A. RISK FACTORS





As a
result of the tightening credit market (including uncertainties with respect to
financial institutions and the global credit markets), increases in energy costs
and other macro-economic challenges currently affecting the economy of the
United States and other parts of the world, customers and vendors may experience
serious cash flow problems and as a result, may modify, delay or cancel plans to
purchase the Company’s products and vendors may significantly and quickly
increase their prices or reduce their output. Additionally, if the Company is
not successful in securing financing, when and as needed, we may not be able to
pay, or may delay payment of, accounts payables owed to our vendors which may
adversely affect the Company’s ability to procure additional materials and
services needed to meet our customer’s requirements. If economic conditions in
the United States and other key parts of the world deteriorate further or do not
show improvement, the Company may experience material adverse impacts to its
business and operating results.





In
addition to other information set forth in this report, you should carefully
consider the factors discussed in Part 1, “Item 1A. Risk Factors” in the
Company’s Annual Report on Form 10-K/A for the year ended December 31, 2008,
which could materially affect the Company’s business, financial condition or
future results. The risks described in the Company’s Annual Report on Form
10-K/A are not the only risks facing the Company. Additional risks and
uncertainties not currently known to the Company or that are currently deemed to
be immaterial also may materially adversely affect the Company’s business,
financial conditions and/or operating results.


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ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





For the
nine months ended September 30, 2009, options to purchase an aggregate
of 4,296,023 shares of the Company’s common stock were granted to
individuals, all of which are employees of Enable Holdings, Inc. The options
have a term of ten years and vest over a four year period either quarterly
or annually beginning on the first quarter or year respectively after the date
of grant.





ITEM
3. DEFAULT UPON SENIOR SECURITIES





The
Company is in default under the terms of its Bridge loans and the terms of the
Senior secured debentures. The events of default are outlined in Note 8 of the
financials.




ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS




The
Company did not submit any matters to a vote of its security holders during the
three months ended September 30, 2009.





ITEM
5. OTHER INFORMATION





None.





ITEM
6. EXHIBITS





Exhibit
      No.
                
                Description31.1
                
                Certification
      of the President and Chief Executive Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.31.2
                
                Certification
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                
                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
      2002.32.2
                
                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.


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SIGNATURES





Pursuant
to requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized as of November 20, 2009.


ENABLE
      HOLDINGS, INC.By:
                /s/
      Miguel A. Martinez, Jr.Name:  Miguel
      A. Martinez, Jr.
                  Title:
         Chief Financial Officer
                  (Principal
      Financial Officer and Principal Accounting
  Officer)


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