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 June 30,
2009





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





Commission
file Number: 000-50995









Enable
Holdings, Inc.


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


(Exact
name of registrant as specified in its charter)




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





8725
W. Higgins Road, Suite 900, Chicago, Illinois 60631


(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
o





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





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





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










ENABLE
HOLDINGS, INC.


TABLE
OF CONTENTS





PART
      I. FINANCIAL INFORMATIONItem
      1
              Financial
      StatementsConsolidated
      Condensed Balance Sheets - June 30, 2009 (unaudited) and December 31,
      2008
              
              3Consolidated
      Condensed Statement of Operations – Three Months and Six months Ended June
      30, 2009 and 2008 (unaudited)
              
              4Consolidated
      Condensed Statement of Shareholders Equity – Six Months Ended June 30,
      2009 (unaudited)
              
              5Consolidated
      Condensed Statements of Cash Flows – Six Months ended June 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 SubsidiariesConsolidated Condensed  Balance
      Sheet(Dollars
      in Thousands, except per share amounts)(Unaudited)




As
      ofJune
      30,
                  2009
                
                
                December
      31, 2008(unaudited)AssetsCurrent
      AssetsCash
      and cash equivalents
                
                $
                84
                
                
                $
                99Restricted
      investments
                
                
                284
                
                
                
                462Accounts
      receivable, less allowance for doubtful accounts of $494 and $635,
      respectively
                
                
                340
                
                
                
                820Merchandise
      inventories, less reserve for obsolescence of $85 and $548,
      respectively
                
                
                1,951
                
                
                
                2,274Prepaid
      expenses and other current assets
                
                
                1,339
                
                
                
                384Total
      Current Assets
                
                
                3,998
                
                
                
                4,039Property
      and Equipment, net
                
                
                2,331
                
                
                
                2,143Purchased
      Intangible Assets, net
                
                
                202
                
                
                
                202Total
      Assets
                
                $
                6,531
                
                
                $
                6,384Liabilities
      and Shareholders' EquityCurrent
      LiabilitiesAccounts
      payable
                
                $
                5,790
                
                
                $
                4,016Bridge
      loan payable, net of discount of $154
                
                
                2,296
                
                
                
                1,563Accrued
      expenses:Product
      cost
                
                
                55
                
                
                
                619Other
                
                
                705
                
                
                
                692Deferred
      rent
                
                
                -
                
                
                
                30Flooring
      facility
                
                
                1,513
                
                
                
                370Total
      Current Liabilities
                
                
                10,359
                
                
                
                7,290Derivative
      liability
                
                
                477
                
                
                
                -Convertible
      debenture, net of discount of $561
                
                
                754
                
                
                
                -Total
      Liabilities
                
                
                11,590
                
                
                
                7,290Shareholders'
      DeficitCommon
      stock, $.001 par value (200,000,000 shares authorized;19,726,678 and
      18,826,678 sharesissued
      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
                
                
                45,053
                
                
                
                39,368Accumulated
      deficit
                
                
                (51,365
                )
                
                
                (48,301
                )Total
      Shareholders' Deficit
                
                
                (5,059
                )
                
                
                (906
                )Total
      Liabilities and Shareholders' Deficit
                
                $
                6,531
                
                
                $
                6,384
 
 The
accompanying notes are an integral part of these consolidated condensed
financial statements.
  3


ENABLE
      HOLDINGS, INC. and SubsidiariesConsolidated
      Condensed Statement of Operations(Dollars
      in Thousands, except per share amounts)(Unaudited)





Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      Revenues
                
                $
                2,979
                
                
                $
                8,426
                
                
                $
                8,073
                
                
                $
                15,567Cost
      of Revenues
                
                
                1,934
                
                
                
                7,112
                
                
                
                5,799
                
                
                
                12,381Gross
      Profit
                
                
                1,045
                
                
                
                1,314
                
                
                
                2,274
                
                
                
                3,186Operating
      ExpensesGeneral
      and administrative
                
                
                2,857
                
                
                
                3,418
                
                
                
                5,724
                
                
                
                7,171Sales
      and marketing
                
                
                293
                
                
                
                799
                
                
                
                588
                
                
                
                1,294Total
      operating expenses
                
                
                3,150
                
                
                
                4,217
                
                
                
                6,312
                
                
                
                8,465Loss
      From Operations
                
                
                (2,105
                )
                
                
                (2,903
                )
                
                
                (4,038
                )
                
                
                (5,279
                )Interest
      Expense, net
                
                
                (537
                )
                
                
                (74
                )
                
                
                (1,229
                )
                
                
                (83
                )Miscellaneous
      Income
                
                
                (22
                )
                
                
                -
                
                
                
                (22
                )
                
                
                -Loss
      on financial instruments
                
                
                (356
                )
                
                
                -
                
                
                
                (404
                )
                
                
                -Net
      Loss
                
                $
                (3,020
                )
                
                $
                (2,977
                )
                
                $
                (5,693
                )
                
                $
                (5,362
                )Net
      Loss per share - Basic and Diluted
                
                $
                (0.16
                )
                
                $
                (0.16
                )
                
                $
                (0.29
                )
                
                $
                (0.29
                )Weighted
      Average Shares - Basic and Diluted
                
                
                19,358,722
                
                
                
                18,325,786
                
                
                
                19,358,722
                
                
                
                18,310,951
  The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 
 4


ENABLE
      HOLDINGS, INC. and SubsidiariesConsolidated Statement of Shareholders’
      Equity(Dollars
      in Thousands)(Unaudited)





Common
      Stock
                
                
                Stock
                
                
                Paid-in
                
                
                Treasury
      Stock
                
                
                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 accountingprinciple
      – 1/1/2009 reclassification of equitylinked
      financial instruments to derivative liabilities[1]
                
                
                -
                
                
                
                -
                
                
                
                (7,486
                )
                
                
                5,386
                
                
                
                -
                
                
                
                -
                
                
                
                2,028
                
                
                
                (72
                )Stock
      compensation expense
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                99
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                99Common
      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
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (5,693
                )
                
                
                (5,693
                )Balance,
      June 30, 2009
                
                
                19,726,678
                
                
                $
                21
                
                
                $
                3,474
                
                
                $
                45,053
                
                
                
                2,135,550
                
                
                $
                (2,242
                )
                
                $
                (51,365
                )
                
                $
                (5,059
                )


1
Reclassify warrants from equity to liability in conjunction with EITF 07-5. 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 SubsidiariesConsolidated Condensed Statement of Cash
      Flows(Dollars
      in Thousands)(Unaudited)




Six
      months ended June 30,2009
              
              
              2008Net
      loss
              
              $
              (5,693
              )
              
              $
              (5,362
              )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
      and amortization
              
              
              278
              
              
              
              309Stock
      compensation expense
              
              
              99
              
              
              
              223Common
      stock and warrants issued for services
              
              
              967
              
              
              
              32Loss
      on derivative liability
              
              
              468
              
              
              
              -Interest
      on warrants issued for debt
              
              
              757
              
              
              
              -Changes
      in assets and liabilities:Accounts
      receivable
              
              
              480
              
              
              
              (636
              )Merchandise
      inventories
              
              
              323
              
              
              
              (580
              )Prepaid
      expenses and other current assets
              
              
              (955
              )
              
              
              (83
              )Accounts
      payable
              
              
              1,774
              
              
              
              (140
              )Accrued
      expenses
              
              
              (581
              )
              
              
              73Net
      cash used in operating activities
              
              
              (2,083
              )
              
              
              (6,164
              )Cash
      Flows From Investing ActivitiesCapital
      expenditures
              
              
              (468
              )
              
              
              (473
              )Change
      in restricted cash
              
              
              178
              
              
              
              -Net
      cash used in investing activities
              
              
              (290
              )
              
              
              (473
              )Cash
      Flows From financing ActivitiesChange
      in flooring facility
              
              
              1,143
              
              
              
              (198
              )Credit
      Line Borrowings
              
              
              -
              
              
              
              3,911Proceeds
      from convertible debenture
              
              
              1,315
              
              
              
              -Payments
      on Bridge Loan
              
              
              (100
              )
              
              
              -Net
      cash provided by financing activities
              
              
              2,358
              
              
              
              3,713Net
      Decrease in Cash and Cash Equivalents
              
              
              (15
              )
              
              
              (2,924
              )Cash
      and Cash Equivalents, beginning of period
              
              
              99
              
              
              
              7,724Cash
      and Cash Equivalents, end of period
              
              $
              84
              
              
              $
              4,800Supplemented
      Cash Flow DisclosureCash
      paid for interest
              
              $
              408
              
              
              $
              97Non-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"), formerly uBid.com
Holdings, Inc., operates leading on-line websites that enable itself,
certified merchants, manufacturers, retailers, distributors and small businesses
to offer high quality excess, new, overstock, close-out, refurbished and limited
supply brand name merchandise to consumer and business customers. Through the
Company's websites, located at www.uBid.com and www.RedTag.com, the Company
offers merchandise across a wide range of product categories including but not
limited to computer products, consumer electronics, apparel, 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
the  2008, Enable Holdings commenced its efforts to change its
business model. Concurrent with this change, we changed the name of the Company
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
      launched in August 2008, 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 get 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 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





1)
            In
      June 2008, the FASB ratified EITF No. 07-5, "Determining Whether an
      Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock"
      ("EITF 07-5"). EITF 07-5 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.
      EITF 07-5 is effective for financial statements issued for fiscal
      years beginning after December 15, 2008. The Company adopted EIT 07-5
      in the first quarter of fiscal year 2009. In accordance with EITF 07-5,
      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.




7




2)
            In
      September 2006, the FASB issued SFAS 157 which defines fair value,
      establishes a framework for measuring fair value, and expands disclosures
      about fair value measurements. The provisions of SFAS 157 were effective
      January 1, 2008. The FASB has also issued Staff Position (FSP) SFAS
      157-2 (FSP No. 157-2), which delays 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 six months ended  June 30, 2009,
      the Company used the guidance provided in SFAS 157, to value and present
      the stock warrant liability.





3)
            In
      May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible
      Debt Instruments That May Be Settled in Cash upon Conversion (Including
      Partial Cash Settlement).” FSP APB 14-1 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.  FSP APB
      14-1 is effective for fiscal years, and interim reporting periods within
      those fiscal years, beginning on or after December 15, 2008. The
      Company evaluated FSP APB 14-1 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.





4)
            In
      June 2008, the FASB issued EITF 03-6-1, “Determining Whether Instruments
      Granted in Share-Based Payment Transactions are Participating Securities.”
      The provisions of FSP  EITF 03-6-1 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. Moreover, the Company’s
      restricted stock does not contain rights to non-forfeitable dividends.
      Thus, the Company will not state its earnings per share using the
      two-class method stated above.





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 EITF 07-5, the Company is required to disclose the
fair value measurements required by SFAS No. 157,


“Fair
Value Measurements.” The derivative liability recorded at fair value in the
balance sheet as of June 30, 2009 are categorized based upon the level of
judgment associated with the inputs used to measure their fair value.
Hierarchical levels, defined by SFAS No. 157, 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 June 30, 2009, segregated by the level of the valuation inputs within the
fair value hierarchy utilized to measure fair value:





Level
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            TotalDerivative
      liabilities
            
            
            -
            
            
            $
            477
            
            
            
            -
            
            
            $
            477




8


Derivative
liabilities consist of stock warrants issued by the Company that contain a
strike price adjustment feature, as stated below. In accordance with EITF 07-5,
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 June 30, 2009, the Company revalued the estimated
liability and recorded the additional liability as a loss 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 6/30/2009
            
            
            Fair
      value
              6/30/20092,669,065
            
            
            $
            5.85
            
            
            
            10,340,416
            
            
            $
            1.51
            
            
            $
            61
            
            
            $
            339
            
            
            $
            400320,000
            
            
            $
            4.50
            
            
            
            1,231,006
            
            
            $
            1.17
            
            
            $
            12
            
            
            $
            65
            
            
            $
            77





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.





The total
loss resulting from EITF 07-5, for the quarter and the six months ended June 30,
2009 is $356 and $404, respectively. 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 June 30, 2009
and 2008, were $128 and $201, respectively. Handling costs for the six months
ended June 30, 2009 and 2008 were $303 and $391, respectively.





4)
            Intangibles




On June
13, 2008, the Company entered into an agreement with a holder of greater than 5%
of the Company’s voting common stock, for the purchase of an internet domain
name or Universal Resource Locator or URL, www.redtag.com, in
exchange for 150,000 shares of the Company’s common stock. The URL has an
indefinite useful life and thus in accordance with the Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”),
the intangible asset need not be amortized.  Each reporting period,
the Company will evaluate the useful life of the intangible asset to determine
whether events and circumstances continue to support an indefinite useful life,
and record impairment if needed. No impairment was recorded at June 30,
2009.





Note
4. Earnings (loss) per share





The
Company computes loss per share under Statement of Financial Accounting
Standards (“SFAS”) No. 128, “Earnings per Share.” The statement requires
presentation of two amounts: basic and diluted loss per share. Basic loss per
share is computed by dividing the loss available to common shareholders by the
weighted average common shares outstanding. Dilutive earnings per share would
include all common stock equivalents unless anti-dilutive.





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




June
      30,
              
              2009
              
              
              2008Shares
      subject to stock warrants
              
              
              59,921,423
              
              
              
              3,412,398Shares
      subject to stock options
              
              
              5,416,694
              
              
              
              1,693,50065,338,117
              
              
              
              5,105,898




The EPS
for the three and six months ended June 30, 2009 and 2008 were $(0.16) and
$(0.29), respectively.


Note
5. Financing Arrangements





1)
            On
      July 15, 2008 the Company signed a $10.0 million common stock purchase
      agreement with Fusion Capital Fund II, LLC, an Illinois limited liability
      company (“Fusion Capital”). Concurrently with entering into the common
      stock purchase agreement, the Company entered into a registration rights
      agreement with Fusion Capital. Under the registration rights agreement,
      the Company agreed to file a registration statement related to the
      transaction with the U.S. Securities and Exchange Commission (“SEC”)
      covering the shares that have been issued or may be issued to Fusion
      Capital under the common stock purchase agreement. After the SEC has
      declared effective the registration statement related to the transaction,
      as long as the Company’s common stock is trading above $0.75 per share,
      the Company had the right over a 24-month period to sell shares of common
      stock to Fusion Capital from time to time in amounts ranging from $60,000
      to $1.0 million, depending on certain conditions set forth in the
      agreement, up to an aggregate of $10.0
million.




9




In
consideration for entering into the agreement,  the Company issued to
Fusion Capital 230,074 shares of the Company’s common stock as a commitment fee.
Also, the Company was to issue to Fusion Capital an additional 230,074 shares as
a commitment fee pro-rata as the Company receives the $10.0 million of future
funding. The purchase price of the shares related to the $10.0 million of future
funding will be based on the prevailing market prices of the Company’s common
stock at the time of sales without any fixed discount, and the Company will
control the timing and amount of any sales of shares to Fusion Capital. Fusion
Capital shall not have the right or the obligation to purchase any shares of the
Company’s common stock on any business day that the price of the Company’s
common stock is below $0.75 per share. The common stock purchase agreement may
be terminated by the Company at any time at the Company’s discretion without any
cost to the Company. There are no negative covenants, restrictions on future
funding, penalties or liquidated damages in the agreement. The proceeds received
by the Company under the common stock purchase agreement were to be used to
provide working capital to further implement the Company’s  strategic
change to focus on liquidating excess inventories.





The
Company issued the initial 230,074 shares as a commitment fee, at the agreed
upon price of $1.52 per share, determined based on the 20-day moving average as
of the agreement acceptance date of June 25, 2008. The Company filed the
registration statement on September 5, 2008 and recorded the common stock
transaction in the quarter ended September 30, 2008. In a letter dated October
3, 2008, the SEC notified the Company that the S-1 registration statement has
been selected for review. The Company elected not to respond to the SEC
notification because the stock price of the Company was trading well below the
agreed upon price of $0.75, which would have obliged Fusion Capital to not
provide the capital. In December 2008, the Company wrote off the commitment fee
issued in conjunction with this agreement. The commitment fee was paid in the
form of common stock of the Company.





2)
            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. See Note 8 for
      details on the bridge loan.





3)
            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 June 30, 2009, the Company has received investments in
      aggregate of $1,315 which were held in an escrow account until April 29,
      2009. The Company used the proceeds for inventory needs and for
      outstanding vendor payables.





4)
            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 Statement of Financial Accounting Standards
No. 123(R) (“SFAS 123R”). This pronouncement requires companies to measure the
cost of employee service received in exchange for a share based award (stock
options  and restricted stock) based on the fair value of the award.
The Company has elected to use the “modified prospective” transition method for
stock options granted prior to January 1, 2006, but for which the vesting period
is not complete. Under this transition method, the Company accounts for such
awards on a prospective basis, with expense being recognized in its statement of
operations beginning in the first quarter of 2006 and continuing over the
remaining requisite service period based on the grant date fair value estimated
in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (“SFAS 123”). The Company recognizes
these compensation costs on a straight-line basis over the requisite service
period of the award which is generally the option vesting term of four
years.





Stock
options





Stock
option activity under the Company’s 2005 Equity Incentive Plan for the six
months ended June 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
              
              
              $
              0.60Exercisable
      at June 30, 2009
              
              
              1,158,875
              
              
              $
              1.15





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:




June
      30,2009
            
            
            2008Risk
      - free interest rate
            
            
            1.2
            %
            
            
            5.0
            %Dividend
      yield
            
            
            0.0
            %
            
            
            0.0
            %Expected
      volatility
            
            
            70.96
            %
            
            
            68.0
            %Expected
      life (years)
            
            
            6.0
            
            
            
            6.0Weighted
      average grant date fair value
            
            $
            0.60
            
            
            $
            1.36Estimated
      forfeiture rate
            
            
            5.0
            %
            
            
            5.0
            %




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 June 30, 2009.





Outstanding
              
              
              ExercisableNumber
              
              Weighted
              
              
              Weighted
      Average
              
              
              
              
              WeightedOutstanding
      at
              
              Average
      Exercise
              
              
              Remaining
              
              
              Number
      Exercisable
              
              Average
      ExerciseExercise
      Price
              
              
              June
      30, 2009
              
              Price
              
              
              Contractual
      Life
              
              
              at
      June 30, 2009
              
              Price.01
      - 2.00
              
              
              
              5,344,194
              
              
              $
              1.06
              
              
              
              8.63
              
              
              
              1,122,500
              
              
              $
              1.092.01
      - 4.00
              
              
              
              61,500
              
              
              
              2.87
              
              
              
              7.98
              
              
              
              28,125
              
              
              
              2.904.01
      - 5.00
              
              
              
              11,000
              
              
              
              4.50
              
              
              
              6.75
              
              
              
              8,250
              
              
              
              4.505,416,694
              
              
              $
              1.15
              
              
              
              8.59
              
              
              
              1,158,875
              
              
              $
              1.15





As of
June 30, 2009 there was $857,000 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





On
February 19, 2008 the Company offered eligible employees the opportunity to
exchange on a grant by grant basis, their outstanding eligible options for
shares of restricted stock. Options eligible for the exchange in this offer were
granted under the Company’s 2005 Equity Incentive Plan  in 2005 and
2006 and had an exercise price per share that was greater than $2.00.
Individuals that held 500 or fewer eligible options were cashed
out.





The
number of restricted stock rights granted in exchange for each eligible option
surrendered was based upon an exchange ratio of 3 to 1. The 3 to 1 exchange
ratio was determined because at the origination of the offer the fair value of
the eligible options approximated the share price at a 3 to 1 conversion rate.
The incremental stock compensation expense resulting from the offer was $109,000
to be amortized over the remaining life of the original options granted.
Pursuant to the offer, 16,000 options were canceled and cashed out by
individuals who had 500 or fewer options. There were an additional 20
individuals that tendered 765,000 options for an aggregate of 255,000 restricted
stock rights.





In
October 2008, in conjunction with the issuance of bridge notes (discussed in
Note 5), the vesting on all of the remaining unvested restricted stock was
accelerated due to the change in control. As of June 2009, there was no unvested
restricted common stock outstanding.





Stock
–based Compensation Expense





Stock-based
compensation expense recognized under SFAS No. 123(R), related to the 2005
Equity Incentive Plan for the three months and six months ended June 30 2009 and
2008 was as follows:




(Dollars
      in Thousands)Three
      months Ended June 30,
              
              
              Six
      months Ended June 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Stock
      Options
              
              $
              69
              
              
              $
              114
              
              
              $
              99
              
              
              $
              223
 12





The
Company incurred no compensation expense related to the restricted common stock,
due to the accelerated vesting in 2008, as described above.





Note
7. Common Stock warrants





1)
            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.





2)
            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.





3)
            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.





4)
            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.





5)
            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:





Shares
            
            
            Original
      exercise price
            
            
            Adjusted
      shares
            
            
            Adjusted
      exercise price2,669,065
            
            
            $
            5.85
            
            
            
            10,340,416
            
            
            $
            1.51320,000
            
            
            $
            4.50
            
            
            
            1,231,006
            
            
            $
            1.17





13




Note 8. Debt





1)
            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.




2)
            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  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 APB14 – Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement), 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 and $302,000 in the three months
ended December 31, 2008, March 31, 2009 and June 30, 2009, respectively. At June
30, 2009 there remains a balance of $154,000 of unamortized discount or
approximately 1.5 months of amortization. The Company is amortizing the discount
as interest expense over a 10.5 month term due to the loan
extensions.





On
April 16, 2009 and subsequently on July 16,2009, the Company received
extensions from certain accredited investors who previously made total
commitments for an aggregate of $2,550,000. The original maturity date of such
loans was January 12, 2009, January 29, 2009, February 19, 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. Although the bridge loan holders are under no obligation to extend the
maturity of the loan and can call the loan payment upon maturity, the Company
expects to request further extension until it gains access to credit to be able
to pay off this loan. During the first quarter of 2009, the Company paid off
$100,000 associated with the bridge loan.





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.




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 June 30,
              
              
              Six
      months Ended June 30,Net
      Revenue
              
              2009
              
              
              
              
              
              2008
              
              
              
              
              
              2009
              
              
              
              
              
              2008uBid,com
              
              $
              1,579
              
              
              
              53.0
              %
              
              $
              5,889
              
              
              
              69.9
              %
              
              $
              4,264
              
              
              
              52.8
              %
              
              $
              10,626
              
              
              
              68.3
              %RedTag.com
              
              
              119
              
              
              
              4.0
              %
              
              
              -
              
              
              
              0.0
              %
              
              
              246
              
              
              
              0.03
              
              
              
              -
              
              
              
              -RedTag
      Live
              
              
              11
              
              
              
              0.4
              %
              
              
              -
              
              
              
              -
              
              
              
              803
              
              
              
              9.9
              %
              
              
              4,750
              
              
              
              30.5
              %Dibu
      Trading Co.
              
              
              1,270
              
              
              
              42.6
              %
              
              
              2,537
              
              
              
              30.1
              %
              
              
              2,760
              
              
              
              34.2
              %
              
              
              191
              
              
              
              1.23
              %Commerce
      Innovations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              $
              2,979
              
              
              
              100.0
              %
              
              $
              8,426
              
              
              
              100.0
              %
              
              $
              8,073
              
              
              
              100.0
              %
              
              $
              15,567
              
              
              
              100.0
              %Gross
      ProfituBid,com
              
              $
              887
              
              
              
              84.9
              %
              
              $
              1,028
              
              
              
              78.2
              %
              
              $
              1,801
              
              
              
              79.2
              %
              
              $
              2,322
              
              
              
              72.9
              %RedTag.com
              
              
              17
              
              
              
              1.6
              %
              
              
              -
              
              
              
              0.0
              %
              
              
              34
              
              
              
              1.5
              %
              
              
              -
              
              
              
              -RedTag
      Live
              
              
              2
              
              
              
              0.2
              %
              
              
              -
              
              
              
              0.0
              %
              
              
              187
              
              
              
              8.2
              %
              
              
              673
              
              
              
              21.1
              %Dibu
      Trading Co.
              
              
              139
              
              
              
              13.3
              %
              
              
              286.00
              
              
              
              0.22
              
              
              
              252
              
              
              
              11.1
              %
              
              
              191
              
              
              
              6.0
              %Commerce
      Innovations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              $
              1,045
              
              
              
              100.0
              %
              
              $
              1,314
              
              
              
              100.0
              %
              
              $
              2,274
              
              
              
              100.0
              %
              
              $
              3,186
              
              
              
              100.0
              %Gross
      Profit %uBid,com
              
              
              56.2
              %
              
              
              
              
              
              
              17.5
              %
              
              
              
              
              
              
              42.2
              %
              
              
              
              
              
              
              21.9
              %RedTag.com
              
              
              14.3
              %
              
              
              
              
              
              
              -
              
              
              
              
              
              
              
              13.8
              %
              
              
              
              
              
              
              -RedTag
      Live
              
              
              18.2
              %
              
              
              
              
              
              
              -
              
              
              
              
              
              
              
              23.3
              %
              
              
              
              
              
              
              14.2
              %Dibu
      Trading Co.
              
              
              10.9
              %
              
              
              
              
              
              
              11.3
              %
              
              
              
              
              
              
              9.1
              %
              
              
              
              
              
              
              -Commerce
      Innovations
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              
              
              
              
              -Total
              
              
              35.1
              %
              
              
              
              
              
              
              15.6
              %
              
              
              
              
              
              
              28.2
              %
              
              
              
              
              
              
              20.5
              %


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 June 30, 2009 the Company had
accumulated a deficit of approximately $51,366,000. 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:





·
            Issuance
      of debentures
      pursuant toa private placement memorandum to accredited investors
      with an estimate capital raise of approximately $4,500,000-$7,500,000. As
      of June 30, 2009, the Company successfully raised  $1,315,000 in
      this private placement,




·
            Entered
      in to an asset based lending credit line (ABL) of approximately
      $5,000,000,




·
            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 consolidating 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 August 14, 2009, the date the financial statements were
issued.


The
existing bridge loan expired on August 14, 2009. The bridge loan holders have
indicated to the Company that they will grant an additional 30 day extension to
the loan but the Company has not yet received signed agreements.




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 has reviewed the SEC comments and does
not anticipate any material adjustments.





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 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 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 launched in August 2008 and 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 half 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
                
                
                2007Q2
                
                
                
                Q1
                
                
                
                Q4
                
                
                
                Q3
                
                
                
                Q2
                
                
                
                Q1
                
                
                
                Q4
                
                
                
                Q3uBid.comGMS
      (in Thousands)
                
                $
                9,555
                
                
                $
                11,821
                
                
                $
                12,374
                
                
                $
                14,385
                
                
                $
                17,117
                
                
                $
                16,671
                
                
                $
                21,765
                
                
                $
                22,731Number
      of orders (in thousands)
                
                
                70
                
                
                
                81
                
                
                
                94
                
                
                
                95
                
                
                
                97
                
                
                
                95
                
                
                
                115
                
                
                
                129Average
      Order Value
                
                $
                137
                
                
                $
                145
                
                
                $
                131
                
                
                $
                152
                
                
                $
                176
                
                
                $
                175
                
                
                $
                188
                
                
                $
                177Visitors
      to Bidders Percentage
                
                
                3.3
                %
                
                
                3.1
                %
                
                
                2.9
                %
                
                
                3.3
                %
                
                
                3.6
                %
                
                
                4.1
                %
                
                
                3.1
                %
                
                
                2.7
                %Auctions
      Closed (in Thousands)
                
                
                373
                
                
                
                377
                
                
                
                383
                
                
                
                215
                
                
                
                181
                
                
                
                455
                
                
                
                780
                
                
                
                715Auction
      Success rate
                
                
                13.0
                %
                
                
                14.4
                %
                
                
                15.0
                %
                
                
                26.6
                %
                
                
                30.9
                %
                
                
                12.9
                %
                
                
                8.6
                %
                
                
                10.9
                %RedTag.comGMS
      (in Thousands)
                
                $
                140
                
                
                $
                143
                
                
                $
                474
                
                
                $
                304
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Number
      of orders (in thousands)
                
                
                2
                
                
                
                2
                
                
                
                5
                
                
                
                3
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Average
      Order Value
                
                $
                88
                
                
                $
                83
                
                
                $
                96
                
                
                $
                119
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Visitors
      to Bidders Percentage
                
                
                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 six months ended June 2009 and 2008.No
other supplier represented more than 5% of our net revenues for any period
presented.




Three
      months ended
              
              
              Six
      months endedJune
      30,
              
              
              June
      30,Vendor
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008Hewlett
      Packard Company
              
              
              42.2
              %
              
              
              38.7
              %
              
              
              42.1
              %
              
              
              39.5
              %Always-at-Market
              
              
              6.5
              %
              
              
              6.7
              %
              
              
              6.4
              %
              
              
              6.9
              %







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 June 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 June 2009 as
compared to June 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 June 30,2009
              
              
              2008
              
              
              Increase
      (Decrease)Net
      Revenues:uBid.com
              
              $
              1,579
              
              
              
              53.0
              %
              
              $
              5,889
              
              
              
              69.9
              %
              
              $
              (4,310
              )
              
              
              (73.2
              %)RedTag.com
              
              
              119
              
              
              
              4.0
              %
              
              
              -
              
              
              
              -
              
              
              
              119
              
              
              
              100.0
              %RedTag
      LIVE
              
              
              11
              
              
              
              0.4
              %
              
              
              -
              
              
              
              -
              
              
              
              11
              
              
              
              100.0
              %Dibu
      Trading Co.
              
              
              1,270
              
              
              
              42.6
              %
              
              
              2,537
              
              
              
              30.1
              %
              
              
              (1,267
              )
              
              
              (49.9
              %)Total
      Net Revenues
              
              
              2,979
              
              
              
              100.0
              %
              
              
              8,426
              
              
              
              100.0
              %
              
              
              (5,447
              )
              
              
              (64.6
              %)Gross
      Profit:uBid.com
              
              
              887
              
              
              
              29.8
              %
              
              
              1,028
              
              
              
              12.2
              %
              
              
              (141
              )
              
              
              (13.7
              %)RedTag.com
              
              
              17
              
              
              
              0.6
              %
              
              
              -
              
              
              
              -
              
              
              
              17
              
              
              
              100.0
              %RedTag
      LIVE
              
              
              2
              
              
              
              0.1
              %
              
              
              -
              
              
              
              -
              
              
              
              2
              
              
              
              100.0
              %Dibu
      Trading Co.
              
              
              139
              
              
              
              4.7
              %
              
              
              286
              
              
              
              3.4
              %
              
              
              (147
              )
              
              
              (51.4
              %)Total
      Gross Profit
              
              
              1,045
              
              
              
              35.1
              %
              
              
              1,314
              
              
              
              15.6
              %
              
              
              (269
              )
              
              
              (20.5
              %)General
      and administrative
              
              
              2,857
              
              
              
              95.9
              %
              
              
              3,418
              
              
              
              40.6
              %
              
              
              (561
              )
              
              
              (16.4
              %)Sales
      and marketing
              
              
              293
              
              
              
              9.8
              %
              
              
              799
              
              
              
              9.5
              %
              
              
              (506
              )
              
              
              (63.3
              %)Total
      operating expenses
              
              
              3,150
              
              
              
              105.7
              %
              
              
              4,217
              
              
              
              50.0
              %
              
              
              (1,067
              )
              
              
              (25.3
              %)Loss
      from operations
              
              
              (2,105
              )
              
              
              (70.7
              %)
              
              
              (2,903
              )
              
              
              (34.5
              %)
              
              
              798
              
              
              
              (27.5
              %)Interest
      Expense, net
              
              
              (537
              )
              
              
              (18.0
              %)
              
              
              (74
              )
              
              
              (0.9
              %)
              
              
              (463
              )
              
              
              625.7
              %Miscellaneous
      Income
              
              
              (22
              )
              
              
              (0.7
              %)
              
              
              -
              
              
              
              -
              
              
              
              (22
              )
              
              
              -Loss
      on financial instruments
              
              
              (356
              )
              
              
              (12.0
              %)
              
              
              -
              
              
              
              -
              
              
              
              (356
              )
              
              
              -Net
      Loss
              
              $
              (3,020
              )
              
              
              (101.4
              %)
              
              $
              (2,977
              )
              
              
              (35.3
              %)
              
              $
              (43
              )
              
              
              1.4
              %
 Revenue
  Web
Properties:  uBid.com and RedTag.com




Net
revenue decreased 73.2% and gross profit decreased 13.7% in the quarter ended
June 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. Inventory available for website sales decreased 88%
to $246 at June 30, 2009 compared to $2,084 at June 30, 2008. The liquidity
constraints were the primary factor causing a decrease in the number of orders
to 70 in the three months ended June 30, 2009 compared to 97 in the three months
ended June 30, 2008. Reduced product offerings due to inventory availability
during the three months ended June 2009 resulted in a decrease in the number of
visitors which negatively impacted the average order value, visitor to bidder
ratio and auctions closed. The Company launched a fixed price online property
(RedTag.com) in August 2008 which added $127 in revenue for the three months
ended June 2009.





The
Company also made the strategic decision to eliminate outside advertising on its
website. In the past, the Company sold advertising space on its website to
various companies. Although this strategy added a revenue stream, it impacted
sales on the Company’s website since it directed visitors away to competing
websites. As a result of the elimination of advertisement revenues, visitors
spent more time shopping on the Company’s website, as evidenced by the increase
in auction success rate. The advertising revenues were $11 and $28 for the three
months ended June 30, 2009 and 2008, respectively, and are included with
uBid.com revenues in the above table.





Offline
Sales Channels: Dibu Trading Co. and RedTag Live




Net
revenue for the offline sales channels decreased approximately 50% in the second
quarter of 2009 as compared to 2008, which was due to the winding
down of the live store location opened in the first quarter of
2008.


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 Ended June 30,SG&A
      Expenses:
              
              2009
              
              
              2008
              
              
              Increase
                    (Decrease)Advertising
              
              $
              230
              
              
              $
              478
              
              
              $
              (248
              )Salary
      and benefits
              
              
              1,189
              
              
              
              1,604
              
              
              
              (415
              )RedTag
      Live Event
              
              
              99
              
              
              
              298
              
              
              
              (199
              )Stock-based
      compensation
              
              
              69
              
              
              
              114
              
              
              
              (45
              )Facilities
              
              
              98
              
              
              
              73
              
              
              
              25Warehouse
              
              
              128
              
              
              
              201
              
              
              
              (73
              )Credit
      card fees
              
              
              258
              
              
              
              392
              
              
              
              (134
              )Telecommunications,
      hardware and storage
              
              
              187
              
              
              
              177
              
              
              
              10Legal,
      audit, insurance, and other regulatory fees
              
              
              554
              
              
              
              379
              
              
              
              175Depreciation
      & amortization
              
              
              159
              
              
              
              103
              
              
              
              56Consulting
      and outside services
              
              
              98
              
              
              
              261
              
              
              
              (163
              )Travel
              
              
              38
              
              
              
              57
              
              
              
              (19
              )Dues
      & Subscriptions
              
              
              18
              
              
              
              31
              
              
              
              (13
              )Other
      SG&A
              
              
              25
              
              
              
              49
              
              
              
              (24
              )$
              3,150
              
              
              $
              4,217
              
              
              $
              (1,067
              )





SGA
expenses decreased $1,067 or 25.3% in the quarter ended June 2009 as compared to
the quarter ended June 2008.  The primary reason for the decrease in
these expenses was the company-wide transition to an asset recovery model. The
primary categories contributing to the decrease are as follows:





·
            Advertising
      expenses decreased $248 or 51.9% due to the elimination of unprofitable
      and ineffective advertising campaigns, as previously
      described.


·
            Salary
      and benefits expenses decreased $415 or 25.8% due to staff
      reductions.


·
            RedTag
      Live event expenses decreased $199 or 66.8% as a result of closing the
      outlet store in Florida. Staff for current events is temporary and not
      kept on the payroll while future events are being
  planned.


·
            Credit
      card fees decreased $134 or 34.1% due to the decrease in sales volume at
      the web properties.


·
            Legal,
      audit, insurance, and other regulatory fees increased $175 or 46%
      primarily due to fees incurred in the convertible debt
      issuance.


·
            Consulting
      and outside services decreased $163 or 62.4% as we eliminated outside
      services related to market research and analysis that were engaged in
      2008.




Net
Losses




The
Company experienced a net loss of $3,020 or $0.16 per share for the three months
ended June 30, 2009 compared to a net loss of $2,977 or $0.16 per share for the
three months ended June 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. The interest expense related to the amortization
of bridge loan amortization is $356 and $0 for the three months ended June 2009
and 2008, respectively.





21




Comparison
of six months ended June 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 six months ended June 2009 as
compared to June 2008. This information should be read in conjunction with our
financial statements and notes thereto included elsewhere in this
report.





(Dollars
      in Thousands)Six
      months ended June 30,2009
                
                
                2008
                
                
                Increase
      (Decrease)Net
      Revenues:uBid.com
                
                $
                4,264
                
                
                
                52.8
                %
                
                $
                10,626
                
                
                
                68.3
                %
                
                $
                (6,362
                )
                
                
                (59.9
                %)RedTag.com
                
                
                246
                
                
                
                3.0
                %
                
                
                -
                
                
                
                -
                
                
                
                246RedTag
      LIVE
                
                
                803
                
                
                
                9.9
                %
                
                
                -
                
                
                
                -
                
                
                
                803Dibu
      Trading Co.
                
                
                2,760
                
                
                
                34.2
                %
                
                
                4,750
                
                
                
                30.5
                %
                
                
                (1,990
                )
                
                
                (41.9
                %)Other
                
                
                -
                
                
                
                -
                
                
                
                191
                
                
                
                -
                
                
                
                (191
                )
                
                
                100.0
                %Total
      Net Revenues
                
                
                8,073
                
                
                
                100.0
                %
                
                
                15,567
                
                
                
                100.0
                %
                
                
                (7,494
                )
                
                
                (48.1
                %)Gross
      Profit:uBid.com
                
                
                1,801
                
                
                
                22.3
                %
                
                
                2,322
                
                
                
                14.9
                %
                
                
                (521
                )
                
                
                (22.4
                %)RedTag.com
                
                
                34
                
                
                
                0.4
                %
                
                
                -
                
                
                
                -
                
                
                
                34RedTag
      LIVE
                
                
                187
                
                
                
                2.3
                %
                
                
                -
                
                
                
                -
                
                
                
                187Dibu
      Trading Co.
                
                
                252
                
                
                
                3.1
                %
                
                
                673
                
                
                
                4.3
                %
                
                
                (421
                )
                
                
                (62.6
                %)Other
                
                
                -
                
                
                
                -
                
                
                
                191
                
                
                
                -
                
                
                
                (191
                )
                
                
                100.0
                %Total
      Gross Profit
                
                
                2,274
                
                
                
                28.2
                %
                
                
                3,186
                
                
                
                20.5
                %
                
                
                (912
                )
                
                
                (28.6
                %)General
      and administrative
                
                
                5,724
                
                
                
                70.9
                %
                
                
                7,171
                
                
                
                46.1
                %
                
                
                (1,447
                )
                
                
                (20.2
                %)Sales
      and marketing
                
                
                588
                
                
                
                7.3
                %
                
                
                1,294
                
                
                
                8.3
                %
                
                
                (706
                )
                
                
                (54.6
                %)Total
      operating expenses
                
                
                6,312
                
                
                
                78.2
                %
                
                
                8,465
                
                
                
                54.4
                %
                
                
                (2,153
                )
                
                
                (25.4
                %)Loss
      from operations
                
                
                (4,038
                )
                
                
                (50.0
                %)
                
                
                (5,279
                )
                
                
                (33.9
                %)
                
                
                1,241
                
                
                
                (23.5
                %)Interest
      Income / (Expense), net
                
                
                (1,229
                )
                
                
                (15.2
                %)
                
                
                (83
                )
                
                
                (0.5
                %)
                
                
                (1,146
                )
                
                
                1380.7
                %Loss
      on warrant liability
                
                
                (426
                )
                
                
                (5.3
                %)
                
                
                -
                
                
                
                -
                
                
                
                (426
                )
                
                
                100.0
                %Net
      Loss
                
                $
                (5,693
                )
                
                
                (70.52
                %)
                
                $
                (5,362
                )
                
                
                (34.4
                %)
                
                $
                (331
                )
                
                
                6.2
                %


Revenue




Web
Properties:  uBid.com and RedTag.com









Offline
Sales Channels: Dibu Trading Co. and RedTag Live




Net
revenue for the offline sales channels decreased 41.9% in the six months ended
June 30, 2009 as compared to 2008. The lower inventories in the offline channels
resulted in lower revenues. The addition of RedTag live format in late 2008
offset this decrease.





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)Six
      Months Ended June 30,IncreaseSG&A
      Expenses:
              
              2009
              
              
              2008
              
              
              (Decrease)Advertising
              
              $
              436
              
              
              $
              775
              
              
              $
              (339
              )Salary
      and benefits
              
              
              2,376
              
              
              
              3,336
              
              
              
              (960
              )RedTag
      Live Event
              
              
              461
              
              
              
              627
              
              
              
              (166
              )Stock-based
      compensation
              
              
              99
              
              
              
              223
              
              
              
              (124
              )Facilities
              
              
              172
              
              
              
              147
              
              
              
              25Warehouse
              
              
              303
              
              
              
              391
              
              
              
              (88
              )Credit
      card fees
              
              
              538
              
              
              
              793
              
              
              
              (255
              )Telecommunications,
      hardware and storage
              
              
              339
              
              
              
              347
              
              
              
              (8
              )Legal,
      audit, insurance, and other regulatory fees
              
              
              898
              
              
              
              722
              
              
              
              176Depreciation
      & amortization
              
              
              278
              
              
              
              309
              
              
              
              (31
              )Consulting
      and outside services
              
              
              234
              
              
              
              510
              
              
              
              (276
              )Travel
              
              
              69
              
              
              
              131
              
              
              
              (62
              )Dues
      & Subscriptions
              
              
              63
              
              
              
              56
              
              
              
              7Other
      SG&A
              
              
              46
              
              
              
              98
              
              
              
              (52
              )$
              6,312
              
              
              $
              8,465
              
              
              $
              (2,153
              )





SGA
expenses decreased $2,153 or 25.4% for the six months ended June 2009 as
compared to the same period June 2008. The primary categories contributing to
the decrease are as follows:





·
            Advertising
      expenses decreased $339 or 43.7% due to the elimination of unprofitable
      and ineffective advertising campaigns, as previously
      described.


·
            Salary
      and benefits expenses decreased $960 or 28.8% due to staff
      reductions.


·
            Credit
      card fees decreased $255 or 32.1% due to the decrease in sales volume at
      the web properties.


·
            Legal,
      audit, insurance, and other regulatory fees increased $176 or 24%
      primarily due to fees incurred in the convertible debt
      issuance.


·
            Consulting
      and outside services decreased $276 or 54.1% as we eliminated outside
      services related to market research and analysis that were engaged in
      2008.





Net
Losses




The
Company experienced a net loss of $5,693 or $0.29 per share for the six months
ended June 30, 2009 compared to a net loss of $5,362 or $0.29 per share for the
six months ended June 30, 2008. The net loss increased due to the aforementioned
change in the business model and capital constraints resulting in an increase in
interest expense. The interest expense related to the amortization of bridge
loan amortization is $426 and $0 for the six months ended June 2009 and 2008,
respectively. Interest expense related to inventory financing was $129 and $0
for the six months ended June 2009 and 2008, respectively.





Liquidity
and Capital Resources





Net cash
used in operating activities for the six months ended June 30, 2009 was $2,083
compared to $6,164 used in the six months ended June 30, 2008. Despite
the relatively consistent net losses reported for June 30, 2009 and 2008,
operating cash flows improved due to non cash charges of $2,192 for the six
months ended June 30, 2009. Cash was also provided by changes in working capital
items of approximately $1,041.





Net cash used in investing activities
was $290 and $473 for the six months ended June 30, 2009 and 2008, respectively.
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 $178 due to the reduction of
existing letters of credit.





Net cash
provided by financing activities was $2,358 for the six months ended June 30,
2009, compared to $3,713 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.




On
July 15, 2008 the Company signed a $10,000,000 common stock purchase
agreement with Fusion Capital Fund II, LLC, an Illinois limited liability
company ("Fusion Capital"). Concurrently with entering into the common stock
purchase agreement, the Company entered into a registration rights agreement
with Fusion Capital. Under the registration rights agreement, the Company agreed
to file a registration statement related to the transaction with the U.S.
Securities and Exchange Commission ("SEC") covering the shares that have been
issued or may be issued to Fusion Capital under the common stock purchase
agreement. After the SEC has declared effective the registration statement
related to the transaction, as long as the Company's common stock is trading
above $0.75 per share, the Company had the right over a 24-month period to sell
shares of common stock to Fusion Capital from time to time in amounts ranging
from $60,000 to $1,000,000, depending on certain conditions set forth in the
agreement, up to an aggregate of $10,000,000.




In
consideration for entering into the agreement,  the Company issued to
Fusion Capital 230,074 shares of the Company's common stock as a commitment fee.
Also, the Company was to issue to Fusion Capital an additional 230,074 shares as
a commitment fee pro rata as the Company receives the $1,000,000 of future
funding. The purchase price of the shares related to the $1,000,000 of future
funding was to be based on the prevailing market prices of the Company's common
stock at the time of sales without any fixed discount, and the Company will
control the timing and amount of any sales of shares to Fusion Capital. Fusion
Capital shall not have the right or the obligation to purchase any shares of the
Company's common stock on any business day that the price of the Company's
common stock is below $0.75 per share. The common stock purchase agreement may
be terminated by the Company at any time at the Company's discretion without any
cost to the Company. There are no negative covenants, restrictions on future
funding, penalties or liquidated damages in the agreement. The proceeds received
by the Company under the common stock purchase agreement were to be used to
provide working capital to further implement the Company's  strategic
change to focus on liquidating excess inventories.




The
Company issued the initial 230,074 shares as a commitment fee, at the agreed
upon price of $1.52 per share, determined based on the 20-day moving average as
of the agreement acceptance date of June 25, 2008. The Company filed the
registration statement on September 5, 2008 and recorded the common stock
transaction in the quarter ended September 30, 2008. In a letter dated
October 3, 2008, the SEC notified the Company that the S-1 registration
statement has been selected for review. The Company elected not to respond to
the SEC notification because the stock price of the Company was trading well
below the agreed upon price of $0.75, which would have obliged Fusion Capital to
not provide the capital. In December 2008, the Company wrote off the commitment
fee issued in conjunction with this agreement. The commitment fee was paid in
the form of common stock of the Company.




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:





·
            Issuance
      of  debentures pursuant to a private placement memorandum to
      accredited investors with an estimate capital raise of approximately
      $4,500,000-$7,500,000 (see next
paragraph),


·
            Enter
      in to an asset based lending credit line (ABL) of approximately
      $5,000,000,


·
            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 consolidating corporate, warehouse and customer
      care facilities and reducing head
count.





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 June 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 will determine the best use of the proceeds based on the corporate
strategy and immediate inventory needs. Of the $1,315,000 proceeds received,
$25,000 were utilized as legal expenses while $60,000 were paid to the brokers
who assisted us with this 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. Although the bridge loan holders
are under no obligation to extend the maturity of the loan and can call the loan
payment upon maturity, the Company expects to request further extension until it
gains access to credit to be able to pay off this loan. During the first quarter
of 2009, the Company paid off $100,000 associated with the bridge
loan.




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





Disclosure
Controls and Procedures. Our
management, including our chief executive officer and our chief financial
officer, maintains 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")) and has evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on such evaluation, our chief executive officer and chief financial
officer have concluded that, as of June 30, 2009, such disclosure controls and
procedures are effective for the purpose of ensuring that material information
required to be in the reports that we submit, file, furnish or otherwise provide
to the Securities and Exchange Commission is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required
disclosure.




Internal Control
Over Financial Reporting. There have been no changes in the
Company’s internal control over financial reporting identified in the evaluation
that occurred during the first quarter of fiscal year 2009 that have materially
affected, or are reasonably likely to materially affect, the Company’s 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 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 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.




26


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





For the
six months ended June 30, 2009, options to purchase an aggregate
of  3,337,368 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  tenyears and vest over a three to four year period
either quarterly or annually beginning on the first quarter or year respectively
after the date of grant. The option grants were exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended, which provides an
exemption for transactions not involving a public offering.





ITEM 3. DEFAULT UPON SENIOR SECURITIES





None




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




The
Company held its Annual Meeting on May 8, 2009.  Proxies for the
annual meeting were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934.  There was no solicitation in opposition to
management’s nominees as listed on the proxy statement, and all nominees were
elected.





Proposal
1 for the election of two Class I directors:





Number
      of VotesNominee
              
              For
              
              
              WithheldKenneth
      J. Roering
              
              
              17,938,052
              
              
              
              33,340Robert
      T. Geras
              
              
              17,933,052
              
              
              
              38,340


Proposal
2 to approve the increase from 2,500,000 shares to a a minimum of 7,000,000
total shares and a maximum of 10,500,000 total shares, subject to the discretion
of the Company’s Board of Directors, authorized for issuance under the Company’s
2005 Equity Incentive Plan:  A total of 11,215,863 shares were voted
in favor, 128,089 were voted against and 103,250 shares abstained from
voting.





Proposal
3 to ratify the appointment of BDO Seidman, LLP as the Company’s independent
registered public accounting firm for the year ending December 31,
2009:  A total of 17,896,021 shares were voted in favor, 540 were
voted against and 74,829 shares abstained from voting.





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 August 14, 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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