As
filed
with the Securities and Exchange Commission on May 19,
2006
Registration
No. 333-131733
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
----------------
AMENDMENT 3
TO
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
uBid.com
Holdings, Inc.
(formerly
known as Cape Coastal Trading Corporation)
(Exact
name of registrant as specified in its charter)
|
Delaware
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5961
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52-2372260
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|
(State
or Other Jurisdiction of Incorporation)
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(Primary
Standard Industrial Classification Number)
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(IRS
Employer Identification Number)
|
-------------------------
8550
West
Bryn Mawr, Suite 200
Chicago,
Illinois 60631
(773)
272-5000
(Address,
including zip code, and telephone number, including
area
code, of registrant's principal executive offices)
-----------------------
Robert
H.
Tomlinson, Jr.
President
and Chief Executive Officer
uBid.com
Holdings, Inc.
8550
West
Bryn Mawr, Suite 200
Chicago,
Illinois 60631
(773)
272-5000
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
-----------------
Copy
to:
Louis
W.
Zehil
Thomas
H.
Horenkamp
McGuireWoods
LLP
1345
Avenue of the Americas
Seventh
Floor
New
York,
NY 10105-0106
Telephone:
(212) 548-2138
Facsimile:
(212) 548-2175
Approximate
date of commencement of proposed sale to the public: From time to time after
the
effective date of this Registration Statement.
If
the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box.
|_|
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
_____________________
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. |_| ____________________
The
Registrant hereby amends this Registration Statement on such date or dates
as
may be necessary to delay its effective date until the Registrant shall file
a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be changed. The selling
stockholders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer
to
buy these securities in any state where the offer or sale is not
permitted.
Subject
to completion, dated May 19, 2006
24,113,447
Shares
The
holders of common stock and warrants to purchase shares of common stock of
uBid.com Holdings, Inc. may offer and sell from time to time up to an aggregate
amount of 24,113,447 shares of our common stock for their own accounts. We
will
not receive any proceeds from the sale of the shares other than the exercise
price, if any, payable to us upon exercise of the warrants.
The
common stock may be offered from time to time by the selling stockholders
through ordinary brokerage transactions in the over-the-counter markets, in
negotiated transactions or otherwise, at market prices prevailing at the time
of
sale or at negotiated prices and in other ways as described in the “Plan of
Distribution.”
The
number of shares being registered for resale under this prospectus consists
of
20,210,109 outstanding shares of our common stock and 3,903,338 shares of our
common stock issuable upon the exercise of warrants. The selling stockholders
acquired the shares of common stock and warrants in private equity purchases,
in
connection with our recently completed merger or as stockholders of the
pre-merger public company, Cape Coastal Trading Corporation. We are registering
the offer and sale of the common stock, including common stock underlying
warrants, to satisfy registration rights we have granted to the selling
stockholders.
The
common stock was quoted on the OTC bulletin board under the symbol “CCTR.OB”
from October 29, 2004 until December 14, 2005. Beginning on December 15,
2005,
as a result of a reverse stock split, the common stock began to temporarily
trade under the symbol “CCSR.OB.” Beginning on February 10, 2006, the common
stock began trading under the symbol “UBHI.OB.” The
last
reported price of our common stock on the OTC bulletin board on May 15,
2006 was $6.69.
Investing
in our common stock involves risks. You should read the section entitled “Risk
Factors” beginning on page 5 for
a
discussion of certain risk factors that you should consider before buying shares
of our common stock.
You
should rely only on the information contained in this prospectus or any
prospectus supplement or amendment. We have not authorized anyone to provide
you
with different information.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date of this prospectus
is
, 2006
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F-1
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This
summary highlights information contained elsewhere in this prospectus but might
not contain all of the information that is important to you. Before investing
in
our common stock, you should read the entire prospectus carefully, including
the
“Risk Factors” section and our historical financial statements and the notes
thereto included elsewhere in this prospectus.
For
purposes of this prospectus, unless otherwise indicated or the context otherwise
requires, all references herein to “uBid,” “we,” “us” and “our” refer to
uBid.com Holdings, Inc. and our subsidiaries (after the December 29, 2005
merger described below and/or to uBid, Inc. and its subsidiaries before such
date).
Our
Company
uBid.com
Holdings, Inc. is a holding company for our wholly-owned subsidiary, uBid,
Inc.,
which operates an online marketplace located at www.ubid.com
offering
new, close-out, overstock and refurbished 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
all
merchants by processing 100% of all transactions between buyers and sellers.
Our
marketplace offers brand-name merchandise from over 200 product categories
including computer products, consumer electronics, apparel, housewares, watches,
jewelry, travel, sporting goods, home improvement products and
collectibles.
Our
business model provides value for consumers, manufacturers, distributors,
retailers and other approved third party merchants. Consumers shop in a
trustworthy and secure online marketplace and have the opportunity to bid on
popular, brand-name products realizing product savings of generally 20% to
80%
off retail prices. Our online marketplace provides merchants with an efficient
and economical distribution channel for maximizing revenue on their merchandise.
Merchants can monetize overstock and close-out inventory, expand their customer
base and increase sales without compromising existing distribution channels.
Our
online marketplace is available 24 hours a day, seven days a week and currently
offers 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 5 million members.
We
began
operations in 1997 primarily selling computer and consumer electronics on our
online auction style marketplace as a wholly-owned subsidiary of PC Mall. In
December 1998, uBid completed an initial public offering.
In
April
2000, CMGI, Inc. acquired ownership of uBid in a stock-for-stock merger
transaction valued at approximately $407 million. Upon closing of this
transaction, we became a wholly-owned subsidiary of CMGI.
On
April
2, 2003, CMGI sold substantially all of the assets and non-related party
liabilities of uBid to Takumi Interactive, Inc., an investment vehicle of
Petters Group Worldwide, LLC (“Petters Group”) formed on March 7, 2003, which
changed its name to uBid, Inc. immediately after the acquisition. As a result
of
the transaction, uBid became a separate stand-alone business owned substantially
by the Petters Group.
Recent
Developments
On
December 29, 2005 (the “Closing Date”), Cape Coastal Trading Corporation (the
previous public reporting entity), uBid Acquisition Co., Inc. (“Acquisition
Sub”) and uBid, Inc. entered into a Merger Agreement and Plan of Reorganization.
Under the Merger Agreement, Acquisition Sub merged with and into uBid, Inc.,
with uBid, Inc. remaining as the surviving corporation and a wholly-owned
subsidiary of Cape Coastal Trading Corporation (or “Cape Coastal”). On the
Closing Date, the holders of uBid’s issued and outstanding capital stock before
the merger surrendered all of the issued and outstanding capital stock of uBid
and received 8,800,000 shares of our common stock with up to 444,444 shares of
common stock subject to redemption at a redemption price of $4.50. The
stockholders of Cape Coastal Trading Corporation before the merger retained
599,331 shares of common stock. Before the merger, Cape Coastal Trading
Corporation was a public shell company. Our business operations following the
transactions discussed above will be those of uBid.
The
merger was treated as a recapitalization of uBid for financial accounting
purposes. Accordingly, the historical financial statements of Cape Coastal
before the merger have been replaced with the historical financial statements
of
uBid before the merger (including, when applicable, the historical financial
statements of uBid’s predecessor company) in all future filings with the
SEC.
Also
on
December 29, 2005, we completed the first part of a private offering to
accredited investors. We sold 10,000,003 shares of our common stock and warrants
to purchase 2,500,003 shares of our common stock, for aggregate consideration
of
$45 million. The warrants issued to the investors are exercisable for five
years
at an exercise price of $5.85. Some of the investors participating in the first
part of the private offering held notes that were issued by uBid before the
merger, including $10.5 million of debt held by the Petters Group and $5.0
million of debt held by the bridge loan holders. Rather than accepting cash
consideration for the Units acquired by these investors, we agreed to issue
Units at a rate of one Unit for each $4.50 of debt for consideration of the
note
holders’ cancellation of the existing notes. Of the 3,444,444 Units issued in
exchange for debt, 2,222,224 Units were issued to Petters Group with common
shares that were subject to redemption at a redemption price of $4.50. For
debt
exchanged with Units that did not have redeemable common shares, the value
of
the securities issued in exchange for the debt equaled the face value of the
debt exchanged, and accordingly, we did not recognize a gain or loss. Due
to the higher value of the redeemable common shares issued to Petters Group,
we
realized a loss of approximately $1.2 million upon the exchange of debt for
Units with those redeemable common shares. However, as the Petters Group is
considered a significant related party to us, the exchange was treated for
accounting purposes as a capital transaction and the resulting loss was
reflected as a dividend to shareholders rather than as a direct reduction of
net
earnings. Therefore, the consideration we received on the Closing Date consisted
of approximately $29.5 million in cash and $15.5 million in cancelled debt.
In
addition, on the Closing Date, we issued warrants to purchase 333,333 shares
of
our common stock to the bridge note holders as a financing fee, which warrants
are exercisable for three years at an exercise price of $4.50 and the value
of
which, $600,000, was recorded as interest expense. We also issued warrants
to
purchase 230,000 shares of our common stock to our placement agents in the
offering, which warrants are exercisable for five years at an exercise price
of
$4.50 and the value of which, $522,000, was recorded as a cost of the equity
issuance.
On
February 3, 2006, we completed the second part of our private offering to
accredited investors. In this offering, we sold 3,000,000 shares of our common
stock and warrants to purchase 750,002 shares of our common stock. On
February 6, 2006, we redeemed the 2,666,668 shares of our common stock
issued subject to redemption to former uBid stockholders and certain
participants in the first part of the private offering, at a
redemption price of $4.50 per share and issued 600,667 shares of common
stock to Cape Coastal and uBid’s financial advisor, Calico Capital Group, LLC.
We issued additional warrants to purchase 90,000 shares of our common stock
to
our placement agents, which warrants are exercisable for five years at
an exercise price of $4.50 and the value of which, $162,000, was recorded
as additional costs of the equity issuance.
On
February 10, 2006, we amended our certificate of incorporation to change
our name from Cape Coastal Trading Corporation to “uBid.com Holdings,
Inc.”
Corporate
Information
Cape
Coastal Trading Corporation, now known as uBid.com Holdings, Inc., was
incorporated under the laws of the State of New York in 2002 and reincorporated
under the laws of the State of Delaware in December 2005. Our principal
executive offices are located at 8550 West Bryn Mawr, Suite 200, Chicago,
Illinois 60631. The telephone number at our principal executive offices is
(773)
272-5000. Our website address is
www.ubid.com.
Information contained on our website is not deemed part of this
prospectus.
The
Offering
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Common
stock offered
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24,113,447 shares.
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Offering
Price
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Market
price or privately negotiated price.
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Common
stock outstanding (1)
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20,333,333
shares as of May 15, 2006.
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Use
of proceeds
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We
will not receive any proceeds from the sale of the shares offered
by the
selling stockholders. Any proceeds we receive from the selling
stockholders upon their exercise of warrants to purchase the
shares
included in the shares that are being offered by them hereunder
will be
used for general working capital purposes and capital
expenditures.
|
|
OTC
bulletin board symbol
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“UBHI.OB”.
|
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Risk
Factors
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An
investment in our common stock involves a high degree of risk.
You should
carefully consider the risk factors set forth under “Risk Factors”
beginning on page 5 and
the other information contained in this prospectus before making
an
investment decision regarding our common stock.
|
| (1) |
The
number of shares outstanding
excludes:
|
| - |
1,763,400
shares of common stock issuable upon the exercise of options outstanding
under our equity incentive plan, having a weighted exercise price
of $4.50
per share;
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-
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736,600
shares of common stock reserved for future grant under our equity
compensation plan;
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-
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3,250,005
shares of common stock issuable upon the exercise of outstanding
warrants,
at an exercise price of $5.85 per share;
and
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-
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653,333
shares of common stock issuable upon the exercise of outstanding
warrants,
at an exercise price of $4.50 per
share.
|
Summary
Financial Information and Other Data
The
following table sets forth our summary financial information and other data.
Income statement data for the fiscal years ended July 31, 2002 and December
31,
2004 and 2005, for the eight month period ended March 31, 2003 and for the
nine month period ended December 31, 2003 have been derived from audited
financial statements. Income statement data for the fiscal year ended
July 31, 2001 have been derived from unaudited financial statements which,
in the opinion of management, include all adjustments necessary for a fair
statement of the results of operation and financial position for such periods
and as of such dates. Certain factors that affect the comparability of the
information set forth in the following table are described in the notes thereto.
In addition, the data should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and
the Financial Statements and related notes thereto included elsewhere in this
prospectus.
The
current uBid business was substantially acquired by Petters Group in April
2003
at which time purchase accounting was applied to adjust all carrying values
to
estimated current market value (after deduction for negative goodwill) and
the
business started accounting for all of its costs of operations without
allocations of such costs from its prior parent. Due to these changes in
ownership, differing styles of operations by the different owners and the
application of purchase accounting, the financial results for the periods
presented are not comparable.
|
Summary
Financial Data
(in
thousands, except share and per share data)
|
||||||||||||||||||||||||||||
|
Predecessor
Company (1)
|
uBid
(2)
|
|||||||||||||||||||||||||||
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|
|||||||||||||||||||||||||||
|
Year
Ended
|
Year
Ended
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8
Months Ended
|
9
Months Ended
|
Year
Ended
|
Restated Year
Ended |
Three
Months Ended
March
31
|
||||||||||||||||||||||
|
July
31,
2001
(unaudited)
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July
31,
2002
(audited)
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March
31,
2003
(audited)
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December 31,
2003
(audited)
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December 31,
2004
(audited)
|
December 31,
2005
(audited)
(7)
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2005
(unaudited)
|
2006 (unaudited) |
|||||||||||||||||||||
|
Net
Revenues
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$
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436,184
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$
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385,995
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$
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103,484
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$
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65,656
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$
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87,002
|
$
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84,592
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$
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26,818
|
$ |
20,088
|
||||||||||||
|
Loss
From Operations (3) (4)
|
(143,933
|
)
|
(184,132
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)
|
(129,038
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)
|
(340
|
)
|
(5,207
|
)
|
(6,511
|
) |
|
(1,776
|
) |
(2,149
|
) | |||||||||||
|
Interest
Income (Expense), Net
|
(742
|
)
|
(8,279
|
)
|
(6,006
|
)
|
(630
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)
|
(1,102
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)
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(2,538
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)
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(417
|
) |
146
|
|||||||||||||
|
Net
Loss
|
|
(144,675
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)
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|
(192,411
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)
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|
(135,044
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)
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|
(970
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)
|
|
(6,309
|
)
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|
(9,049
|
)
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|
(2,193
|
) |
(2,003
|
) | |||||
| Preferred Stock and Other Deemed Dividends | — | — | — | (60 | ) | (60 | ) | (1,216 | ) |
(15
|
) |
—
|
||||||||||||||||
|
|
||||||||||||||||||||||||||||
| Net Loss Available to Common Shareholders | $ | (144,675 | ) | $ | (192,411 | ) | $ | (135,044 | ) | $ | (1,030 | ) | $ | (6,369 | ) | $ | (10,265 | ) | $ |
(2,208
|
) | $ |
(2,003
|
) | ||||
|
Net
Loss per share: (5)(6)
Basic
and Diluted EPS
|
N/M
|
N/M
|
N/M
|
$
|
(0.41
|
)
|
$
|
(2.56
|
)
|
$
|
(3.88
|
)
|
$
|
(0.89
|
) | $ |
(0.10
|
) | ||||||||||
|
Weighted
average shares -
Basic
and Diluted
|
N/M
|
N/M
|
N/M
|
2,487,107
|
2,487,107
|
2,643,936
|
2,487,107
|
19,955,536
|
||||||||||||||||||||
|
(1)
|
Predecessor
financials for the years ended July 31, 2001 and 2002 and the eight
months
ended March 31, 2003 were derived solely from the accounting records
of
CMGI, the sole shareholder of our predecessor (which acquired our
business
in April 2000), and using historical results of operations, and historical
basis of assets and liabilities of such predecessor's business. The
statements of operations include fees charged for certain corporate
functions historically provided to us by CMGI, including administrative
services (accounting, human resources, tax services, legal and treasury),
inventory management and order fulfillment, information systems operations
and administration, and advertising services. These fees were allocated
on
a specifically identifiable basis or using the relative percentages,
as
compared to CMGI's other business, net of revenues, payroll, net
cost of
goods sold, square footage, headcount, or
other.
|
|
(2)
|
The
current uBid business was substantially acquired by Petters Group
in April
2003 at which time purchase accounting was applied to adjust all
carrying
values to estimated current market value (after deduction for negative
goodwill) and the business started accounting for all of its costs
of
operations without allocations of such costs from its prior
parent.
|
|
(3)
|
Includes
$148, $264, $360 and $90 of management fees charged to uBid by
Petters
Group for the periods ended December 31, 2003, 2004, 2005 and March
31, 2005. The management agreement was terminated on December 31,
2005.
|
|
(4)
|
In
April 2000, CMGI acquired uBid and recorded $367.0 million in goodwill
which it amortized over a three year period prior to the impairment
of all
remaining goodwill of $89.4 million (as well as the impairment of
$3.9
million of property and equipment) during the period ended March
31, 2003.
Pro forma net loss for the fiscal years ended July 31, 2001 and 2002
was
$17.6 million and $70.4 million, had uBid not amortized goodwill
during
these periods.
|
|
(5)
|
Computation
for periods ended prior to April 2003 is not meaningful (N/M) because
there was no common stock outstanding during those
periods.
|
|
(6)
|
Reflects
the retroactive effects of the impact of the company's December
2005
merger with Cape Coastal and the resulting exchange of the company's
1,072
shares of common stock outstanding for stock of Cape Coastal at
an
exchange ratio of 2,320 to 1 for all periods ending between December
31,
2003 and 2005.
|
|
(7)
|
See
Note 20 on page F-22 for a description of our restatement of financial
information for fiscal year
2005.
|
Investing
in our common stock involves a high degree of risk. You should carefully
consider the risks below before making an investment decision. Our business,
financial or results of operations could be materially adversely affected by
any
of these risks. In such an event, the trading price of our common stock could
decline and you may lose all or part of your investment.
Risks
Related to Our Company
Revenue
growth in prior periods may not be indicative of our future growth.
Our
revenues have fluctuated significantly in the past as a result of varying
amounts of funds we have spent on advertising and inventory supply and may
fluctuate significantly in the future as a result of changes made in our
business over the past eight years. These changes in our business, including
changes in ownership, prevent the meaningful use of period-to-period comparisons
of financial results. Accordingly, investors should not rely on past revenue
growth rates as a prediction of our future growth. For a discussion of the
changes to our business over the past eight years, see “Business,” beginning on
page 49.
We
have a history of operating losses which may
continue.
We
have a
history of losses and may continue to incur operating and net losses for the
foreseeable future. uBid incurred a net loss of approximately $9.0 million
for
the year ended December 31, 2005. As of December 31, 2005, our retained deficit
was $17.7 million. We have not achieved profitability on an annual basis. We
may
not be able to reach a level of revenue to achieve profitability. If our
revenues grow more slowly than anticipated or if operating expenses exceed
expectations, then we may not be able to achieve profitability in the near
future or at all, which may depress our stock price.
Our
financial results fluctuate and may be difficult to
forecast.
Our
revenues, expenses and operating results are unpredictable. We expect that
our
operating results will continue to fluctuate in the future due to a number
of
factors, some of which are beyond our control. These factors include, but are
not limited to:
|
§
|
our
ability to increase our brand
awareness;
|
|
§
|
our
ability to attract visitors to our website and convert those visitors
into
bidders and customers;
|
|
§
|
our
ability to increase our customer
base;
|
|
§
|
the
amount and timing of costs relating to the expansion of our operations,
including sales and marketing
expenditures;
|
|
§
|
our
ability to sell products at auction at the price targets we
set;
|
|
§
|
our
ability to introduce new types of merchandise, service offerings
or
customer services in a competitive
environment;
|
|
§
|
our
ability to control our gross
margins;
|
|
§
|
technical
difficulties consumers might encounter in using our
website;
|
|
§
|
our
ability to manage third party outsourced
operations;
|
|
§
|
our
ability to sell our inventory in a timely manner and maintain customer
satisfaction;
|
|
§
|
delays
in shipments as a result of computer systems failures, strikes or
other
problems with our delivery service or credit card processing
providers;
|
|
§
|
the
availability and pricing of merchandise from manufacturers, suppliers
and
vendors;
|
|
§
|
the
amount of returns of our merchandise;
|
|
§
|
product
obsolescence and price erosion;
|
|
§
|
consumer
confidence in encrypted transactions on the
Internet;
|
|
§
|
our
ability to obtain cost effective advertising on other entities’ websites;
and
|
|
§
|
the
effectiveness of offline advertising in generating additional traffic
to
our website.
|
Due
to
all of these factors, our operating results may fall below the expectations
of
investors, which could cause a decline in the price of our common
stock.
Losing
key personnel could affect our ability to successfully grow our
business.
Our
future performance depends substantially on the continued service of our senior
management and other key personnel. In particular, our success depends upon
the
continued efforts of our management personnel, including our President and
Chief
Executive Officer, Robert H. Tomlinson, Jr., our Executive Vice President,
Timothy E. Takesue, our Chief Marketing Officer, Anthony Priore, and other
members of the senior management team. Messrs. Tomlinson, Takesue and Priore
have executed employment agreements, but these agreements do not guarantee
continued employment. We do not currently maintain key person life insurance.
If
our senior management were to resign or no longer be able to serve as our
employees, it could impair our revenue growth, business and future
prospects.
Our
business may suffer if we do not attract and retain additional highly skilled
personnel.
To
meet
our expected growth, we believe that our future success will depend upon our
ability to hire, train and retain other highly skilled personnel. Competition
for quality personnel is intense among technology and Internet-related
businesses such as ours. We cannot be sure that we will be successful in hiring,
assimilating or retaining the necessary personnel, and our failure to do so
could cause our operating results to fall below our projected growth and profit
targets.
We
are a holding company that depends on cash flow from uBid, Inc., our
wholly-owned subsidiary, to meet our obligations.
We
are a
holding company with no material assets other than the stock of our wholly-owned
subsidiary. Accordingly, all our operations are conducted by uBid, Inc., our
wholly-owned subsidiary. We currently expect that the earnings and cash flow
of
our subsidiary will primarily be retained and used by it in its operations,
including servicing any debt obligations it may have now or in the future.
Accordingly, although we do not anticipate paying any dividends in the
foreseeable future, our subsidiary may not be able to generate sufficient cash
flow to distribute funds to us in order to allow us to pay future dividends
on,
or make any distributions with respect to our common stock.
New
rules, including those contained in and issued under the Sarbanes-Oxley Act
of
2002, may make it difficult for us to retain or attract qualified officers
and
directors, which could adversely affect the management of our business and
our
ability to obtain or retain listing of our common stock.
We
may be
unable to attract and retain those qualified officers, directors and members
of
board committees required to provide for our effective management because of
the
recent changes in the rules and regulations that govern publicly held companies,
including, but not limited to, certifications by principal executive officers.
The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series
of new rules and regulations and the strengthening of existing rules and
regulations by the SEC, as well as the adoption of new and more stringent rules
by the stock exchanges and NASDAQ. The perceived increased personal risk
associated with these recent changes may deter qualified individuals from
accepting roles as directors and executive officers.
Further,
some of these recent changes heighten the requirements for board of directors
or
committee membership, particularly with respect to an individual’s independence
from the corporation and level of experience in finance and accounting matters.
Because we are relatively new as a stand-alone company, we may have difficulty
attracting and retaining directors with the requisite qualifications. If we
are
unable to attract and retain qualified officers and directors, the management
of
our business and our ability to obtain or retain listing of our shares of common
stock on any stock exchange or NASDAQ (assuming we elect to seek and are
successful in obtaining such listing) could be adversely affected.
If
we fail to maintain an effective system of internal controls, we may not be
able
to accurately report our financial results or detect fraud. Consequently,
investors could lose confidence in our financial reporting and this may decrease
the trading price of our stock.
We
must
maintain effective internal controls to provide reliable financial reports
and
detect fraud. We have been assessing our internal controls to identify areas
that need improvement. We are in the process of implementing changes to internal
controls, but have not yet completed implementing these changes. Failure to
implement these changes to our internal controls or any others that we identify
as necessary to maintain an effective system of internal controls could harm
our
operating results and cause investors to lose confidence in our reported
financial information. Any such loss of confidence would have a negative effect
on the trading price of our stock.
Regulatory
requirements may materially
adversely affect us.
We
are
subject to various other regulatory requirements, including the Sarbanes-Oxley
Act. Section 404 of the Sarbanes-Oxley Act requires the evaluation and
determination of the effectiveness of a company’s internal control over its
financial reporting. If it is determined that we have a material weakness in
our
internal control over financial reporting, we could incur additional costs
and
suffer adverse publicity and other consequences of any such
determination.
All
liabilities of Cape Coastal Trading Corporation survived the merger and Cape
Coastal may have undisclosed liabilities that could harm our revenues, business,
prospects, financial condition and results of operations.
Before
the merger with Cape Coastal, we and our legal counsel conducted due diligence
on Cape Coastal customary and appropriate for a merger transaction. However,
the
due diligence process may not have revealed all material liabilities of Cape
Coastal currently existing or which may be asserted in the future against us
relating to Cape Coastal activities before the consummation of the merger.
The
Merger Agreement contains a limited stockholder post-closing adjustment to
the
number of shares of common stock issued to pre-merger uBid stockholders as
a
means of providing a remedy for breaches of representations made in the Merger
Agreement by Cape Coastal, including representations related to undisclosed
Cape
Coastal liabilities, however, there is no comparable protection offered to
our
other investors. Any such liabilities of Cape Coastal survived the merger and
could harm our revenues, business, prospects, financial condition and results
of
operations upon our acceptance of responsibility for such
liabilities.
Risks
Related to Our Business
We
may not be successful in developing brand awareness, and the failure to do
so
could significantly harm our business and financial
condition.
We
believe that the importance of brand recognition will increase as more companies
engage in commerce over the Internet. Development and awareness of our brand
will depend largely on our ability to increase our customer base. If suppliers
do not perceive us as an effective marketing and sales channel for their
merchandise, or if consumers do not perceive us as offering an entertaining
and
efficient way to purchase merchandise, we may be
unsuccessful in promoting and maintaining our brand. To attract and retain
customers and promote our brand, we expect to increase our marketing and
advertising budgets. Failure to successfully promote our brand in a cost
effective manner or achieve a leading position in Internet commerce could
significantly reduce the revenues we are able to generate from our operations.
Our
failure to remain competitive may significantly hinder our
growth.
The
electronic commerce marketplace is rapidly evolving and intensely competitive,
and we expect competition to intensify in the future. We compete with a variety
of other companies based on the type of merchandise and the sales format they
offer to customers. These competitors include, but are not limited
to:
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Various
online auction houses such as eBay.com, Amazon.com Auctions, Yahoo!
Auctions, and Bidz.com.
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A
number of e-commerce companies focused primarily on excess and overstock
products with fixed price format, including Amazon.com, Overstock.com,
Shopping.com, eCost.com, BlueFly.com and
SmartBargains.com.
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A
variety of offline auction companies that offer similar merchandise
to
that available in our marketplace
supply.
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Merchants
that have their own direct distribution channels for excess inventory
or
refurbished products.
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Companies
with substantial customer bases in the computer and peripherals catalog
business, including CDW Computer Centers, PC Connection and PC Mall,
some
of which already sell online or may devote more resources to e-commerce
in
the future.
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Some
of
our current and potential competitors have established or may establish
cooperative relationships among themselves or directly with suppliers to obtain
exclusive or semi-exclusive sources of merchandise. In addition, there has
been
consolidation in the industry, which may continue in the future. Accordingly,
new competitors or alliances among competitors and suppliers may emerge and
rapidly acquire market share. Further, manufacturers may elect to sell their
products directly. Increased competition is likely to reduce our operating
margins, cause us to lose market share and/or diminish the value of our brand.
The occurrence of any of these events could significantly harm our
business.
Many
of
our current and potential competitors have significantly greater financial,
marketing, customer support, technical and other resources than we have. As
a
result, these competitors may be able to secure merchandise from suppliers
on
more favorable terms than we do. They may also be able to respond more quickly
to changes in customer preferences or devote greater resources to developing
and
promoting their merchandise. We cannot ensure that we will be able to
successfully compete against current and future competitors. Our failure to
operate competitively in the marketplace could reduce the amount of revenue
we
are able to generate in the future.
We
may need to raise additional capital to meet our business requirements in the
future and such capital raising may be costly or difficult to obtain and could
dilute current stockholders’ ownership interests.
We
may
need additional capital in the future, which may not be available on reasonable
terms or at all. The raising of additional capital may dilute our current
stockholders’ ownership interests. We may need to raise additional funds through
public or private debt or equity financings to meet various objectives
including, but not limited to:
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pursuing
growth opportunities, including more rapid expansion;
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acquiring
complementary businesses;
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making
capital improvements to improve our infrastructure;
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hiring
qualified management and key employees;
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developing
new services or products;
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responding
to competitive pressures;
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complying
with regulatory requirements such as licensing and registration;
and
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maintaining
compliance with applicable laws.
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Any
additional capital raised through the sale of equity or equity backed securities
may dilute current stockholders’ ownership percentages and could also result in
a decrease in the fair market value of our equity securities because our assets
would be owned by a larger pool of outstanding equity. The terms of those
securities issued by us in future capital transactions may be more favorable
to
new investors, and may include preferences, superior voting rights and the
issuance of warrants or other derivative securities, which may have a further
dilutive effect.
Furthermore,
any additional debt or equity financing that we may need may not be available
on
terms favorable to us, or at all. If we are unable to obtain required additional
capital, we may have to curtail our growth plans or cut back on existing
business and, further, we may not be able to continue operating if we do not
generate sufficient revenues from operations needed to stay in
business.
We
may
incur substantial costs in pursuing future capital financing, including
investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities
we
issue, such as convertible notes and warrants, which may adversely impact our
financial condition.
If
the products that we offer do not reflect our customers’ tastes and preferences,
our revenues and profit margins could decrease.
Our
success depends in part on our ability to offer products and services that
reflect consumers’ tastes and preferences. Consumers’ tastes are subject to
frequent, significant and sometimes unpredictable changes. Because the products
that we sell typically consist of manufacturers’ and retailers’ excess
inventory, we have limited control over the specific products that we offer
for
sale. If the merchandise we offer for sale fails to satisfy customers’ tastes or
respond to changes in customer preferences, our sales could suffer and we could
be required to mark down unsold inventory which could depress profit margins.
In
addition, any failure to offer products and services in line with customers’
preferences could allow competitors to gain market share, which could harm
our
business, results of operations and financial condition.
Our
growth and future success depends on our ability to generate traffic to our
website and we may not be able to effectively do so.
Our
ability to sell products on our online marketplace depends substantially on
our
ability to attract traffic to our website. We have traditionally spent
significant amounts of money for online advertising to attract such traffic.
We
expect that our sales and marketing expenses, including advertising
expenditures, will increase as we attempt to generate increased traffic to
our
website. If we are unable to generate traffic to our website cost effectively,
or if our efforts to promote our auctions using both online and offline media
are not successful, our growth and business prospects may be substantially
limited.
We
depend
to some extent on relationships with other online companies through which we
place our advertising and expect that our dependence on these relationships
will
increase in the future. These relationships include:
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portal
arrangements and agreements for anchor tenancy on other companies’
websites;
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sponsorships;
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promotional
placements;
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banner
advertisements; and
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other
online advertising including paid
searches.
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Generally,
these arrangements have terms for up to three years, are not exclusive, do
not
provide for guaranteed renewal, and may be terminated by us without cause.
The
risks created by our dependence on these relationships include the
following:
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competitors
may purchase exclusive rights to attractive space on one or more
key
websites;
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our
online partners might be unable to deliver a sufficient number of
customer
visits or impressions;
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significant
spending on these relationships may not increase our revenues in
the time
periods we expect or at all;
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our
online partners could compete with us for limited online auction
revenues;
and
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space
on websites may increase in price or cease to be available to us
on
reasonable terms or at all.
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If
other
online companies terminate any of our arrangements, or if we fail to continue
to
acquire similar arrangements in the future, this could materially reduce the
amount of revenue we are able to generate from our operations.
Our
business channel, uBid Direct, may subject us to risks of decreased or negative
gross margins.
We
currently purchase most of the merchandise to be sold on our marketplace, and
in
doing so assume the inventory and price risks of this merchandise. These risks
are especially significant because most of the merchandise we sell is subject
to
rapid technological change, obsolescence and price erosion. Because we rely
heavily on purchased inventory, our success will depend on our ability to sell
such inventory rapidly through our website. We also rely heavily on the ability
of our buying staff to purchase inventory at attractive prices relative to
resale value and our ability to manage customer returns and the shrinkage
resulting from theft, loss and misrecording of inventory.
Due
to
the inherently unpredictable nature of the auction style format, it is
impossible for us to determine with certainty whether any item will sell for
more than the price we pay for it. Further, because minimum opening bid prices
for the merchandise listed on our website generally are lower than the
acquisition costs for the merchandise, we cannot be certain that we will achieve
positive gross margins on any given sale. If we are unable to liquidate our
purchased inventory rapidly, if our buying staff fails to purchase inventory
at
attractive prices relative to resale value at auction, or if we fail to predict
with accuracy the resale prices for our purchased merchandise, we may have
to
sell our inventory at a discount or at a loss. This could negatively impact
our
revenues and profitability.
We
rely on third parties to maintain our critical systems and, if these third
parties fail to perform their services adequately, we could experience
disruptions in our operations.
We
rely
on a number of third parties, including our Internet hosting facility and
telephone company, for Internet and telecommunications access, fulfillment
and
delivery services, credit card processing and software services. We have limited
control over these third parties and no long-term relationships with any of
them. For example, we do not own a gateway onto the Internet. From time to
time,
we have experienced temporary interruptions in our website connection and our
telecommunications access. Slow Internet transmissions or prolonged
interruptions in our website connection or telecommunications access could
materially harm our business.
We
and
our certified merchants use UPS, Federal Express, DHL and USPS delivery services
for substantially all of our products. Should any of these third party service
providers be unable to deliver our products for a sustained period because
of a
strike or other reason, we may not be able to engage other suitable service
providers on a timely basis, or upon favorable terms, which could harm our
business. In addition, uBid and our certified merchants could experience delays
in shipment due to computer systems failures or other problems related to third
party service providers. Delays in shipment could reduce the volume of orders
that we are able to fulfill, increase our delivery costs or cause customer
dissatisfaction with our business.
Our
internally developed auction software depends on operating system, database
and
server software that was developed and produced by and licensed from third
parties. We have, from time to time, discovered errors and defects in the
software from these third parties and we rely to some extent on these third
parties to correct errors and defects in a timely manner. If we are unable
to
develop and maintain satisfactory relationships with these third parties on
acceptable commercial terms, or if the quality of products and services provided
by these third parties falls below a satisfactory standard, we could experience
disruptions in our ability to operate our business.
Our
business may suffer from capacity constraints or system
interruptions.
A
key
element of our strategy is to generate a high volume of traffic to our website.
Our revenues depend substantially on the number of customers who use our website
to purchase merchandise. Accordingly, the satisfactory performance, reliability
and availability of our website, transaction-processing systems, network
infrastructure and delivery and shipping systems are critical to our operating
results, as well as to our reputation and ability to attract and retain
customers and maintain adequate inventory and customer service
levels.
Periodically,
we have experienced minor systems interruptions, including Internet disruptions,
which we believe may continue to occur from time to time. Any systems
interruptions, including Internet disruptions that make our website inaccessible
or reduce our order fulfillment performance, would reduce the volume of goods
we
are able to sell, which could harm our business. We are continually enhancing
and expanding our transaction processing systems, network infrastructure,
delivery and shipping systems and other technologies to accommodate a
substantial increase in the volume of traffic on our website. We cannot assure
you that we will be successful in these efforts or that we will be able to
project accurately the rate or timing of increases, if any, in the use of our
website or timely expand and upgrade our systems and infrastructure to
accommodate these increases. We cannot assure you that our network or our
suppliers’ networks will be able to timely achieve or maintain a sufficiently
high capacity of data transmission, especially if our website traffic increases.
If we fail to achieve or maintain our capabilities for high capacity data
transmission, consumer demand for our services could decline, negatively
impacting our revenues from operations.
If
the facility where substantially all of our computer and communications hardware
is located fails, this may harm our business, results of operations and
financial condition.
Our
success, and, in particular, our ability to successfully receive and fulfill
orders and provide high-quality customer service, largely depend on the
efficient and uninterrupted operation of our computer and communications
hardware systems. Most of the computer and communications hardware that runs
the
website is located at a single co-location facility in Lisle, Illinois. The
redundancy and the failover technology built at the co-location facility can
handle a few simultaneous hardware failures. Failure of a majority of the
hardware at the same time will harm tremendously the functioning of the website
and receiving orders. We have implemented a formal disaster recovery plan and
back up process to protect our data and systems. We also maintain business
interruption insurance. We have created a disaster recovery strategy but have
not formally tested such strategy and there is no guarantee that the disaster
recovery strategy will be able to bring the fully functional website back in
a
reasonable amount of time. The hardware and data security measures we have
created may not protect our systems from interruptions or be sufficient to
repair, recover or otherwise compensate us for loss or damage to such systems
or
data. Also, despite the implementation of such network security measures, our
systems and data remain vulnerable to computer viruses, physical or electronic
break-ins, fire, flood, power loss, telecommunications failure, terrorist
attacks, acts of war, earthquake and similar events which could lead to
interruptions, delays, damage, loss of critical data or the inability to accept
and fulfill customer orders. In such events, our network security measures
may
be insufficient to repair or recover the lost or damaged systems or data or
compensate us for losses that may occur. The occurrence of any of the foregoing
events could harm our ability to operate our business, our future ability to
attract and retain customers and our revenue growth.
We
may not be able to sustain or grow our business unless we keep up with rapid
technology changes.
The
Internet and electronic commerce industries are characterized by:
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rapidly
changing technology;
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evolving
industry standards and practices that could render our website and
proprietary technology obsolete;
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changes
in consumer demands; and
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frequent
introductions of new services or products that embody new
technologies.
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Our
future performance will depend, in part, on our ability to develop, license
or
acquire leading technologies, enhance our existing services and respond to
technological advances and emerging industry standards and practices on a timely
and cost-effective basis. Developing website and other proprietary technology
involves significant technical and business risks. We also cannot assure you
that we will be able to successfully use new technologies or adapt our website
and proprietary technology to emerging industry standards. We may not be able
to
remain competitive or sustain growth if we do not adapt to changing market
conditions or customer requirements.
We
may suffer disruption in our business because of changes in our systems,
facilities and fulfillment activities.
We
believe that our success is dependent in large part upon our ability to provide
prompt and efficient service to our customers. Any failure of our information
management systems or distribution capabilities could impair our ability to
receive and process customer orders and ship products on a timely
basis.
We
expect
to upgrade our software and hardware systems on a continuing basis. The
transition to, or upgrading of, our hardware and software systems could result
in delays, failures or execution difficulties that could impair our ability
to
receive and process orders and ship products in a timely manner.
We
are
currently evaluating an upgrade to our enterprise resource planning applications
(“ERP”). These applications support our back office operations. Upgrades may be
required to the ERP applications to ensure that such applications stay current
on the latest applicable version. By design, these upgrades are time consuming,
expensive and intrusive to daily business operations. Conducting such upgrades
could result in a failure to our operating systems or may cause a delay in
fulfillment of orders received through our online auction platform. Undertaking
such an upgrade will require significant capital expenditures that may result
in
a diversion of funds required for general operating expenses, which may result
in an adverse effect to our ongoing business operations.
To
date,
we have had various interruptions to our service because of loss of power and
telecommunications connections. Our insurance coverage may not be adequate
to
compensate for all losses that may occur because of any future service
interruptions. Our servers are vulnerable to computer viruses, physical or
electronic break-ins, attempts by third parties to overload our systems and
similar disruptive problems. Any of these problems could cause interruptions,
delays, loss of data or cessation in service to our users.
Technological
or other assaults on our service could harm our
business.
We
are
vulnerable to coordinated attempts to overload our systems with data, resulting
in denial or reduction of service to some or all of our users for a period.
The
occurrence of any such event could reduce our revenue.
Our
inability to adequately protect our proprietary technology could adversely
affect our business.
Our
proprietary technology is one of the keys to our performance and ability to
remain competitive. We rely on a combination of trademark, copyright and trade
secret laws to establish and protect our proprietary rights. We also use
technical measures, confidentiality agreements and non-compete agreements to
protect our proprietary rights. Our uBid service mark is registered in the
United States. However, we may not be able to secure significant protection
for
our service marks or trademarks. Our competitors or others could adopt product
or service names similar to “uBid” or our other service marks or trademarks. Any
of these actions by others might impede our ability to build brand identity
and
could lead to customer confusion. Our inability to protect our service mark
or
trademarks adequately could adversely affect our business and financial
condition, and the value of our brand name and other intangible
assets.
We
rely
on copyright laws to protect our proprietary software and trade secret laws
to
protect the source code for our proprietary software. We generally enter into
agreements with our employees and consultants and limit access to and
distribution of our software, documentation and other proprietary information.
The steps we take to protect our proprietary information may not prevent
misappropriation of our technology, and the agreements we enter into for that
purpose might not be enforceable. A third party might obtain and use our
software or other proprietary information without authorization or develop
similar software independently. It is difficult for us to police the
unauthorized use of our technology, particularly because the global nature
of
the Internet makes it difficult to control the ultimate destination or security
of software or other transmitted data. The laws of other countries may not
provide us with adequate or effective protection of our intellectual
property.
We
may infringe on third party intellectual property rights and could become
involved in costly intellectual property litigation.
Other
parties claiming infringement by our software or other aspects of our business
could sue us. We are not currently involved in any suit that would have a
material effect on our business.
However,
any future claims, with or without merit, could impair our business and
financial condition because they could:
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result
in significant litigation costs;
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divert
the attention of management;
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divert
resources; or
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require
us to enter into royalty and licensing agreements that may not be
available on terms acceptable to us or at
all.
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In
the
future, we may also file lawsuits to enforce our intellectual property rights,
to protect our trade secrets, or to determine the validity and scope of the
proprietary rights of others. Litigation over these issues, whether successful
or unsuccessful, could result in substantial costs and diversion of resources,
which could reduce our profitability.
We
may experience unexpected expenses or delays in service enhancements if we
are
unable to license third party technology on commercially reasonable
terms.
We
rely
on a variety of technology that we license from third parties, such as Microsoft
and Oracle. These third party technology licenses might not continue to be
available to us on commercially reasonable terms or at all. If we are unable
to
obtain or maintain these licenses on favorable terms, or at all, we could
experience delays in completing and developing our proprietary software.
The
listing or sale of pirated, counterfeit or illegal items by third parties may
harm our business and reputation.
We
may be
unable to prevent third parties from listing unlawful goods, and we may be
subject to allegations of civil or criminal liability for unlawful activities
carried out by third parties through our website. In the future, we may find
it
necessary to implement additional measures to protect further against the
potential liabilities that could require us to spend substantial resources
and/or to reduce revenues by discontinuing certain service offerings. Any costs
incurred because of liability or asserted liability relating to the sale of
unlawful goods or the unlawful sale of goods could harm our revenues, business,
prospects, financial condition and results of operations. Negative publicity
generated because of the foregoing could damage our reputation, harm our
business and diminish the value of the uBid brand name.
We
may be liable if third parties misappropriate our customers’ personal
information.
If
third
parties are able to penetrate our network security or otherwise misappropriate
our customers’ personal information or credit card information, or if we give
third parties improper access to our customers’ personal information or credit
card information, we could be subject to liability. This liability could include
claims for unauthorized purchases with credit card information, impersonation
or
other similar fraud claims. This liability could also include claims for other
misuse of personal information, including unauthorized marketing purposes.
These
claims could result in litigation. Liability for misappropriation of this
information could adversely affect our business. In addition, the Federal Trade
Commission and state agencies have been investigating various Internet companies
regarding their use of personal information. We could incur additional expenses
from the introduction of new regulations regarding the use of personal
information or from government agencies investigating our privacy
practices.
We
rely
on encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to effect secure transmission
of confidential information, such as customer credit card numbers. We cannot
assure you that advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments will not result in a compromise
or breach of the algorithms that we use to protect customer transaction data.
If
any such compromise of our security were to occur, it could harm our reputation,
business, prospects, financial condition and results of operations. A party
who
is able to circumvent our security measures could misappropriate proprietary
information or cause interruptions in our operations. We may be required to
expend significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches. We cannot assure
you
that our security measures will prevent security breaches or that failure to
prevent such security breaches will not harm our business, prospects, financial
condition and results of operations.
We
may be subject to product liability claims that could be costly and time
consuming.
We
sell
products manufactured by third parties, some of which may be defective. If
any
product that we sell were to cause physical injury or injury to property, the
injured party or parties could bring claims against us as the retailer of the
product. Our insurance coverage may not be adequate to cover every possible
claim asserted.
We
may encounter barriers to international expansion, which could limit our future
growth and adversely affect our business and financial
condition.
We
do not
currently have any website content localized for foreign markets, and may not
be
able to establish a global presence. Our expansion into international markets
will require significant management attention and financial
resources.
Engaging
in business on a global level carries inherent risks that could adversely affect
our profitability, such as:
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differing
regulatory requirements;
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longer
payment cycles;
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export
restrictions;
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problems
in collecting accounts receivable;
|
|
§
|
difficulties
in staffing and managing foreign
operations;
|
|
§
|
political
instability;
|
|
§
|
difficulties
in protecting our intellectual property
rights;
|
|
§
|
fluctuations
in currency exchange rates; and
|
|
§
|
potentially
adverse tax consequences.
|
In
addition, export laws restrict some types of software that contain encryption
technology and we could become subject to liability for any violations of these
export restrictions. We may not be able to successfully market, sell and
distribute our products in foreign markets. The occurrence of one or more of
these events could have a material adverse effect on our future global
operations, and consequently, on our business and financial condition as a
whole.
Credit
card fraud could adversely affect our business.
We
do not
carry insurance against the risk of credit card fraud, so the failure to control
adequately fraudulent credit card transactions could reduce our net revenues
and
gross margin. We have implemented technology to help us detect the fraudulent
use of credit card information. However, we may in the future suffer losses
because of orders placed with fraudulent credit card data even though the
associated financial institution approved payment of the orders. Under current
credit card practices, we may be liable for fraudulent credit card transactions
because we do not obtain a cardholder’s signature. If we are unable to detect or
control credit card fraud, our liability for these transactions could increase
our cost of doing business and reduce our profitability.
If
one or more states successfully assert that we should collect sales or other
taxes on the sale of our merchandise or the merchandise of third parties that
we
offer for sale on our website, our business could be harmed.
We
have
not collected nor do we currently collect sales or other similar taxes for
physical shipments of goods into states other than Illinois. One or more local,
state or foreign jurisdictions may seek to impose sales tax collection
obligations on us and other out-of-state companies that engage in online
commerce. Our business could be harmed if one or more states or any foreign
country successfully asserts that it should collect sales or other taxes on
the
sale of our merchandise.
In
addition, in 1998, the Internet Tax Freedom Act was enacted, which generally
placed a three-year moratorium on state and local taxes on Internet access
and
on multiple or discriminatory state and local taxes on electronic commerce.
This
moratorium was recently extended until November 1, 2007. We cannot predict
whether this moratorium will be extended in the future or whether future
legislation will alter the nature of the moratorium. If this moratorium is
not
extended in its current form, state and local governments could impose
additional taxes on Internet-based transactions, and these taxes could decrease
our ability to compete with traditional retailers and could have a material
adverse effect on our business, financial condition, results of operations
and
cash flow.
Failure
to maintain satisfactory relationships with our suppliers, or the inability
to
obtain sufficient quantities of merchandise, could increase merchandise costs
and/or availability.
We
depend
upon our suppliers to provide merchandise for sale through our online
marketplace. The availability of merchandise can be unpredictable. Since
our
inception, we have sourced merchandise from over 3,700 suppliers. Merchandise
acquired from Sony and Hewlett Packard accounted for 36.6% and 11% of net
revenues during the year ended December 31, 2005. Sony and HP products
represented 14.0% and 9.2% of net revenues during the quarter ended March
31,
2006. We do not have long-term supply contracts with any of our suppliers.
We
cannot be certain that our current suppliers will continue to sell or otherwise
provide merchandise for sale in our auctions. We also cannot be certain that
we
will be able to establish new supplier relationships that ensure merchandise
will be available for auction on our website.
A
limited
number of our suppliers process and ship merchandise directly to our customers.
We have limited control over their shipping procedures, and factors beyond
our
control could delay shipments by these suppliers. Most merchandise we sell
carries a warranty supplied either by the manufacturer or the supplier. We
could
be compelled to accept returns from customers without receiving reimbursements
from the suppliers or manufacturers if they do not honor their warranties.
If we
are unable to develop and maintain satisfactory relationships with suppliers
on
acceptable commercial terms, if we are unable to obtain sufficient quantities
of
merchandise, if the quality of service provided by these suppliers falls below
a
satisfactory standard or if our level of returns exceeds our expectations,
this
could significantly harm our business.
Risks
Related to our Industry
We
may not be able to attract traditional consumers of goods at reasonable
costs.
In
countries such as the U.S., where online commerce has generally been available
for some time, acquiring new users for our services may be more difficult and
costly than it has been in the past. To expand our user base, we must appeal
to
and acquire consumers who historically have used traditional means of commerce
to purchase goods. If these consumers prove to be less active than our earlier
users, and we are unable to gain efficiencies in our operating costs, including
the cost of acquiring new customers, this could impact our
profitability.
Anything
that causes our website users to spend less time on their computers, including
seasonal factors and national events, may impact
profitability.
Anything
that diverts users of our website from their customary level of usage could
adversely affect our business. Geopolitical events such as war, the threat
of
war or terrorist activity, and natural disasters such as hurricanes or
earthquakes all could adversely affect our profitability. Similarly, our results
of operations historically have varied seasonally because many of our users
reduce their activities on our website with the onset of good weather during
the
summer months, and on and around national holidays.
Increasing
governmental regulation of the Internet could harm our
business.
We
are
subject to the same federal, state and local laws as other companies conducting
business on the Internet. Today there are relatively few laws specifically
directed towards conducting business on the Internet. However, due to the
increasing popularity and use of the Internet, many laws and regulations
relating to the Internet are being debated at the state and federal levels.
These laws and regulations could cover issues such as user privacy, freedom
of
expression, pricing, fraud, quality of products and services, taxation,
advertising, intellectual property rights and information security. Furthermore,
the growth and development of Internet commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on
companies conducting business over the Internet. New laws or regulations may
decrease the growth of the Internet, which, in turn, could decrease the demand
for our Internet auctions and increase our cost of doing business. The
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, auction regulation, sales tax,
libel and personal privacy is uncertain and may take years to
resolve.
Applicability
to the Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy could also harm our business. For example, United States
and foreign laws regulate our ability to use customer information and to
develop, buy and sell mailing lists. The vast majority of these laws were
adopted before the advent of the Internet, and do not contemplate or address
the
unique issues raised by the Internet. The courts are only beginning to interpret
those laws that do reference the Internet, such as the Digital Millennium
Copyright Act and the CAN-SPAM Act of 2003, and their applicability and reach
are therefore uncertain. These current and future laws and regulations could
harm our business, results of operation and financial condition.
In
addition, several telecommunications carriers have requested that the Federal
Communications Commission regulate telecommunications over the Internet. Due
to
the increasing use of the Internet and the burden it has placed on the current
telecommunications infrastructure, telephone carriers have requested the FCC
to
regulate Internet service providers and impose access fees on those providers.
If the FCC imposes access fees, the costs of using the Internet could increase
dramatically which could result in the reduced use of the Internet as a medium
for commerce and have a material adverse effect on our Internet business
operations.
Because
our service is available over the Internet in multiple states and because we
sell merchandise to consumers residing in multiple states, we could be required
to qualify to do business as a foreign corporation in each state in which our
services are available. We are qualified to do business in Illinois and our
failure to qualify as a foreign corporation in a jurisdiction where we are
required to do so could subject us to taxes and penalties for the failure to
qualify. Any new legislation or regulation, or the
application of laws or regulations from jurisdictions whose laws do not
currently apply to our business, could increase our costs of doing business.
Current
and future laws could affect our auctions business.
Many
states and other jurisdictions have regulations governing the conduct of
traditional “auctions” and the liability of traditional “auctioneers” in
conducting auctions. These types of regulations may become applicable to online
auction sites. We are aware that several states and some foreign jurisdictions
have attempted to impose such regulations on other companies operating online
auction sites or on the users of those sites. In addition, some states have
laws
or regulations that do expressly apply to online auction site services. We
may
incur costs in complying with these laws. We may, from time to time, be required
to make changes in our business that may increase our costs, reduce our
revenues, and cause us to prohibit the listing of some items in certain
locations, or make other changes that may adversely affect our auctions
business.
The
security risks
of e-commerce may discourage customers from purchasing goods from
us.
In
order
for the e-commerce market to develop successfully, uBid and other market
participants must be able to transmit confidential information securely over
public networks. Third parties may have the technology or expertise to breach
the security of customer transaction data. Any breach could cause customers
to
lose confidence in the security of our website and choose not to purchase from
our website. If someone is able to circumvent our security measures, he or
she
could destroy or steal valuable information or disrupt our operations. Concerns
about the security and privacy of transactions over the Internet could inhibit
the growth of the Internet and e-commerce. Our security measures may not
effectively prohibit others from obtaining improper access to our information.
Third parties may target our customers directly with fraudulent identity theft
schemes designed to appear as legitimate communications from us. Any security
breach or fraud perpetrated on our customers could expose us to increased costs
and to risks of loss, litigation and liability and could seriously disrupt
our
operations.
Laws
or regulations relating to privacy and data protection may adversely affect
the
growth of our Internet business or marketing efforts.
We
are
subject to increasing regulation at the federal, state and international levels
relating to privacy and the use of personal user information. For example,
we
are subject to various telemarketing laws that regulate the manner in which
we
may solicit future suppliers and customers. Such regulations, along with
increased governmental or private enforcement, may increase the cost of growing
our business. In addition, several states have proposed legislation that would
limit the uses of personal user information gathered online or require online
services to establish privacy policies. The Federal Trade Commission has adopted
regulations regarding the collection and use of personal identifying information
obtained from children under 13. Bills proposed in Congress would extend online
privacy protections to adults. Moreover, proposed legislation in this country
and existing laws in foreign countries require companies to establish procedures
to notify users of privacy and security policies, obtain consent from users
for
collection and use of personal information, and/or provide users with the
ability to access, correct and delete personal information stored by the
company. We could become a party to a similar enforcement proceeding. These
data
protection regulations and enforcement efforts may restrict our ability to
collect demographic and personal information from users, which could be costly
or harm our marketing efforts.
More
individuals are using non-PC devices to access the Internet and versions of
our
service developed or optimized for these devices may not gain widespread
adoption by users of such devices.
The
number of individuals who access the Internet through devices other than a
personal computer, such as personal digital assistants, mobile telephones and
television set-top devices has increased dramatically. We originally designed
our services for rich, graphical environments such as those available on desktop
and laptop computers. The lower resolution, functionality and memory associated
with alternative devices may make the use of our services through such devices
difficult, and the versions of our service developed for these devices may
not
be compelling to users of alternative devices. As we have limited experience
to
date in operating versions of our service developed or optimized for users
of
alternative devices, it is difficult to predict the problems we may encounter
in
doing so, and we may need to devote significant resources to the creation,
support and maintenance of such versions. If we are unable to attract and retain
a substantial number of alternative device users to our online services, we
may
fail to capture a sufficient share of an increasingly important portion of
the
market for online services.
Risks
Related to Our Common Stock
The
price of our common stock may become volatile, which could lead to losses by
investors and costly securities litigation.
The
trading price of our common stock is likely to be highly volatile and could
fluctuate in response to factors such as:
|
§
|
actual
or anticipated variations in our operating
results;
|
|
§
|
changes
in the market valuations of other Internet or online service
companies;
|
|
§
|
announcements
of technological innovations by us or our
competitors;
|
|
§
|
announcements
by uBid or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital
commitments;
|
|
§
|
adoption
of new accounting standards affecting our
industry;
|
|
§
|
additions
or departures of key personnel;
|
|
§
|
introduction
of new services by uBid or our
competitors;
|
|
§
|
sales
of our common stock or other securities in the open market;
|
|
§
|
conditions
or trends in the Internet and online commerce industries;
and
|
|
§
|
other
events or factors, many of which are beyond our
control.
|
The
stock
market has experienced significant price and volume fluctuations, and the market
prices of stock in technology companies, particularly Internet-related
companies, have been highly volatile. In the past, following periods of
volatility in the market price of a company’s securities, securities class
action litigation has often been initiated against the company. Litigation
initiated against us, whether or not successful, could result in substantial
costs and diversion of our management’s attention and resources, which could
harm our business and financial condition.
We
do not anticipate dividends to be paid on our common stock and investors may
lose the entire amount of their investment.
A
dividend has never been declared or paid in cash on our common stock and we
do
not anticipate such a declaration or payment for the foreseeable future. We
expect to use future earnings, if any, to fund business growth. Therefore,
stockholders will not receive any funds absent a sale of their shares. We cannot
assure stockholders of a positive return on their investment when they sell
their shares nor can we assure that stockholders will not lose the entire amount
of their investment.
There
has been no established trading market for our common stock, which could impair
the value of our investors’ investments and our
business.
There
has
been no established trading market for our common stock. The lack of an active
market may impair the ability to sell shares at the time investors wish to
sell
them or at a price considered to be reasonable. The lack of an active market
may
also reduce the fair market value of the shares. An inactive market may also
impair our ability to raise capital by selling shares of capital stock and
may
impair our ability to acquire other companies or technologies by using our
common stock as consideration.
Investors
may have difficulty trading and obtaining quotations for our common stock,
which
could impair their investments and our business.
Our
common stock is currently quoted on the NASD’s OTC bulletin board and had its
first trade since it was approved for quotation on January 4, 2006. As a
result, an investor may find it difficult to dispose of, or to obtain accurate
quotations of the price of, shares of our common stock. The lack of an
established trading market severely limits the liquidity of our common stock,
and could depress the market price of our common stock and limit our ability
to
raise additional capital.
Securities
analysts may not initiate coverage or continue to cover our common stock and
this may have a negative impact on its market price.
The
trading market for our common stock will depend on the research and reports
that
securities analysts publish about us and our business. We do not have any
control over these analysts. There is no guarantee that securities analysts
will
cover our common stock. If securities analysts do not cover our common stock,
the lack of research coverage may adversely affect its market price. If we
are
covered by securities analysts, and our stock is downgraded, our stock price
would likely decline. If one or more of these analysts ceases to cover us or
fails to publish regular reports on us, we could lose visibility in the
financial markets, which could cause our stock price or trading volume to
decline.
You
may experience dilution of your ownership interests because of the future
issuance of additional shares of our common and preferred stock.
In
the
future, we may issue our authorized but previously unissued equity securities,
resulting in the dilution of the ownership interests of our present stockholders
and the purchasers of common stock offered hereby. We are currently authorized
to issue an aggregate of 225,000,000 shares of capital stock consisting of
200,000,000 shares of common stock and 25,000,000 shares of preferred stock
with
preferences and rights to be determined by our board of directors. As of
May 15,
2006, there were 20,333,333 shares of common stock outstanding, 3,903,338
shares
of common stock underlying warrants that have been issued by us, 1,763,400
shares of common stock underlying options or other rights that have been
granted
under our 2005 Equity Incentive Plan and 736,600 shares of common stock reserved
for issuance under our 2005 Equity Incentive Plan. We may also issue additional
shares of our common stock or other securities that are convertible into
or
exercisable for common stock in connection with hiring or retaining employees,
future acquisitions, future sales of our securities for capital raising
purposes, or for other business purposes. The future issuance of any such
additional shares of our common stock may create downward pressure on the
trading price of our common stock. There can be no assurance that we will
not be
required to issue additional shares, warrants or other convertible securities
in
the future in conjunction with any capital raising efforts, including at
a price
(or exercise prices) below the price at which shares of our common stock
are
currently traded on the OTC bulletin board.
Our
Certificate of Incorporation, Bylaws and the Delaware General Corporation Law
contain anti-takeover provisions, which could discourage or prevent a takeover
even if an acquisition would be beneficial to our stockholders.
Several
provisions of our certificate of incorporation and bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of uBid even if that change in control would be beneficial to our stockholders.
For example, only one-third of the members of the board of directors will be
elected at each annual meeting of stockholders, which will make it more
difficult for a potential acquirer to change our management, even after
acquiring a majority of our common stock. These provisions, which cannot be
amended without the approval of two-thirds of the holders of shares of common
stock, could diminish the opportunities for a holder of common stock to
participate in tender offers, including tender offers at a price above the
then-current market value of our common stock. In addition, the board of
directors, without further stockholder approval, may issue preferred stock,
with
such terms as the board of directors may determine, which could have the effect
of delaying or preventing a change in control of uBid. The issuance of preferred
stock could also adversely affect the voting powers of our common stockholders,
including the loss of voting control to others. We are also afforded the
protections of Section 203 of the Delaware General Corporation Law.
Section 203 could delay or prevent a change in control of uBid or could
impede a merger, consolidation, takeover or other business combination involving
uBid or discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of uBid.
This
prospectus contains forward-looking statements within the meaning of Section
27A
of the Securities Act of 1933, as amended (the “Securities Act”), and Section
21E of the Securities Exchange Act of 1934, as amended. This prospectus includes
statements regarding our plans, goals, strategies, intent, beliefs or current
expectations. These statements are expressed in good faith and based upon a
reasonable basis when made, but there can be no assurance that these
expectations will be achieved or accomplished. These forward looking statements
can be identified by the use of terms and phrases such as “believe,” “plan,”
“intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or
future-tense or conditional constructions (“will,” “may,” “could,” “should,”
etc.). Items contemplating or making assumptions about, actual or potential
future sales, market size, collaborations, and trends or operating results
also
constitute such forward-looking statements.
Although
forward-looking statements in this prospectus reflect the
good
faith judgment of management, forward-looking statements are inherently subject
to known and unknown risks, business, economic and other risks and uncertainties
that may cause actual results to be materially different from those discussed
in
these forward-looking statements. Readers are urged not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
prospectus. We assume no obligation to update any forward-looking statements
in
order to reflect any event or circumstance that may arise after the date of
this
prospectus, other than as may be required by applicable law or regulation.
Readers are urged to carefully review and consider the various disclosures
made
by us in our reports filed with the Securities and Exchange Commission which
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition, results of operation and cash flows. If
one
or more of these risks or uncertainties materialize, or if the underlying
assumptions prove incorrect, our actual results may vary materially from those
expected or projected.
This
prospectus covers shares issued in connection with our recent merger,
unregistered shares held by pre-merger stockholders of Cape Coastal Trading
Corporation and shares, including shares underlying warrants, sold in our recent
private equity offerings to “accredited investors” as defined by Rule 501(a)
under the Securities Act pursuant to an exemption from registration provided
in
Regulation D, Rule 506 under Section 4(2) of the Securities Act, and to
“qualified institutional buyers,” as defined by Rule 144A under the Securities
Act. The selling stockholders may from time to time offer and sell under this
prospectus any or all of the shares listed opposite each of their names below.
We are required, by our securities purchase agreement, to register for resale
the shares of our common stock described in the table below.
The
following table sets forth information about the number of shares beneficially
owned by each selling stockholder that may be offered from time to time under
this prospectus. Certain selling stockholders may be deemed to be “underwriters”
as defined in the Securities Act. Any profits realized by the selling
stockholder may be deemed to be underwriting commissions.
The
table
below has been prepared based upon the information furnished to us by the
selling stockholders as of May 15, 2006. The selling stockholders identified
below may have sold, transferred or otherwise disposed of some or all of
their
shares since the date on which the information in the following table is
presented in transactions exempt from or not subject to the registration
requirements of the Securities Act. Information concerning the selling
stockholders may change from time to time and, if necessary, we will amend
or
supplement this prospectus accordingly. We cannot give an estimate as to
the
number of shares of common stock that will be held by the selling stockholders
upon termination of this offering because the selling stockholders may offer
some or all of their common stock under the offering contemplated by this
prospectus. The total number of shares that may be sold hereunder will not
exceed the number of shares offered hereby. Please read the section entitled
“Plan of Distribution” in this prospectus.
We
have
been advised, as noted below in the footnotes to the table, two of the selling
stockholders are broker-dealers and two of the selling stockholders are
affiliates of broker-dealers. We have been advised that each of such selling
stockholders purchased our common stock and warrants in the ordinary course
of
business, not for resale, and that none of such selling stockholders had, at
the
time of purchase, any agreements or understandings, directly or indirectly,
with
any person to distribute the related common stock.
The
following table sets forth the name of each selling stockholder, the nature
of
any position, office, or other material relationship, if any, which the selling
stockholder has had, within the past three years, with us or with any of our
predecessors or affiliates, and the number of shares of our common stock
beneficially owned by such stockholder before this offering. The number of
shares owned are those beneficially owned, as determined under the rules of
the
SEC, and such information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rules, beneficial ownership includes any
shares of common stock as to which a person has sole or shared voting power
or
investment power and any shares of common stock which the person has the right
to acquire within 60 days through the exercise of any option, warrant or right,
through conversion of any security or pursuant to the automatic termination
of a
power of attorney or revocation of a trust, discretionary account or similar
arrangement.
Unless
otherwise indicated, the stockholders listed in the table below acquired
their
shares in the December 29, 2005 and/or the February 3, 2006 private offerings.
The percentage of common stock outstanding is based upon a total of 20,333,333
shares of common stock outstanding. Shares underlying warrants exercisable
within 60 days of May 15, 2006 are considered for the purpose of determining
the
percent of the class held by the holder of such warrants, but not for the
purpose of computing the percentages held by others. We have assumed all
shares
reflected on the table will be sold from time to time. Because the selling
stockholders may offer all or any portion of the common stock listed in the
table below, no estimate can be given as to the amount of those shares of
common
stock that will be held by the selling stockholders upon the termination
of any
sales of common stock.
|
Shares
of Common Stock Owned Prior to the Offering
|
Shares
of Common Stock Being Offered
|
Percentage
of Common Stock Outstanding
|
Shares
of Common Stock Owned Upon Completion of the Offering
(a)
|
||||||||||
|
Act
II Master Fund Ltd. (1)
|
208,334
|
208,334
|
1.02
|
%
|
--
|
||||||||
|
Alan
Carter (…)
|
16,887
|
16,887
|
*
|
--
|
|||||||||
|
Alexandra
Global Master Fund Ltd. (2)
|
1,069,446
|
1,069,446
|
5.17
|
%
|
--
|
||||||||
|
Altitude
Global LLC (…)
|
47,611
|
47,611
|
*
|
--
|
|||||||||
|
Anthony
John Banks (…)
|
12,000
|
12,000
|
*
|
--
|
|||||||||
|
Anthony
Priore (……)
(3)
|
20,881
|
20,881
|
*
|
--
|
|||||||||
|
Bonanza
Master Fund Ltd. (4)
|
418,040
|
418,040
|
2.05
|
%
|
--
|
||||||||
|
British
Columbia Investment Management Corporation (nominee: Hare & Co.)
(5)
|
106,500
|
106,500
|
*
|
--
|
|||||||||
|
Broadlawn
Master Fund, Ltd. (6)
|
55,556
|
55,556
|
*
|
--
|
|||||||||
|
Calico
Capital Group, LLC (7)
|
550,667
|
550,667
|
2.71
|
%
|
--
|
||||||||
|
Cari
Bloom Management, Inc. (8)
|
13,890
|
13,890
|
*
|
--
|
|||||||||
|
CMGI,
Inc. (……)
(9)
|
436,172
|
436,172
|
2.15
|
%
|
--
|
||||||||
|
Colonial
Fund LLC (10)
|
138,890
|
138,890
|
*
|
--
|
|||||||||
|
Cranshire
Capital, LP (11)
|
180,558
|
180,558
|
*
|
--
|
|||||||||
|
Crown
Investment Partners, LP (12)
|
130,000
|
130,000
|
*
|
--
|
|||||||||
|
D.E.
Shaw Valence Portfolios, L.L.C. (13)
|
1,250,000
|
1,250,000
|
6.07
|
%
|
--
|
||||||||
|
Dannan
Investments, LLC (14)
|
13,906
|
13,906
|
*
|
--
|
|||||||||
|
David
Cantor (…)
|
47,611
|
47,611
|
*
|
--
|
|||||||||
|
Deanna
Munson (15)
|
263,205
|
263,205
|
1.29
|
%
|
--
|
||||||||
|
Fountainhead
Investments, Inc. (…)
|
103,237
|
103,237
|
*
|
--
|
|||||||||
|
Gaha
Ventures, LLC
|
25,000
|
25,000
|
*
|
--
|
|||||||||
|
Garry
Goldberg (16)
|
62,496
|
62,496
|
*
|
--
|
|||||||||
|
Government
of Singapore Investment Corporation Pte. Ltd. (nominee: Ell &
Co.)(17)
|
128,625
|
128,625
|
*
|
--
|
|||||||||
|
Howard
Hughes Medical Institute (nominee: Mac & Co.) (18)
|
198,750
|
198,750
|
*
|
--
|
|||||||||
|
Integrity
Capital Management LLC (19)
|
138,890
|
138,890
|
*
|
--
|
|||||||||
|
Iroquois
Master Fund Ltd. (20)
|
69,445
|
69,445
|
*
|
--
|
|||||||||
|
JMG
Capital Partners, LP (21)
|
180,558
|
180,558
|
*
|
--
|
|||||||||
|
JMG
Triton Offshore Fund, Ltd. (22)
|
180,555
|
180,555
|
*
|
--
|
|||||||||
|
Jodi
Kirsch (…)
|
173,830
|
173,830
|
*
|
--
|
|||||||||
|
John
N. McVey and Mary Jane McVey (23)
|
27,778
|
27,778
|
*
|
--
|
|||||||||
|
Joseph
V. DiScala (24)
|
113,670
|
113,670
|
*
|
--
|
|||||||||
|
Kerry
McVey (23)
|
27,778
|
27,778
|
*
|
--
|
|||||||||
|
Laborers’
District Council and Contractors’ of Ohio Pension Fund (nominee: Tarp
& Co.) (25)
|
36,375
|
36,375
|
*
|
--
|
|||||||||
| (+) |
Stockholder
held shares of Cape Coastal Trading Corporation before the merger
on
December 29, 2005 that were not registered under the Securities
Act.
|
| (++) |
Stockholder
held shares of uBid, Inc. before the merger on December 29, 2005
and
acquired the shares to be offered herein in connection with the
merger.
|
|
Shares
of Common Stock Owned Prior to the Offering
|
Shares
of Common Stock Being Offered
|
Percentage
of Common Stock Outstanding
|
Shares
of Common Stock Owned Upon Completion of the Offering
(a)
|
||||||||||
|
Mainfield
Enterprises Inc. (26)
|
694,445
|
694,445
|
3.39
|
%
|
--
|
||||||||
|
Man
Mac Breithorn 12B Ltd. (27)
|
180,555
|
180,555
|
*
|
--
|
|||||||||
|
Manoharan
Sivashanmugam (……)
(28)
|
11,600
|
11,600
|
*
|
--
|
|||||||||
|
Mary
Jane Shapiro (…)
|
26,160
|
26,160
|
*
|
--
|
|||||||||
|
Mary
L. Jeffries (29)
|
15,000
|
15,000
|
*
|
--
|
|||||||||
|
Michael
L. O’Shaughnessy (30)
|
138,889
|
138,889
|
*
|
--
|
|||||||||
|
Miguel
A. Martinez, Jr. (……)
(31)
|
44,081
|
44,081
|
*
|
--
|
|||||||||
|
Millennium
Partners, L.P. (32)
|
325,000
|
325,000
|
1.59
|
%
|
--
|
||||||||
|
New
York Nurses Association Pension Plan (nominee: Ell & Co.)
(33)
|
83,750
|
83,750
|
*
|
--
|
|||||||||
|
Nite
Capital, L.P. (34)
|
83,334
|
83,334
|
*
|
--
|
|||||||||
|
Ohio
Carpenters’ Pension Fund (nominee: Hammerhead & Co.)
(35)
|
56,000
|
56,000
|
*
|
--
|
|||||||||
|
Oregon
Investment Council (nominee: Westcoast & Co.) (36)
|
349,250
|
349,250
|
1.71
|
%
|
--
|
||||||||
|
Paul
Traub (37)
|
28,125
|
28,125
|
*
|
--
|
|||||||||
|
Petters
Company, Inc.(38)
|
305,556
|
305,556
|
1.48
|
%
|
--
|
||||||||
|
Petters
Group Worldwide, LLC (……)
(39)
|
6,189,047
|
6,189,047
|
30.03
|
%
|
--
|
||||||||
|
Public
Sector Pension Investment Board (nominee: Mac & Co.)
(40)
|
261,500
|
261,500
|
1.28
|
%
|
--
|
||||||||
|
Q
Management, Inc. (…)
|
47,611
|
47,611
|
*
|
--
|
|||||||||
|
Radian
Group Inc. (nominee Ell & Co.) (41)
|
36,500
|
36,500
|
*
|
--
|
|||||||||
|
Robert
Tomlinson, Jr. (……)
(42)
|
465,776
|
465,776
|
2.29
|
%
|
--
|
||||||||
|
Roger
Jenkins (43)
|
27,775
|
27,775
|
*
|
--
|
|||||||||
|
SG
Cowen & Co., LLC (44)
|
240,000
|
240,000
|
*
|
--
|
|||||||||
|
Smithfield
Fiduciary LLC (45)
|
1,972,222
|
1,972,222
|
9.45
|
%
|
--
|
||||||||
|
Stenmark
Capital Partners, LP (46)
|
62,500
|
62,500
|
*
|
--
|
|||||||||
|
Stephen
Rosenblum (…)
|
26,160
|
26,160
|
*
|
--
|
|||||||||
|
Stewart
L. Cohen (47)
|
28,125
|
28,125
|
*
|
--
|
|||||||||
|
Stuart
R. Romenesko Revocable Trust
dtd.
October 7, 1999 (48)
|
28,125
|
28,125
|
*
|
--
|
|||||||||
|
The
Crown Advisors #3 (49)
|
19,500
|
19,500
|
*
|
--
|
|||||||||
|
The
Crown Advisors #5 (50)
|
39,000
|
39,000
|
*
|
--
|
|||||||||
|
The
Dow Chemical Employees’ Retirement Plan (nominee: Kane & Co.)
(51)
|
192,375
|
192,375
|
*
|
--
|
|||||||||
|
The
Government of Singapore Investment Corporation Pte. Ltd. (nominee:
Ell
& Co.)(52)
|
362,625
|
362,625
|
1.78
|
%
|
|||||||||
|
The
Retirement Program Plan for Employees of Union Carbide Corporation
(nominee: Kane & Co.) (53)
|
146,813
|
146,813
|
*
|
--
|
|||||||||
|
The
Robert Wood Johnson Foundation (nominee: Benchworthy & Co.)
(54)
|
230,250
|
230,250
|
1.13
|
%
|
--
|
||||||||
|
ThinkEquity
Partners LLC (55)
|
80,000
|
80,000
|
*
|
--
|
|||||||||
|
Thomas
J. Petters (……)
(56)
|
7,605,714
|
7,605,714
|
36.36
|
%
|
--
|
||||||||
|
Thomas
Niedermeyer (46)
|
62,500
|
62,500
|
*
|
--
|
|||||||||
|
Timothy
Takesue (……)
(57)
|
465,776
|
465,776
|
2.29
|
%
|
--
|
||||||||
|
Truk
International Fund, LP (58)
|
6,250
|
6,250
|
*
|
--
|
|||||||||
|
Truk
Opportunity Fund, LLC (59)
|
63,195
|
63,195
|
*
|
--
|
|||||||||
|
Tudor
BVI Global Portfolio Ltd. (60)
|
269,673
|
269,673
|
1.32
|
%
|
--
|
||||||||
|
Tudor
Proprietary Trading, L.L.C. (61)
|
145,209
|
145,209
|
*
|
--
|
|||||||||
|
Vision
Opportunity Master Fund, Ltd. (62)
|
180,558
|
180,558
|
*
|
--
|
|||||||||
|
Witches
Rock Portfolio Ltd. (63)
|
1,668,452
|
1,668,452
|
8.07
|
%
|
--
|
||||||||
|
WTC-CIF
Emerging Companies Portfolio (nominee: Finwell & Co.)
(64)
|
370,375
|
370,375
|
1.81
|
%
|
--
|
||||||||
|
WTC-CTF
Emerging Companies Portfolio (nominee: Landwatch & Co.)
(65)
|
345,000
|
345,000
|
1.69
|
%
|
--
|
||||||||
|
XI
Capital Offshore Fund, Ltd. (66)
|
60,308
|
60,308
|
*
|
--
|
|||||||||
|
XI
Capital Partners LP (67)
|
120,250
|
120,250
|
*
|
--
|
Notes:
| (a) |
Assumes
all of the shares of common stock beneficially owned by the selling
stockholders, including all shares of common stock underlying
warrants
held by the selling stockholders, are sold in the offering.
|
|
(1)
|
Includes
166,667 shares of common stock and warrants to acquire an additional
41,667 shares of our common stock at an exercise price of $5.85 per
share,
acquired at the closing on February 3, 2006.
|
|
(2)
|
Includes
555,556 shares of our common stock, warrants to acquire an additional
138,889 shares of common stock at an exercise price of $5.85 per
share,
and warrants to acquire an additional 166,667 shares of common stock
at an
exercise price of $4.50 per share, all acquired at the closing on
December
29, 2005. Alexandra Global Master Fund Ltd. was one of the holders
of our
bridge notes and received the warrants to acquire 166,667 shares
of common
stock in connection with the issuance of the bridge notes. Includes
166,667 shares of our common stock and warrants to acquire an additional
41,667 shares of our common stock at an exercise price of $5.85 per
share,
acquired at the closing on February 3, 2006. Alexandra Investment
Management, LLC serves as the investment advisor to Alexandra Global
Master Fund Ltd. By reason of such relationship, Alexandra Investment
Management, LLC may be deemed to share dispositive power over the
shares
of common stock stated as beneficially owned by Alexandra Global
Master
Fund Ltd. Alexandra Investment Management, LLC disclaims beneficial
ownership of such shares of common stock. Messrs. Mikhail A. Filimonov
and
Dimitri Sogoloff are, respectively, the Chairman, the Chief Executive
Officer, a Managing Member and Chief Investment Officer and the President,
a Managing Member and the Chief Risk Officer, of Alexandra Investment
Management, LLC. By reason of such relationships, Mr. Filimonov and
Mr.
Sogoloff may be deemed to share dispositive power over the shares
of
common stock stated as beneficially owned by Alexandra Global Master
Fund,
Ltd. Each of Messrs. Filimonov and Sogoloff disclaims beneficial
ownership
of the shares of common stock beneficially owned by Alexandra Global
Master Fund Ltd. The address of Alexandra Global Master Fund Ltd.
is Citgo
Building, Wickams Cay, P.O. Box 662, Road Town, Tortola, British
Virgin
Islands. The address of Alexandra Investment Management, LLC and
Messrs.
Filimonov and Sogoloff is 767 Third Avenue, 39th
Floor, New York, New York, 10017.
|
|
(3)
|
Mr.
Priore serves as our Chief Marketing
Officer.
|
|
(4)
|
Includes
334,432 shares of common stock and warrants to acquire an additional
83,608 shares of our common stock at an exercise price of $5.85 per
share,
acquired at the closing on February 3,
2006.
|
|
(5)
|
Includes
65,000 shares of our common stock and warrants to acquire an additional
16,250 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 20,200 shares
of
our common stock and warrants to acquire an additional 5,050 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Wellington Management Company, LLP is
an
investment adviser registered under the Investment Advisers Act of
1940,
as amended. Wellington Management Company, in such capacity, is
deemed to share beneficial ownership over the shares held by its
client
accounts.
|
|
(6)
|
Includes
44,445 shares of our common stock and warrants to acquire an additional
11,111 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005.
|
|
(7)
|
Calico
Capital Group served as our financial advisor in the private offerings
and
acquired its shares at the closing on February 3, 2006. Pursuant
to a
letter agreement, Calico subsequently transferred 25,000 shares to
Fountainhead Investments, Inc. and 25,000 shares to Gaha Ventures,
LLC.
|
|
(8)
|
Includes
11,112 shares of our common stock and warrants to acquire an additional
2,778 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on February 3,
2006.
|
|
(9)
|
CMGI
was our parent and sole stockholder until the sale in April 2003
to Takumi
Interactive, Inc.
|
|
(10)
|
Includes
111,112 shares of our common stock and warrants to acquire an additional
27,778 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on February 3,
2006.
|
|
(11)
|
Includes
111,112 shares of our common stock and warrants to acquire an additional
27,778 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 33,334 shares
of
our common stock and warrants to acquire an additional 8,334 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Mitchell P. Kopin, President of
Downsview Capital, Inc., the general partner of Cranshire Capital,
LP, has
sole investment control and dispositive power of the
securities.
|
|
(12)
|
Includes
80,000 shares of our common stock and warrants to acquire an additional
20,000 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 24,000 shares
of
our common stock and warrants to acquire an additional 6,000 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006.
|
|
(13)
|
Includes
1,000,000 shares of our common stock and warrants to acquire an additional
250,000 shares of common stock at an exercise price of $5.85 per
share,
acquired at the closing on February 3, 2006. D.E. Shaw Valence
Portfolios, L.L.C.
is an affiliate of a broker-dealer. Please see “Plan of Distribution” for
more information regarding affiliates of
broker-dealers.
|
|
(14)
|
Includes
11,125 shares of our common stock and warrants to acquire an additional
2,781 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on February 3,
2006.
|
|
(15)
|
Includes
210,565 shares of our common stock and warrants to acquire an additional
52,640 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Ms. Munson is a vice
president of Petters Company, Inc., an affiliate of Petters Group,
which
is a holder of greater than 5% of our common
stock.
|
|
(16)
|
Includes
49,996 shares of our common stock and warrants to acquire an additional
12,500 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005.
|
|
(17)
|
Includes
78,500 shares of our common stock and warrants to acquire an additional
19,625 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 24,400 shares
of
our common stock and warrants to acquire an additional 6,100 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Wellington Management Company, LLP is an
investment adviser registered under the Investment Advisers Act of
1940,
as amended. Wellington Management Company, in such capacity, is
deemed to share beneficial ownership over the shares held by its
client
accounts.
|
|
(18)
|
Includes
121,000 shares of our common stock and warrants to acquire an additional
30,250 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 38,000 shares
of
our common stock and warrants to acquire an additional 9,500 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Wellington Management Company, LLP is an
investment adviser registered under the Investment Advisers Act of
1940,
as amended. Wellington Management Company, in such capacity, is
deemed to share beneficial ownership over the shares held by its
client
accounts.
|
|
(19)
|
Includes
111,112 shares of our common stock and warrants to acquire an additional
27,778 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29,
2005.
|
|
(20)
|
Includes
55,556 shares of our common stock and warrants to acquire an additional
13,889 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Josh Silverman has
voting
and investment control over the shares held by Iroquois Master Fund
Ltd.
Mr. Silverman disclaims beneficial ownership of the shares.
|
|
(21)
|
Includes
111,112 shares of our common stock and warrants to acquire an additional
27,778 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 33,334 shares
of
our common stock and warrants to acquire an additional 8,334 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. JMG Capital Partners, LP is a California
limited partnership. Its general partner is JMG Capital Management,
LLC, a
Delaware limited liability company and an investment adviser that
has
voting and dispositive power over JMG Capital Partners’ investments,
including the shares of our common stock described in this footnote.
The
equity interests of JMG Capital Management, LLC are owned by JMG
Capital
Management, Inc. a California corporation, and Asset Alliance Holding
Corp., a Delaware corporation. Jonathan M. Glaser is the Executive
Officer
and Director of JMG Capital Management, Inc. and has sole investment
discretion over JMG Capital Partners’ portfolio
holdings.
|
|
(22)
|
Includes
111,111 shares of our common stock and warrants to acquire an additional
27,778 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 33,333 shares
of
our common stock and warrants to acquire an additional 8,333 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. JMG Triton Offshore Fund, Ltd. is an
international business company organized under the laws of the British
Virgin Islands. JMG Trition’s investment manager is Pacific Assets
Management LLC, a Delaware limited liability company that has voting
and
dispositive power over JMG Triton’s investments, including the shares of
our common stock described in this footnote. The equity interests
of
Pacific Assets Management are owned by Pacific Capital Management,
Inc., a
California corporation and Asset Alliance Holding Corp., a Delaware
corporation. The equity interests of Pacific Capital Management are
owned
by Messrs. Roger Richter, Jonathan M. Glaser and Daniel A. David.
Messrs.
Glaser and Richter have sole investment discretion over JMG Triton’s
portfolio holdings.
|
|
(23)
|
Includes
22,222 shares of our common stock and warrants to acquire an additional
5,556 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005.
|
|
(24)
|
Includes
90,936 shares of our common stock and warrants to acquire an additional
22,734 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005.
|
|
(25)
|
Includes
22,000 shares of our common stock and warrants to acquire an additional
5,500 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 7,100 shares
of our
common stock and warrants to acquire an additional 1,775 shares of
common
stock at an exercise price of $5.85 per share, acquired at the closing
on
February 3, 2006. Wellington Management Company, LLP is an investment
adviser registered under the Investment Advisers Act of 1940, as
amended. Wellington Management Company, in such capacity, is deemed
to share beneficial ownership over the shares held by its client
accounts.
|
|
(26)
|
Includes
555,556 shares of our common stock and warrants to acquire an additional
138,889 shares of common stock at an exercise price of $5.85 per
share,
acquired at the closing on December 29, 2005. Pursuant to an investment
management agreement, Avi Vigder has voting and dispositive control
over
the shares held by Mainfield Enterprises, Inc. Avi Vigder disclaims
beneficial ownership of the shares held by Mainfield Enterprises,
Inc.
|
|
(27)
|
Includes
111,111 shares of our common stock and warrants to acquire an additional
27,778 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 33,333 shares
of
our common stock and warrants to acquire an additional 8,333 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006
|
|
(28)
|
Mr.
Sivashanmugam serves as our Vice-President,
Technology.
|
|
(29)
|
Includes
12,000 shares of our common stock and warrants to acquire an additional
3,000 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on February 3, 2006. Ms. Jeffries is the
chief
operating officer of Petters Group, a holder of greater than 5% of
our
common stock.
|
|
(30)
|
Includes
111,111 shares of our common stock and warrants to acquire an additional
27,778 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Mr. O’Shaughnessy is
President of Petters Consumer Brands LLC, an affiliate of Petters
Group, a
holder of greater than 5% of our common
stock.
|
|
(31)
|
Mr. Martinez
serves as our Vice President,
Finance.
|
|
(32)
|
Includes
200,000 shares of our common stock and warrants to acquire an additional
50,000 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 60,000 shares
of
our common stock and warrants to acquire an additional 15,000 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Millennium Management,
L.L.C., a Delaware limited liability company, is the general partner
of
Millennium Partners, L.P., a Cayman Islands exempted limited partnership,
and consequently may be deemed to have voting control and investment
discretion over securities owned by Millennium Partners, L.P. Israel
A.
Englander is the managing member of Millennium Management, L.L.C.
As a
result, Mr. Englander may be deemed to be the beneficial owner of
any
shares deemed to be beneficially owned by Millennium Management,
L.L.C.
The foregoing should not be construed in and of itself as an admission
by
either of Millennium Management, L.L.C. or Mr. Englander as to beneficial
ownership of the shares of our common stock owned by Millennium Partners,
L.P. Millennium Partners, L.P. is an affiliate of a broker-dealer.
Please
see “Plan of Distribution” for more information regarding affiliates of
broker-dealers.
|
|
(33)
|
Includes
67,000 shares of our common stock and warrants to acquire an additional
16,750 shares of our common stock at an exercise price of $5.85 per
share,
acquired at the closing on December 29, 2005. Wellington Management
Company, LLP is an investment adviser registered under the Investment
Advisers Act of 1940, as amended. Wellington Management Company, in
such capacity, is deemed to share beneficial ownership over the shares
held by its client accounts.
|
|
(34)
|
Includes
66,667 shares of our common stock and warrants to acquire an additional
16,667 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Keith Goodman, Manager
of
the General Partner of Nite Capital, LP, has voting and investment
control
over the shares held by Nite Capital LP. Mr. Goodman disclaims
beneficial ownership of the shares.
|
|
(35)
|
Includes
36,000 shares of our common stock and warrants to acquire an additional
9,000 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 8,800 shares
of our
common stock and warrants to acquire an additional 2,200 shares of
common
stock at an exercise price of $5.85 per share, acquired at the closing
on
February 3, 2006. Wellington Management Company, LLP is an investment
adviser registered under the Investment Advisers Act of 1940, as
amended. Wellington Management Company, in such capacity, is deemed
to share beneficial ownership over the shares held by its client
accounts.
|
|
(36)
|
Includes
212,500 shares of our common stock and warrants to acquire an additional
53,125 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 66,900 shares
of
our common stock and warrants to acquire an additional 16,725 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Wellington Management Company, LLP is an
investment adviser registered under the Investment Advisers Act of
1940,
as amended. Wellington Management Company, in such capacity, is
deemed to share beneficial ownership over the shares held by its
client
accounts.
|
|
(37)
|
Includes
22,500 shares of our common stock and warrants to acquire an additional
5,625 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Mr. Traub is a
consultant to Petters Group, a holder of greater than 5% of our common
stock.
|
|
(38)
|
Includes
warrants to acquire 305,556 shares of common stock at an exercise
price of
$5.85 per share, acquired at the closing on December 29, 2005. This
total
gives effect to the 1,222,223 shares that were redeemed on February
6,
2006. Thomas J. Petters has sole investment and voting power over
the
shares underlying these warrants. Petters Company, Inc. is an affiliate
of
Petters Group, which is a holder of greater than 5% of our common
stock.
|
|
(39)
|
Includes
5,911,269 shares of our common stock (giving effect to the redemption
of
1,000,001 shares on February 6, 2006) and warrants to acquire 277,778
shares of common stock at an exercise price of $5.85 per share, acquired
at the closing on December 29, 2005 (of which 5,800,159 shares were
acquired in connection with the merger). Thomas J. Petters has sole
investment and voting power over these shares and warrants. Petters
Group
is a holder of greater than 5% of our common stock. Before the private
offerings, Petters Group owned approximately 66% of uBid’s common
stock.
|
|
(40)
|
Includes
159,500 shares of our common stock and warrants to acquire an additional
39,875 shares of our common stock at an exercise price of $5.85 per
share,
acquired at the closing on December 29, 2005. Includes 49,700 shares
of
our common stock and warrants to acquire an additional 12,425 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Wellington Management Company, LLP is
an
investment adviser registered under the Investment Advisers Act of
1940,
as amended. Wellington Management Company, in such capacity, is
deemed to share beneficial ownership over the shares held by its
client
accounts.
|
|
(41)
|
Includes
22,000 shares of our common stock and warrants to acquire an additional
5,500 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 7,200 shares
of our common stock and warrants to acquire an additional 1,800 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Wellington Management Company, LLP is
an
investment adviser registered under the Investment Advisers Act of
1940,
as amended. Wellington Management Company, in such capacity, is
deemed to share beneficial ownership over the shares held by its
client
accounts.
|
|
(42)
|
This
total gives effect to the 222,222 shares that were redeemed on February
6,
2006. Mr. Tomlinson serves as our President and Chief Executive Officer
and as a member of the board of
directors.
|
|
(43)
|
Includes
22,220 shares of our common stock and warrants to acquire an additional
5,555 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Mr. Jenkins is a strategic
partner of Petters Group, which is a holder of greater than 5% of
our
common stock.
|
|
(44)
|
Includes
warrants to acquire 172,500 shares of common stock at an exercise
price of
$4.50 per share, acquired at the closing on December 29, 2005 and
warrants
to acquire 67,500 shares of common stock at an exercise price of
$4.50 per
share, acquired at the closing on February 3, 2006. SG Cowen &
Co., LLC served as one of our placement agents in the private offerings.
SG Cowen & Co., LLC is
a broker-dealer. Please see “Plan of Distribution” for more information
regarding broker-dealers.
|
|
(45)
|
Includes
1,111,112 shares of our common stock, warrants to acquire an additional
277,778 shares of common stock at an exercise price of $5.85 per
share,
and warrants to acquire an additional 166,666 shares of common stock
at an
exercise price of $4.50 per share, all acquired at the closing on
December
29, 2005. Smithfield Fiduciary was one of the holders of our bridge
notes
and received the warrants to acquire 166,666 shares of our common
stock in
connection with the issuance of the bridge notes. Includes 333,333
shares
of our common stock and warrants to acquire an additional 83,333
shares of
common stock and an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Highbridge Capital Management, LLC is
the
trading manager of Smithfield Fiduciary LLC and has voting control
and
investment discretion over securities held by Smithfield Fiduciary
LLC.
Glenn Dubin and Henry Swieca control Highbridge Capital Management,
LLC.
Each of Highbridge Capital Management, LLC, Glenn Dubin and Henry
Swieca
disclaims beneficial ownership of the securities held by Smithfield
Fiduciary LLC.
|
|
(46)
|
Includes
50,000 shares of our common stock and warrants to acquire an additional
12,500 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005.
|
|
(47)
|
Includes
22,500 shares of our common stock and warrants to acquire an additional
5,625 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on February 3, 2006.
|
|
(48)
|
Includes
22,500 shares of our common stock and warrants to acquire an additional
5,625 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Mr. Romenesko serves
as
Chairman of the Board. He is also an executive vice president of
Petters
Group, a holder of greater than 5% of our common
stock.
|
|
(49)
|
Includes
12,000 shares of our common stock and warrants to acquire an additional
3,000 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 3,600 shares
of our
common stock and warrants to acquire an additional 900 shares of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006.
|
|
(50)
|
Includes
24,000 shares of our common stock and warrants to acquire an additional
6,000 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 7,200 shares
of our
common stock and warrants to acquire an additional 1,800 shares of
common
stock at an exercise price of $5.85 per share, acquired at the closing
on
February 3, 2006.
|
|
(51)
|
Includes
116,500 shares of our common stock and warrants to acquire an additional
29,125 shares of our common stock at an exercise price of $5.85 per
share,
acquired at the closing on December 29, 2005. Includes 37,400 shares
of
our common stock and warrants to acquire an additional 9,350 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Wellington Management Company, LLP is an
investment adviser registered under the Investment Advisers Act of
1940,
as amended. Wellington Management Company, in such capacity, is
deemed to share beneficial ownership over the shares held by its
client
accounts.
|
|
(52)
|
Includes
221,500 shares of our common stock and warrants to acquire an additional
55,375 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 68,600 shares
of our common stock and warrants to acquire an additional 17,150
shares of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Wellington Management Company, LLP is an
investment adviser registered under the Investment Advisers Act of
1940,
as amended. Wellington Management Company, in such capacity, is
deemed to share beneficial ownership over the shares held by its
client
accounts.
|
|
(53)
|
Includes
89,500 shares of our common stock and warrants to acquire an additional
22,375 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 27,950 shares
of
our common stock and warrants to acquire an additional 6,988 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Wellington Management Company, LLP is an
investment adviser registered under the Investment Advisers Act of
1940,
as amended. Wellington Management Company, in such capacity, is
deemed to share beneficial ownership over the shares held by its
client
accounts.
|
|
(54)
|
Includes
140,000 shares of our common stock and warrants to acquire an additional
35,000 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 44,200 shares
of
common stock and warrants to acquire an additional 11,050 shares
of common
stock at an exercise price of $5.85 per share, acquired at the closing
on
February 3, 2006. Wellington Management Company, LLP is an investment
adviser registered under the Investment Advisers Act of 1940, as
amended. Wellington Management Company, in such capacity, is deemed
to share beneficial ownership over the shares held by its client
accounts.
|
|
(55)
|
Includes
warrants to acquire 57,500 shares of common stock at an exercise
price of
$4.50 per share, acquired at the closing on December 29, 2005 and
warrants
to acquire 22,500 shares of common stock at an exercise price of
$4.50 per
share, acquired at the closing on February 3, 2006. ThinkEquity Partners
served as one of our placement agents in the private offering. ThinkEquity
Partners is
a broker-dealer. Please see “Plan of Distribution” for more information
regarding broker-dealers.
|
|
(56)
|
Includes
1,111,111 shares of our common stock held by Thomas J. Petters (issued
in
connection with the merger), 5,911,269 shares of common stock held
by
Petters Group Worldwide, LLC, warrants held by Petters Group to acquire
an
additional 277,778 shares of common stock at an exercise price of
$5.85
per share, warrants held by Petters Company, Inc. to acquire an additional
305,556 shares of common stock at an exercise price of $5.85. The
shares
and warrants underlying common stock held by Petters Group and Petters
Company, Inc. were issued in connection with the closing on December
29,
2005. Thomas J. Petters has sole investment and voting power over
the
shares held by Petters Group and Petters Company, Inc. Thomas J.
Petters
and the Petters Group collectively own approximately 36.4% of our
outstanding shares of common stock. Before the private offerings,
Petters
Group owned approximately 66% of uBid, Inc.’s common stock.
|
|
(57)
|
This
total gives effect to the 222,222 shares that were redeemed on February
6,
2006. Mr. Takesue serves as our Executive Vice-President, Merchandising.
|
|
(58)
|
Includes
5,000 shares of our common stock and warrants to acquire an additional
1,250 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Michael
E. Fein and Stephen E. Saltzstein, as principals of Atoll Asset
Management, LLC, the Managing Member of Truk International Fund,
LP,
exercise investment and voting control over the securities owned
by Truk
International Fund, LP. Both Mr. Fein and Mr. Saltzstein disclaim
beneficial ownership of the securities owned by Truk International
Fund,
LP.
|
|
(59)
|
Includes
50,556 shares of our common stock and warrants to acquire an additional
12,639 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Michael
E. Fein and Stephen E. Saltzstein, as principals of Atoll Asset
Management, LLC, the Managing Member of Truk Opportunity Fund, LLC,
exercise investment and voting control over the securities owned
by Truk
Opportunity Fund, LLC. Both Mr. Fein and Mr. Saltzstein disclaim
beneficial ownership of the securities owned by Truk Opportunity
Fund,
LLC.
|
|
(60)
|
Includes
215,738 shares of our common stock and warrants to acquire an additional
53,935 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Tudor Investment Corporation
provides investment advisory services to The Tudor BVI Global Portfolio
Ltd. and may therefore be deemed the beneficial owner of these shares.
Paul Tudor Jones, II is the controlling shareholder of Tudor Investment
Corporation. Each of Tudor Investment Corporation and Mr. Jones expressly
disclaims beneficial ownership of these shares.
|
|
(61)
|
Includes
116,167 shares of our common stock and warrants to acquire an additional
29,042 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Paul Tudor Jones, II
is the
indirect controlling equity holder of Tudor Proprietary Trading,
L.L.C and
may therefore be deemed the beneficial owner of these shares. Mr.
Jones
expressly disclaims beneficial ownership of these
shares.
|
|
(62)
|
Includes
111,112 shares of our common stock and warrants to acquire an additional
27,778 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 33,334 shares
of
our common stock and warrants to acquire an additional 8,334 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006.
|
|
(63)
|
Includes
1,334,762 shares of our common stock and warrants to acquire an additional
333,690 shares of common stock at an exercise price of $5.85 per
share,
acquired at the closing on December 29, 2005. Tudor Investment Corporation
provides investment advisory services to Witches Rock Portfolio Ltd.
and
may therefore be deemed the beneficial owner of these shares. Paul
Tudor
Jones, II is the controlling shareholder of Tudor Investment Corporation.
Each of Tudor Investment Corporation and Mr. Jones expressly disclaims
beneficial ownership of these
shares.
|
|
(64)
|
Includes
224,500 shares of our common stock and warrants to acquire an additional
56,125 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 71,800 shares
of
our common stock and warrants to acquire an additional 17,950 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Wellington Management Company, LLP is an
investment adviser registered under the Investment Advisers Act of
1940,
as amended. Wellington Management Company, in such capacity, is
deemed to share beneficial ownership over the shares held by its
client
accounts.
|
|
(65)
|
Includes
212,000 shares of our common stock and warrants to acquire an additional
53,000 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 64,000 shares
of
our common stock and warrants to acquire an additional 16,000 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006. Wellington Management Company, LLP is an
investment adviser registered under the Investment Advisers Act of
1940,
as amended. Wellington Management Company, in such capacity, is
deemed to share beneficial ownership over the shares held by its
client
accounts.
|
|
(66)
|
Includes
37,112 shares of our common stock and warrants to acquire an additional
9,278 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 11,134 shares
of
our common stock and warrants to acquire an additional 2,784 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006.
|
|
(67)
|
Includes
74,000 shares of our common stock and warrants to acquire an additional
18,500 shares of common stock at an exercise price of $5.85 per share,
acquired at the closing on December 29, 2005. Includes 22,200 shares
of
our common stock and warrants to acquire an additional 5,550 shares
of
common stock at an exercise price of $5.85 per share, acquired at
the
closing on February 3, 2006.
|
We
will
not receive any proceeds from the sale by the selling stockholders of our common
stock. We will receive approximately $22 million if the selling stockholders
exercise their warrants in full. The warrant holders may exercise their warrants
at any time until their expiration, as further described in the “Description of
Capital Stock.” Because the warrant holders may exercise the warrants in their
own discretion, we cannot plan on specific uses of proceeds beyond application
of proceeds to general corporate purposes. These proceeds will be used for
general corporate purposes and capital expenditures. We have agreed to bear
the
expenses in connection with the registration of the common stock being offered
hereby by the selling stockholders.
The
selling stockholders will determine at what price they may sell the offered
shares, and such sales may be made at prevailing market prices, or at privately
negotiated prices.
We
have
never declared or paid dividends. We intend to retain earnings, if any, to
support the development of the business and therefore, do not anticipate paying
cash dividends for the foreseeable future. Payment of future dividends, if
any,
will be at the discretion of our board of directors after taking into account
various factors, including current financial condition, operating results and
current and anticipated cash needs. Our board of directors has the authority
to
issue preferred stock and to fix dividend rights that may have preference to
common shares.
Our
common stock was first cleared for quotation on the NASD OTC bulletin board
on
October 29, 2004
and has
been traded on a very limited basis since that time. On
December 15, 2005, in connection with our stock split, NASDAQ issued a new
ticker symbol, “CCSR.OB.” On January 4, 2006, the common stock traded for the
first time. On February 10, 2006, our stock began trading under the ticker
symbol “UBHI.OB.” There is currently no established trading market for the
common stock.
As
of May
15, 2006, there were approximately 85 holders of record of shares of our
common
stock.
On May
15, 2006, the last reported sales price of our shares on the OTC bulletin
board
was $6.69. During the first quarter of 2006, the high sales price of our
common
stock was $7.20 and the low sales price was $4.50. During the second quarter
of
2006 through May 15, 2006 the high sales price of our common stock was $6.69
and
the low sales price was $4.55.
As
of May
15, 2006, there were 20,333,333 shares of common stock issued and outstanding,
of which 96,224 were previously registered by Cape Coastal in a registration
statement on Form SB-2 filed with the SEC on May 20, 2004 and are therefore
freely tradable without restriction or further registration under the Securities
Act. Approximately 27,000 shares of common stock were deemed exempt from
the
registration requirements under the Securities Act based on the provisions
of
Section 4(1) thereunder and Rule 144 of the Securities Act. Therefore,
20,210,109 shares of common stock are “restricted securities” which may be sold
or otherwise transferred only if such shares are first registered under the
Securities Act or are exempt from such registration requirements. We have
agreed
to register these shares pursuant to the registration statement of which
this
prospectus is a part.
As
of the
date hereof, there are 3,250,005 warrants issued for the purchase of 3,250,005
shares of our common stock at an exercise price of $5.85. There are 653,333
warrants issued for the purchase of 653,333 shares of our common stock at an
exercise price of $4.50. The common stock underlying the above described
warrants is being registered pursuant to the registration statement of which
this prospectus is a part.
In
addition, there are 2,500,000 shares of common stock reserved for issuance
of
stock options and incentive awards pursuant to our 2005 Equity Incentive Plan.
As soon as practicable, we expect to file a registration statement on Form
S-8
to register the shares of common stock reserved for issuance of incentive awards
under the 2005 Equity Incentive Plan.
Securities
authorized for issuance under equity compensation plans as of December 31,
2005
are as follows:
|
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
(a)
|
(b)
|
(c)
|
|
|
Equity
compensation plans approved by security holders
|
1,721,700
|
$4.50
|
778,300
|
|
Equity
compensation plans not approved by security
holders
|
230,000
|
$4.50
|
__
|
|
Total
|
1,951,700
|
$4.50
|
778,300
|
Equity
compensation plans not approved by our stockholders consist of warrants to
purchase 230,000 shares of common stock, issued to the placement agents in
our
private offering on December 30, 2005, exercisable through December 30,
2010 at $4.50 per share.
On
February 3, 2006, we closed our second private offering. We issued warrants
to
purchase up to 90,000 shares of common stock to our placement agents on February
3, 2006, exercisable through February 3, 2011, at $4.50 per share. This issuance
is not reflected in the table above, as it took place after December 31,
2005.
Our
actual net tangible book value as of March 31, 2006 was $24.8 million. Our
net tangible book value represents the amount of our total tangible assets,
less
our total liabilities. There were 20,333,333 shares outstanding at March
31, 2006. On a per-share basis, our net tangible book value was
$1.22.
If
all of
the warrants for which the underlying shares are being offered pursuant to
this
prospectus were exercised, the resulting cash proceeds would increase our net
tangible book value by $22.0 million and our common shares outstanding by
3,903,338. In this event, our net book value per share of common stock
outstanding would be $1.93.
Since
we did not receive any of the proceeds from the sale of common stock sold
under this prospectus, the net tangible book value of our common stock will
not
increase as a result of such sales, nor will the number of shares outstanding
be
affected by such sales. Consequently, if none of the warrants or options
described above are exercised for cash, there will be no change in the net
tangible book value per share of our common stock as a result of any sales
by
the selling stockholders under this prospectus.
The
following tables summarize balance sheet data as of July 31, 2002,
March 31, 2003, December 31, 2003, 2004 and 2005 and income statement
data for the fiscal years ended July 31, 2002 and December 31, 2004 and 2005
and
the eight month period ended March 31, 2003 and the nine month period ended
December 31, 2003, which have been derived from audited financial statements.
Balance sheet data as of July 31, 2001, March 31, 2005 and 2006 and income
statement data for the fiscal year ended July 31, 2001 and for the three
months
ended March 31, 2005 and 2006 have been derived from unaudited financial
statements which, in the opinion of management, include all adjustments
necessary for a fair statement of the results of operation and financial
position for such period and as of such date. Certain factors that affect
the
comparability of the information set forth in the following table are described
in the notes thereto. In addition, the data should be read in conjunction
with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” and the Financial Statements of uBid and related notes thereto
included elsewhere in this prospectus. Interim financial data may not be
representative of full year results.
The
current uBid business was substantially acquired by Petters Group in April
2003
at which time purchase accounting was applied to adjust all carrying values
to
estimated current market value (after deduction for negative goodwill) and
the
business started accounting for all of its costs of operations without
allocations of such costs from its prior parent. Due to these changes in
ownership, differing styles of operations by the different owners and the
application of purchase accounting, the financial results for the periods
presented are not comparable.
Selected
Historical Financial Information
|
Selected
Financial Data
(in
thousands, except share and per share
data)
|
|||||||||||||||||||
|
|
Predecessor
Company (1)
|
uBid
(2)
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||
|
Year
ended
July
|
Year
ended July
|
8
Months Ended
March
|
9
Months Ended December
|
Year
ended December
|
Restated
Year ended December
|
Three
Months Ended
|
||||||||||||||||||||
|
31,
|
31,
|
31,
|
31,
|
31,
|
31,
|
March
31
|
||||||||||||||||||||
|
|
2001
(unaudited) |
2002
(audited) |
2003
(audited) |
2003
(audited) |
2004
(audited) |
2005
(audited) (8) |
2005
(unaudited)
|
2006
(unaudited)
|
||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Net
Revenues
|
$
|
436,184
|
$
|
385,995
|
$
|
103,484
|
$
|
65,656
|
$
|
87,002
|
$
|
84,592
|
$ |
26,818
|
$ |
20,088
|
||||||||||
|
|
||||||||||||||||||||||||||
|
Cost
of Revenues
|
405,832
|
368,405
|
100,252
|
54,491
|
75,837
|
73,062
|
24,164
|
17,178
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||
|
Gross
Profit
|
30,352
|
17,590
|
3,232
|
11,165
|
11,165
|
11,530
|
2,654
|
2,910
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||
|
Operating
Expenses
|
||||||||||||||||||||||||||
|
General
and
Administrative
(3) (4)
|
152,130
|
181,710
|
126,527
|
9,021
|
12,112
|
13,045
|
3,147
|
|
3,534
|
|||||||||||||||||
|
Sales
and Marketing
|
|
|
22,155
|
|
|
20,012
|
|
|
5,743
|
|
|
|
2,484
|
|
|
4,260
|
|
|
4,996
|
|
1,283
|
1,525
|
||||
|
Total
operating expenses
|
174,285
|
201,722
|
132,270
|
11,505
|
16,372
|
18,041
|
4,430
|
5,059
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||
|
Loss
From Operations
|
(143,933
|
)
|
(184,132
|
)
|
(129,038
|
)
|
(340
|
)
|
(5,207
|
)
|
(6,511
|
)
|
(1,776
|
) |
(2,149
|
) | ||||||||||
|
|
||||||||||||||||||||||||||
|
Other
Expense
|
||||||||||||||||||||||||||
|
Interest
Expense
|
(1,314
|
)
|
(8,977
|
)
|
(6,253
|
)
|
(729
|
)
|
(1,188
|
)
|
(2,925
|
)
|
(439
|
) |
(47
|
) | ||||||||||
|
Interest
Income
|
572
|
698
|
247
|
78
|
86
|
124
|
22
|
193
|
||||||||||||||||||
|
Miscellaneous
Income
|
—
|
—
|
—
|
21
|
—
|
263
|
—
|
—
|
||||||||||||||||||
|
Total
Other Expense
|
(742
|
)
|
(8,279
|
)
|
(6,006
|
)
|
(630
|
)
|
(1,102
|
)
|
(2,538
|
)
|
(417
|
) |
146
|
|||||||||||
|
|
||||||||||||||||||||||||||
|
Loss
Before Income Taxes
|
(144,675
|
)
|
(192,411
|
)
|
(135,044
|
)
|
(970
|
)
|
(6,309
|
)
|
(9,049
|
)
|
(2,193
|
) |
(2,003
|
) | ||||||||||
|
|
||||||||||||||||||||||||||
|
Income
Tax Expense
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
|
Net
Loss
|
|
(144,675
|
)
|
|
(192,411
|
)
|
|
(135,044
|
)
|
|
(970
|
)
|
|
(6,309
|
)
|
|
(9,049
|
)
|
(2,193
|
) |
(2,003
|
) | ||||
|
Preferred
Stock and Other Deemed Dividends
|
—
|
—
|
—
|
(60
|
)
|
(60
|
)
|
(1,216
|
)
|
(15
|
)
|
—
|
|
|||||||||||||
|
Net
Loss Available to Common Shareholders
|
$
|
(144,675
|
)
|
$
|
(192,411
|
)
|
$
|
(135,044
|
)
|
$
|
(1,030
|
)
|
$
|
(6,369
|
)
|
$
|
(10,265
|
)
|
$
|
(2,208
|
) | $ |
(2,003
|
)
|
||
|
|
||||||||||||||||||||||||||
|
Net
Income (Loss) per share:
(5) (6)
|
||||||||||||||||||||||||||
|
Basic
and Diluted EPS
|
N/M
|
N/M
|
N/M
|
$
|
(0.41
|
)
|
$
|
(2.56
|
)
|
$
|
(3.88
|
)
|
$ |
(0.89
|
) | $ |
(0.10
|
) | ||||||||
|
Weighted
average shares - Basic and Diluted
|
N/M
|
N/M
|
N/M
|
2,487,107
|
2,487,107
|
2,643,936
|
2,487,107
|
19,955,536
|
||||||||||||||||||
|
Balance
Sheet Data (as of period end):
|
|
|||||||||||||||||||||||||
|
Total
current assets
|
$
|
63,806
|
|
$
|
34,759
|
|
$ |
17,349
|
$
|
11,257
|
|
$
|
11,817
|
|
$
|
36,120
|
$
|
14,166
|
$
|
32,759
|
||||||
|
Total
assets
|
280,408
|
134,318
|
22,407
|
11,653
|
|
12,146
|
|
|
36,644
|
14,465
|
33,259
|
|
||||||||||||||
|
Total
current liabilities, excluding debt
|
101,194
|
145,707
|
168,882
|
7,562
|
|
7,030
|
|
|
9,652
|
9,044
|
8,142
|
|||||||||||||||
|
Long-term
debt, including current maturities
|
—
|
1,807
|
1,405
|
3,986
|
|
11,320
|
|
410
|
13,817
|
307
|
||||||||||||||||
|
Redeemable
Common Stock (7)
|
—
|
—
|
—
|
—
|
|
—
|
|
12,000
|
—
|
—
|
||||||||||||||||
|
Total
shareholders'
equity
(deficit)
|
$
|
179,214
|
$
|
(13,196
|
) |
$
|
(148,240
|
) |
$
|
105
|
$
|
(6,204
|
) |
$
|
14,582
|
$
|
(8,396
|
) |
$
|
24,810
|
| (1) |
Predecessor
financials for the years ended July 31, 2001 and 2002 and the eight
months
ended March 31, 2003 were derived solely from the accounting records
of
CMGI, the sole shareholder of our predecessor (which acquired our
business
in April 2000), and using historical results of operations, and historical
basis of assets and liabilities of such predecessor's business. The
statements of operations include fees charged for certain corporate
functions historically provided to us by CMGI, including administrative
services (accounting, human resources, tax services, legal and treasury),
inventory management and order fulfillment, information systems operations
and administration, and advertising services. These fees were allocated
on
a specifically identifiable basis or using the relative percentages,
as
compared to CMGI's other business, net of revenues, payroll, net
cost of
goods sold, square footage, headcount, or
other.
|
| (2) |
The
current uBid business was substantially acquired by Petters Group
in April
2003 at which time purchase accounting was applied to adjust all
carrying
values to estimated current market value (after deduction for negative
goodwill) and the business started accounting for all of its costs
of
operations without allocations of such costs from its prior
parent.
|
| (3) |
Includes
$148, $264, $360 and $90 of management fees charged to uBid by
Petters Group for the periods ended December 31, 2003, 2004, 2005,
and March 31, 2005. The management agreement was terminated on
December
31, 2005.
|
| (4) |
In
April 2000, CMGI acquired uBid and recorded $367.0 million in goodwill
which it amortized over a three year period prior to the impairment
of all
remaining goodwill of $89.4 million (as well as the impairment of
$3.9
million of property and equipment) during the period ended March
31, 2003.
Pro forma net loss for the fiscal years ended July 31, 2001 and 2002
was
$17.6 million and $70.4 million, had uBid not amortized goodwill
during
these periods.
|
| (5) |
Computation
for periods ended prior to April 2003 is not meaningful (N/M) because
there was no common stock outstanding during those
periods.
|
| (6) |
Reflects
the retroactive effects of the impact of the Company's December
2005
merger with Cape Coastal and the resulting exchange of the Company's
1,072
shares of common stock outstanding for the stock of Cape Coastal
at an
exchange ratio of 2,320 to 1 for all periods ending between December
31,
2003 and 2005.
|
| (7) |
At
December 31, 2005, represents 2,666,668 shares of common stock
subject to
redemption after the merger with Cape Coastal Trading Corporation
and the
first private offering. These shares were fully redeemed on February
6,
2006.
|
| (8) | See Note 20 on page F-22 for a description of our restatement of financial information for fiscal year 2005. |
Unaudited
Quarterly Financial Data
The
following selected quarterly data should be read in conjunction with
“Management's Discussion and Analysis of Financial Condition and Results of
Operations.” This information has been derived from our unaudited consolidated
financial statements that, in our opinion, reflect all recurring adjustments
necessary to fairly present our financial information when read in conjunction
with our Consolidated Financial Statements and Notes. The results of operations
for any quarter are not necessarily indicative of the results to be expected
for
any future period.
|
Restated
(1)
|
||||||||||||||||||||||||||||
|
(in
millions)
(unaudited)
|
Q1
|
Q2
|
Q3
|
Q4
|
Q1
|
Q2
|
Q3
|
Q4
|
Q1
|
|||||||||||||||||||
|
2004
|
2004
|
2004
|
2004
|
2005
|
2005
|
2005
|
2005
|
2006
|
||||||||||||||||||||
|
Net
Revenues
|
$
|
26,632
|
$
|
20,254
|
$
|
20,078
|
$
|
20,038
|
$
|
26,818
|
$
|
19,885
|
$
|
18,594
|
$
|
19,295
|
$
|
20,088
|
||||||||||
|
Cost
of Revenues
|
23,149
|
17,563
|
17,013
|
18,112
|
24,164
|
17,095
|
15,497
|
16,306
|
17,178
|
|||||||||||||||||||
|
Gross
Profit
|
3,483
|
2,691
|
3,065
|
1,926
|
2,654
|
2,790
|
3,097
|
2,989
|
2,910
|
|||||||||||||||||||
|
Operating
Expenses
|
||||||||||||||||||||||||||||
|
General
and Administrative
|
2,880
|
2,768
|
2,811
|
3,652
|
3,147
|
3,602
|
3,111
|
3,186
|
3,534
|
|||||||||||||||||||
|
Sales
and Marketing
|
720
|
981
|
1,033
|
1,526
|
1,283
|
1,127
|
1,247
|
1,339
|
1,525
|
|||||||||||||||||||
|
Total
operating expenses
|
3,600
|
3,749
|
3,844
|
5,178
|
4,430
|
4,729
|
4,358
|
4,525
|
5,059
|
|||||||||||||||||||
|
Loss
From operations
|
(117
|
)
|
(1,058
|
)
|
(779
|
)
|
(3,252
|
)
|
(1,776
|
)
|
(1,939
|
)
|
(1,261
|
)
|
(1,536
|
)
|
(2,149
|
)
|
||||||||||
|
Other
(income) Expense, Net
|
304
|
274
|
316
|
209
|
417
|
507
|
572
|
1,041
|
(146
|
)
|
||||||||||||||||||
|
Net
Loss
|
|
(421
|
)
|
|
(1,332
|
)
|
|
(1,095
|
)
|
|
(3,461
|
)
|
|
(2,193
|
)
|
|
(2,446
|
)
|
|
(1,833
|
)
|
|
(2,577
|
)
|
(2,003
|
)
|
||
| Preferred Stock and Other Deemed Dividends | (15 | ) | (15 | ) | (15 | ) | (15 | ) | (15 | ) | (15 | ) | (15 | ) | (1,171 | ) |
—
|
|||||||||||
| Net Loss Available to Common Shareholders | $ | (436 | ) | $ | (1,347 | ) | $ | (1,110 | ) | $ | (3,476 | ) | $ | (2,208 | ) | $ | (2,461 | ) | $ | (1,848 | ) | $ | (3,748 | ) |
$
|
(2,003
|
)
|
|
|
Net
Income (Loss) per share
Basic
and Diluted earnings per share (2)
|
$
|
(0.17
|
)
|
$
|
(0.54
|
)
|
$
|
(0.45
|
)
|
$
|
(1.40
|
)
|
$
|
(0.89
|
)
|
$
|
(0.99
|
)
|
$
|
(0.74
|
)
|
$
|
(1.26
|
)
|
$
|
(0.10
|
)
|
|
|
Weighted
Shares - Basic and Diluted
|
2,487,107
|
|
2,487,107
|
|
2,487,107
|
|
2,487,107
|
|
2,487,107
|
|
2,487,107
|
|
2,487,107
|
|
2,974,603
|
|
19,955,536
|
|||||||||||
(1)
See
Note 20 on page F-22 for a description of the restatement.
(2)
Reflects the retroactive effects of the impact of the Company’s December 2005
merger with Cape Coastal and the resulting exchange of the Company’s 1,072
shares of common stock outstanding for the stock of Cape Coastal at an
exchange
ratio of 2,320 to 1 for all periods ending between December 31, 2003 and
2005.
You
should read the following Management’s Discussion and Analysis of Financial
Condition and Results of Operations together with our consolidated financial
statements and notes to those consolidated financial statements included
elsewhere in this prospectus. This discussion contains forward-looking
statements that are based on our management’s current expectations, estimates
and projections about our business and operations. Our actual results may differ
from those currently anticipated and expressed in such forward-looking
statements. The terms “uBid,” “we,” “us,” and “our,” refer to uBid.com Holdings,
Inc. and our subsidiaries (after the December 29, 2005 merger described
below and/or to uBid, Inc. and, its subsidiaries before such date).
Overview
We
operate an online marketplace located at www.ubid.com
offering
new, close-out, overstock and refurbished merchandise to both consumers and
businesses using auction style and fixed price formats. We offer consumers
a
trustworthy buying environment in which we continually monitor and certify
activity to eliminate the potential for fraud by certifying all merchants and
processing 100% of all transactions between buyers and sellers. Our marketplace
offers brand-name merchandise from over 200 product categories including
computer products, consumer electronics, apparel, housewares, watches, jewelry,
travel, sporting goods, home improvement products and collectibles.
Our
business model provides value for consumers, manufacturers, distributors,
retailers and other approved third party merchants. Consumers shop in a
trustworthy and secure online marketplace and have the opportunity to bid their
own prices on popular, brand-name products realizing product savings of
generally 20% to 80% off retail prices. Our online marketplace provides
merchants with an efficient and economical distribution channel for maximizing
revenue on their merchandise. Merchants can monetize overstock and close-out
inventory, expand their customer base and increase sales without compromising
existing distribution channels.
Our
business model consists of two distinct business channels: uBid Direct and
the
uBid Certified Merchant Program (“UCM Program”).
We
purchase merchandise outright in the uBid Direct channel. On this merchandise,
we bear the inventory, return and credit risk. The full sales amount is recorded
as revenue upon verification of the credit card transaction and shipment of
the
merchandise.
We
also
sell merchandise through the UCM Program by allowing prescreened third party
merchants to sell their product through our online marketplace. On this
merchandise, we do not take title and therefore do not bear the related
inventory risk. In the UCM Program, we are the primary obligor to whom payment
is due, but we bear no inventory or returns risk, so we record only our
commission as revenue. In all instances where the credit card authorization
has
been received but merchandise has not been shipped, we defer revenue recognition
until the merchandise is shipped.
Our
online marketplace is available 24 hours a day, seven days a week and currently
offers 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 five million members.
Basis
of Presentation
Our
audited financial statements for periods before April 2003 have been derived
solely from the accounting records of CMGI, the sole shareholder of our
predecessor, and using the historical results of operations, and historical
basis of assets and liabilities of our predecessor’s business. These periods
include audited financial statements from August 1, 2001 to July 31, 2002 and
August 1, 2002 to March 31, 2003. The statements of operations include fees
for certain corporate functions historically provided to our predecessor by
CMGI, including administrative services (accounting, human resources, tax
services, legal and treasury), inventory management and order fulfillment,
information systems operation and advertising services. These fees were
allocated on a specifically identifiable basis or using the relative
percentages, as compared to CMGI’s other businesses, of net revenues, payroll,
net cost of goods sold, square footage, headcount or other expenses.
The
current uBid business was substantially acquired by Petters Group in April
2003
at which time purchase accounting was applied to adjust all carrying values
to
estimated current market value (after deduction for negative goodwill) and
the
business started accounting for all of its costs of operations without
allocations of such costs from its prior parent. Due to this change in
ownership, differing styles of operations by the different owners and the
application of purchase accounting, the financial results for the periods
presented are not comparable.
During
the second half of 2003, we focused our attention on completing the change
from
a CMGI subsidiary to a stand alone business of Petters Group. This process
included changing distribution facilities from a CMGI warehouse to a third
party
logistics company in Illinois. In addition, we established our own enterprise
resource planning (or “ERP”) system and converted data processing facilities.
During the fourth quarter of 2004, we began focusing on introducing new product
categories and actively promoting our website. We incurred additional sales
and
marketing expenses. We continued this increased spending during 2005 and
2006
and introduced new categories including travel and jewelry. Our efforts resulted
in an increase to our customer base, but contributed to a decline in our
reported operating income. From the third quarter of 2004 to the end of fiscal
year 2005, we increased the number of merchandise and category relationship
managers by six. Beginning in the third quarter of 2004, we experienced
significant growth in computers and consumer electronics. Since the third
quarter of 2004, sales by UCM Program merchants have increased. The UCM
Program’s commission revenues have increased from $.8 million in 2003 to $3.4
million for the year ended December 31, 2005.
Executive
Commentary
Success
Measures:
Our
management believes that the most important financial and non-financial measures
that track our progress include sales, orders shipped, website traffic, number
of orders, inventory turnover, 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:
Number
of Orders: This
represents the total number of orders shipped in a specified period. We analyze
the number of orders 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
generated within a given time period. We analyze average order value primarily
to monitor costs and other operating expenses.
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Q1
|
||||||||||
|
2004
|
2004
|
2004
|
2004
|
2005
|
2005
|
2005
|
2005
|
2006
|
||||||||||||||||||||
|
Measure
|
||||||||||||||||||||||||||||
|
Number
of orders
|
||||||||||||||||||||||||||||
|
Direct
|
55
|
39
|
33
|
41
|
46
|
39
|
36
|
43
|
36
|
|||||||||||||||||||
|
uBid
Certified Merchant
|
34
|
49
|
43
|
50
|
51
|
64
|
72
|
93
|
87
|
|||||||||||||||||||
|
Average
Order Value
|
||||||||||||||||||||||||||||
|
Direct
|
$
|
494
|
$
|
531
|
$
|
613
|
$
|
511
|
$
|
443
|
$
|
493
|
$
|
495
|
$
|
398
|
$
|
465
|
|
|||||||||
|
uBid
Certified Merchant
|
$
|
111
|
$
|
94
|
$
|
101
|
$
|
104
|
$
|
119
|
$
|
106
|
$
|
112
|
$
|
108
|
$
|
107
|
||||||||||
Revenue
Source:
We
derive our revenue from sales of products to consumers and businesses. 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 website.
We
further generate revenue from shipping fees we charge our customers. 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,
coupons and other special promotions.
Our
revenue is dependent in part on sales of products produced by Sony Electronics,
Inc. and Hewlett-Packard Company. Sony-related products represented 58.6%,
55.1%
and 36.6% of our net sales for the nine months ended December 31, 2003 and
the
years ended December 31, 2004 and 2005. HP-related products represented 12.6%,
9.8% and 10.4% of
our
net sales for the nine months ended December 31, 2003 and the years ended
December 31, 2004 and 2005. In our most recent quarter ended March 31, 2006,
sales of Sony and HP related products were 14.0% and 9.2%, respectively.
No
other supplier represented more than 5% of our net revenues for any period
presented.
Cost
of Revenues:
Cost of
revenues primarily consists of the cost of the product and inbound and outbound
shipping. There is no cost of revenues for UCM Program revenue. Cost of revenues
does not include order fulfillment costs, which are included in general and
administrative expenses.
Gross
Profits:
Our
gross
profit margins are impacted by a number of factors including the category of
merchandise, the introduction of new product categories, the mix of sales among
our product categories, pricing of products by our vendors, pricing strategies,
promotional programs, market conditions, packaging, excess and obsolete
inventory charges and other factors. Gross profits and gross profit percentages
are not comparable to gross profit and gross profit percentages reported by
companies that include order fulfillment costs in the cost of
revenues.
Expenses:
Sales
and marketing, general and administrative (“SG&A”) expenses consist
primarily of sales and marketing expenses, including online marketing
activities, order fulfillment and other costs, such as personnel, rent, common
area maintenance, depreciation, credit card processing charges, bad debt
expenditures, legal and accounting fees and administrative service charges from
Petters Group. Order fulfillment costs, for the periods ended March 31, 2003
and December 31, 2003, 2004 and 2005 and for quarters ended March 31, 2005
and 2006 were $10.0 million, or 9.7% of revenues, $1.4 million, or 2.1% of
revenues, $1.0 million or 1.2% of revenues, $0.9 million or 1.0% of revenues,
$0.2 million or 0.8% of revenues and $0.2 million or 1.2% of revenues. Interest
expenses, net includes charges by Lancelot Investors Fund, L.P. (“Lancelot”) and
Petters Group for working capital advances and interest expense related to
our
IBM flooring facility at a rate of 1% per month on the outstanding balances.
Interest expense on advances from Petters Group and Lancelot is primarily
based
on an annual interest rate of 14%.
Critical
Accounting Policies and Estimates
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of our
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, net revenues and expenses, as
well
as the disclosure of contingent assets and liabilities. We base our estimates
on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about carrying values of our assets and liabilities that are
not readily apparent from other sources. Actual results could differ from those
estimates, and we include any revisions to our estimates in our results for
the
period in which the actual amounts become known.
Our
management considers an accounting estimate to be critical if it requires
assumptions to be made that were uncertain at the time the estimate was made
or
changes in the estimate or different estimates that could have been selected
that could have a material impact on our results of operations or financial
condition.
We
believe the critical accounting policies described below affect the more
significant judgments and estimates used in the preparation of our financial
statements.
Revenue
Recognition
We
adhere
to the guidelines and principles of sales recognition described in Staff
Accounting Bulletin No. 104, Revenue Recognition. Under SAB 104, sales are
recognized when the title and risk of loss are passed to the customer, there
is
persuasive evidence of an arrangement for the sale, delivery has occurred and/or
services have been rendered, the sales price is fixed or determinable and
collectability is reasonably assured. Under these guidelines, we recognize
a
majority of our sales, including revenue from product sales and gross outbound
shipping and handling charges, upon shipment of the product to the customer.
For
all product sales shipped directly from suppliers to customers, we bear credit
risk. The UCM Program allows certified merchants to sell product through our
website. Therefore, while we are the primary obligor to whom payment is due,
we
bear no inventory or returns risk, so we record only our commission as revenue
at the time of shipment.
Sales
are
reported net of estimated returns and allowances which we estimate based upon
recent historical information such as return rates experience. Management also
considers any other current information and trends in making estimates. If
actual sales return and allowances are greater than estimated by management,
additional expenses may be incurred.
Allowance
for Doubtful Accounts Receivable
We
maintain an allowance for doubtful accounts receivable based upon estimates
of
future collection. We extend credit to our business customers based upon an
evaluation of each business customer’s financial condition and credit history,
and generally do not require collateral. Our business customers’ financial
conditions and credit and payment histories are evaluated in determining the
adequacy of our allowance for doubtful accounts. If estimated allowances for
uncollectible accounts subsequently prove insufficient, additional allowance
may
be required.
Reserve
for Inventory Obsolescence
We
maintain allowances for the valuation of inventory by estimating the obsolete
or
unmarketable inventory based on the difference between inventory cost and market
value determined by general market conditions, nature, age and type of each
product. If the inventory reserve subsequently proves insufficient, additional
inventory write-downs may be required, which are recorded as an increase in
cost
of revenues.
Long
Lived Assets
We
test
certain long-lived assets or groups of assets for recoverability whenever events
or changes in circumstances indicate that we may not be able to recover the
assets’ carrying amount. When events or changes in circumstances dictate an
impairment review of a long-lived asset or group, we will evaluate
recoverability by determining whether the undiscounted cash flows expected
to
result from the use and eventual disposition of that asset or group cover the
carrying value at the evaluation date. If the undiscounted cash flows are not
sufficient to cover the carrying value, we will measure any impairment loss
as
the excess of the carrying amount of the long-lived asset or group over its
fair
value (generally determined by a discounted cash flows model or independent
appraisals).
For
goodwill, impairment assessments are performed in two steps. In the first
step, the carrying value of our total net assets is compared to the estimated
fair value of uBid. If fair value is less than carrying value, the second
step is performed by assuming that the fair value paid for uBid and normal
purchase accounting is performed to compute an “implied goodwill.” The
impairment is then measured as the amount, if any, that the carrying value
of
goodwill exceeds the “implied goodwill.” Management determines fair value of
uBid based on a combination of the discounted cash flow methodology, which
is
based upon converting expected cash flows to present value, and the market
approach, which includes analysis of market price multiples of companies engaged
in lines of business similar to ours. The market price multiples are selected
and applied to uBid based on the relative performance, future prospects and
risk
profile of uBid in comparison to the guideline companies. Management
predominantly utilizes third-party valuation experts in its determination of
fair value.
Income
Taxes
We
account for income taxes under the liability method, under which we recognize
deferred income taxes by applying enacted statutory tax rates applicable to
future years to differences between the tax bases and financial reporting
amounts of our existing assets and liabilities and net operating loss
carryforwards. We have considered future taxable income and ongoing prudent
and
feasible tax planning strategies in assessing the need for a valuation allowance
against our deferred tax assets. In making this assessment, we are required
to
consider all available positive and negative evidence to determine whether,
based on such evidence, it is more likely than not that some portion or all
of
our net deferred assets will be realized in future periods. We have recorded
a
valuation allowance at December 31, 2005 and 2004.
Results
of Operations
The
following table sets forth our results of operations for the periods indicated.
|
(in
thousands, except share and per share data)
|
Predecessor
Company (1)
|
uBid
(2)
|
||||||||||||||||||
|
|
||||||||||||||||||||
|
8
Months Ended
|
9
Months Ended
|
Year
ended
|
Restated
(7) Year
ended |
Three
Months Ended
|
||||||||||||||||
|
March
31,
|
December
31,
|
December
31,
|
December
31,
|
March
31
|
||||||||||||||||
|
2003
|
2003
|
2004
|
2005
|
2005
|
2006
|
|||||||||||||||
|
(audited)
|
(audited)
|
(audited)
|
(audited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||||
|
Net
Revenues
|
$
|
103,484
|
$
|
65,656
|
$
|
87,002
|
$
|
84,592
|
$
|
26,818
|
$
|
20,088
|
||||||||
|
Cost
of Revenues
|
100,252
|
54,491
|
75,837
|
73,062
|
24,164
|
17,178
|
||||||||||||||
|
Gross
Profit
|
3,232
|
11,165
|
11,165
|
11,530
|
2,654
|
2,910
|
||||||||||||||
|
Operating
Expenses
|
||||||||||||||||||||
|
General
& Administrative (3) (4)
|
126,527
|
9,021
|
12,112
|
13,045
|
3,147
|
3,534
|
||||||||||||||
|
Sales
and Marketing
|
5,743
|
2,484
|
4,260
|
4,996
|
1,283
|
1,525
|
||||||||||||||
|
Total
operating expenses
|
132,270
|
11,505
|
16,372
|
18,041
|
4,430
|
5,059
|
||||||||||||||
|
Loss
From Operations
|
(129,038
|
)
|
(340
|
)
|
(5,207
|
)
|
(6,511
|
)
|
(1,776
|
)
|
(2,149
|
)
|
||||||||
|
Other
Expense
|
||||||||||||||||||||
|
Interest
Expense
|
(6,253
|
)
|
(729
|
)
|
(1,188
|
)
|
(2,925
|
)
|
(439
|
)
|
(47
|
)
|
||||||||
|
Interest
Income
|
247
|
78
|
86
|
124
|
22
|
193
|
||||||||||||||
|
Miscellaneous
Income
|
—
|
21
|
—
|
263
|
—
|
—
|
||||||||||||||
|
Total
Other Income (Expense)
|
(6,006
|
)
|
(630
|
)
|
(1,102
|
)
|
(2,538
|
)
|
(417
|
)
|
146
|
|
||||||||
|
Loss
Before Income Taxes
|
(135,044
|
)
|
(970
|
)
|
(6,309
|
)
|
(9,049
|
)
|
(2,193
|
)
|
(2,003
|
)
|
||||||||
|
Income
Tax Expense
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||
|
Net
Loss
|
|
(135,044
|
)
|
|
(970
|
)
|
|
(6,309
|
)
|
|
(9,049
|
)
|
(2193
|
)
|
(2,003
|
)
|
||||
| Preferred Stock and Other Deemed Dividends | — | (60 | ) | (60 | ) | (1,216 | ) |
(15
|
)
|
—
|
|
|||||||||
| Net Loss Available to Common Shareholders | $ | (135,044 | ) | $ | (1,030 | ) | $ | (6,369 | ) | $ | (10,265 | ) |
$
|
(2,208
|
)
|
$
|
(2,003
|
)
|
||
|
Net
Loss per share: (5) (6)
|
||||||||||||||||||||
|
Basic
and Diluted EPS
|
N/M
|
$
|
(0.41
|
)
|
$
|
(2.56
|
)
|
$
|
(3.88
|
)
|
$
|
(0.89
|
)
|
$
|
(0.10
|
)
|
||||
|
Weighted
average shares - Basic
and Diluted
|
N/M
|
2,487,107
|
2,487,107
|
2,643,936
|
2,487,107
|
19,955,536
|
||||||||||||||
| (1) |
Predecessor
financials for the eight months ended March 31, 2003 were derived
solely
from the accounting records of CMGI, the sole shareholder of our
predecessor (which acquired our business in April 2000), and using
historical results of operations, and historical basis of assets
and
liabilities of such predecessor's business. The statements of operations
include fees charged for certain corporate functions historically
provided
to us by CMGI, including administrative services (accounting human
resources, tax services, legal and treasury), inventory management
and
order fulfillment, information systems operations and administration,
and
advertising services. These fees were allocated on a specifically
identifiable basis or using the relative percentages, as compared
to
CMGI's other business, net of revenues, payroll, net cost of goods
sold,
square footage, headcount, or
other.
|
| (2) |
The
current uBid business was substantially acquired by Petters Group
in April
2003 at which time purchase accounting was applied to adjust all
carrying
values to estimated current market value (after deduction for negative
goodwill) and the business started accounting for all of its costs
of
operations without allocations of such costs from its prior parent.
|
| (3) |
Includes
$148, $264, $360 and $90 of management fees charged to uBid by
Petters
Group for the periods ended December 31, 2003, 2004, 2005 and March
31,
2005. The management agreement was terminated on December 31,
2005.
|
| (4) |
In
April 2000, CMGI acquired uBid and recorded $367.0 million in goodwill
which it amortized over a three year period prior to the impairment
of all
remaining goodwill of $89.4 million (as well as the impairment of
$3.9
million of property and equipment) during the period ended March
31, 2003.
|
| (5) |
Computation
for period ended prior to April 2003 is not meaningful (N/M) because
there
was no common stock outstanding during such
period.
|
| (6) |
Reflects
the retroactive effects of the impact of the company's December
2005
merger with Cape Coastal and the resulting exchange of the company's
1,072
shares of common stock outstanding for the stock of Cape Coastal
at an
exchange ratio of 2,320 to 1 for all periods ending between December
31,
2003 and 2005.
|
| (7) | See Note 20 on page F-22 for a description of our restatement of financial information for fiscal year 2005. |
Comparison of Nine Months ended December 31, 2003 and Eight Months ended March 31, 2003
On
April
2, 2003, CMGI sold substantially all of uBid’s assets to Petters Group and
management, pursuant to the terms of an asset purchase agreement dated as of
April 2, 2003, by and among Petters Group, management, CMGI and uBid. In
consideration of the asset sale, Petters Group and management paid CMGI (1)
$1,612,500 in cash at closing, (2) a promissory note in the aggregate principal
amount of $2,000,000, bearing interest at the prime rate plus 1.5%, payable
in
two equal installments on the first and second anniversaries of the closing,
and
(3) a warrant to purchase nonvoting common stock of uBid constituting 5% of
the
outstanding common stock of uBid on the consummation of the asset sale
(calculated on a fully-diluted, as-converted basis). In addition, Petters Group
assumed certain liabilities of uBid.
Net
Revenues: Net
revenues for the nine months ended December 31, 2003 were $65.7 million, a
decrease of $37.8 million, or 36.5%, over the eight month period ended March
31,
2003. The number of orders decreased by 235,000 or 45.1%. The decrease in
revenues was driven primarily by a decrease in items auctioned and daily visits
to our website. In addition, volume was reduced in unprofitable categories
-
Computer Components, Travel, Home Office, and Home Improvements. Under new
ownership, the business focus was to reach profitability as opposed to prior
ownership’s focus on increasing market share.
Gross
Profit: Gross
profit for the nine months ended December 31, 2003 was $11.2 million, an
increase of $8.0 million, over the eight month period ended March 31, 2003
despite the significant revenues decrease. Gross profit as a percentage of
net
revenues increased to 17.0% in the nine month period from 3.1% in the prior
period. The increase in gross profit percentage was primarily due to a decrease
in the number of orders which resulted in increased number of bids per order
with higher margins.
Sales
& Marketing, General and Administrative Expenses: SG&A
expenses for the nine months ended December 31, 2003 were $11.5 million, a
decrease of $120.8 million, or 91.3%, over the eight months ended March 31,
2003. The decrease in SG&A expenses was primarily due to (in
millions):
|
Description
|
Nine
Month
Period
Ended
12-31-03
|
Eight
Month Period Ended 3-31-03
|
(Decrease)
|
|||||||
|
Impairment
Charges previously described
|
$
|
—
|
$
|
93.3
|
$
|
(93.3
|
)
|
|||
|
Salary
and Benefits(1)
|
3.8
|
10.7
|
(6.9
|
)
|
||||||
|
Warehouse
Expense(2)
|
1.4
|
11.3
|
(9.9
|
)
|
||||||
|
Depreciation(3)
|
0.1
|
3.0
|
(2.9
|
)
|
||||||
|
Advertising
Expense(4)
|
2.4
|
5.7
|
(3.3
|
)
|
||||||
|
Credit
Card Fees
|
1.8
|
3.1
|
(1.3
|
)
|
||||||
|
Bad
Debt Expense
|
—
|
0.3
|
(0.3
|
)
|
||||||
|
Legal
and Audit Fees
|
0.3
|
1.2
|
(0.9
|
)
|
||||||
|
Other
|
1.7
|
3.7
|
(2.0
|
)
|
||||||
|
$
|
11.5
|
$
|
132.3
|
$
|
(120.8
|
)
|
||||
| (1) |
Headcount
decreased by 52 staff or 37%.
|
| (2) |
Decrease
due to order volume and new outside warehouse
location.
|
| (3) |
Due
to revaluation of fixed assets under the April 2003 purchase
accounting.
|
| (4) |
Planned
lower advertising spending.
|
Other
Expense: Interest
expense, net decreased due to lower borrowings required to fund
operations.
Net
Loss:
We
experienced a net loss of $135.0 million for the eight months ended March 31,
2003, compared to net loss of $1.0 million for the nine months ended December
31, 2003 primarily due to the decrease in Sales & Marketing and General and
Administrative expenses.
Comparison
of Nine Months ended December 31, 2003 and Year ended December 31,
2004
Net
Revenues: Net
revenues for the year ended December 31, 2004 were $87.0 million, an increase
of
$21.3 million or 32.5% over the nine months ended December 31, 2003. Included
in
the year ended December 31, 2004 are the three months, January through March
2004, for which no comparable period is included in the nine months ended
December 31, 2003. Sales for the three month period January through March 2004
were $26.6 million. The number of shipped orders increased in 2004 by 273,000
or
95.7% over the nine months ended December 31, 2003. uBid Direct revenues
increased by $20.3 million or 31.3% while UCM revenue increased by $1.0 million
or 125% over the nine months ended December 31, 2003. Average order value for
uBid Direct revenue decreased from $336 to $319 or a decrease of 5.1% and
average order value for UCM decreased from $125 to $61 or a decrease of 51.0%,
primarily as a result of lower price points for computer and electronic items.
Visitors to the site increased from 16.3 million for the nine months ended
to
23.4 million for the year ended December 31, 2004 - an increase of 7.1 million,
or 43.6 %. Adjusting for the three months in the year ended December 31, 2004,
website visitors increased by 2.4 million, or 14.7%.
Gross
Profit: Gross
profit for the year ended December 31, 2004 was $11.2 million, no change over
the nine months ended December 31, 2003. Gross profit for the three month period
January through March 2004 was $3.4 million. Gross profit as a percentage of
net
revenues decreased from 17.0% for the nine months ended December 31, 2003 to
12.8% for the year ended December 31, 2004. The primary reason for the decrease
in gross profit margin was an increase in volume in certain low margin
categories. The primary categories in which volume increased were Computers
and
Office (49.8% increase) and Consumer Electronics (110.1% increase).
Sales
& Marketing, General and Administrative Expenses: SG&A
expenses for the year ended December 31, 2004 were $16.4 million, an increase
of
$4.9 million, or 42.3%, over the nine months ended December 31, 2003. Sales
& Marketing for the three month period January through March 2004 was $0.7
million. General and Administrative expense for the same period was $2.9
million. The increase in SG&A expenses was primarily due to an increase in
advertising spending of $1.8 million or 20.2%, of which $0.7 million related
to
the three month difference. The increase in General and Administrative expenses
was due to the $2.9 million for the three month difference discussed above
and
increases in salaries and benefits of $1.3 million or 17.6%. In 2003, uBid
established a Phantom Stock Appreciation Plan under which certain individuals
were issued “Phantom Shares” subject to certain vesting provisions. Stock based
compensation expense of $0.2 million was recorded in the year ended December
31,
2004 versus no expense in 2003.
Other
Expense: Interest
expense, net increased to $1.1 million or 63% over the 9 months ended December
31, 2003 due to additional borrowings of $9.0 million in 2004, which were used
to fund losses and working capital requirements.
Net
Loss:
We
experienced a net loss of $6.3 million or $2.56 per share for the year ended
December 31, 2004, compared to net loss of $1.0 million or $0.41 per share
for
the nine months ended December 31, 2003.
Comparison
of the Years Ended December 31, 2005 and 2004
Net
Revenues: Net
revenues for the year ended December 31, 2005 were $84.6 million, a decrease
of
$2.4 million, or 2.8%, compared to $87.0 million for the year ended December
31,
2004. Visitors to the website increased by 10.1 million, or 50.1% over the
same
period due to increased advertising and inventory items. The number of orders
for uBid Direct decreased 2.5% to 163,800 orders. The number of UCM orders
increased 59.3% to 283,125 orders. The average order value for uBid Direct
decreased by 14.3% from $539 to $462. The decrease in the average order was
primarily due to decreasing prices in consumer electronics. The average order
value for UCM increased by 18.4% from $98 to $116. We will continue to
concentrate significant resources to drive UCM revenue growth by increasing
the
participation of merchants in our UCM program. We are increasing our inventory
investment with the $25.4 million proceeds from the first private offering
to
reverse the decline in direct sales.
Gross
Profit: Gross
profit for the year ended December 31, 2005 was $11.5 million, an increase
of
$0.4 million or 3.2% compared to the year ended December 31, 2004. The
increase was primarily a result of the increased UCM revenues. Gross profit
as a
percentage of net revenues increased to 13.6% from 12.8% in the prior
period.
Sales
and Marketing, General and Administrative Expenses:
SG&A
expenses for the year ended December 31, 2005 were $18.0 million, an increase
of
$1.7 million or 10.2%, compared to the prior year. The increase in Sales &
Marketing was $0.8 million or 17.3% and was primarily due to increased
advertising expense. General & Administrative expense increased by $0.9
million or 7.7%, primarily due to increases in salaries and benefits. Our
Phantom Stock Plan was terminated in July 2005 and participants were paid on
December 30, 2005. Compensation expense of $0.5 million was recorded in 2005
versus $0.2 million in 2004. Overall headcount increased from 92 to 95 or 3.3%.
During 2005, we hired a Chief Marketing Officer and a Vice President of Finance.
As a percentage of net revenues, Sales and Marketing, General and Administrative
Expenses for the year ended December 31, 2005 were 21.3% compared to 18.8%
in
the prior year.
Other
Expense: Interest
expense, net increased to $2.8 million for the year ended December 31, 2005
from
$1.1 million for the year ended December 31, 2004 due to higher borrowings
required due to increases in working capital and to fund operating losses.
Interest expense of $0.6 million was recorded in 2005 for the warrants issued
in
connection with the bridge notes.
Net
Losses: We
experienced a net loss of $9.0 million or $3.88 per share for the year ended
December 31, 2005 compared to a net loss of $6.3 million or $2.56 per share
for
the year ended December 31, 2004. Our 2005 net loss per share reflects a deemed
dividend of $1.2 million related to a loss we experienced upon extinguishment
of
debt held by a significant shareholder on December 29, 2005.
Comparison
of Three Months ended March 31, 2006 and Three Months ended March 31,
2005
Net
Revenues:
Net
revenues for the quarter ended March 31, 2006 were $20.1 million, a decrease
of
$6.7
million, or 25.0%. Direct consumer revenues decreased $4.2 million or 20.0%
while direct business revenues
decreased $2.9 million or 52.3% and UCM revenues increased $0.4 million
or 124%
over the quarter ended March
31,
2005.
Direct
revenues decreased primarily as a result of decreased volumes and average
sales
prices of desktop computers.
Desktop computer sales decreased 69.1 % over the same period prior year.
The
decrease in desktops
was mitigated by growth in Home and Garden
and Video
merchant
categories.
The growth percentages were 793.5% and 211.0%, respectively. In addition,
traffic to the website quarter over quarter was down 6.7%.
Total
orders increased by 26,000 or 26.8% to 123,000 at March 31, 2006.
UCM
orders increased by 36,000 or 70.6% from 51,000 to 87,000. The
total
number of approved UCM vendors to sell on the website grew from 169 in
March
2005 to 949, or 461%, in March 2006. Direct orders decreased by 10,000
or
21.7%.
We
will
continue to concentrate significant resources to drive UCM revenue growth
by
increasing the participation
of merchants in our UCM program. We are increasing our inventory investment
with
the $25.4 million proceeds from the first private offering to reverse the
decline in direct
sales.
Gross
Profit:
Gross
profit for quarter ended March 31, 2006 was $2.9 million, an increase of
$0.3
million or 9.6% compared to the quarter ended March 31, 2005. The increase
was
primarily a result of the increased
UCM net revenues and to the higher margins in the Direct Business channel.
The
Direct Business margin percentage increased from 3.5% in the quarter ended
March
31, 2005 to 14.5% for the quarter ended March
31,
2006 due to the change in sales mix. Overall gross profit as a percentage
of net
revenues increased to 14.5% from 9.9% respectfully.
Sales
and Marketing, General and Administrative Expenses: SG&A
expenses for the quarter ended March 31, 2006 were $5.1 million, an increase
of
$0.6 million or 14.2%, compared to quarter ended March 31, 2005. The increase
in
Advertising expenses of $0.2 million or 18.8% was primarily due to the
increased
online marketing rates for Business to Consumer traffic and increased spending
on the Business to Business (UCM) vendor lead generation program. The cost
per
visitor for Business to Consumer channel increased 32.2% from ¢14.9 per visitor
to ¢19.7. The Business to Business channel had a cost of acquisition of $144
per
merchant from December 31, 2005. There were no marketing programs for Business
to Business (UCM) in the prior year quarter. General & Administrative
expenses increased by $0.4 million or 12.3% from the quarter ended March
31,
2005. Of the total increase, $0.2 million was due to an increase in legal,
accounting, and D&O insurance expenses required for our various public
filings. Salary and benefits increased $0.2 million from the same prior
year
period due to the hiring of two senior members of the management team and
selected employee increases. This increase was offset by the decrease of
$0.2
million in Telecommunications, Hardware and Storage fees. The decrease
is
related to the expiration of some equipment leases and other favorable
pricing
with storage fees. Warehouse expenses increase $0.1 million from the same
prior
year period due to the acquisition of additional warehouse space required
for
the business to business product and overall growth in inventory. The increase
in 2006 was offset by the elimination of related party management fees
of $0.1
million. In addition, $0.2 million was incurred related to stock based
compensation expense.
|
Description
|
Three
Month
Period
Ended
March
31, 2006
|
Three
Month
Period
Ended
March
31,
2005
|
|
Increase
(Decrease)
|
||||||||
|
(Dollars
in millions)
|
||||||||||||
|
Stock-based
Compensation
|
$ |
0.2
|
$ | – | $ |
0.2
|
||||||
|
Salary
and Benefits
|
1.8
|
1.6
|
0.2
|
|||||||||
|
Warehouse
Expense
|
0.3
|
0.2
|
0.1
|
|||||||||
|
Depreciation
|
0.1
|
0.1
|
– | |||||||||
|
Advertising
Expense
|
1.3
|
1.1
|
0.2
|
|||||||||
|
Credit
Card Fees
|
0.7
|
0.6
|
0.1
|
|||||||||
|
Telecommunications,
Hardware
and
Storage
|
0.2
|
0.4
|
(0,2
|
)
|
||||||||
|
Legal,
Audit, Insurance, and other Regulatory Fees
|
0.3
|
0.1
|
0.2
|
|||||||||
|
Facilities
Expense
|
0.2
|
0.2
|
–
|
|||||||||
|
Related
Party Management Fees
|
0.1
|
(0.1
|
)
|
|||||||||
|
Other
SG&A
|
– |
0.1
|
(0.1
|
)
|
||||||||
|
|
$ |
5.1
|
$ |
4.5
|
$ |
0.6
|
||||||
-45-
Other
Expense: Interest
income was $.0l million for the quarter ended March 31, 2006 versus interest
expense
of $.4 million for
the
quarter ended March
31,
2005. The Company retired all debt after the capital raise
on
December 29, 2005 resulting in interest income in the first
quarter
of 2006.
Net
Losses:We
experienced a net loss of $2.0 million or $.10 per share for the quarter
ended
March 31, 2006
compared to a net loss of $2.2 million or
$.89
per share for the quarter ended March 31, 2005. The decrease
in the net loss is primarily from the elimination of interest related
debt.
Liquidity
and Capital Resources
Historically,
our primary sources of capital have been cash flow from operations and loans
from affiliated parties. More recently, our primary source of capital has been
from private offerings of our common stock and warrants to acquire our common
stock.
Net
cash
used in operating activities for the nine months ended December 31, 2003 and
the
years ended December 31, 2004 and 2005 was $6.4 million, $5.2 million and $6.7
million. The 2004 decrease was primarily due to larger net losses in 2004
partially offset by lower increases in inventory levels and higher increases
in
accounts payable. The 2005 increase was primarily due to a higher operating
loss
offset by cash provided by changes in other working capital items, primarily
inventories and accrued expenses. Historical inventory levels have fluctuated
based on cash availability as well as availability of product in the market.
Inventory for the period ending December 31, 2004 increased $1.5 million or
25.8%. At December 31, 2004, $1.4 million in inventory was in transit to our
third party logistics warehouse from various suppliers. The inventory increase
was partially financed by open trade terms from suppliers. Accounts payable
at
December 31, 2004 increased to $4.5 million from $2.4 million at December 31,
2003.
Our
December 31, 2004 balance sheet included a $1.0 million purchase of computers
that was in transit from a West Coast supplier.
Net
cash
used in operating activities for quarter ended March 31, 2006 was $13.6
million,
compared to $3.3
million used in the quarter ended March 31, 2005. Inventory for the period
ended
March 31, 2006 increased
$10.3 million or 172.5% from December 31, 2005. We are increasing our
inventory
investment
with the proceeds from the first private offering to increase product
available for auction and reverse the decline in direct sales.
Net
cash provided by financing activities was $1.4
million, $4.2 million and $31.9 million for the nine months ended December
31,
2003 and years ended December 31, 2004 and 2005. The cash inflow for
the nine
months ended December 31, 2003 primarily resulted from the sale of preferred
stock. For the year ended December 31, 2004, payments under our flooring
facility and other debt agreements partially offset $9.0 million of new
borrowings from Petters Group. For the year ended December 31, 2005,
the inflow
was primarily related to the private placement of approximately ten million
shares of our common stock and a net increase in debt of $4.6
million.
Net
cash
used by financing activities was $0.8 million for quarter ended March
31, 2006
compared a cash
inflow of $3.8 million for quarter ended March 31, 2005. The cash outflow
for
the three months ended March
31,
2006 was primarily for $1.5 million in payments made related to the merger
and
offering costs. In addition, $0.7 million in payments on the IBM flooring
facility were made. For the quarter ended March 31, 2005,
the
Company had related party borrowings to fuel the operating losses and
working
capital needs.
Net
cash
from investing activities was $5.8 million, $1.9 million and ($0.7 million)
for
the nine months ended December 31, 2003 and the years ended December 31,
2004
and 2005. Investing activities during 2003 included $10 million net of cash
acquired in the April 2003 acquisition of uBid from CMGI partially offset
by a
$3.7 million increase in restricted cash used to support our vendor
purchases. Investing activities during 2004 primarily included a $2.0 million
decrease in restricted investments. Investing activities during 2005 primarily
included increased capital expenditures and a change in restricted investments.
Net cash from investing activities was $0.3 million for quarter ended March
31,
2006 primarily from a decrease
in restricted investments.
In
fiscal
years 2004 and 2005, we borrowed a total of $10.5 million from Petters Group.
The borrowings were secured by a subordinated security interest in all of our
assets, were due March 31, 2006 and had an annual interest rate of 14% payable
monthly. There are no financial covenants provided for in the notes or security
agreement. These notes were cancelled by the note holders and the cancellation
was used as consideration in exchange for the issuance to Petters Company,
Inc.
of 1,222,223 shares of common stock (all of which are subject to redemption
and
were redeemed subsequent to year end) and warrants to purchase 305,556 shares
of
common stock, and the issuance to Petters Group of 1,111,111 shares of common
stock (1,000,001 of which are subject to redemption and were redeemed
subsequent to year end) and warrants to purchase 277,778 shares of common stock.
We
recorded a loss of $1.2 million on the extinguishment of debt to Petters Group,
which represented the difference between the carrying value of the debt and
the fair value of the units exchanged which included redeemable shares. The
loss
was recorded as a deemed dividend.
In
April
2005, we entered into a 90 day debt agreement with Lancelot, which was extended
for one year on July 26, 2005. The note bore interest at an annual rate of
14%
due monthly. The note was to be due in July 2006 and was guaranteed by Petters
Group and Thomas J. Petters, a stockholder. This debt was retired with proceeds
from our first private offering to accredited investors in December
2005.
In
October 2005, we obtained $5.0 million in bridge notes from two investors (the
“Note Holders”). On the Closing Date, the Note Holders exchanged the bridge
notes for 1,111,111 shares of common stock and we issued to the Note Holders
warrants to purchase 333,333 shares of common stock for a period of three years
at an exercise price of $4.50 per share. The fair value of the warrants was
determined to be $0.6 million using the Black-Scholes option-pricing model
and
was recorded as interest expense in the accompanying statements of operations.
On
April
2, 2003, we signed a secured promissory note totaling $2.0 million payable
to
CMGI as part of the acquisition from CMGI. The note bears an annual rate of
interest equal to 1.5% above the prime rate as reported by The Wall Street
Journal. The effective rate at December 31, 2004 was 6.5%. The first principal
payment was due and paid on April 2, 2004 in the amount of $1.0 million. The
second principal payment to pay off the note plus accrued interest was paid
on
April 2, 2005 in the amount of $1,172 million. The note was secured by a
subordinated security interest in all of our assets.
On
November 10, 2003, we entered into an amended Microsoft Enterprise Agreement
with Microsoft, Inc. (the “Microsoft Agreement”). This Microsoft Agreement
enables us to license one or more of Microsoft’s license products across our
platform to ensure that our entire enterprise will be licensed. Under the terms
of the agreement, amounts are payable in quarterly installments of approximately
$102,000 through December 31, 2006. We accounted for the amended agreement
by
adjusting the then present balance of the obligation under the existing
agreement to the new obligation under the amended agreement. The incremental
additional obligation of $80,000 associated with the amended agreement was
capitalized in computer software and is being amortized over its estimated
useful life.
In
connection with the private offerings described herein, including the issuance
and exchange of the bridge notes, we received cash proceeds of approximately
$25.4 million. The proceeds received in the second part of the private offering
on February 3, 2006 resulted in no net proceeds to uBid because the proceeds
were used to pay related fees and expenses of $1.5 million and $12 million
of
the proceeds were used to redeem 2,666,668 shares of common stock in connection
with the merger, the first part of the private offering, and cancellation of
debt. On February 6, 2006, we redeemed 1,222,223 shares of common stock that
were previously issued to Petters Company, Inc. and 1,000,001 shares of common
stock previously issued to Petters Group.
On
May 9, 2006, we entered into a Credit and
Security Agreement with Wells Fargo Bank, National Association acting through
Wells Fargo Business Credit and related security agreements and other agreements
described in the Credit and Security Agreement (the “Credit
Agreement”).
The Credit Agreement provides for advances to the Company of up to a maximum
of
$25.0 million. The amount actually available to us will vary from time to
time,
depending on, among other factors, the amount of our eligible inventory and
the
amount of our eligible accounts receivable. The obligations under the Credit
Agreement and all related agreements are secured by all of the Company’s assets.
The
inital term of the Agreement is three years, expiring on April 28, 2009.
Up to
$7.0 million of the maximum amount is available for irrevocable, standby
and
documentary letters of credit. Advances under the Agreement bear interest
at a
base rate (Wells Fargo Bank’s prime
rate) of
LIBOR plus 2.5%.
Pursuant
to registration rights related to many of the
securities issued in the December 2005 and February 2006 transactions, the
Company was required to register certain shares for resale within 120 days
of
the December 29, 2005 closing or incur liquidated damages, in cash, in the
amount of 1.0% of the purchase price paid for such securities by the investors
for each month until the registration statement is declared effective by
the
SEC. A registration statement on Form S-1 was filed within the required period,
but was selected for review by the SEC, which has delayed the effectiveness
of
the registration statement. On April 28, 2006, the Company became obligated
to
pay $0.4 million for liquidated damages and will have to pay additional amounts
for each month after April 28, 2006 that the registration statement is not
declared effective. The
Company intends to request an amendment to the securities purchase agreement
and
waiver of the liquidated damages. There is no assurance one will be
granted.
We
currently estimate that we will incur material commitments for capital
expenditures equal to $1.0 million for systems upgrades which shall be made
in the third and fourth quarters of 2006.
We
believe that current working capital, together with cash flows from operations,
current cash and proceeds received from the private offerings and borrowings
available under the new credit agreement will be adequate to support our
current
operating plans for at least the next 12 months. We anticipate increasing
our investment in inventory, which we expect to fund our direct sales
growth.
Contractual
Obligations
The
following table sets forth our future contractual obligations and other
commercial commitments as of December 31, 2005 (in thousands):
|
|
Payments
Due By Period
|
|||||||||||||||
|
Total
|
Less
than
1
Year
|
1-3
Years
|
3-5
Years
|
After
5
Years
|
||||||||||||
|
Microsoft
Agreement
|
$
|
410
|
$
|
410
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Operating
Leases
|
502
|
458
|
44
|
—
|
—
|
|||||||||||
|
Totals
|
$
|
912
|
$
|
868
|
$
|
44
|
$
|
—
|
$
|
—
|
||||||
Amounts
shown under “operating leases” in the above table consist of base rent under our
current leases for both our corporate office and call center. Under both leases
we also pay additional rent for our proportionate share of common area
maintenance, real estate taxes and other operating expenses.
Off-Balance
Sheet Arrangements
For
the
years ended December 31, 2004 and 2005, we have no off-balance sheet
arrangements as defined in Item 303(a)(4) of Regulation S-K, promulgated by
the
SEC.
Inflation
Inflation
has not had a material impact upon operating results, and we do not expect
it to
have such an impact in the near future. There can be no assurances, however,
that our business will not be adversely affected by inflation.
New
Accounting Pronouncements
In
November 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 151, “Inventory Costs - an
amendment of Accounting Research Bulletins (“ARB”) No. 43 Chapter 4.” This
statement amends the guidance in ARB No. 43, Chapter 4 to clarify the accounting
for abnormal amounts of idle facility expense, freight, handling costs and
wasted material. This statement requires that these items be recognized as
current period costs and also requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the
production facilities. This statement is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. uBid will apply the guidance
prospectively. We are in the process of determining what impact, if any, the
application of this guidance will have on our financial position, results of
operations or cash flows.
In
December 2004, the FASB issued FASB Statement No. 153, “Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions” (“FAS 153”). FAS 153 requires that exchanges of nonmonetary assets
be measured based on the fair value of the assets exchanged. Further, it expands
the exception for nonmonetary exchanges of similar productive assets to
nonmonetary assets that do not have commercial substance. The provisions of
this
Statement are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The adoption of the provisions of FAS
153
did not have a material impact on our financial position or results of
operations.
In
December 2004, the FASB issued SFAS No. 123R, “Share Based Payment (Revised
2004).” (SFAS 123 R) This statement addresses the accounting for share-based
payment transactions in which a company receives employee services in exchange
for the company’s equity instruments or liabilities that are based on the fair
value of the company’s equity securities or that may be settled by the issuance
of these securities. SFAS No. 123R eliminates the ability to account for
share-based compensation using the intrinsic value method and generally requires
that such transactions be accounted for using a fair value method. The
provisions of this statement for public entities are effective as of the
beginning of the first interim or annual reporting period that begins after
December 15, 2005. Effective
January 1, 2006, we adopted the fair value recognition provision of SFAS
123R,
using the modified prospective transition method and therefore have not restated
results for prior periods. Under this transition method, stock-based
compensation expense for the first quarter of 2006 includes compensation
expense
for all stock-based compensation awards granted prior to, but not yet vested
as
of December 31, 2005, based on the grant date fair value estimated in
accordance with the original provision of SFAS No. 123, “Accounting for
Stock-Based Compensation” (“SFAS 123”). Stock-based compensation expense for all
stock-based compensation awards granted after December 31, 2005 is based
on the
grant-date fair value estimated in accordance with the provisions of SFAS
123R. We recognize these compensation costs on a straight-line basis over
the requisite service period of the award which is generally the option vesting
term of four years. The
total
compensation expense related to the stock option plan for the three months
ended
March 31, 2006 was approximately $230,000.
Quantitative
and Qualitative Disclosures About Market Risk
We
currently have no exposure to risks of fluctuating interest rates or fluctuating
currency exchange rates. It is our policy not to enter into derivative financial
instruments. Accordingly, we do not believe that changes in interest or currency
rates will have a material effect on our liquidity, financial condition or
results of operations.
Overview
of Business
uBid
commenced operations in 1997 primarily selling computer and consumer electronics
on our online auction style marketplace as a wholly-owned subsidiary of PC
Mall.
In December 1998, uBid completed an initial public offering.
In
April
2000, CMGI acquired ownership of uBid in a stock-for-stock merger transaction
valued at approximately $407 million. Upon closing, uBid became a wholly-owned
subsidiary of CMGI.
On
April
2, 2003, CMGI sold substantially all of the assets and non-related party
liabilities of uBid to Takumi Interactive, Inc., an investment vehicle of
Petters Group, which changed its name to uBid, Inc. immediately after the
acquisition. As a result of the transaction, uBid became a separate stand-alone
business owned substantially by the Petters Group. In consideration of the
asset
sale, Takumi paid CMGI (1) $1,612,500 in cash at closing, (2) a promissory
note in the aggregate principal amount of $2,000,000, bearing interest at the
prime rate plus 1.5%, payable in two equal installments on the first and second
anniversaries of the closing, and (3) a warrant to purchase non-voting common
stock of uBid constituting 5% of the outstanding common stock of uBid on the
consummation of the business sale.
On
December 29, 2005 (the “Closing Date”), uBid entered into a Merger Agreement and
Plan of Reorganization with Cape Coastal Trading Corporation (the previous
public reporting entity), and uBid Acquisition Co., Inc. Under the Merger
Agreement, uBid Acquisition Co. merged with and into uBid, with uBid remaining
as the surviving corporation and our wholly-owned subsidiary. On the Closing
Date, the holders of uBid’s issued and outstanding capital stock before the
merger surrendered their shares of uBid’s capital stock and received 8,800,000
shares of our common stock, with up to 444,444 of such shares of common stock
subject to redemption. The holders of Cape Coastal’s issued and outstanding
common stock before the merger retained 599,331 shares of common stock. Before
the merger, Cape Coastal Trading Corporation was a shell company. Our business
operations following the merger are those of our wholly-owned subsidiary,
uBid.
Also
on
December 29, 2005, we completed the first part of a private offering to
accredited investors. We sold 10,000,003 shares of our common stock and warrants
to purchase 2,500,003 shares of our common stock, for aggregate consideration
of
$45 million. The warrants issued to the investors are exercisable for five
years
at an exercise price of $5.85. Some of the investors participating in the
first
part of the private offering held notes that were issued by uBid before the
merger, including $10.5 million of debt held by the Petters Group and $5.0
million of debt held by the bridge loan holders. Rather than accepting cash
consideration for the Units acquired by these investors, we agreed to issue
Units at a rate of one Unit for each $4.50 of debt for consideration of the
note
holders’ cancellation of the existing notes. Of the 3,444,444 Units issued in
exchange for debt, 2,222,224 Units were issued to Petters Group with common
shares that were subject to redemption at a redemption price of $4.50. For
debt
exchanged with Units that did not have redeemable common shares, the value
of
the securities issued in exchange for the debt equaled the face value of
the
debt exchanged, and accordingly, we did not recognize or record a gain or
loss. Due to the higher value of the redeemable common shares issued to Petters
Group, we realized a loss of approximately $1.2 million upon the exchange
of
debt for Units with those redeemable common shares. However, as the Petters
Group is considered a significant related party to us, the exchange was treated
for accounting purposes as a capital transaction and the resulting loss was
reflected as a dividend to shareholders rather than as a direct reduction
of net
earnings. Therefore, the consideration we received on the Closing Date consisted
of approximately $29.5 million in cash and $15.5 million in cancelled debt.
In
addition, on the Closing Date, we issued warrants to purchase 333,333 shares
of
our common stock to the bridge note holders as a financing fee, which warrants
are exercisable for three years at an exercise price of $4.50 and the value
of
which, $600,000, was recorded as interest expense. We also issued warrants
to
purchase 230,000 shares of our common stock to our placement agents in the
offering, which warrants are exercisable for five years at an exercise price
of
$4.50 and the value of which, $522,000, was recorded as a cost of the equity
issuance.
On
February 3, 2006, we completed the second part of our private offering to
accredited investors. In this offering, we sold 3,000,000 shares of our common
stock and warrants to purchase 750,002 shares of our common stock. On
February 6, 2006, we redeemed the 2,666,668 shares of our common stock
issued subject to redemption to former uBid stockholders and certain
participants in the first part of the offering, at a redemption price of $4.50
per share. We also issued 600,667 shares of common stock to our financial
advisor, Calico Capital Group. Finally, we issued additional warrants to
purchase 90,000 shares of our common stock to our placement agents, which
warrants are exercisable for five years at an exercise price of $4.50 and the
value of which, $162,000, was recorded as additional costs at the equity
issuance.
Our
History
Over
the
past eight years, our business strategy has evolved significantly. We began
operations as an e-tailer directly procuring merchandise consisting primarily
of
refurbished and overstock computer and consumer electronics inventory for sale
in our auction style format online marketplace. Initially, we operated as the
sole seller in the marketplace and were solely responsible for all warehousing
and order processing and, therefore, incurred all costs and risks associated
with product procurement.
Today,
our business model includes our direct product procurement business channel,
uBid Direct, and our more recently implemented business channel, the uBid
Certified Merchant, which provides merchants the ability to sell merchandise
in
the uBid online marketplace.
On
February 10, 2006, we amended our certificate of incorporation to change our
name from Cape Coastal Trading Corporation to “uBid.com Holdings, Inc.” to
reflect that since the merger with uBid, Inc. our business operations are those
of uBid.
Industry
Overview
Growth
of the Internet and E-Commerce
According
to Forrester Research, in 2005, United States e-commerce sales will total
approximately $175.3 billion and are expected to grow to approximately $271
billion by 2008, representing a compound annual growth rate of approximately
23%. In addition, according to the U.S. Census Bureau, over the last five years,
United States e-commerce sales have tripled as a percentage of total retail
sales, growing from 0.8% of total retail sales in the first quarter of 2000
to
2.3% in the first quarter of 2005.
Although
just 10% of U.S. households shopped online in 1998, Forrester Research predicts
that 40% will do so by 2009. Between 2007 and 2009, an average of two million
new households will shop online for the first time each year, bringing
significant new potential spending power online.
Several
factors have and will continue to contribute to this growth
including:
|
§
|
increases
in broadband penetration and Internet
usage;
|
|
§
|
increases
in consumer trust in online
shopping;
|
|
§
|
growth
in awareness of the convenience of online
shopping;
|
|
§
|
increases
in the selection of products available online to consumers;
and
|
|
§
|
improvements
in online payment technology.
|
The
Online Auction Market Opportunity
Forrester
Research predicts online auction sales will grow from approximately $13 billion
in 2002 to approximately $54 billion in 2007, a 33% compound annual growth
rate.
Three primary factors are expected to drive this growth:
|
§
|
Acceptance
by mainstream shoppers making purchases online.
It
is expected that mainstream consumers will drive the majority of
future
growth in the segment, as the increased use of simpler formats, such
as
fixed price format sales, will encourage mainstream shoppers to purchase
new and used goods from smaller sellers through auction formats.
|
|
§
|
Growth
in new categories.
To
date, consumer electronics, books and CDs have comprised the majority
of
online sales. However, several new categories including footwear,
designer
apparel and accessories and collectors’ items have begun to demonstrate
strong growth.
|
|
§
|
Growth
in retailer participation.
Retailers have begun considering moving marketing dollars and merchandise
offerings to performance-based marketplaces.
|
Growth Opportunity in the Surplus Inventory Business
The
online consumer surplus sector has remained significantly under-penetrated
to
date, accounting for aggregate sales of less than $2 billion, or 3%, of the
$60
billion U.S. excess consumer goods market1.
Historically, manufacturers and merchants have sold excess goods through various
traditional liquidation channels such as factory outlets, catalogs, resellers
and mass merchants. Traditional liquidation channels are inefficient for various
reasons including the following:
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traditional
liquidation channels are fragmented and multi-layered greatly increasing
distribution and logistics costs;
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lack
of a reliable, interactive mechanism for setting
prices;
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high
costs of developing and maintaining a physical
infrastructure;
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inability
to cost effectively reach a broad consumer audience;
and
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limited
selection for buyers.
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Online
auction marketplaces address these inefficiencies by leveraging the connectivity
of the Internet to enable manufacturers and merchants to offer an unlimited
amount of merchandise to a unified global buyer base, while significantly
reducing the costs associated with distribution, logistics and data collection.
In
addition, by offering a separate distribution channel for excess merchandise
sales, manufacturers and merchants are able to sell excess inventory
independently of their full priced products, thereby avoiding customer confusion
and the loss of sales on full priced products. As a result, merchants and
manufacturers can maximize revenue and profit.
Growth
in Technology / Consumer Electronics
Technology
and consumer electronics products have typically represented a significant
portion of online sales due to the homogeneity between specific product models
and the ability to easily describe product specifications and features in
writing. The market for technology and consumer electronics goods is expanding
rapidly due to product and technology innovations as well as the growth of
multimedia content including music, photos, movies and home video, in digital
formats. Consumers are increasing their purchase volume of a variety of digital
consumer electronics products, including portable digital music players, digital
still cameras and digital video camcorders. Consumers are also increasingly
focused on sharing multimedia content between devices, resulting in increases
in
purchase volume of products such as PCs with media functionality, notebook
computers, digital televisions, personal video recorders and home networking
devices. The Consumer Electronics Association forecasts that consumer
electronics sales will reach approximately $135 billion in 2006.
Growth
in Under-Penetrated and Unique Product Categories
To
date,
consumers and businesses have primarily used the Internet to exchange products
and services that can be easily described with graphics and text such as
computers, consumer electronics, books, CDs and airline tickets.
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AMR
Research
|
While
sales of auction mainstays like computers and collectibles still account for
about half of auction sales, some unlikely products have taken off with auction
shoppers. Forrester Research estimates that online footwear sales will grow
from
just over $1 billion to more than $3 billion in 2006 and also anticipates
significant growth in linens and home décor items.
Forrester
Research estimates that as new and existing consumers increase the amount of
money they spend online, most merchandise categories are expected to grow
between a 10% and 20% compound annual growth rate over the next six years.
However, certain under-penetrated categories, whose primary consumers have
just
started becoming comfortable purchasing online, will experience notably higher
growth. These lines of merchandise include tools and hardware, which is
predicted to grow at a 37% compound annual growth rate over the same six year
period, garden supplies, which is predicted to grow at a 24% compound annual
growth rate, and flowers, which is predicted to grow at a 26% compound annual
growth rate.
Challenges
Faced by Online Retailers
Although
the online retail channel provides significant benefits over traditional retail
channels, online retailers also face a number of challenges, including:
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Establishing
Brand Recognition, Attracting New Customers and Building Customer
Loyalty.
It
is important for Internet retailers to establish a recognized and
trusted
brand-name online because consumers are generally wary of purchasing
products from unfamiliar retailers. Generating positive brand recognition
is critical to acquiring new customers. Online retailers may also
experience difficulty retaining their customers because of the relative
ease of switching to different websites and purchasing products from
other
online retailers.
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Providing
a Broad and Available Product Selection.
In
order to appeal to consumers, online retailers must provide a large
selection of products readily available for delivery. However, it
is
difficult to keep such a broad selection of products ready for delivery
without incurring considerable inventory and warehouse costs.
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Competing
with Low Prices.
Significant price competition exists between online retailers because
consumers are able to quickly compare prices on the Internet. Online
retailers must be able to provide a high value proposition in order
to
attract and retain customers.
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Achieving
Sufficient Scale.
Online retailers must achieve sufficient scale to compete successfully
with other major online and offline retailers. Significant investments
are
required to build the infrastructure and implement the marketing
and sales
campaigns necessary to drive consumer website traffic and convert
website
visitors into customers. Therefore, online retailers must have access
to
adequate capital and generate sufficient revenues to achieve the
necessary
scale required to reach profitability.
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Developing
Technology Infrastructure.
Online retailers must develop and implement flexible and scalable
technology systems to appropriately accommodate large product catalogs
with significant data storage needs, high volume transaction processing,
order fulfillment workflow and high quality customer support and
management.
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The uBid Solution
Our
online marketplace provides merchants with an efficient and economical sales
channel for maximizing revenue on their excess merchandise, while providing
consumers with a convenient method for obtaining these products at substantial
savings. Our online marketplace offers:
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Extensive
Security and Fraud Protection.
uBid’s online marketplace provides a trustworthy and secure buying
environment in which we minimize fraudulent activity and questionable
product quality frequently associated with purchase transactions
from
unestablished businesses, individual consumers and other non-commercial
parties. All merchants offering goods in our online marketplace are
required to successfully complete our merchant certification process,
which includes verification of the merchant’s trade and bank references
and other information which establishes that the merchant is in good
business standing. As a result of this certification, fraudulent
transactions in our marketplace are minimized. In addition, we require
all
buyers to provide a valid credit card before placing their initial
bid,
resulting in reductions to the occurrence of fraudulent
bidding.
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Strong
Brand and Loyal Customer Base.
We
have strengthened our “trust” positioning over the past year through
advertising, marketing and promotional campaigns and consistent delivery
of quality products at low prices. We have amassed five million member
registrations since our inception in
1997.
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Broad
and Deep Product Selection.
We
offer over 200,000 high quality, brand-name new, close-out, overstock
and
refurbished merchandise in over 200 categories including computer
products, consumer electronics, apparel, housewares, watches, jewelry,
travel, sporting goods, home improvement products and collectible
products
each day.
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Compelling
Value to Consumers and Merchants.
We
attract new consumers and retain existing consumers by offering low
prices
on high quality, brand-name products in a marketplace supported by
both
auction style and fixed price formats. We provide additional value
to our
consumers by providing timely and accurate order processing, direct
fulfillment where applicable and in-house customer support. Sellers
are
attracted to uBid because of the large and growing number of potential
buyers. The frequency of product offerings and the ability to continuously
add new items allow merchants to liquidate inventory quickly to minimize
the risk of price erosion. In addition, our auction style and fixed
price
formats allow suppliers and sellers the opportunity to optimize sales
value while simultaneously liquidating excess merchandise directly
to a
nationwide audience, without conflicting with their primary distribution
channels.
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Business
Channels
We
currently provide suppliers and merchants the opportunity to offer and sell
their products in the marketplace through two distinct business
channels:
uBid
Direct:
The
uBid
Direct business channel provides us with management control over all aspects
of
product acquisition, sale and distribution process. Through uBid Direct, we
directly source, purchase, warehouse and market surplus inventory from suppliers
and merchants in our established network of approximately 3,700 companies.
uBid
Direct allows suppliers and merchants to achieve immediate cost recovery on
their excess, overstock and close-out merchandise. We direct the offer and
sale
of uBid Direct inventory on our online marketplace through our auction style
or
fixed price formats. Finally, we manage all order processing, order fulfillment
and customer support needs related to uBid Direct inventory. uBid typically
earns the margin difference between our purchase and selling price on the
auction style and fixed price completed transactions. uBid Direct net sales
for
the nine month period ended December 31, 2003 and years ended December 31,
2004
and 2005 were $64.9 million, $85.2 million and $72.3 million. uBid
Direct represented 98.8%, 97.9% and 85.5% of net sales for the nine months
ended
December 31, 2003 and years ended December 31, 2004 and 2005.
uBid
Direct net sales for the three month period ended
March 31, 2005 and 2006 were $26.2 million and $19.1 million. uBid Direct
represented 97.7% and 95.0% of net sales for the three months ended March
31,
2005 and 2006.
uBid
Certified Merchant Program:
The
uBid
Certified Merchant Program (“UCM Program”) provides merchants with greater
management control over certain aspects of the sale process related to their
products, while maintaining the opportunity to sell their products to our
consumers on our online marketplace through our auction style or fixed price
formats. Merchants participating in the UCM Program manage all warehousing
of
and order fulfillment for their UCM Program inventory. However, uBid manages
all
order processing and first response customer service needs related to UCM
Program transactions. In furtherance of our commitment to minimize fraudulent
activity and to provide a trustworthy and credible online marketplace, we
require all merchants, before participating in the UCM Program, to
satisfactorily complete our merchant certification process which verifies each
participating merchant’s business status and trade references. uBid charges the
merchants a commission fee for all completed auction style and fixed price
format transactions.
This
business channel, launched in July 2003, enables certified merchants to sell
their products, while maintaining control over warehousing and fulfillment.
It
also provides uBid with the ability to reduce costs and risk associated with
product procurement while increasing supply and maintaining our trust
positioning. UCM net sales for the nine months ended December 31, 2003 were
$0.8
million and net sales for the years ended December 31, 2004 and 2005 were $1.8
million and $3.4 million. We earn a commission on all items sold and this
channel generated approximately 1.3%, 2.1% and 4.0% of net revenue (representing
only our earned commissions) in 2003, 2004 and 2005.
UCM
net sales for the three month period ended March 31,
2005 and 2006 were $0.6 million and $1.0 million. We earn a commission on
all
items sold and this channel generated approximately 2.2% and 4.9% of net
revenues (representing only our commissions) for the three month period ended
March 31, 2005 and 2006 respectively.
Primary
Growth Strategy Objectives
Our
objective is to achieve accelerated growth and expansion. To realize this
objective we have designed the following growth strategy initiatives:
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Increased
Consumer and Merchant Base.
We
intend to continue expanding our consumer user base through focused
online
marketing tactics. These efforts include paid search listings, comparison
shopping, directory listings, affiliate banner ad programs and e-mail
marketing. We continue to further optimize our website to increase
our
free listings within popular search engines (e.g., Google and Yahoo).
In
addition, we have begun identifying key opportunity segments of our
database for targeted activation programs. These efforts have resulted
in
an increase in traffic to our website, which reached 2.8 million
unique
visitors in December 2005, an increase of 70% as compared to January
2005.
We have implemented a significant ongoing charity program, “uBid/uGive,”
which is expected to create positive market and branding exposure
for uBid
with minimal expenditures.
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Product
Category Expansion.
We plan to continue to add product categories to offer consumers
a more
comprehensive collection of merchandise. We have been successful
in
increasing product categories including collectibles and antiques,
music,
movies, games and apparel while expanding the depth of merchandise
offered
in all categories, particularly jewelry and gifts, home and garden,
sports
and hobbies.
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uBid
Certified Merchant Program Expansion.
We
believe this program will significantly drive future growth. We anticipate
capturing a large number of additional merchants by identifying and
targeting the growing population of competitors’ disenfranchised
merchants. We believe the UCM Program provides an attractive alternative
by offering a simpler merchant fee structure, volume discounts and
enhanced merchant services (such as dispute and collection assistance
and
relevant consumer statistics).
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Acquisitions.
We
are actively reviewing synergistic acquisition opportunities which
are
expected to provide inorganic expansion into additional channels.
We are
also pursuing acquisitions of complementary technology and auction
services platforms.
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The
uBid Online Marketplace
We
have
designed an easy-to-use online marketplace (www.ubid.com)
to
provide a friendly and positive shopping experience through interactive auction
style and fixed price formats. Consumers may enter the marketplace directly
by
typing www.ubid.com
or
through a link from various online marketing promotions to the uBid home page,
a
product category page, sub-category page or individual product listing. From
the
home page, an individual may choose a specific item from one showcased that
day,
proceed to a specific category (such as computers or electronics) or respond
to
a specific promotion.
Each
item
offered in the marketplace has a unique product page that includes a concise
product description, full-color image and detailed technical specifications.
In
addition, each product page provides a table indicating the quantity available,
bid range, minimum incremental bid, current winning bidders, winning bid amounts
and the remaining time left to bid. Sample product pages are provided
below:
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Before
bidding on any product offered in the marketplace, each consumer is required
to
register by completing a simple online registration form and providing a valid
credit card number. uBid verifies all information included on the registration
form and verifies the consumer’s credit card. Pre-registration of all consumers
reduces the number of “non-payment” bidders and contributes to our ability to
minimize fraud in the marketplace. After the consumer successfully completes
pre-screening, the consumer creates a unique login name and password after
which
the pre-screened consumer is allowed to bid on products in the marketplace.
Pre-screened
consumers participate in the marketplace by reviewing products and setting
bid
prices. After setting a bid price on an item, the consumer’s login name and bid
price are placed on the bidder list provided on that item’s product page.
Bidding continues until expiration of the pre-established open bid time for
that
item. During the open bidding period, consumers may elect to be notified by
e-mail when they are outbid or may use the “Bid Butler” to automatically
increase their bid up to a predetermined maximum dollar amount.
Sample
Registration Page
On
the
day that the open bidding period ends, winning bidders are determined and
notified by e-mail. The highest bidders of an item become the
“winners.” Winning
bidders may pay different prices, however, in the event of equal winning bid
prices, bids on larger quantities and earlier bid times prevail. The winning
customer’s credit card is then screened for fraud and credit availability, the
purchase is processed, shipped and the customer’s credit card is
charged.
Products
and Merchandising
For
the
year ended December 31, 2005, our product mix based on units sold consisted
of approximately 60% new merchandise and 40% refurbished products. This mix
fluctuates from quarter to quarter depending on the type of products posted
in
our marketplace.
Most
merchandise sold is covered by manufacturer, distributor or refurbisher
warranties. Additionally, in most cases, in those states where third party
warranties are permitted by law, extended warranties on merchandise are
available for purchase. Merchandise from the following categories is offered
in
our marketplace:
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Computer
Products:
Including items such as desktops, portable computers, computer
accessories, disk drives, modems, monitors/video equipment, components,
printers, scanners, digital cameras, software and home office
products.
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Consumer
Electronics:
Including items such as home theater equipment, home audio equipment,
speakers, televisions, camcorders, VCRs, DVD players, portable audio
players and automobile audio
equipment.
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Apparel
and Accessories:
Including items such as men’s, women’s and children’s casual, fitness, and
dress clothing, shoes and
accessories.
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Jewelry
and Gifts:
Including items such as rings, earrings, watches, bracelets and loose
stones.
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Home:
Including items such as appliances, vacuum cleaners, furniture, tools,
luggage, appliances, furnishings, art and lawn and
garden.
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Sporting
Goods and Memorabilia:
Including items such as sports memorabilia and equipment for golf,
tennis,
health and fitness, outdoor sports, bicycles, water sports and team
sports.
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Books,
Music and Videos:
Including items such as books, movies, video games, DVDs and
CDs.
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Collectibles:
Including items such as dolls, stamps, coins, pottery, glass and
figurines.
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Fulfillment
and Logistics
We
use a
third party logistics warehouse and distribution system. This flexible system
enables us to control warehouse costs and more closely manage the distribution
of our directly procured merchandise because we only pay for the warehousing
used on a per transaction basis. Direct product fulfillment and its related
costs shrink or expand to fit the needs of the business. As a result, we do
not
incur significant overhead costs of owning and operating a
warehouse.
Sales
and Marketing
Our
marketing strategy is aligned with our overall business goals to drive revenue
and margin growth by increasing our consumer and merchant bases.
Our
marketing strategy is focused primarily on four areas: (1) increasing consumer
awareness of uBid as The
marketplace you can trust™;
(2)
expanding and optimizing customer acquisition efforts; (3) implementing a
scalable, cost-effective customer retention program; and (4) increasing the
availability of qualified merchant leads for the UCM Program.
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Increasing
consumer awareness of uBid’s “trust” position.
uBid has created a unique position in the marketplace focused on
earning
consumer trust. This position of “trust” is supported by our focus on
business-to-consumer selling (versus consumer-to-consumer selling),
our
efforts to minimize fraudulent sellers by requiring all merchants
participating in the UCM Program to complete a merchant certification
process, significant investments in our customer support services,
internal product warehousing and payment transaction processing and
endorsements from various recognized third party security and privacy
programs. We believe this “trust” positioning will continue to set us
apart from our competitors and provide a meaningful difference in
attracting and maintaining
customers.
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Expanding
and optimizing customer acquisition efforts.
Our marketing expenditures are primarily spent on attracting traffic
to
our website. Potential new customers are sourced through a range
of online
efforts including affiliate programs, paid search listings, shopping
comparison programs, online partnerships and e-mail marketing. In
addition, we are also evaluating new marketing channels such as offline
direct response television and radio, in-store media, event marketing
and
single partnerships with key online media companies to broaden our
customer demographics and drive larger incremental gains in customer
acquisition.
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Implementing
a scalable, cost-effective customer retention program.
It
is critical to have a program that effectively manages new customer
relationships from acquisition to activation (1st
time bidding/buying) to repeat purchase. We have recently begun investing
in the implementation of our customer retention management. Our efforts
to
date have been focused on developing programs aimed at improving
bidding/buying behavior among key customer segments: 1) recent bidders,
2)
lapsed and long lapsed bidders, 3) inactive members (i.e., never
bid), 4)
registered members without a credit card on file, and 5) members
without
an opt-in e-mail address. In addition, we are working on a long term
customer retention management strategy, which is expected to include
development of a marketing data
warehouse.
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Increasing
the availability of qualified merchants for the UCM
Program.
The recruiting of merchants to the UCM Program has become a primary
growth
focus. We are marketing to prospective merchants principally through
online media, including e-mail marketing and online trade media (e.g.,
auction industry newsletters), as well as offline through public
relations
and trade show events. We are also building our own merchant prospect
list
from several sources for use in direct solicitations via e-mail and
direct
mail. These efforts have resulted in a significant increase in the
volume
of qualified prospect applications for
processing.
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Customer
Support and Service
Our
ability to establish and maintain long term relationships with our customers
and
encourage repeat visits and purchases is dependent, in part, on the strength
of
our customer support and service operations. We have established multiple
channels for communicating with our customers before and after the sale,
including phone, e-mail and online support.
Customer
Care Center
We
currently employ a staff of in-house customer support personnel responsible
for
handling customer inquiries, tracking shipments, investigating and resolving
problems with merchandise. Our Customer Care Center has a 165 seat capacity
and
is located in Danville, Illinois. Currently, we utilize less than 20% of the
center’s capacity. Customer Care representatives are available for support from
8 a.m. - 6 p.m. CST Monday through Friday. In addition, our customer
service representatives are trained to cross-sell complementary and ancillary
products and services including extended product warranties and accessories.
Most
products are covered by manufacturers’ warranties or third party warranties
which customers can purchase through uBid. We will, in specific instances,
accept merchandise returns if a product is defective or does not conform to
the
specifications of the item sold at auction, and we work with our customers
to
resolve complaints about merchandise.
In
addition, we have automated some of our customer service functions including
providing online access to product shipping status.
Certified
Central
Certified
Central is our secure web-based platform that allows our certified merchants
to
build a database of products, create auctions, download orders, and communicate
with our Customer Care Team and Merchandising Department quickly and
easily. We provide many different services through Certified Central at no
additional charge to our merchants. These services, which include the ability
to
upload multiple images and view top selling product reports, are designed to
enhance the merchant’s selling experience and satisfaction with
uBid.
Whether
a
merchant is expanding its marketplace options or entering the online auction
channel for the first time, Certified Central is designed around a simple and
easy-to-use interface. Certified Central is also backed by a live account
management team to assist with planning, problems or inquiries.
uBid
Technology
Our
technology is based on a highly scalable, resilient architecture designed to
maintain increased website
availability and improved network performance.
Sample
Auction Page
Our
technology strategy focuses on: scalability to grow the business, increased
availability, flexibility and security.
Scalability
uBid’s
growth strategy focuses on building our buyer and seller bases which will
require our technology to fundamentally support large capacity levels and
provide scalability. Our technology is built on a “distributed architecture
model” which enables our software applications to run parallel on multiple
servers. This technique allows our system to load balance the increased traffic
and workload among a group of servers.
The
website supports several activities such as browsing/searching for items,
registration of customers, auction management tasks (e.g., opening and closing
of auctions or bidding for items in a variety of formats), order processing,
credit card and fraud management.
At
our
peak volume levels, the platform was able to process over $430 million net
revenues per year and 192,000 auctions a day.
In
June
2004, to address aging concerns of our server farms and infrastructure, we
upgraded our new data center and all of our hardware to further enhance the
capacity and reliability of our technology platform. Hewlett Packard’s new
generation type two servers provide optimal power and capacity to drive our
web
applications and database servers. All these servers are clustered into
individual server farms that are critical to achieving the scale to carry the
business moving forward. Additionally, we invested in a storage area network.
A
storage area network is very critical to providing scale and high levels of
availability to our database servers.
Availability
Our
business model dictates that our online marketplace be available 24 hours a
day,
7 days a week. Our newly engineered data center has a robust, responsive,
resilient platform to support our growing customer base. Our technology platform
is able to achieve high availability by maintaining redundant components
critical to the effective functioning of the platform. We have built a redundant
and cost-efficient network that is resilient even if a few elements in the
network fail. This has been achieved by designing a fully meshed network with
dual network interfaces, switches, routers and load balancers. Every key data
circuit that is critical to the availability of the platform has an alternate
path to ensure that the website is reachable. Our website is connected to the
Internet through redundant DS-3 circuits using AT&T as the back
bone.
Flexibility
The
underlying framework that is the core of the website can be reused to build
out
new software applications that are needed to support the new functionality
of
the website. This feature allows us to be flexible in creating new applications
in direct response to the changing needs of merchandising and marketing. Our
UCM
Program merchants rely heavily on Certified Central, a web based system that
enables them to manage their business on our website. This system has a powerful
dashboard that gives visibility into critical data including auctions success,
hot auctions, questions from prospective buyers, etc. We periodically upgrade
this system to offer enhanced real time services which includes an Application
Programming Interface feature using XML (Extensible Markup Language) that is
used by merchants to bulk upload data into our platform. For our UCM Program
merchants, this Application Programming Interface will significantly reduce
the
time to market their inventory.
Security
uBid
operates a “trusted” online marketplace utilizing best-in-class auction
technology. We have implemented measures to minimize buyer and seller fraud
including pre-screening of all new bidders using leading anti-fraud detection
tools. Our anti-fraud programs are continually updated to stay current with
the
latest evolution of online fraud tools. Additionally, all consumer sensitive
data such as credit card numbers and passwords are encrypted and stored behind
our secure network. We use Secure Sockets Layer and enhanced encryption
algorithms to protect consumer sensitive data. The network is also protected
with Intrusion Detection Systems and firewalls that allow restricted ports
from
the outside network.
Seasonality
Our
results of operations historically have been seasonal because the majority
of
our suppliers build their inventories for the holiday season leading to
post-holiday overstock, which provides us with purchasing opportunities in
the
first quarter. In addition, many of our customers reduce their Internet usage
with the onset of good weather during the summer months, and on and around
national holidays. We have historically experienced our strongest quarter of
online sequential growth in our first and fourth fiscal quarters due to the
holiday season.
Competition
The
online auction services market is new, rapidly evolving, intensely competitive
and has relatively low barriers to entry, as new competitors can launch new
Websites at a relatively low cost. We believe that competition in the online
auction market is based predominantly on:
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price;
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product
quality and selection;
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shopping
convenience;
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order
processing and fulfillment;
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customer
service; and
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brand
recognition.
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Our
auction services compete with other online retailers and traditional liquidation
“brokers,” some of whom may specifically adopt our methods and target our
customers. We currently or potentially compete with a variety of companies
that
can be divided into two broad categories:
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liquidation
e-tailers such as SmartBargains;
and
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online
retailers such as Amazon.com auctions, eBay, Inc. and Buy.com,
Inc.
|
As
the
market for online auction grows, we believe that companies involved in online
retail, as well as traditional retailers and liquidation brokers, will increase
their efforts to develop services that compete with our online services. We
also
face potential competition from Internet companies not yet focused on the
auction market. We are unable to anticipate which other companies are likely
to
offer services in the future that will compete with the services and products
we
provide.
In
addition, many of our current and potential competitors have greater brand
recognition, longer operating histories, larger customer bases and significantly
greater financial, marketing and other resources than we do, and may enter
into
strategic or commercial relationships with larger, more established and
well-financed companies. Some of our competitors could enter into exclusive
distribution arrangements with our vendors and deny us access to their products,
devote greater resources to marketing and promotional campaigns and devote
substantially more resources to their website and systems development than
we
do. New technologies and the continued enhancement of existing technologies
also
may increase competitive pressures on us. We cannot assure you that we will
be
able to compete successfully against current and future competitors or address
increased competitive pressures. See “Risk Factors,” starting on
page 5
of this
prospectus.
Intellectual
Property and Other Proprietary Rights
We
regard
our domain names and similar intellectual property as critical to our success.
We rely on a combination of laws and contractual restrictions with our
employees, customers, suppliers, affiliates and others to establish and protect
our proprietary rights. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our intellectual property
without authorization. In addition, we cannot assure you that others will not
independently develop similar intellectual property. Although we are pursuing
the registration of our key trademarks in the United States, some of our trade
names are not eligible to receive trademark protection. In addition, effective
trademark protection may not be available or may not be sought by us in every
country in which our products and services are made available online, including
the United States.
The
uBid(SM) service mark is registered in the United States. Our proprietary
software is protected by copyright laws. The source code for our proprietary
software also is protected under applicable trade secret laws. We own the
copyright and other proprietary rights for our auction processing and auction
management applications. We own the patent license for fixed price consignment
that will allow our vendors and our merchants to create auctions with fixed
pricing. We also own the patent license for search agents that will allow us
to
search on inventory of our vendors.
From
time
to time, we may be subject to legal proceedings and claims in the ordinary
course of our business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by
us.
Third
parties may, in the future, recruit our employees who have had access to our
proprietary technologies, processes and operations. These recruiting efforts
expose us to the risk that such employees will misappropriate our intellectual
property.
Litigation
may be necessary in the future to enforce our intellectual property rights,
to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Any litigation, regardless of outcome or merit,
could result in substantial costs and diversion of management and technical
resources, any of which could materially harm our business. See “Risk Factors,”
starting on page 5
of this
prospectus.
Employees
As
of
December 31, 2005, we had 95 full-time employees. None of our employees is
represented by a labor union, and we consider our employee relations to be
good.
We believe that our future success will depend in part on our continued ability
to attract, hire and retain qualified personnel.
Properties
Our
principal administrative, engineering, merchandising and marketing facilities
total approximately 11,000 square feet and are located in Chicago, Illinois.
We
currently lease such facilities for $37,000 per month. The lease expires
in
November 2006. A new lease was signed in April 2006 for a 26,000 square feet
facility in Chicago, Illinois. The new lease expires in May
2010.
Our
in-house call center is located in Danville, Illinois. We currently lease this
facility for $12,500 per month. The lease expires in October 2006.
Legal
Proceedings
From
time
to time we may be named in claims arising in the ordinary course of business.
Currently, no legal proceedings or claims are pending against us or involve
us
that, in the opinion of our management, could reasonably be expected to have
a
material adverse effect on our business or financial condition.
The
following table sets forth our executive officers and directors, their ages
and
position(s):
|
Name
|
Age
|
Position
|
||
|
Robert
H. Tomlinson, Jr.
|
49
|
President
and Chief Executive Officer and Director
|
||
|
Timothy
E. Takesue
|
37
|
Executive
Vice President, Merchandising
|
||
|
Anthony
Priore
|
48
|
Chief
Marketing Officer
|
||
|
Miguel
A. Martinez, Jr.
|
50
|
Vice
President, Finance and Secretary
|
||
|
Manoharan
Sivashanmugam
|
35
|
Vice
President, Technology
|
||
|
Stuart
R. Romenesko
|
42
|
Chairman
of the Board
|
||
Our
directors hold office until the earlier of their death, resignation or removal
or until their successors have been qualified. Because our certificate of
incorporation calls for a staggered board of
directors, Mr. Romenesko’s term will expire at our 2007 annual meeting
and Mr. Tomlinson’s term will expire at our annual meeting in 2008.
Officers serve at the discretion of the board of directors.
Robert
H. Tomlinson, Jr. has
more
than 25 years of finance, direct marketing and e-commerce experience. On
December 29, 2005, Mr. Tomlinson was named President and Chief Executive Officer
of uBid.com Holdings, Inc. Mr. Tomlinson joined uBid, Inc. in May 2002 as the
Chief Financial Officer after having served as chief financial officer at
Forbes.com from April 2000. In April 2003, Mr. Tomlinson became President of
uBid, Inc. and in August 2005, he became the Chief Executive Officer of uBid,
Inc.. Prior to Forbes, Mr. Tomlinson served as chief financial officer for
American List Counsel, Inc, an industry leading database marketing organization,
a position he had held since 1983. Earlier career experience includes finance
and merger & acquisition roles with Young & Rubicam, Inc. and Chase
Manhattan Bank, N.A. Mr. Tomlinson holds an MBA in International Finance from
Fairleigh Dickinson University, a B.S. in Accounting from Seton Hall University
and has a CPA certification in the State of New Jersey. Mr. Tomlinson was
appointed as a director of uBid.com Holdings, Inc. on December 15,
2005.
Timothy
E. Takesue has
over
21 years of merchandising, retail, mail order and e-commerce experience. On
December 29, 2005, Mr. Takesue was named Executive Vice President,
Merchandising of uBid.com Holdings, Inc. In 1997, Mr. Takesue joined uBid,
Inc.
as a member of the original management team of officers. During his tenure
with
uBid, Inc., he has served in various positions including vice president of
merchandising, senior vice president of merchandising and sales, interim CEO
and
acting chief marketing officer. Mr. Takesue became Executive Vice President,
Merchandising of uBid, Inc. in April 2003. Mr. Takesue was an instrumental
part
of the officer team that led uBid, Inc. in the 1998 IPO, 1999 secondary
offering, subsequent sale in 2000 to CMGI and purchase from CMGI in 2003. Mr.
Takesue sits on the advisory board of The Brave Wings Foundation, a Northwestern
Memorial Foundation charity, and attended Wayne State University in Detroit,
Michigan.
Anthony
Priore was
named
Chief Marketing Officer of uBid.com Holdings, Inc. on December 29, 2005. He
has served as the Chief Marketing Officer of uBid, Inc. since April 2005.
Mr. Priore has over 25 years of marketing experience. Prior to uBid, he
served as chief marketing officer for Rewards Network (formerly iDine), a public
loyalty marketing company. In 2003, Mr. Priore was at Experian Marketing
Services, a division of Experian, Inc. as senior vice president of e-Marketing
Services. Before Experian, he held the position of president from January,
2001
through November, 2002 at MarketsOnDemand/JobsOnLine and from March, 1999
through December, 2000, he served as senior vice president of marketing at
Yesmail (formerly a CMGI company and now part of InfoUSA). Mr. Priore’s career
also includes executive marketing positions at Leo Burnett, Peapod, Citicorp
Diners Club and DDB. He is the co-author of the book, Email Marketing: Using
Email to Reach Your Target Audience & Build Customer Relationships published
by John Wiley & Sons, Inc. He has served on the advisory board of The DMA’s
Association of Interactive Media (AIM) and two terms on the board of the Chicago
Association of Direct Marketing (CADM). Mr. Priore holds both his Bachelors
and
Masters degrees from Northwestern University in Evanston, Illinois.
Miguel
A. Martinez, Jr.
was
named Vice President of Finance of uBid.com Holdings, Inc. on December 29,
2005. He has served as Vice President of Finance of uBid, Inc. since February
2005. He was appointed as Secretary of uBid.com Holdings, Inc. in January 2006.
Mr. Martinez brings over 20 years of financial management experience to uBid.
Before joining uBid, from March of 1999 to November 2004, Mr. Martinez was
senior vice president and chief financial officer with Hartford Computer Group,
a leading PC manufacturer, distributor and service company. Mr. Martinez is
a
certified public accountant and received a BBA degree from Loyola University
in
Chicago, Illinois and is actively involved in several professional
organizations.
Manoharan
Sivashanmugam
was
named Vice President of Technology of uBid.com Holdings, Inc. on
December 29, 2005. He served as Vice President of Technology of uBid, Inc.
since April 2003, prior to which he served as uBid’s chief architect beginning
in January 2001 and was instrumental in migrating uBid’s website to an XML based
service-oriented architecture. During 2000, Mr. Sivashanmugam was the co-founder
and director of application development in the B2B division at Fansedge.com,
an
online retail store of team licensed products and sports memorabilia. From
1996
through 2000, Mr. Sivashanmugam was technical manager for Whittman-Hart, Inc.,
a
software consulting company, where he was responsible for several key projects
completed for various Fortune 500 companies including GE Capital Auto Financial
Services and Boise Cascade. Before 1996, he worked with a strategic partner
of
System Software Associates creating value-added products for their ERP suite.
Mr. Sivashanmugam has a M.S. in Computer Science and a B.S. in Physics from
University of Madras, India.
Stuart
R. Romenesko was
appointed as Chairman of the Board of uBid.com Holdings, Inc. on January 30,
2006. He has served as a director of uBid, Inc. since April 2003 and as the
non-executive Chairman of the Board since August 2005. Mr. Romenesko is
currently an executive vice president of Petters Group, a private company
focused on creating, developing and investing in companies that manufacture,
procure and market merchandising solutions for key growth markets. Mr. Romenesko
joined Petters Group in October 2002 as its chief financial officer. Mr.
Romenesko is chairman of the board of directors of WSS Media, Inc., a
privately-owned company specializing in providing goods to consumers as an
at-home shopping network. From January 2000 to October 2002, Mr. Romenesko
was
executive vice president, chief financial officer and co-founder of Magnum
Technologies, Inc., a private software and services company that quantifies
the
impact of information technology performance on a company’s line(s)-of-business.
He currently serves as a member of the board of directors of Magnum
Technologies, Inc. Before joining Magnum Technologies, Inc., Mr. Romenesko
was
senior vice president finance, chief financial officer, treasurer and assistant
secretary for ValueVision International, Inc. (a/k/a ShopNBC), an integrated
electronic and print media direct marketing company, from February 1994 to
June
1999. Before ValueVision, Mr. Romenesko, a certified public accountant, also
served in a variety of capacities at a regional and an international accounting
firm. Mr. Romenesko currently serves on the board of directors of several
Petters Group operating companies. Mr. Romenesko holds a B.S. in Accounting
from
Marquette University.
Our
above-listed officers and directors have neither been convicted in any criminal
proceeding during the past five years nor parties to any judicial or
administrative proceeding during the past five years that resulted in a
judgment, decree or final order enjoining them from future violations of, or
prohibiting activities subject to, federal or state securities laws or a finding
of any violation of federal or state securities law or commodities law.
Similarly, no bankruptcy petitions
have been filed by or against any business or property of any of our directors
or officers, nor has any bankruptcy petition been filed against a partnership
or
business association in which these persons were general partners or executive
officers.
Board
of Directors and Committees of the Board of Directors
We
expect
that our board of directors will ultimately consist of seven members. We are
currently seeking additional qualified members and plan to appoint the remaining
members as soon as reasonably practicable. Mr. Tomlinson was appointed to
the board of directors in connection with the merger. Mr. Romenesko was
appointed to the board of directors following the merger and the first private
offering. He was appointed by Mr. Tomlinson on January 30, 2006 to fill a
vacancy on the board of directors.
We
plan
to list our common stock on a national securities exchange or on the NASDAQ
National Market as soon as practicable. In anticipation of such listing, we
intend to appoint such persons and form such committees as are required to
meet
the corporate governance requirements imposed by such national securities
exchange. Therefore, we intend that a majority of our directors will be
independent directors and at least one director will qualify as an “audit
committee financial expert.” Additionally, the board of directors is expected to
appoint an audit committee, nominating committee and compensation committee,
and
to adopt charters relative to each such committee. Until further determination
by the board of directors, the full board of directors will undertake the duties
of the audit committee, compensation committee and nominating committee of
the
board of directors. We do not currently have an “audit committee financial
expert” since we currently do not have an audit committee in place.
Code
of Ethics
We
had
previously adopted a code of ethics that applied to our directors and officers
(including our chief executive officer, chief financial officer, chief
accounting officer, and any person performing similar functions). In connection
with the recent merger, we have adopted a new Code of Ethics and Business
Conduct that now applies to all employees, including our chief executive
officer, chief financial officer, chief accounting officer and any other person
performing that function. A copy of this document is available on our website
at
www.ubid.com, free of charge, under the Investor Relations section. We will
satisfy any applicable SEC disclosure requirements regarding an amendment to,
or
waiver from, any provision of the Code with respect to our principal executive
officer, principal financial officer, principal accounting officer and persons
performing similar functions by disclosing the nature of such amendment or
waiver on our website or in a report on Form 8-K.
Executive
Compensation
The
table
below sets forth, for the 2003, 2004 and 2005 calendar years, the compensation
earned by our Chief Executive Officer and the four other most highly compensated
executive officers who received annual compensation in excess of $100,000.
Such
officers are referred to herein as our “Named Executive Officers.”
Summary
Compensation Table
|
Long-Term
Compensation
|
||||||||||||||||||||||
|
Annual
Compensation
|
Awards
|
Payouts
|
||||||||||||||||||||
|
Named
Executive Officer & Principal Position
|
Year
(4)
|
Salary
($)
|
Bonus
($)
|
Other
Annual Compensation ($)(2)
|
Restricted
Stock Award(s) ($)
|
Securities
Underlying Options/SARs (#)(5)
|
All
Other Compensation
($)
|
|||||||||||||||
|
Robert
H. Tomlinson, Jr.
|
2005
|
$
|
250,000
|
—
|
$
|
1,500
|
—
|
500,000
|
$
|
31,500
(1
|
)
|
|||||||||||
|
President
and Chief Executive Officer
|
2004
|
$
|
250,000
|
$
|
125,000
|
—
|
—
|
—
|
$
|
25,410
(1
|
)
|
|||||||||||
|
2003
(6)
|
$
|
237,500
|
$
|
175,000
|
—
|
—
|
—
|
—
|
||||||||||||||
|
Timothy
E. Takesue
|
2005
|
$
|
225,000
|
—
|
$
|
1,500
|
—
|
500,000
|
—
|
|||||||||||||
|
Executive
Vice President of Merchandising
|
2004
|
$
|
225,000
|
$
|
112,500
|
—
|
—
|
—
|
—
|
|||||||||||||
|
2003
(7)
|
$
|
213,750
|
$
|
175,000
|
—
|
—
|
—
|
—
|
||||||||||||||
|
Manoharan
Sivashanmugam
|
2005
|
$
|
135,000
|
$
|
10,000
|
$
|
1,350
|
—
|
75,000
|
$
|
131,711
(3
|
)
|
||||||||||
|
Vice
President of Technology
|
2004
|
$
|
120,846
|
$
|
2,500
|
—
|
—
|
—
|
—
|
|||||||||||||
|
2003
(8)
|
$
|
104,131
|
$
|
1,000
|
—
|
—
|
—
|
—
|
||||||||||||||
|
Anthony
Priore
|
2005
|
$
|
135,192
|
$
|
10,000
|
$
|
329
|
—
|
150,000
|
—
|
||||||||||||
|
Chief
Marketing Officer
|
2004
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
2003
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||
|
Miguel
A. Martinez, Jr.
|
2005
|
$
|
129,808
|
$
|
50,000
|
$
|
1,500
|
—
|
75,000
|
—
|
||||||||||||
|
Vice
President, Finance
|
2004
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
2003
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||
_________________________
Notes:
| (1) |
Represents
temporary housing and relocation
expenses.
|
| (2) |
Represents
employer contribution to 401(k) retirement
plan.
|
| (3) |
Represents
the value of payments received on termination of the Phantom Stock
Option
Plan, terminated in July, 2005.
|
| (4) |
Information
included is for each respective calendar year. Information for the
period
from January 1, 2003 through March 31, 2003 represents compensation
received from CMGI, uBid’s former parent company.
|
| (5) |
Represents
options granted under the 2005 Equity Incentive
Plan.
|
| (6) |
Mr.
Tomlinson’s annual compensation during 2003 included salary of $57,692
paid by CMGI and salary of $179,808 paid by uBid. Mr. Tomlinson’s bonus of
$175,000 was paid entirely by uBid.
|
| (7) |
Mr.
Takesue’s annual compensation during 2003 included salary of $51,923 paid
by CMGI and salary of $161,827 paid by uBid. Mr. Takesue’s bonus of
$175,000 was paid entirely by uBid.
|
| (8) |
Mr.
Sivashanmugam’s annual compensation during 2003 included salary of $23,577
paid by CMGI and salary of $80,554 paid by uBid. Mr. Sivashanmugam’s bonus
of $1,000 was paid entirely by
uBid.
|
The
following table shows the number of options to purchase common stock granted
to
each of the Named Executive Officers during 2005.
Option/SAR
Grants in Last Fiscal Year (1)
|
Individual
Grants
|
Potential
Realizable Value at Assumed Annual Rate Of Stock Price Appreciation
For
Option Term (4)
|
||||||||||||||||||
|
Name
|
Securities
Underlying Option/SARs Granted (#)
|
Percent
of Total Options/SARs Granted to Employees in Fiscal Year
|
Exercise
or Base Price ($/Sh)
|
Expiration
Date
|
5%
($)
|
10%
($)
|
|||||||||||||
|
Robert
H. Tomlinson, Jr. (2)
|
500,000
|
29.04
|
%
|
$
|
4.50
|
December
29, 2015
|
$
|
2,758,850.98
|
$
|
5,725,758.06
|
|||||||||
|
Timothy
E. Takesue (2)
|
500,000
|
29.04
|
%
|
$
|
4.50
|
December
29, 2015
|
$
|
2,758,850.98
|
$
|
5,725,758.06
|
|||||||||
|
Anthony
Priore (3)
|
150,000
|
8.71
|
%
|
$
|
4.50
|
December
29, 2015
|
$
|
827,655.29
|
$
|
1,717,727.42
|
|||||||||
|
Miguel
A. Martinez, Jr. (3)
|
75,000
|
4.36
|
%
|
$
|
4.50
|
December
29, 2015
|
$
|
413,827.65
|
$
|
858,863.71
|
|||||||||
|
Manoharan
Sivashanmugam (3)
|
75,000
|
4.36
|
%
|
$
|
4.50
|
December
29, 2015
|
$
|
413,827.65
|
$
|
858,863.71
|
|||||||||
| (1) |
The
2005 Equity Incentive Plan was approved by our board of directors
on
December 15, 2005. Also on December 15, 2005, the 2005 Equity Incentive
Plan was approved by the sole stockholder of Cape Coastal on that
date.
These actions were announced in our Current Report on Form 8-K, filed
with
the SEC on December 23, 2005. As disclosed in our definitive Information
Statement filed with the SEC on January 30, 2006, on January 12,
2006, the
holders of a majority of our outstanding shares of common stock ratified
the 2005 Equity Incentive Plan.
|
| (2) |
This
option grant was made on December 29, 2005 and has a four-year vesting
schedule pursuant to which 1/3 of the total option becomes exercisable
on
the 24-month anniversary of the grant, 1/3 of the total option becomes
exercisable on the 36-month anniversary of the grant, and the remaining
portion becomes exercisable on the 48-month anniversary of the grant.
|
| (3) |
This
option grant was made on December 29, 2005 and has a four-year vesting
schedule pursuant to which 1/4 of the total option becomes exercisable
on
the 12-month anniversary of the grant, 1/4 of the total option becomes
exercisable on the 24-month anniversary of the grant, 1/4 of the
total
option becomes exercisable on the 36-month anniversary of the grant,
and
the remaining portion becomes exercisable on the 48-month anniversary
of
the grant.
|
| (4) |
The
first trade of our shares took place on January 4, 2006. Therefore,
the
market closing price of $6.15 on January 4, 2006 has been used for
purposes of the calculations in the table
above.
|
Aggregated
Option/SAR Exercises and Fiscal Year-End Option/SAR Values
|
Name
|
Shares
Acquired on Exercise
(#)
|
Value
Realized ($)
|
Number
of Shares Underlying Unexercised Options/SARs at Fiscal Year-End
(Exercisable/Unexercisable)
|
Value
of Unexercised In-The-Money Options/SARs at Fiscal Year-End (Exercisable/Unexercisable)
|
|||||||||
|
Robert
H. Tomlinson, Jr. (1)
|
—
|
—
|
0
/ 500,000
|
$
|
0.00
/ $0.00
|
||||||||
|
Timothy
E. Takesue (1)
|
—
|
—
|
0
/ 500,000
|
$
|
0.00
/ $0.00
|
||||||||
|
Anthony
Priore (2)
|
—
|
—
|
0
/ 150,000
|
$
|
0.00
/ $0.00
|
||||||||
|
Miguel
A. Martinez, Jr. (2)
|
—
|
—
|
0
/ 75,000
|
$
|
0.00
/ $0.00
|
||||||||
|
Manoharan
Sivashanmugam (2)
|
—
|
—
|
0
/ 75,000
|
$
|
0.00
/ $0.00
|
||||||||
| (1) |
Was
granted options on December 29, 2005 with a four-year vesting schedule
pursuant to which 1/3 of the total options become exercisable on
the
24-month anniversary of the grant, 1/3 of the total options become
exercisable on the 36-month anniversary of the grant, and the remaining
options become exercisable on the 48-month anniversary of the grant.
|
| (2) |
Was
granted options on December 29, 2005 with a four-year vesting schedule
pursuant to which 1/4 of the total options become exercisable on
the
12-month anniversary of the grant, 1/4 of the total options become
exercisable on the 24-month anniversary of the grant, 1/4 of the
total
options become exercisable on the 36-month anniversary of the grant,
and
the remaining options become exercisable on the 48-month anniversary
of
the grant.
|
Compensation of Directors
There
are
currently no compensation arrangements in place for the members of the board
of
directors. We expect to establish these arrangements as new members are
appointed to the board of directors.
Employment
Contracts, Termination of Employment and Change in Control
We
have
entered into executive employment agreements with our President and Chief
Executive Officer, our Executive Vice President of Merchandising and our Chief
Marketing Officer.
Robert
H. Tomlinson, Jr. - President and Chief Executive
Officer
On
December 29, 2005, we entered into an executive employment agreement with Mr.
Tomlinson which provides for an initial annual base salary of $275,000 for
the
first 12 months of the agreement increasing to $300,000 during the second 12
months of the agreement.
Under
the
agreement, Mr. Tomlinson also received options to purchase up to 500,000 shares
of common stock under the 2005 Equity Incentive Plan, which vest as follows:
1/3
of the options will vest on the 24 month anniversary of the date of the grant,
1/3 of the options will vest on the 36 month anniversary of the date of grant
and the remaining 1/3 on the 48 month anniversary of the date of grant. The
exercise price of the options is $4.50 per share. Subsequent grants of stock
options shall vest and be exercisable pursuant to the terms and conditions
of
the 2005
Equity Incentive Plan.
Mr.
Tomlinson’s employment agreement has a term commencing on the execution of the
agreement and continuing for a period of 24 months. The agreement provides
that
if Mr. Tomlinson is terminated by us without cause or if Mr. Tomlinson
terminates the agreement for good reason, including a change of control that
results in the termination of Mr. Tomlinson’s employment with uBid or a material
adverse change in his duties and responsibilities, he will be entitled, after
execution of our standard separation and release agreement, to severance
payments in the amount of his annual base salary at the time of such termination
and all health insurance coverage for a period of 12 months following
termination. A change of control includes an acquisition of 51% or more of
our
outstanding voting securities or consummation of a tender offer or exchange
offer where the offeree acquires more than 51% of our then-outstanding voting
securities.
Timothy
E. Takesue - Executive Vice President of
Merchandising
On
December 29, 2005, we also entered into an executive employment agreement with
Mr. Takesue which provides for an initial annual base salary of $250,000 for
the
first 12 months of the agreement increasing to $275,000 during the second 12
months of the agreement.
Under
the
agreement, Mr. Takesue received options to purchase up to 500,000 shares of
common Stock under the 2005 Equity Incentive Plan, which vest as follows: 1/3
of
the options will vest on the 24 month anniversary of the date of the grant,
1/3
of the options will vest on the 36 month anniversary of the date of grant and
the remaining 1/3 on the 48 month anniversary of the date of grant. The exercise
price of the options is $4.50 per share. Subsequent grants of stock options
shall vest and be exercisable pursuant to the terms and conditions of the 2005
Equity Incentive Plan.
Mr.
Takesue’s employment agreement has a term commencing on the execution of the
agreement and continuing for a period of 24 months. The agreement provides
that
if Mr. Takesue is terminated by us without cause, or if Mr. Takesue terminates
the agreement for good reason, including a change of control that results in
the
termination of Mr. Takesue’s employment with uBid or a material adverse change
in his duties and responsibilities, he will be entitled, after execution of
our
standard separation and release agreement, to severance payments in the amount
of his annual base salary at the time of such termination and all health
insurance coverage for a period of 12 months following termination.
Anthony
Priore - Chief Marketing Officer
On
December 29, 2005, we entered into an executive employment agreement with Mr.
Priore which provides for an initial annual base salary of $190,000 for the
first 12 months of the agreement increasing to $210,000 during the second 12
months of the agreement.
Under
the
agreement, Mr. Priore received options to purchase up to 150,000 shares of
common stock under the 2005 Equity Incentive Plan, and vest as to one-quarter
of
these options on each of the next four anniversaries of the date of grant.
The
exercise price of the options is $4.50 per share. Subsequent grants of stock
options shall vest and be exercisable pursuant to the terms and conditions
of
the 2005 Equity Incentive Plan.
Mr.
Priore’s employment agreement has a term commencing on the execution of the
agreement and continuing for a period of 24 months. The agreement provides
that
if Mr. Priore is terminated by us without cause, or if Mr. Priore terminates
the
agreement for good reason, including a change of control that results in the
termination of Mr. Priore’s employment with uBid or a material adverse change in
his duties and responsibilities, he will be entitled, after execution of our
standard separation and release agreement, to severance payments in the amount
of 50% of his annual base salary at the time of such termination and all health
insurance coverage for a period of 6 months following termination.
Compensation
Committee Interlocks and Insider Participation
We
do not
presently have an established compensation committee in place. The Petters
Group, including Stuart Romenesko, primarily negotiated the employment
agreements of our Named Executive Officers. Messrs. Tomlinson and Takesue,
executive officers, participated in compensation discussions regarding our
employees.
2005
Equity Incentive Plan
On
December 15, 2005, our board of directors approved and adopted the 2005 Equity
Incentive Plan. Also on December 15, 2005, the 2005 Equity Incentive Plan was
approved by the sole stockholder of Cape Coastal on that date. These actions
were announced in our Current Report on Form 8-K, filed with the SEC on December
23, 2005. As disclosed in our definitive Information Statement filed with the
SEC on January 30, 2006, on January 12, 2006, the holders of a majority of
our
outstanding shares of common stock ratified the Plan. The 2005 Equity Incentive
Plan as an equity-based compensation plan to provide incentives to, and to
attract, motivate and retain the highest qualified employees, directors,
consultants and other third party service providers. The 2005 Equity Incentive
Plan enables the board of directors to provide equity-based incentives through
grants or awards of stock options and restricted stock awards (collectively,
“Incentive Awards”) to our present and future employees, consultants, directors,
and other third party service providers.
Our
board
of directors has reserved a total of 2,500,000 shares of common stock for
issuance under the 2005 Equity Incentive Plan. If an Incentive Award granted
pursuant to the 2005 Equity Incentive Plan expires, terminates, is unexercised
or is forfeited, or if any shares are surrendered to us in connection with
an
Incentive Award, the shares subject to such award and the surrendered shares
will become available for further awards under the 2005 Equity Incentive Plan.
On December 29, 2005, we granted options under the 2005 Equity Incentive
Plan to purchase 1,721,700 shares of common stock to our Named Executive
Officers and other employees.
At
the
earliest reasonably practicable date, we plan to file a registration statement
on Form S-8 to register the shares of common stock reserved for issuance upon
the exercise of Incentive Awards under the 2005 Equity Incentive Plan. This
registration statement is expected to become effective on filing. Subject to
Rule 144 limitations, shares of common stock issued upon exercise of stock
options and other incentive awards granted under the 2005 Equity Incentive
Plan
after the effective date of the registration statement on Form S-8 will be
eligible for resale in the public market without restriction.
The
number of shares subject to the 2005 Equity Incentive Plan, any number of shares
subject to any numerical limit in the 2005 Equity Incentive Plan, and the number
of shares and terms of any Incentive Award may be adjusted in the event of
any
change in uBid’s outstanding common stock by reason of any stock dividend,
spin-off, stock split, reverse stock split, recapitalization, reclassification,
merger, consolidation, liquidation, business combination or exchange of shares,
or similar transaction.
All
of
the options issued on December 29, 2005 under the 2005 Equity Incentive Plan
will expire on December 29, 2015 if not exercised prior to that date. Other
Incentive Awards will not automatically have a similar term; each incentive
award is subject to such term as our board of directors determines upon the
grant of the Incentive Award. None of the Incentive Awards granted under the
2005 Equity Incentive Plan on December 29, 2005 was issued for cash
consideration collected from the participants. The Incentive Awards were granted
to participants in the 2005 Equity Incentive Plan on the basis of services
to be
provided to us by the participants. We expect that all future Incentive Awards
will be granted by our board of directors on the basis of the quality and nature
of the services to be provided to us by the participants rather than for cash
consideration.
The
following table sets forth, as of May 15, 2006, the number of shares of our
common stock beneficially owned, and the percent so owned, by (1) each
person known to us to be the beneficial owners of more than 5% of the
outstanding shares of our common stock, (2) each of our directors,
(3) our Chief Executive Officer during 2005 and each of the four most
highly compensated executive officers other than our Chief Executive Officer
who
served as executive officers during 2005 (our “Named Executive Officers”) and
(4) all of our directors and Named Executive Officers as a group. The
number of shares owned are those beneficially owned, as determined under
the
rules of the SEC, and such information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares of common stock as to which a person has sole
or
shared voting power or investment power and any shares of common stock which
the
person has the right to acquire within 60 days through the exercise of any
option, warrant or right, through conversion of any security or pursuant
to the
automatic termination of a power of attorney or revocation of a trust,
discretionary account or similar arrangement. The address of each executive
officer and director is c/o uBid, 8550 West Bryn Mawr, Chicago, Illinois
60631.
|
Shares
Beneficially Owned
|
|||||||
|
Name
|
Number
|
Percent
(1)
|
|||||
|
Thomas
J. Petters (2)(9)
|
7,605,714
|
36.36
|
%
|
||||
|
Petters
Group Worldwide, LLC (3)(9)
|
6,189,047
|
30.03
|
%
|
||||
|
Tudor
Investment Corporation (4)(10)
|
2,083,334
|
10.04
|
%
|
||||
|
Smithfield
Fiduciary LLC (5)
|
1,972,222
|
9.45
|
%
|
||||
|
D.E.
Shaw Valence Portfolios, L.L.C. (6)
|
1,250,000
|
6.07
|
%
|
||||
|
Alexandra
Global Master Fund Ltd. (7)
|
1,069,446
|
5.17
|
%
|
||||
|
Robert
H. Tomlinson, Jr.
|
465,776
|
2.29
|
%
|
||||
|
Timothy
E. Takesue
|
465,776
|
2.29
|
%
|
||||
|
Miguel
A. Martinez, Jr.
|
44,081
|
0.22
|
%
|
||||
|
Anthony
Priore
|
20,881
|
0.10
|
%
|
||||
|
Manoharan
Sivashanmugam
|
11,600
|
0.06
|
%
|
||||
|
Stuart
R. Romenesko (8)
|
28,125
|
0.14
|
%
|
||||
|
All
directors and executive officers as a group (6 people)
|
1,036,239
|
5.09
|
%
|
||||
Notes:
| (1) |
Based
on a total of 20,333,333 shares outstanding as of May 15, 2006.
Shares
underlying warrants exercisable within 60 days of May 15, 2006
are
considered for the purpose of determining the percent of the class
held by
the holder of such warrants, but not for the purpose of computing
the
percentages held by others.
|
| (2) |
Includes:
6,189,047 shares beneficially owned by Petters Group Worldwide, LLC,
including 277,778 warrants exercisable within 60 days by Petters
Group
Worldwide, LLC; and 305,556 warrants exercisable within 60 days by
Petters
Company, Inc. Mr. Petters has sole voting and investment power over
all of
the shares indicated in the table as being beneficially owned by
Mr.
Petters, Petters Group Worldwide, LLC and Petters Company,
Inc.
|
| (3) |
Includes
277,778 warrants exercisable within 60
days.
|
| (4) |
Includes
416,667 warrants exercisable within 60 days. The shares beneficially
owned
by Tudor Investment Corporation are beneficially owned by a group
of 3
beneficial owners, including: The Tudor BVI Global Portfolio Ltd.
(215,738
shares directly owned and warrants to acquire an additional 53,935
shares
of common stock), Tudor Proprietary Trading, L.L.C. (116,167 shares
directly owned and warrants to acquire an additional 29,042 shares
of
common stock) and Witches Rock Portfolio Ltd. (1,334,762 shares directly
owned and warrants to acquire an additional 333,690 shares of common
stock). Tudor Investment Corporation provides investment advisory
services
to The Tudor BVI Global Portfolio Ltd. and Witches Rock Portfolio
Ltd. and
may therefore be deemed the beneficial owner of these shares. Tudor
Investment Corporation is also an affiliate of Tudor Proprietary
Trading,
L.L.C. Paul Tudor Jones, II is the controlling shareholder of Tudor
Investment Corporation and the indirect controlling equity holder
of Tudor
Proprietary Trading, L.L.C. Each of Tudor Investment Corporation
and Mr.
Jones expressly disclaims beneficial ownership of shares not directly
owned by them.
|
| (5) |
Includes
444,445 warrants exercisable within 60 days. Highbridge Capital
Management, LLC is the trading manager of Smithfield Fiduciary LLC
and has
voting control and investment discretion over securities held by
Smithfield Fiduciary LLC. Glenn Dubin and Henry Swieca control Highbridge
Capital Management, LLC. Each of Highbridge Capital Management, LLC,
Glenn
Dubin and Henry Swieca disclaims beneficial ownership of the securities
held by Smithfield Fiduciary LLC. The address for Smithfield Fiduciary
LLC, Highbridge International LLC, and Highbridge Capital Corporation
is
The Cayman Corporate Center, 4th
Floor, 27 Hospital Road, George Town, Grand Cayman, Cayman Islands,
BWI.
The address for Highbridge Capital L.P., Highbridge Capital Management,
LLC, Glenn Dubin and Henry Swieca is c/o Highbridge Capital Management,
LLC, 9 West 57th
Street, 27th
Floor, New York, New York 10019. The address for Highbridge Master
L.P.,
Highbridge GP, Ltd. And Highbridge GP, LLC is c/o Harmonic Fund Services,
Cayman Financial Centre, Tower C, 36 Dr. Roy’s Drive, George Town, Grand
Cayman, Cayman Islands, BWI. This information was provided in a report
on
Schedule 13G filed with the SEC on January 9, 2006 and in information
provided to us from Smithfield Fiduciary LLC.
|
| (6) |
Includes
250,000 warrants exercisable within 60 days. David E. Shaw does not
own
any shares of common stock directly. By virtue of Mr. Shaw’s position
as President and sole shareholder of D.E. Shaw & Co., Inc., which is
the general partner of D.E. Shaw & Co., L.P. (the managing member and
investment advisor of D.E. Shaw Valence Portfolios, L.L.C.), Mr. Shaw
may be deemed to have shared power to vote or direct the vote of,
and
shared power to dispose or direct the disposition of, the shares
of common
stock, and therefore, Mr. Shaw may be deemed to be the beneficial
owner of such shares. Mr. Shaw disclaims beneficial ownership of
the
shares of our common stock. The address for D.E. Shaw Valence Portfolios,
L.L.C. is 120 West 45th
Street, 39th
Floor, New York, NY 10036. This information was provided in a report
on
Schedule 13G filed with the SEC on February 13,
2006.
|
| (7) |
Includes
347,223 warrants exercisable within 60 days. Alexandra Investment
Management, LLC, serves as the investment advisor to Alexandra Global
Master Fund Ltd. By reason of such relationship, Alexandra Investment
Management, LLC, may be deemed to share dispositive power over the
shares
of common stock stated as beneficially owned by Alexandra Global
Master
Fund Ltd. Alexandra Investment Management, LLC disclaims beneficial
ownership of such shares of common stock. Messrs. Mikhail A. Filimonov
and
Dimitri Sogoloff are, respectively, the Chairman, Chief Executive
Officer,
Managing Member and Chief Investment Officer and the President, Managing
Member and Chief Risk Officer, of Alexandra Investment Management,
LLC. By
reason of such relationships, Mr. Filimonov and Mr. Sogoloff may
be deemed
to share dispositive power over the shares of common stock stated
as
beneficially owned by Alexandra Global Master Fund, Ltd. Each of
Messrs.
Filimonov and Sogoloff disclaims beneficial ownership of the shares
of
common stock beneficially owned by Alexandra Global Master Fund Ltd.
The
address of Alexandra Global Master Fund Ltd. is Citgo Building, Wickams
Cay, P.O. Box 662, Road Town, Tortola, British Virgin Islands. The
address
of Alexandra Investment Management, LLC and Messrs. Filimonov and
Sogoloff
is 767 Third Avenue, 39th
Floor, New York, New York, 10017. This information was provided in
a
report on Schedule 13G filed with the SEC on February 7,
2006.
|
| (8) |
Includes
5,625 warrants exercisable within 60 days. The shares beneficially
owned
by Mr. Romenesko are held by the Stuart R. Romenesko Revocable Trust
dated
October 7, 1999.
|
| (9) |
Information
regarding the number of shares beneficially owned by Thomas J. Petters,
Petters Group Worldwide, LLC and Petters Company, Inc. was provided
in a
report on Schedule 13D filed with the SEC on January 9, 2006, as
amended
on February 16, 2006. The address for each of Thomas J. Petters,
Petters
Group Worldwide, LLC and Petters Company, Inc. is: 4400 Baker Road,
Minnetonka, Minnesota 55343.
|
| (10) |
Information
regarding the number of shares beneficially owned by Tudor Investment
Corporation and its affiliated entities was provided in a report
on
Schedule 13G filed with the SEC on January 3, 2006, as amended on
February
14, 2006, by Paul Tudor Jones, II, The Tudor BVI Global Portfolio,
Ltd.,
Tudor Investment Corporation, Tudor Proprietary Trading, L.L.C and
Witches
Rock Portfolio Ltd. The business address for Tudor Investment Corporation
is: c/o Tudor Investment Corporation, 1275 King Street, Greenwich,
Connecticut 06831-2936.
|
In
connection with the incorporation of Takumi (now known as uBid) in March 2003,
1,072 shares of voting common stock were issued to Messrs. Tomlinson and
Takesue, as founders, for de minimus consideration. In April 2003, 2,500 shares
of voting convertible preferred stock were issued to Petters Group for its
$1.0 million capital contribution.
On
April
2, 2003, uBid and Petters Group, a holder of greater than 5% of our outstanding
common stock, executed a Shared Resources Agreement with a term of one year
and
automatic renewals of one year until terminated by either party with 60 days’
prior notice. Pursuant to this agreement, Petters Group provides executive,
facilities management, finance, general and administrative, legal, marketing,
merchandising and operations services to uBid for which uBid was charged
$360,000 in 2005, $264,000 for the year ended December 31, 2004 and
$198,000 from April 2003 through December 2003. We terminated the Shared
Resources Agreement as of January 31, 2006. As mentioned above, Mr.
Romenesko is the executive vice president of Petters Group.
We
purchase products from Petters Group for direct purchase sales. Purchases from
Petters Group were $1.6 million, $1.5 million and $0.5 million for the periods
ended December 31, 2005, 2004 and 2003.
In
2003,
we issued a convertible promissory note in the principal amount of $0.5 million
for the benefit of Petters Group. The promissory note bore interest at an annual
rate of 8%. This note plus accrued interest was paid in full on April 1,
2005.
On
April
2, 2003, we entered into a secured revolving credit agreement and promissory
note with Petters Group for up to $5.0 million. On November 22, 2004, we entered
into a second secured revolving credit agreement and promissory note for up
to
$4.0 million. In March 2005, the second agreement was increased to $5.5 million.
Both agreements were secured by a subordinated security interest in all of
our
assets. Both agreements were scheduled to expire March 31, 2006. Borrowings
under the revolving line bear an annual interest rate of 14%. There are no
financial covenants provided for in the agreements. In connection with the
private offerings, the note holders cancelled these promissory notes as
consideration in the private offerings for the issuance to Petters Company,
Inc.
of 1,222,223 shares of common stock and warrants to purchase 305,556 shares
of
common stock, and the issuance to the Petters Group of 1,111,111 shares of
common stock and warrants to purchase 277,778 shares of common
stock.
On
July
21, 2004, we entered into an agreement with Banco Popular under which we
obtained a $5.0 million irrevocable letter of credit for the benefit of Sony
Corporation. This letter of credit is used as a security deposit for inventory
purchases from Sony. Sony may draw upon the letter of credit in the event we
are
in payment default. The letter of credit bears an annual interest rate of 2%.
Sony then reimburses us 0.5%. The letter of credit is secured by all of our
assets. Lancelot and Petters Group guaranteed the letter of credit for the
full
$5.0 million in the event Sony drew upon the letter of credit. In addition,
Banco Popular has entered into inventory buy-back agreements with Sony and
Petters Group. Sony and Petters Group have agreed to buy back the Sony product
from uBid in the event of a default. The letter of credit expires on July 21,
2006. On October 14, 2005, the Sony irrevocable letter of credit was reduced
to
$2.5 million. All other terms remain the same.
The
letter of credit agreement contained certain restrictions on additional
borrowings, guarantees, disposal of assets, transactions with affiliates,
mergers and acquisitions during the year ended December 31, 2004. The
restrictions were removed during 2005.
On
December 30, 2005, we provided a $5.0 million deposit as a restricted cash
security to Banco Popular to release Lancelot and Petters Group from their
obligations under the letter of credit.
On
April
27, 2005, uBid entered into a 90-day debt agreement and promissory note with
Lancelot, which was extended for one year on July 26, 2005. This agreement
provided for borrowings of $5.0 million. The note had an annual interest rate
of
14% due monthly. The note was guaranteed by Petters Company, Inc. and Thomas
J.
Petters. There were no financial covenants provided for in the agreement. The
September 30, 2005 balance of $5.0 million was retired with a portion
of the proceeds from the private offerings.
Petters
Group owns approximately 25% of the outstanding shares of WSS Media, Inc.,
located in Minneapolis, Minnesota. During the year ended December 31, 2005,
we
sold approximately $223,000 in product to WSS Media, Inc. At year end, the
balance was unpaid. Mr. Romenesko is the chairman of the board of WSS Media,
Inc. a privately held company providing goods to consumers as an at-home
shopping network.
In
mid-2005, Cape Coastal entered into an agreement with Calico Capital Group,
LLC
to serve as its financial advisor in connection with the merger and the private
offerings. Thomas J. Petters owns 10% of the outstanding membership interests
in
Calico. As consideration for its services, we paid Calico a $550,000 fee on
the
Closing Date. In addition, on February 3, 2006, in connection with the second
private offering, we issued Calico 600,667 shares of our common stock, valued
at
$4.50 per share, with an aggregate value of approximately $2.7 million.
Pursuant to a letter agreement, Calico subsequently transferred a total of
50,000 of its shares to two stockholders of the former Cape Coastal Trading
Corporation.
In
connection with the closing of the second private offering on February 6, 2006,
we redeemed a total of 2,666,668 shares. From Messrs. Tomlinson and Takesue,
two
of our executive officers, we redeemed a total of 444,444 shares (222,222 shares
from each) for total consideration of $2 million. We also redeemed
1,000,001 shares of common stock from Petters Group for $4.5 million
and 1,222,223 shares of common stock from Petters Company, Inc. for
consideration of $5.5 million.
Historical
Information About Our Capital Stock
Immediately
before the merger, the authorized capital stock of uBid consisted of 34,500
shares of capital stock, 5,000 of which were designated as Series A Preferred
Stock, par value $400 per share, 22,500 of which were designated as Series
B
Preferred Stock, par value $400 per share, 5,000 of which were designated voting
common stock, par value $0.0001 per share, and 2,000 of which were designated
non-voting common stock, par value $0.0001 per share.
The
authorized capital stock of Cape Coastal Trading Corporation (the previous
public reporting entity) consisted of 50,000,000 shares of common stock, par
value $0.001 per share.
Capital
Stock Issued and Outstanding
On
December 29, 2005, uBid had 2,500 shares of Series A Preferred Stock issued
and
outstanding, 1,072 shares of common stock issued and outstanding and 221 shares
of non-voting common stock issued and outstanding. Immediately before the
Closing Date, all outstanding convertible preferred shares and warrants to
acquire common shares of uBid, Inc. were converted and exercised, such that
3,793 common shares were outstanding which were exchanged on a 2,320 to 1 basis
on the Closing Date into 8.8 million shares of common stock, with up to 444,444
shares of common stock subject to redemption.
As
of
September 30, 2005, Cape Coastal had 2,300,375 shares of common stock issued
and
outstanding and no shares of preferred stock issued and outstanding. As
previously reported on our Current Reports on Form 8-K and Form 8-K/A, filed
on
December 21, 2005, Cape Coastal effected a reverse stock split on December
15,
2005, in which each share of common stock was converted into 0.6 shares of
common stock. The reverse stock split reduced the number of shares of common
stock outstanding from 2,300,375 to 1,380,201. On December 23, 2005, 780,870
shares of common stock were cancelled without further consideration. As a result
of the reverse stock split and cancellation, Cape Coastal had 599,331 shares
of
common stock issued and outstanding immediately before the merger. Of the
599,331 shares that remained issued and outstanding, we are registering 476,107
of such shares under this registration statement. A total of 96,224 shares
of
Cape Coastal’s shares were previously registered under the Securities Act
pursuant to the Form SB-2 filed with the SEC on May 20, 2004. The remaining
27,000 outstanding shares of Cape Coastal were deemed exempt from the
registration requirements of the Securities Act, based on the provisions of
Section 4(1) of the Securities Act and Rule 144 of the SEC.
On
December 15, 2005, Cape Coastal Trading Corporation reincorporated from a New
York corporation to a Delaware corporation. After the reincorporation, Cape
Coastal’s certificate of incorporation was amended to authorize 225,000,000
shares of capital stock, of which 200,000,000 are shares of common stock, par
value $0.001 per share and 25,000,000 are blank-check preferred stock, par
value
$0.001 per share.
As
of May
15, 2006, the following shares and rights to acquire shares of our capital
stock
were issued and outstanding:
|
§
|
20,333,333
shares of common stock;
|
|
§
|
0
shares of preferred stock;
|
|
§
|
Options
to purchase 1,763,400 shares of common stock granted to executives
and
other employees of uBid under our 2005 Equity Incentive
Plan;
|
|
§
|
Warrants
to purchase 320,000 shares of common stock issued to the placement
agents
in the private offerings;
|
|
§
|
Warrants
to purchase 333,333 shares of common stock issued to the Note Holders;
|
|
§
|
Warrants
to purchase 3,250,005 shares of common stock issued to the new investors
(including warrants to purchase 583,334 shares of our common stock
issued
to Petters Group and its
affiliates).
|
The
following description of our capital stock is derived from our certificate
of
incorporation and bylaws as well as relevant provisions of applicable law.
Such
description is not intended to be complete and is qualified in its entirety
by
reference to our certificate of incorporation and bylaws.
Description
of Common Stock
The
holders of common stock are entitled to one vote per share on all matters
submitted to a vote of the stockholders, including the election of directors.
Generally, all matters to be voted on by stockholders must be approved by a
majority (or, in the case of election of directors, by a plurality) of the
votes
entitled to be cast by all shares of common stock that are present in person
or
represented by proxy, subject to any voting rights granted to holders of
preferred stock. Except as otherwise provided by law, and subject to any voting
rights granted holders of preferred stock, amendments to our certificate of
incorporation generally must be approved by a majority of the votes entitled
to
be cast by all outstanding shares of common stock. Our certificate of
incorporation does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
preferred stock created by the board of directors from time to time, the common
stockholders will be entitled to such cash dividends as may be declared from
time to time by the board of directors from funds available. Subject to any
preferential rights of any outstanding series of preferred stock, upon our
liquidation, dissolution or winding up, the common stockholders will be entitled
to receive pro rata all assets available for distribution to such
holders.
Description
of Preferred Stock
We
are
authorized to issue 25,000,000 shares of “blank check” preferred stock, par
value $0.001 per share, none of which as of the date hereof is designated,
issued or outstanding. The board of directors is vested with authority to divide
the shares of preferred stock into series and to fix and determine the relative
rights and preferences of the shares of any such series. Once authorized, the
dividend or interest rates, conversion rates, voting rights, redemption prices,
maturity dates and similar characteristics of the preferred stock will be
determined by the board of directors, without the necessity of obtaining
approval of the stockholders.
Description
of Options
There
are
currently issued and outstanding options to purchase 1,721,700 shares of our
common stock, issued to our Named Executive Officers and employees. Except
as
otherwise described in this prospectus, the options were issued pursuant our
2005 Equity Incentive Plan at an exercise price of $4.50 per share and will
vest
in equal annual increments over the four-year period following the date of
grant. The options generally have a ten-year term from the date of grant. The
terms of the options are further described under the heading “Management”
herein. The fair value of the options are determined using the Black-Scholes
option-pricing model. The following is a summary of the assumptions used:
|
Risk
free interest rate
|
5.0
|
%
|
||
|
Expected
volatility
|
68.0
|
%
|
||
|
Expected
life (years)
|
4
|
|||
|
Expected
dividend yield
|
—
|
Description
of Warrants
There
are
presently warrants issued to purchase 3,903,338 shares of common stock as
follows: warrants held by investors purchasing units in the private offerings
(including the Petters Group and Petters Company, Inc.) providing for the
purchase of 3,250,005 shares of common stock for five years at an exercise
price
of $5.85 per share; warrants held by the Note Holders, providing for the
purchase of 333,333
shares of common stock for three years at an exercise price of $4.50 per share
and warrants held by the placement agents providing for the purchase of 320,000
shares of common stock for five years at an exercise price of $4.50 per share.
The
warrants, at the option of the holder, may be exercised by cash payment of
the
exercise price or, in the event that the registration statement of which this
prospectus is a part is not declared effective by the SEC by December 29,
2006, by “cashless exercise.” A “cashless exercise” means that instead of paying
the aggregate purchase price for the shares being purchased upon exercise of
the
warrants in cash, the holder will forfeit a number of shares underlying the
warrants with a “fair market value” equal to such aggregate exercise price. We
will not receive additional proceeds from the exercise of the warrants, to
the
extent that the warrants are exercised by cashless exercise.
The
exercise price and number of shares of common stock issuable on exercise of
the
warrants may be adjusted in certain circumstances including in the event of
a
stock dividend, recapitalization, reorganization, merger or consolidation.
No
fractional shares will be issued upon exercise of the warrants. If, upon
exercise of the warrants, a holder would be entitled to receive a fractional
interest in a share, we will, upon exercise, round up to the nearest whole
number, the number of shares of common stock to be issued to the warrant holder.
The
warrants are valued using a Black-Scholes option-pricing model using the
respective contractual life as the expected life, a risk free interest rate
of
5.0%, no expected dividends and a 68.0% volatility.
|
Warrants
Outstanding
|
||||||||||
|
Exercise
Price
|
Number
Outstanding
at
12/31/05
|
Contractual
Life
|
Warrant
Fair
Value
|
|||||||
|
$5.85
|
2,500,003
|
5
years
|
$
|
2.08
|
||||||
|
$4.50
|
333,333
|
3
years
|
$
|
1.80
|
||||||
|
$4.50
|
230,000
|
5
years
|
$
|
2.27
|
||||||
Registration
Rights
As
agreed
in the securities purchase agreement, we used our reasonable best efforts to
prepare and file, within 45 days of the closing of the first private offering
(December 29, 2005), a registration statement registering for resale the
shares of common stock acquired by the investors in the private offerings,
the
shares of common stock underlying the warrants acquired by the investors, the
shares of common stock retained by the Cape Coastal stockholders that have
not
already been registered, the shares issued to former uBid, Inc. stockholders
in
the merger, the shares of common stock underlying the warrants issued to the
placement agents, and the shares of common stock underlying the warrants issued
to the Note Holders. We have also agreed to register all shares of common stock
issued or issuable in respect of shares referred to above by virtue of any
stock
split, stock dividend, recapitalization or similar event on a delayed or
continuous basis under Rule 415 of the Securities Act. This prospectus is
part of such registration statement. If the registration statement were not
filed within 45 days after the closing of the December 29, 2005
offering, we would have been required to pay each investor liquidated damages,
in cash, in the amount of 1.0% of the purchase price multiplied by the amount
of
securities held by such investor as of the date of default. If this registration
statement has not been declared effective by the SEC within 120 days of the
closing of the December 2005 offering (since the registration statement is
being
reviewed by the SEC), we are required to pay each investor liquidated damages,
in cash, in the amount of 1.0% of the purchase price multiplied by the amount
of
securities held by such investor as of the date of default. The liquidated
damage payments are due on a monthly basis until the applicable event of default
has been cured. Any such payments shall apply on a pro-rata basis for any
portion of a month before an event of default is cured. Any late payments shall
bear interest at a rate of 1.0% per month until paid in full.
Pursuant
to registration rights related to many of the
securities issued in the December 2005 and February 2006 transactions, the
Company was required to register certain shares for resale within 120 days
of
the December 29, 2005 closing or incur liquidated damages, in cash, in the
amount of 1.0% of the purchase price paid for such securities by the investors
for each month until the registration statement is declared effective by
the
SEC. A registration statement on Form S-1 was filed within the required period,
but was selected for review by the SEC, which has delayed the effectiveness
of
the registration statement. On April 28, 2006, the Company became obligated
to
pay $0.4 million for liquidated damages and will have to pay additional amounts
for each month after April 28, 2006 that the registration statement is not
declared effective. The
Company intends to request an amendment to the securities purchase agreement
and
waiver of the liquidated damages. There is no assurance one will be
granted.
Indemnification
of Officers and Directors
Under
Delaware law, a Delaware corporation may indemnify any person who was or is
a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or
investigative (other than one by or in the right of the corporation) by reason
of the fact that the person is or was a director, officer, employee or agent
of
the corporation, or is or was serving at the request of the corporation as
a
director, officer, employee or agent of another corporation, against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys’
fees actually and necessarily incurred as a result of such action or proceeding,
if such director or officer acted in good faith, for a purpose which such person
reasonably believed to be in or not opposed to the best interests of the
corporation and, in criminal actions or proceedings, had no reasonable cause
to
believe that such conduct was unlawful.
In
the
case of a derivative action, a Delaware corporation may indemnify any such
person against expenses, including attorneys’ fees, actually and necessarily
incurred by such person in connection with the defense or settlement of such
action or suit, if such director or officer acted in good faith for a purpose
which such person reasonably believed to be in or not opposed to the best
interests of the corporation. However, no indemnification will be made in
respect of any claim, issue or matter as to which such person will have been
adjudged to be liable to the corporation unless, and only to the extent that,
the Court of Chancery of the State of Delaware or any other court in which
such
action was brought determines such person is fairly and reasonably entitled
to
indemnity for such expenses.
Delaware
law permits a corporation to include in its certificate of incorporation a
provision eliminating or limiting a director’s liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. Delaware
law
provides, however, that liability for breaches of the duty of loyalty, acts
or
omissions not in good faith or involving intentional misconduct, or knowing
violation of the law, and the unlawful purchase or redemption of stock or
payment of unlawful purchase or redemption of stock or payment of unlawful
dividends or the receipt of improper personal benefits cannot be eliminated
or
limited in this manner.
Our
certificate of incorporation and bylaws provide that we will indemnify our
directors to the fullest extent permitted by Delaware law and may, if and to
the
extent authorized by our board of directors, indemnify our officers and any
other person whom we have the power to indemnify against any liability,
reasonable expense or other matter whatsoever.
Any
amendment, modification or repeal of the foregoing provisions shall be
prospective only, and shall not affect any rights or protections of any of
our
directors existing as of the time of such amendment, modification or
repeal.
We
may
also, at the discretion of our board of directors, purchase and maintain
insurance to the fullest extent permitted by Delaware law on behalf of any
of
our directors, officers, employees or agents against any liability asserted
against such person and incurred by such person in any such
capacity.
On
December 29, 2005, we entered into indemnification agreements with all of
our officers and directors providing for the indemnification of each of them
for
actions brought against any of them by reason of the fact that they are or
were
our agents. The indemnification agreements provide for indemnification of
certain expenses, judgments, fines, and settlement amounts incurred by the
indemnitee in any action or proceeding, including any action by or in the right
of uBid arising out of such person’s services to us, to any of our subsidiaries,
or to any other company or enterprise to which such indemnitee provides services
at our request. The indemnity agreements provide for the advancement of
expenses, make indemnification contingent on the indemnitee’s good faith in
acting or failing to act, and except the obligation to indemnify for expenses
or
liabilities paid directly to the indemnitee by directors’ and officers’
insurance. A form of indemnity agreement was filed as an Exhibit to our Current
Report on Form 8-K, filed with the SEC on January 5, 2006.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted for our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the SEC this indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Anti-Takeover
Effects of Provisions of Delaware Law, Our Certificate of Incorporation and
Bylaws
Our
certificate of incorporation, bylaws and the Delaware General Corporation Law
contain certain provisions that could discourage potential takeover attempts
and
make it more difficult for our stockholders to change management or receive
a
premium for their shares.
Delaware
Law
We
are
subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover provision. In general, the provision prohibits a publicly-held
Delaware corporation from engaging in a business combination with an “interested
stockholder” for a period of three years after the date of the transaction in
which the person became an interested stockholder. A “business combination”
includes a merger, sale of 10% or more of our assets and certain other
transactions resulting in a financial benefit to the stockholder. For purposes
of Section 203, an “interested stockholder” is defined to include any
person that is:
|
§
|
the
owner of 15% or more of the outstanding voting stock of the corporation;
|
|
§
|
an
affiliate or associate of the corporation and was the owner of 15%
or more
of the voting stock outstanding of the corporation, at any time within
three years immediately prior to the relevant date; or
|
|
§
|
an
affiliate or associate of the persons described in the foregoing
bullet
points.
|
However,
the above provisions of Section 203 do not apply if:
|
§
|
our
board of directors approves the transaction that made the stockholder
an
interested stockholder before to the date of that transaction;
|
|
§
|
after
the completion of the transaction that resulted in the stockholder
becoming an interested stockholder, that stockholder owned at least
85% of
our voting stock outstanding at the time the transaction commenced,
excluding shares owned by our officers and directors; or on or subsequent
to the date of the transaction, the business combination is approved
by
our board of directors and authorized at a meeting of our stockholders
by
an affirmative vote of at least two-thirds of the outstanding voting
stock
not owned by the interested stockholder.
|
Stockholders
may, by adopting an amendment to the corporation’s certificate of incorporation
or bylaws, elect for the corporation not to be governed by Section 203,
effective 12 months after adoption. Neither our certificate of incorporation
nor
our bylaws exempt us from the restrictions imposed under Section 203. It is
anticipated that the provisions of Section 203 may encourage companies
interested in acquiring us to negotiate in advance with our board of directors.
Charter
and Bylaw Provisions
Our
certificate of incorporation provides for a staggered board of directors with
three classes of directors. Approximately one-third of the directors will come
up for re-election each year. Having a staggered board of directors will make
it
more difficult for a third-party to obtain control of our board of
directors through a proxy contest, which may be a necessary step in an
acquisition of us that is not favored by our board of directors.
Directors
may be removed with the approval of the holders of a majority of the shares
then
entitled to vote at an election of directors. Directors may be removed by
stockholders with or without cause. Vacancies and newly-created directorships
resulting from any increase in the number of directors may be filled by a
majority of the directors then in office, though less than a quorum. If there
are no directors in office, then an election of directors may be held in the
manner provided by law.
Listing
Our
common stock is listed on the OTC bulletin board under the symbol
“UBHI.OB.”
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Pacific Stock
Transfer.
The
selling stockholders may, from time to time, sell any or all of their shares
of
common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. If the shares of common stock
are
sold through underwriters or broker-dealers, the selling stockholders will
be
responsible for underwriting discounts or commissions or agent’s commissions.
These sales may be at fixed prices, at prevailing market prices at the time
of
the sale, at varying prices determined at the time of sale, or negotiated
prices. The selling stockholders may use any one or more of the following
methods when selling shares:
|
§
|
any
national securities exchange or quotation service on which the securities
may be listed or quoted at the time of
sale;
|
|
§
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
§
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
§
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
§
|
transactions
otherwise than on these exchanges or systems or in the over-the-counter
market;
|
|
§
|
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
|
|
§
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
§
|
privately
negotiated transactions;
|
|
§
|
short
sales;
|
|
§
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
§
|
a
combination of any such methods of sale;
and
|
|
§
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
The
selling stockholders may also engage in short sales against the box, puts and
calls and other transactions in our securities or derivatives of our securities
and may sell or deliver shares in connection with these trades.
Broker-dealers
engaged by the selling stockholders may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved. Any
profits on the resale of shares of common stock by a broker-dealer acting as
principal might be deemed to be underwriting discounts or commissions under
the
Securities Act. Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder. The selling stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the shares
if liabilities are imposed on that person under the Securities Act.
In
connection with the sale of the shares of common stock or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealers, which
may
in turn engage in short sales of the shares of common stock in the course of
hedging in positions they assume. The selling stockholders may also sell shares
of common stock short and deliver shares of common stock covered by this
prospectus to close out short positions and to return borrowed shares in
connection with such short sales. The selling stockholders may also loan or
pledge shares of common stock to broker-dealers that in turn may sell such
shares.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act amending the
list
of selling stockholders to include the pledgee, transferee or other successors
in interest as selling stockholders under this prospectus.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of common stock from time to time under this prospectus
after we have filed an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The
selling stockholders also may transfer and donate the shares of common stock
in
other circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
paid, or any discounts or concessions allowed to, such broker-dealers or agents
and any profit realized on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
At
the time a particular offering of the shares of common stock is made, a
prospectus supplement, if required, will be distributed which will set forth
the
aggregate amount of shares of common stock being offered and the terms of the
offering, including the name or names of any broker-dealers or agents, any
discounts, commissions and other terms constituting compensation from the
selling stockholders and any discounts, commissions or concessions allowed
or
reallowed or paid to broker-dealers. Under
the securities laws of some states, the shares of common stock may be sold
in
such states only through registered or licensed brokers or dealers. In addition,
in some states the shares of common stock may not be sold unless such shares
have been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with. There can
be no
assurance that any selling stockholder will sell any or all of the shares of
common stock registered pursuant to the shelf registration statement, of which
this prospectus forms a part.
Each
selling stockholder has informed us that it does not have any agreement or
understanding, directly or indirectly, with any person to distribute the common
stock. None of the selling stockholders who are affiliates of broker-dealers,
other than the initial purchasers in private transactions, purchased the shares
of common stock outside of the ordinary course of business or, at the time
of
the purchase of the common stock, had any agreements, plans or understandings,
directly or indirectly, with any person to distribute the
securities.
We
are
required to pay all fees and expenses incident to the registration of the shares
of common stock, including $5,000 of fees and disbursements of counsel to the
selling stockholders, or $10,000 if the SEC reviews the registration statement.
We have agreed to indemnify the selling stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act.
If
we are
notified by any selling stockholder that any material arrangement has been
entered into with a broker-dealer for the sale of shares of common stock, if
required, we will file a supplement to this prospectus. If the selling
stockholders use this prospectus for any sale of the shares of common stock,
they will be subject to the prospectus delivery requirements of the Securities
Act.
The
anti-manipulation rules of Regulation M under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), may apply to sales of our common stock
and activities of the selling stockholders, which may limit the timing of
purchases and sales of any of the shares of common stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of common
stock to engage in market-making activities with respect to the shares of common
stock. All of the foregoing may affect the marketability of the shares of common
stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
Once
sold
under the registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.
The
anti-manipulation rules of Regulation M under the Exchange Act may apply to
sales of our common stock and activities of the selling
stockholders.
The
validity of the shares of common stock offered by this prospectus will be passed
upon for us by McGuireWoods LLP, New York, New York.
The
financial statements included in this Prospectus and Registration Statement
have
been audited by BDO Seidman, LLP, an independent registered public accounting
firm, to the extent and for the periods set forth in their reports appearing
elsewhere herein and in the Registration Statement, and are included in reliance
upon such reports given upon the authority of said firm as experts in accounting
and auditing.
For
additional information regarding Cape Coastal's change in accountants from
Thomas Leger and Co., L.L.P. to BDO, Seidman, LLP, please see our Current Report
on Form 8-K filed with the SEC on January 5, 2006.
Previous
Independent Accountants.
On
June 16, 2005, Deloitte & Touche LLP (“D&T”) resigned as the
independent accountant for uBid, Inc. The report of Deloitte & Touche LLP on
the financial statements of uBid for the period April 2, 2003 (inception)
to December 31, 2003 contained neither an adverse
opinion nor a disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. No report was issued on
the
financial statements of uBid for the year ended December 31, 2004.
The
decision to change independent accountants was approved by uBid’s board of
directors on June 27, 2005.
During
uBid’s two most recent fiscal years and through the date of this Registration
Statement on Form S-1, uBid has had no disagreements with D&T on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of D&T, would have caused D&T to make reference to the
subject matter of such disagreements in its report.
During
uBid’s two most recent fiscal years and through the date of this Registration
Statement on Form S-1, there were no reportable events as defined under Item
304(a)(1)(v) of Regulation S-K adopted by the SEC.
uBid
has
provided D&T with a copy of this disclosure before its filing with the SEC.
uBid has requested that D&T furnish it with a letter addressed to the SEC
stating whether or not it agrees with the above statements. A copy of such
letter, dated February 10, 2006, was filed as Exhibit 16.1 to the
registration statement filed with the SEC on February 10, 2006.
We
are
required to comply with the informational requirements of the Exchange Act,
and
accordingly, we file annual reports, quarterly reports, current reports, proxy
statements and other information with the SEC. You may read or obtain a copy
of
these reports at the SEC’s public reference room at 100 F Street, N.E., Room
1580, Washington, D.C. 20549. You may obtain information on the operation of
the
public reference room and their copy charges by calling the SEC at
1-800-SEC-0330. The SEC maintains a website that contains registration
statements, reports, proxy information statements and other information
regarding registrants that file electronically with the SEC. The address of
the
website is http://www.sec.gov.
We
have
filed with the SEC a registration statement on Form S-1 under the Securities
Act
to register the shares offered by this prospectus. The term “registration
statement” means the original registration statement and any and all amendments
thereto, including the schedules and exhibits to the original registration
statement or any amendment. This prospectus is part of that registration
statement. This prospectus does not contain all of the information set forth
in
the registration statement or the exhibits to the registration statement. For
further information with respect to us and the shares we are offering pursuant
to this prospectus, you should refer to the registration statement and its
exhibits. Statements contained in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete,
and you should refer to the copy of that contract or other documents filed
as an
exhibit to the registration statement. You may read or obtain a copy of the
registration statement at the SEC’s public reference facilities and Internet
site referred to above.
|
Audited
Financial Statements:
uBid.com
Holdings, Inc.:
|
|
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
Unaudited
Interim Financial Statements:
uBid.com
Holdings, Inc.:
|
|
| Condensed Consolidated Balance Sheet as of March 31, 2006 and December 31, 2005 |
F-23
|
| Condensed Consolidated Statements of Operations for the three months ended March 31, 2005 and 2006 |
F-24
|
| Condensed Consolidated Statement of Shareholders Equity for the three months ended March 31, 2006 |
F-25
|
| Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2006 |
F-26
|
| Notes to Consolidated Financial Statements |
F-27
|
Board
of
Directors and Stockholders
uBid.com
Holdings, Inc.
Chicago,
Illinois
We
have
audited the accompanying consolidated balance sheets of uBid.com Holdings,
Inc.
as of December 31, 2004 and 2005, and the related consolidated statements
of operations, shareholders’ (deficit) equity, and cash flows for the
period from March 7, 2003 (inception) to December 31, 2003 and the
years
ended December 31, 2004 and 2005. We have also audited the statement of
operations, of shareholders' (deficit) equity and cash flows for the eight
months ended March 31, 2003 (Predecessor period). These financial statements
are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit
of its
internal control over financial reporting. Our
audits included consideration of internal control over financial reporting
as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of
the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as
well as evaluating the overall financial statement presentation. We believe
that
our audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of uBid.com Holdings,
Inc. as
of December 31, 2004 and 2005, and the results of its operations and its
cash flows for the eight
months ended March 31, 2003 (the Predecessor period), the period
from March 7, 2003 (inception) to December 31, 2003 and the years ended
December
31, 2004 and 2005 in
conformity with accounting principles generally accepted in the United
States of
America.
As
discussed in Note 20 to the consolidated financial
statements, the Company has restated its 2005 consolidated financial
statements.
/s/
BDO
Seidman, LLP
Chicago,
Illinois
February
20, 2006, except for Note 20 which is as of
April 18, 2006
uBid.com
Holdings, Inc.
|
Restated
|
|||||||
|
December
31,
|
2004
|
2005
|
|||||
|
Assets
|
|||||||
| Current Assets | |||||||
|
Cash
and cash equivalents
|
$
|
1,734
|
$
|
21,176
|
|||
|
Restricted
investments
|
1,659
|
7,003
|
|||||
|
Accounts
receivable, less allowance for doubtful accounts of $8 and
$60,
respectively
|
646
|
1,306
|
|||||
|
Merchandise
inventories
|
7,206
|
5,989
|
|||||
|
Prepaid
expenses and other
current assets
|
572
|
646
|
|||||
|
Total
Current Assets
|
11,817
|
36,120
|
|||||
|
Property
and Equipment, net
|
329
|
524
|
|||||
|
|
|||||||
|
Total
Assets
|
$
|
12,146
|
$
|
36,644
|
|
Liabilities
and Shareholders’ (Deficit) Equity
|
||||||||||
|
Current
Liabilities
|
||||||||||
|
Flooring
facility
|
$
|
89
|
$
|
1,612
|
|||
|
Accounts
payable
|
4,469
|
4,456
|
|||||
|
Accrued
expenses
|
|||||||
|
Advertising
|
1,006
|
397
|
|||||
|
Merger
and offering costs
|
– | 2,000 | |||||
|
Other
|
1,466
|
1,187
|
|||||
|
Current
maturities of long-term
debt
|
1,910
|
410
|
|||||
|
Total
Current Liabilities
|
8,940
|
10,062
|
|||||
|
Long-Term
Debt, less current maturities
|
9,410
|
–
|
|||||
|
Total
Liabilities
|
18,350
|
10,062
|
|||||
|
Redeemable
Common Stock
|
–
|
12,000
|
|||||
|
Shareholders’
(Deficit) Equity
|
|||||||
|
Preferred stock
|
1,120
|
–
|
|||||
|
Common
stock
|
–
|
17
|
|||||
|
Stock
warrant
|
75
|
6,322
|
|||||
|
Additional
paid-in-capital
|
–
|
25,907
|
|||||
|
Retained
deficit
|
(7,399
|
)
|
(17,664
|
)
|
|||
|
Total
Shareholders’ (Deficit) Equity
|
(6,204
|
)
|
14,582
|
||||
|
Total
Liabilities and Shareholders’ (Deficit) Equity
|
$
|
12,146
|
$
|
36,644
|
See
accompanying notes to consolidated financial
statements.
uBid.com
Holdings, Inc.
Consolidated
Statements of Operations
(Dollars
in Thousands, except loss per share data)
|
Predecessor
|
|
||||||||||||||
|
|
Eight
Months
Ended
March
31, 2003
|
Period
from
March
7, 2003 (inception)
to
December 31, 2003
|
Year
Ended
December
31, 2004
|
Restated
Year
Ended
December
31, 2005
|
|||||||||||
|
Net
Revenues
|
$ | 103,484 |
$
|
65,656
|
$
|
87,002
|
$
|
84,592
|
|||||||
|
Cost
of Revenues
|
100,252 |
54,491
|
75,837
|
73,062
|
|||||||||||
|
Gross
profit
|
3,232 |
11,165
|
11,165
|
11,530
|
|||||||||||
|
Operating
Expenses
|
|||||||||||||||
|
General
and
administrative
|
126,527 |
9,021
|
12,112
|
13,045
|
|||||||||||
|
Sales
and
marketing
|
5,743 |
2,484
|
4,260
|
4,996
|
|||||||||||
|
Total
operating expenses
|
132,270 |
11,505
|
16,372
|
18,041
|
|||||||||||
|
Loss
From Operations
|
(129,038 | ) |
(340
|
)
|
(5,207
|
)
|
(6,511
|
)
|
|||||||
|
Other
Income (Expense)
|
|||||||||||||||
|
Interest
expense
|
(6,253 | ) |
(729
|
)
|
(1,188
|
)
|
(2,925
|
)
|
|||||||
|
Interest
income
|
247 |
78
|
86
|
124
|
|||||||||||
|
Miscellaneous
income
|
–
|
21
|
–
|
263
|
|||||||||||
|
Total
other expense, net
|
(6,006 | ) |
(630
|
)
|
(1,102
|
)
|
(2,538
|
)
|
|||||||
|
Net
Loss
|
(135,044 | ) |
|
(970
|
)
|
|
(6,309
|
)
|
|
(9,049
|
)
|
||||
|
Preferred Stock
and Other Deemed Dividends
|
–
|
(60
|
)
|
(60
|
)
|
(1,216
|
)
|
||||||||
|
Net
Loss Available to Common Shareholders
|
$
|
(135,044 |
)
|
$
|
(1,030 |
)
|
$
|
(6,369
|
)
|
$
|
(10,265
|
)
|
|||
|
Net
Loss Per Share
|
|||||||||||||||
|
Basic
and Diluted
|
$
|
N/M |
$
|
(0.41
|
)
|
$
|
(2.56.
|
)
|
$
|
(3.88
|
)
|
||||
|
Weighted
Average Shares - Basic and Diluted
|
N/M |
2,487,107
|
2,487,107
|
2,643,936
|
|||||||||||
N/M
computation for period ended March 31, 2003 is not meaningful (N/M) because
there was no common stock outstanding.
See
accompanying notes to consolidated financial statements.
uBid.com
Holdings, Inc.
Consolidated
Statements of Shareholders' (Deficit)
Equity
(Dollars
in Thousands, except par values)
|
Restated
|
Restated
|
||||||||||||||||||||||||
|
Preferred
Stock
|
Common
Stock
|
Stock
|
Paid-in
|
Retained
|
|||||||||||||||||||||
|
Shares
|
Dollars
|
Shares
|
Dollars
|
Warrants
|
Capital
|
Deficit
|
Total
|
||||||||||||||||||
|
Balance,
March 7, 2003 (inception) (1)
|
—
|
$
|
—
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||||||||
|
Stock
issuance (2)
|
2,500
|
1,000
|
2,487,107
|
—
|
—
|
—
|
—
|
1,000
|
|||||||||||||||||
|
Warrants
issuance (3)
|
—
|
—
|
—
|
—
|
75
|
—
|
—
|
75
|
|||||||||||||||||
|
Preferred
stock dividends
|
—
|
60
|
—
|
—
|
—
|
—
|
(60
|
)
|
—
|
||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(970
|
)
|
(970
|
)
|
|||||||||||||||
|
Balance,
December 31, 2003
|
2,500
|
1,060
|
2,487,107
|
—
|
75
|
—
|
(1,030
|
)
|
105
|
||||||||||||||||
|
Preferred
stock dividends
|
—
|
60
|
—
|
—
|
—
|
—
|
(60
|
)
|
—
|
||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(6,309
|
)
|
(6,309
|
)
|
|||||||||||||||
|
Balance,
December 31, 2004
|
2,500
|
1,120
|
2,487,107
|
—
|
75
|
—
|
(7,399
|
)
|
(6,204
|
)
|
|||||||||||||||
|
Preferred
stock dividends
|
— |
60
|
—
|
—
|
—
|
—
|
(60
|
)
|
—
|
||||||||||||||||
|
Conversion
of preferred stock (4)
|
(2,500
|
)
|
(1,180
|
)
|
5,800,159
|
8
|
—
|
1,172
|
—
|
—
|
|||||||||||||||
|
Exercise
of warrants (5)
|
—
|
—
|
436,172
|
1
|
(75
|
)
|
74
|
—
|
|||||||||||||||||
|
Issuance
of common stock (6)
|
—
|
—
|
76,562
|
—
|
—
|
444
|
—
|
444
|
|||||||||||||||||
|
Merger
with Cape Coastal (7)
|
—
|
—
|
154,887
|
—
|
—
|
(2,061
|
)
|
—
|
(2,061
|
)
|
|||||||||||||||
|
Private
offering (8)
|
—
|
—
|
7,777,779
|
8
|
5,200
|
29,792
|
35,000
|
||||||||||||||||||
|
Deemed
dividend (9)
|
—
|
—
|
—
|
—
|
—
|
1,156 | (1,156 |
)
|
—
|
||||||||||||||||
|
Private
offering costs (10)
|
—
|
—
|
—
|
—
|
522
|
(4,670
|
)
|
—
|
(4,148
|
)
|
|||||||||||||||
|
Warrants
issuance (11)
|
—
|
—
|
—
|
—
|
600
|
—
|
—
|
600
|
|||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(9,049
|
)
|
(9,049
|
)
|
|||||||||||||||
|
Balance,
December 31, 2005 Restated
|
—
|
$
|
—
|
16,732,666
|
$
|
17
|
$
|
6,322
|
$
|
25,907
|
$
|
(17,664
|
)
|
$
|
14,582
|
||||||||||
| (1) | Prior to the current Company's inception, the predecessor company had a retained deficit of $404,028 on August 1, 2002 and, with the additional losses of $135,044 for the eight month period ending March 31, 2003, had a retained deficit of $539,072 at that date. |
| (2) |
Upon
inception and shortly thereafter, the Company issued 1,072 shares of
$0.001 par value voting common stock (out of 5,000 authorized
shares) and
2,500 shares of $400 par value voting preferred stock
(out of 5,000
authorized shares). However, these financial statements
retroactively
reflect the impact of the Company’s December 2005 merger with Cape Coastal
and the resulting exchange of the Company’s outstanding common stock
for the common stock of Cape Coastal at an exchange ratio
of 2,320 to 1.
See Note 4.
|
| (3) |
Upon
the Company’s April 2003 acquisition of its current business, the Company
issued stock warrants to the seller to acquire up to 188
shares of $0.001
par value non-voting common stock (out of 2,000 authorized
shares) valued
at $75.
|
| (4) | Conversion of 2,500 shares of convertible voting preferred stock just prior to the merger with Cape Coastal and exchange of resulting 2,500 shares of common stock for the common stock of Cape Coastal at an exchange ratio of 2,320 to 1. See Note 4. Dividends were not paid and therefore reflected as a contribution to paid-in-capital. |
| (5) | Exercise of warrants just prior to the merger with Cape Coastal and exchange of resulting 188 shares of common stock for the common stock of Cape Coastal at an exchange ratio of 2,320 to 1. See Note 4. |
| (6) |
The
Company issued 33 shares of its non-voting common stock
in October 2005
for $444. These shares are also reflected as exchanged
common stock at an
exchange ratio of 2,320 to 1. See Note
4.
|
| (7) |
Upon
the December 2005 merger with Cape Coastal, which has been
accounted for
as a reverse acquisition, the previous owners of Cape Coastal
retained
599,331 shares of $0.001 par value common stock (out of
200,000,000
authorized shares) and the Company assumed net liabilities
of Cape Coastal
of $61. In addition, 444,444 shares of common stock owned
by the previous
uBid stockholders became subject to redemption and were reclassified
out of permanent equity. These shares were redeemed subsequent
to year
end. See Note 4.
|
| (8) |
Concurrent
with the December 2005 merger with Cape Coastal, the
Company completed the
first part of a private placement under which it issued
10,000,003 shares
of common stock and stock warrants valued at $5,200 for
an aggregate of
$45,000. Of the issued shares, 2,222,224 were subject
to redemption and
are therefore not classified as permanent equity. These
shares were
redeemed subsequent to year end.
|
| (9) |
Represents loss on extinguishment
of
shareholder debt. See Notes 8 and
20.
|
| (10) |
Private
offering costs included warrants issued to transaction
advisors valued at
$522 and cash expenses of $4,148. See Note
4.
|
| (11) |
Concurrent
with the private offering, the Company issued warrants
to certain lenders
valued at
$600 as provided in the credit agreement governing such
debt. See Note
4.
|
See
accompanying notes to consolidated financial
statements.
|
Predecessor
|
|||||||||||||||
|
|
Eight
Months
Ended
March
31, 2003
|
Period
from
March
7, 2003 (inception)
to December
31, 2003
|
Year
Ended
December
31, 2004
|
Year
Ended
December
31, 2005
|
|||||||||||
|
|
|
|
|
||||||||||||
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
||||||||||
|
Net
loss
|
$ | (135,044 | ) |
$
|
(970
|
)
|
$
|
(6,309
|
)
|
$
|
(9,049
|
)
|
|||
|
Adjustments
to reconcile net loss
to net cash used in operating activities
|
|||||||||||||||
|
Depreciation
|
2,974 |
123
|
176
|
181
|
|||||||||||
|
Interest
expense
paid with warrants
|
– | – |
–
|
600
|
|||||||||||
|
Non-cash
compensation
expense
|
– |
–
|
200
|
–
|
|||||||||||
|
Impairment
of long-lived assets
|
93,285 | – | – |
–
|
|||||||||||
|
Changes
in assets and liabilities, net of
effect of acquisition
|
|||||||||||||||
|
Accounts
receivable
|
4,366 |
73
|
(454
|
)
|
(660
|
)
|
|||||||||
|
Merchandise
inventories
|
8,033 |
(2,842
|
)
|
(1,476
|
)
|
1,217
|
|||||||||
|
Prepaid
expenses and other current
assets
|
917 |
(338
|
)
|
265
|
(74
|
)
|
|||||||||
|
Accounts
payable
|
(7,013 | ) |
(1,839
|
)
|
2,065
|
(13
|
)
|
||||||||
|
Accrued
expenses
|
(3,073 | ) |
(608
|
)
|
370
|
1,051
|
|||||||||
|
Fees
and interest charged by parent
|
8,148 |
–
|
–
|
–
|
|||||||||||
|
Net
cash used in operating activities
|
(27,407 | ) |
(6,401
|
)
|
(5,163
|
)
|
(6,747
|
)
|
|||||||
|
Cash
Flows From Investing Activities
|
|||||||||||||||
|
Acquisition
of
uBid
|
–
|
|
(1,613
|
)
|
–
|
–
|
|||||||||
|
Cash
acquired in acquisition of
uBid
|
–
|
11,565
|
–
|
–
|
|||||||||||
|
Capital
expenditures
|
(1,398 | ) |
(440
|
)
|
(109
|
)
|
(376
|
)
|
|||||||
|
Change
in restricted
investments
|
2,968 |
(3,670
|
)
|
2,011
|
(5,344
|
)
|
|||||||||
|
Net
cash provided by (used in) investing activities
|
1,570 |
5,842
|
1,902
|
(5,720
|
)
|
||||||||||
|
Cash
Flows From Financing Activities
|
|||||||||||||||
|
Change
in flooring
facility
|
(355 | ) |
(113
|
)
|
(3,167
|
)
|
1,523
|
||||||||
|
Cash
advances from parent
|
25,468 |
–
|
–
|
–
|
|||||||||||
|
Payments
on notes
payable
|
–
|
–
|
(1,000
|
)
|
(1,000
|
)
|
|||||||||
|
Proceeds
from issuance of
preferred stock
|
–
|
1,000
|
–
|
–
|
|||||||||||
|
Proceeds
from sale of non-voting
common stock
|
–
|
– | – |
444
|
|||||||||||
|
Proceeds
from issuance of
related-party debt
|
–
|
500
|
9,000
|
1,500
|
|||||||||||
|
Repayment
of related party debt
|
–
|
– | – |
(500
|
)
|
||||||||||
|
Proceeds
from issuance of Bridge
notes
|
–
|
–
|
–
|
5,000
|
|||||||||||
|
Proceeds
from sale of common stock and
warrants
|
–
|
–
|
–
|
29,500
|
|||||||||||
|
Fees paid
in conjunction with Merger and
offering
|
–
|
–
|
–
|
(4,148
|
)
|
||||||||||
|
Payments
on long-term
debt
|
(402 | ) |
–
|
(666
|
)
|
(410
|
)
|
||||||||
|
Net
cash provided by financing activities
|
24,711 |
1,387
|
4,167
|
31,909
|
|||||||||||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(1,126 | ) |
828
|
906
|
19,442
|
||||||||||
|
Cash
and Cash Equivalents, beginning of period
|
2,234 |
–
|
828
|
1,734
|
|||||||||||
|
Cash
and Cash Equivalents, end of period
|
$
|
1,108 |
$
|
828
|
$
|
1,734
|
$
|
21,176
|
|||||||
|
Supplemental
Cash Flow Disclosure
|
|||||||||||||||
|
Cash
paid for
interest
|
$
|
542 |
$
|
593
|
$
|
1,056
|
$
|
2,494
|
|||||||
|
Supplemental
Disclosure of Noncash Financing Activities
|
|||||||||||||||
|
Long-term
debt relating to computer software licenses
|
$
|
–
|
|
$
|
80
|
$
|
–
|
$
|
–
|
||||||
|
Common
stock and warrants issued in exchange for cancellation of related
party
debt
|
–
|
– | – |
10,500
|
|||||||||||
|
Common
stock and warrants issued in exchange for cancellation of
debt
|
–
|
– | – |
5,000
|
|||||||||||
|
Warrants
issued as stock issuance costs
|
–
|
–
|
–
|
522
|
|||||||||||
See
accompanying notes to consolidated financial statements.
uBid.com
Holdings, Inc.
(Dollars
in Thousands)
|
1.
|
Organization
and
Operations
|
uBid.com
Holdings, Inc. (the “Company”), formerly uBid, Inc., operates a
leading on-line marketplace that enables itself, certified merchants,
manufacturers, retailers, distributors and small businesses to
offer high
quality excess, new, overstock, close-out, refurbished and limited
supply
brand name merchandise to consumer and business customers. Through
the
Company’s website, located at www.ubid.com,
the Company offers merchandise across a wide range of product
categories
including but not limited to computer products, consumer electronics,
apparel, housewares, watches, jewelry, travel, sporting goods, home
improvement products and collectibles. The Company’s marketplace employs a
combination of auction style and fixed price formats.
|
|
uBid,
Inc. commenced operations in 1997 primarily selling computer
and consumer
electronics
on our online auction style marketplace as a wholly-owned subsidiary
of PC
Mall.
In December 1998, uBid completed an initial public
offering.
In
April 2000, CMGI, Inc. ("CMGI") acquired ownership of uBid, Inc. in a
stock-for-stock merger transaction
valued at approximately $407 million. Upon closing,
uBid,
Inc. became a wholly-owned
subsidiary of
CMGI (the "Predecessor").
On
April 2, 2003, CMGI sold substantially all of the assets and
non-related
party liabilities
of uBid, Inc. to Takumi Interactive, Inc., an investment vehicle of
Petters Group Worldwide,
LLC ("Petters Group") formed on March 7, 2003, which changed
its name
to
uBid,
Inc. immediately after the acquisition. As a result of the transaction,
uBid became a
separate stand-alone business owned substantially by
the
Petters Group. In consideration
of the asset sale, Takumi paid CMGI (1) $1,612,500 in cash at
closing, (2)
a
promissory note in the
aggregate principal amount of $2,000,000, bearing interest at
the
prime
rate plus 1.5%, payable
in
two equal installments on the first and second anniversaries
of
the
closing, and (3) a warrant to purchase non-voting common stock
of
uBid
constituting 5% of the outstanding common stock of uBid on the
consummation of the
business sale.
The
financial statements for the eight month period ended March
31, 2003 are
those of uBid, Inc., as a wholly-owned subsidiary of CMGI,
and have been
derived solely from the accounting records of CMGI, and using
the
historical results of operations, and historical basis of assets
and
liabilities of our Predecessor's business. The Predecessor did not
have common stock outstanding, therefore no loss per share
data is
presented for this period.
On
December 29, 2005 (the "Closing Date"), uBid entered
into a
Merger Agreement and Plan of Reorganization with Cape Coastal
Trading
Corporation (the previous public reporting entity), and uBid
Acquisition
Co., Inc., a wholly-owned subsidiary of Cape Coastal. Under
the Merger
Agreement, uBid Acquisition Co. merged with and into uBid,
with uBid
remaining as the surviving corporation and our wholly-owned
subsidiary.
Before
the merger, Cape Coastal Trading Corporation was a shell company.
Our
business
operations following the merger are those of our wholly-owned
subsidiary,
uBid.
|
||
|
The
merger was treated as a recapitalization of uBid for financial
accounting
purposes. Accordingly, the historical financial statements of
Cape Coastal
before the merger have been replaced with the historical financial
statements of uBid before the merger. The name Cape Coastal was
subsequently changed to uBid.com Holdings, Inc. in February
2006.
|
||
|
2.
|
Summary
of Significant Accounting Policies
|
|
|
Use
of Estimates
|
The
preparation of financial statements in conformity with generally
accepted
accounting principles in the United States of America requires
management
to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and
liabilities
at the date of the financial statements, and the reported amounts
of
revenues and expenses during the respective reporting periods.
Actual
results could differ from those estimates.
|
|
|
Year-End
|
The
Company’s fiscal year ends on December 31. The Predecesor's fiscal year
ended July 31.
|
|
|
Cash
and Cash Equivalents
|
The
Company considers all highly liquid investments purchased with
a maturity
of three months or less to be cash equivalents. Cash and cash
equivalents
include financial instruments that potentially subject the Company
to a
concentration of credit risk. The Company maintains its cash
balances in
two institutions and has concentration of credit risk to the
extent
deposits exceeded the federally insured
limits.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
Restricted
Investments
|
The
Company maintains restricted collateral invested in certificates
of
deposit which mature within one year and are used as security
for the
Company’s office lease and purchases from suppliers. Interest on the
certificates of deposit is earned at 4.235% per annum.
|
|
|
Accounts
Receivable
|
Accounts
receivable consist of amounts due from customers, businesses,
and credit
cards billed for which payment has not yet been received at period-end.
An
allowance for doubtful accounts is maintained at a level management
believes is sufficient to cover potential losses based on historical
trends and known current factors.
|
|
|
Activity
relating to the allowance for doubtful accounts is summarized
as
follows:
|
| Predecessor | |||||||||||||||
|
March
31,
|
December
31,
|
||||||||||||||
|
|
2003
|
2003
|
2004
|
2005
|
|||||||||||
| Balance, beginning of period | $ | 542 | $ | – | $ | 15 |
$
|
8
|
|||||||
|
Charged
to costs and expenses
|
–
|
23 | 1 |
56
|
|||||||||||
|
Write-offs,
retirements and recoveries
|
450 | (8 | ) | (8 | ) |
(4)
|
|
||||||||
|
Balance,
end of period
|
$ | 92 | $ | 15 | $ | 8 |
$
|
60
|
|||||||
|
Merchandise
Inventories
|
Merchandise
inventories consist of merchandise purchased for resale and are
valued at
the lower of specifically identified cost or market. The Company
establishes allowances for damages, excess and obsolete inventory
equal to
the difference between the cost of inventory and the estimated
market
value based upon assumptions about future demand and market
conditions.
|
||
|
Property
and Equipment
|
Property
and equipment are stated at cost and depreciated/amortized on
a
straight-line basis over the estimated useful lives of the related
assets
as follows:
|
||
| Furniture and fixtures |
7
years
|
||
| Computer software and hardware | 3 years | ||
| Leasehold improvements | 5 years | ||
|
Maintenance
and repairs are charged to expense as incurred. Major betterments
are
capitalized and depreciated over the remaining useful lives of
the
respective assets. Gains and losses on disposal of assets are
credited or
charged to income.
|
|||
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
Long-Lived
Assets
|
Long-lived
assets are reviewed for impairment whenever events or circumstances
indicate the remaining useful life of any long-lived assets may
warrant
revision or that the remaining carrying value of such assets
may not be
recoverable. When factors indicate that such assets should be
evaluated
for possible impairment, the Company uses an estimate of the
undiscounted
cash flows over the remaining life of the asset in measuring
whether the
asset is recoverable. No impairment has been recognized for the
periods
ended December 31, 2005 and 2004.
|
|
|
Goodwill
impairment assessments were performed by the Predecessor in two
steps. In
the first step, the carrying value of the Predecessor's total
net assets
were compared to the estimated fair value of the Predecessor.
If fair
value was less than carrying value, the second step was performed
by
assuming that the fair value was paid for the Predecessor to
the Company and normal purchase accounting was performed to
compute an "implied goodwill." The impairment was then measured
as the
amount, if any, that the carrying value of goodwill exceeded
the "implied
goodwill." Management determined fair value of the Predecessor based
on a combination of the discounted cash flow methodology, which
is based
upon converting expected cash flows to present value, and the
market
approach, which includes analysis of market price multiples of
companies
engaged in lines of business similar to the Predecessor. The
market price
multiples were selected and applied to the Predecessor based on the
relative performance, future prospects and risk profile of
the Predecessor in comparison to the guideline companies. Management
predominantly utilized third-party valuation experts in its determination
of fair value. No impairment was recognized in the Predecessor's
transition assessment performed upon adoption of this new
pronouncement.
|
||
|
In
January 2003, CMGI's management decided to divest the Predecessor's
operations either through sale of net assets or its equity interest
in the
Predecessor. See Notes 1 and 3 for a description of the April
2003 sale of
the Predecessor. With the decision to divest, CMGI effectively
ceased
funding the operations of the Predecessor, including funding
for
advertising and inventory purchases, thereby significantly impacting
the
attractiveness of the Predecessor's website and, absent a sale of
the Predecessor, significantly reducing the Predecessor's ability
to
generate positive cash flows in the future. Accordingly, management
reassessed its previous impairment decisions regarding all of
its
long-lived assets. Based on internal analysis - principally reflecting
prices for similar assets, management determined that the carrying
value
of the Predecessor's property and equipment was impaired and
recorded an
impairment charge of $1.9 million for computer hardware and furniture
and
fixtures and $2.0 million for computer software. Based on the
estimated
sales price of the business as described in Note 3, management
determined
that the carrying value of goodwill was fully impaired and therefore
recorded an $89.4 million impairment
charge.
|
|
Financial
Instruments
|
The
carrying amounts reported in the balance sheet for cash, cash
equivalents,
restricted investments, accounts receivable, flooring facility,
accounts
payable and accrued expenses approximate fair value because of
the
short-term nature of these amounts. The Company’s long-term debt
approximates fair value based on instruments with similar
terms.
|
|
|
Revenue
Recognition
|
The
Company sells merchandise under two types of arrangements, direct
purchase
sales and revenue sharing arrangements.
|
|
|
For
direct purchase sales, the Company is responsible for conducting
the
auction for merchandise owned by the Company, billing the customer,
shipping the merchandise to the customer, processing merchandise
returns
and collecting accounts receivable. In accordance with the provisions
of
Staff Accounting Bulletin 104, the Company recognizes revenue
when the
following revenue recognition criteria are met: (1) persuasive
evidence of an arrangement exists; (2) the product has been shipped
(FOB Shipping Point) and the customer takes ownership and assumes
the risk
of loss; (3) the selling price is fixed or determinable; and
(4) collection of the resulting receivable is reasonably assured.
|
||
|
For
sales of merchandise under revenue-sharing agreements, the Company
is
responsible for conducting the auction for merchandise owned
by third
parties, billing the customer, arranging for a third party to
complete
delivery to the customer, processing merchandise returns and
collecting
accounts receivable. The Company bears no physical inventory
loss or
returns risk related to these sales. The Company records commission
revenue at the time of shipment.
|
||
|
Commission
revenues recognized under revenue sharing arrangements were $462,
$800,
$1,827 and $3,384 for the periods ended March 31, 2003 and December
31,
2003, 2004 and 2005,
respectively.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
Shipping
and Handling
Costs
|
Shipping
costs that are billable to the customer are included in revenue
and all
shipping costs that are payable to vendors are included in cost
of
revenues in the accompanying consolidated statements of operations.
Handling costs consisting primarily of the third party logistics
warehouse
costs are included in general and administrative expenses. Warehousing
costs for the periods ended March 31, 2003 and December 31,
2003, 2004 and 2005 were $10.0 million, $1.4 million, $1.0 million
and
$0.9 million, respectively.
|
|
|
Merchandise
Return Policy
|
The
Company’s return policy, for all selling arrangements, is that merchandise
sold by the Company can be returned within 15 days. Returns are
subject to
a 15% restocking fee and are included in revenues. Restocking
fees for the
periods ended March 31, 2003 and Decmber 31, 2003, 2004 and 2005
were $27,
$35, $80 and $71 respectively. However, the Company,
although not obligated to do so, may accept merchandise returns
outside
the 15-day period if a product is defective or does not conform
to the
specifications of the item sold at auction, and attempts to work
with its
customers to resolve complaints about merchandise. The Company
provides an
accrual for estimated future returns at the time of shipment
based on
historical experience.
|
|
Predecessor
|
|||||||||||||||
|
March
31,
|
Merchandise
Returns Years
Ended
December 31,
|
||||||||||||||
|
2003
|
2003
|
2004
|
2005
|
||||||||||||
| Balance at beginning of year | $ | (42 | ) |
$
|
(35
|
)
|
$ | (30 | ) | $ | (30 | ) | |||
| Provision |
(1,011
|
)
|
(330 | ) | (611 | ) | (458 | ) | |||||||
| Charges |
1,018
|
335 | 611 | 458 | |||||||||||
| Balance at the end of year |
$
|
(35
|
)
|
$ | (30 | ) | $ | (30 | ) | $ | (30 | ) | |||
|
|
|
|
|
Advertising
Costs
|
The
Company has marketing relationship agreements with various online
companies such as portal networks, contextual sites, search engines
and
affiliate partners. Agreements have varying terms including 1-14
day
cancellation clauses. Advertising costs are generally charged
to the
Company monthly per vendor agreements, which typically are based
on
visitors and/or registrations delivered to the site or at a set
fee.
Agreements do not provide for guaranteed renewal and may be terminated
by
the Company without cause.
Advertising
costs are charged to expense as incurred. Total advertising costs
for the
periods ended March 31, 2003, and December 31, 2003, 2004 and
2005 were $5,203, $2,141, $3,756 and $4,297,
respectively.
|
|
|
Stock-Based
Compensation
|
The
Company accounts for all stock options under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
(“SFAS
No.
123”),
which establishes a fair value method of accounting for stock-based
compensation plans. The provisions of SFAS No. 123 allows companies
to
either record an expense in the financial statements to reflect
the
estimated fair value of stock options to employees, or to continue
to
follow the intrinsic value method set forth in Accounting Principles
Board
Opinion No. 25, Accounting for Stock Issued to Employees, but
to disclose
on an annual basis the pro forma effect on net income (loss)
and net
income (loss) per share had the fair value of the stock options
been
recorded in the financial statements. SFAS No. 123 was amended
by Accounting for Stock-Based Compensation - Transition and
Disclosure (SFAS No. 148), which now requires companies to disclose
in interim financial statements the pro forma effect on net income
(loss)
and net income (loss) per common share of the estimated fair
market value
of stock options issued to employees. The Company has elected
to continue
to account for stock-based compensation plans utilizing the intrinsic
value method. Accordingly, compensation cost for stock options
will be
measured as the excess, if any, of the fair market price of the
Company’s
common
stock at the date of grant above the amount an employee must
pay to
acquire the common stock. Directors, acting in their capacity
as
directors, are considered employees for this purpose. In accordance
with
SFAS No. 123, the cost of stock options and warrants issued to
non-employees is measured at the grant date based on the fair
value of the
award. The fair value of the stock-based award is determined
using the
Black-Scholes option-pricing model. The resulting amount is charged
to
expense on the straight-line basis over the period in which the
Company
expects to receive benefit, which is generally the vesting
period.
|
| For purposes of following pro forma disclosures as required by SFAS No. 123, the fair value of each option granted has been estimated on the date of grant using the Black-Scholes option- pricing model with the following assumptions used for the grants. No options were granted prior to 2005. |
|
December
31,
|
2005
|
|||
| Risk-free interest rate |
5.0
|
%
|
||
| Expected volatility |
68.0
|
%
|
||
| Expected life (years) |
4
|
|||
| Expected dividend yield |
–
|
|||
| The fair value of the 1,721,700 options granted on December 29, 2005 was $3,581. For the purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options vesting period. | ||
|
The
following table illustrates the effect on the net loss and
loss per share
if the Company had applied the fair value recognition provisions
of SFAS
No. 123.
|
| Year ended December 31, |
2005
|
|||
| Net loss as reported |
$
|
(9,049
|
)
|
|
|
|
||||
|
Less
stock based employee compensation expense determined under
fair value
based method for awards
|
(7
|
)
|
||
| Pro forma net loss |
$
|
(9,056
|
)
|
|
| Net loss per share | ||||
|
Basic
and diluted, as reported
|
$
|
(3.45
|
)
|
|
|
Basic
and diluted, pro forma
|
$
|
(3.45
|
)
|
|
|
Effective
January 1, 2006 the Company adopted the fair value recognition
provision of Statement of Financial Accounting Standards
No. 123 (revised
2004) “Share-Based Payments” (“SFAS 123R”), using the modified prospective
transition method and therefore have not restated results
for prior
periods. Under this transition method, stock-based compensation
expense
for the first quarter of 2006 includes compensation expense
for all
stock-based compensation awards granted prior to, but not
yet vested as
of December 31, 2005, based on the grant date fair value estimated
in
accordance with the original provision of SFAS No. 123.
Stock-based
compensation expense for all stock-based compensation awards
granted after
December 31, 2005 is based on the grant-date fair value
estimated in
accordance with the provisions of SFAS 123R. The Company recognizes
these compensation costs on a straight-line basis over
the requisite
service period of the award which is generally the option
vesting term of
four years. The total compensation expense related to the
stock option
plan for the three months ended March 31, 2006 is approximately
$230,000.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
Income
Taxes
|
The
Company accounts for income taxes under the liability method.
Under this
method, deferred income taxes are recognized by applying enacted
statutory
tax rates applicable to future years to differences between the
income tax
bases and financial reporting amounts of existing assets and
liabilities.
A valuation allowance is provided when it is more likely than
not that all
or some portion of deferred income tax assets will not be
realized.
|
|
|
Net
Loss Per Share
|
The
Company computes loss per share under Statement of Financial
Accounting
Standards (“SFAS”) No. 128, “Earnings Per Share.” The statement requires
presentation of two amounts: basic and diluted loss per share.
Basic loss
per share is computed by dividing the loss available to common
stockholders by the weighted average common shares outstanding.
Dilutive
earnings per share would include all common stock equivalents
unless
anti-dilutive.
|
|
|
Due
to losses in each period presented, the Company has not included
the
following common stock equivalents in its computation of diluted
loss per
share as their input would have been anti-dilutive. Considering
the
retroactive reflection of the share exchange, no common stock
equivalents
were outstanding until 2005.
|
|
|
2005
|
| Shares subject to stock warrants |
3,063,336
|
| Shares subject to stock options |
1,721,700
|
|
4,785,036
|
|
New
Accounting
Pronouncements
|
In
November
2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
151, “Inventory Costs - an amendment of Accounting Research Bulletins
(“ARB”) No. 43 Chapter 4”. This statement amends the guidance in ARB No.
43, Chapter 4 to clarify the accounting for abnormal amounts
of idle
facility expense, freight, handling costs and wasted material.
This
statement requires that these items be recognized as current
period costs
and also requires that allocation of fixed production overheads
to the
costs of conversion be based on the normal capacity of the production
facilities. This statement is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The Company
will apply
the guidance prospectively. The Company is in the process of
determining
what impact, if any, the application of this guidance
will have on
the Company’s financial position, results of operations or cash
flows.
|
|
In
December
2004, the FASB issued SFAS No. 123R, “Share-Based Payment (Revised 2004).”
This statement addresses the accounting for share-based payment
transactions in which a company receives employee services in
exchange for
the company’s equity instruments or liabilities that are based on the fair
value of the company’s equity securities or may be settled by the issuance
of these securities. SFAS No. 123R eliminates the ability to
account for
share-based compensation using the intrinsic value method and
generally
requires that such transactions be accounted for using a fair
value
method. The provisions of this statement for public entities
are effective
as of the beginning of the first interim or annual reporting period
that begins after December 15, 2005. Effective
January 1, 2006, the Company adopted the fair value recognition
provision
of SFAS No. 123R using the modified prospective transition method
and
therefore have not restated results for prior periods. Under
this
transition method, stock-based compensation expense for the first
quarter
of 2006 includes compensation expense for all stock-based compensation
awards granted prior to, but not yet vested as of December 31,
2005, based
on the grant date fair value estimated in accordance with the
original
provision of SFAS No. 123R. Stock-based compensation expense
for all
stock-based compensation awards granted after December 31, 2005
is based
on the grant-date fair value estimated in accordance with the
provisions
of SFAS No. 123R. The Company recognizes these compensation costs on
a straight-line basis over the requisite service period of the
award which
is generally the option vesting term of four years. The total
compensation expense related to the stock option plan for the
three months
ended March 31, 2006 is approximately
$230,000.
|
|
In
December 2004, the FASB issued FASB Statement No. 153, “Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting
for
Nonmonetary Transactions” (“FAS 153”). FAS 153 requires that exchanges of
nonmonetary assets be measured based on the fair value of the
assets
exchanged. Further, it expands the exception for nonmonetary
exchanges of
similar productive assets to nonmonetary assets that do not have
commercial substance. The provisions of this Statement are effective
for
nonmonetary asset exchanges occurring in fiscal periods beginning
after
June 15, 2005. The adoption of the provisions of FAS 153 did
not have a
material impact on our financial position or results of
operations.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
3.
|
Business
Combination
|
As
described in Note 1, on April 2, 2003, the Company completed
the purchase
of certain operating assets and assumption of certain liabilities
of uBid
from CMGI. The Company has accounted for this business combination
in
accordance with SFAS No. 141, Business
Combinations,
using the purchase method to record new cost basis for the assets
acquired
and liabilities assumed. The purchase price was allocated to
the assets
and liabilities based on their respective fair values. As of
the date of
acquisition, the fair value of the net assets acquired exceeded
the
purchase price paid to CMGI resulting in negative goodwill. The
negative
goodwill was allocated to all acquired long-term assets other
than
deferred income taxes.
|
|
The
allocation of cash paid for the uBid purchase as of April 2,
2003 is
summarized as follows:
|
|
Cash
|
$
|
11,565
|
||
|
Accounts
receivable
|
265
|
|||
|
Inventories
|
2,910
|
|||
|
Other
current assets
|
500
|
|||
|
Flooring
facility
|
(3,369
|
)
|
||
|
Accounts
payable
|
(3,889
|
)
|
||
|
Accrual
expenses
|
(2,888
|
)
|
||
|
Long-term
debt
|
(1,406
|
)
|
||
|
Total
purchase price
|
3,688
|
|||
|
Less
note issued to seller
|
(2,000
|
)
|
||
|
Less
warrant issued to seller
|
(75
|
)
|
||
|
Cash
paid for uBid at closing
|
$
|
1,613
|
| 4. |
Merger
and Private Offerings
|
On
December 29, 2005, Cape Coastal Trading Corporation, uBid Acquisition
Co.,
Inc. (“Acquisition Sub”) and uBid, Inc. entered into a Merger Agreement
and Plan of Reorganization. Under the Merger Agreement, Acquisition
Sub
merged with and into uBid, Inc., with uBid, Inc. remaining as
the
surviving corporation and a wholly-owned subsidiary of Cape Coastal
Trading Corporation (or “Cape Coastal”). Just prior to the closing
date, all outstanding convertible preferred shares and warrants
to acquire
common shares of uBid were converted and exercised such that,
just prior
to the merger 3,793 common shares were outstanding which were
exchanged on
a 2,320 to 1 basis on the closing date into 8,800,000 shares of
common stock with up to 444,444 shares of common stock subject
to
redemption at a redemption price of $4.50 (the
Financial Statements reflect the impact of the merger and the
resulting
exchange of the Company’s common stock outstanding before the conversion
and exercise of the convertible preferred stock and warrants).The
stockholders of Cape Coastal before the merger retained 599,331
shares of
common stock. Before the merger, Cape Coastal was a public shell
company. Concurrent
with the merger, the Company amended its Certificate of
Incorporation to change its name from Cape Coastal Trading Corporation
to
“uBid.com Holdings, Inc.”
|
|
The
merger was treated as a recapitalization of uBid for financial
accounting
purposes. Accordingly, the historical financial statements of
Cape Coastal
before the merger were replaced with the historical financial
statements
of uBid before the merger. All share and per share data has been
retroactively restated to reflect the implicit conversion ratio
related to
the exchange of shares in the
merger.
|
|
Concurrent
with the merger, the Company completed the first part of a private
offering to accredited investors. The Company sold 10,000,003
shares of its common stock of which 2,222,224 shares were subject to
redemption and warrants to purchase 2,500,003 shares of its
common stock at $5.85 for a period of 5 years, for aggregate
consideration
of approximately $45 million. These warrants were valued at $2.08 per
warrant for an aggregate of $5.2 million using a
Black-Scholes option-pricing model (see Note 16 for pricing
assumptions). Also
on December 29, 2005, we completed the first part of a private
offering to
accredited investors. We sold 10,000,003 shares of our common
stock and
warrants to purchase 2,500,003 shares of our common stock, for
aggregate
consideration of $45 million. The warrants issued to the investors
are
exercisable for five years at an exercise price of $5.85. Some
of the
investors participating in the first part of the private offering
held
notes that were issued by uBid before the merger, including $10.5
million
of debt held by the Petters Group and $5.0 million of debt held
by the
bridge loan holders. Rather than accepting cash consideration
for the
Units acquired by these investors, the Company agreed to issue Units
at a rate of one Unit for each $4.50 of debt for consideration
of the note
holders’ cancellation of the existing notes. Of the 3,444,444 Units issued
in exchange for debt, 2,222,224 Units were issued to Petters
Group with
common shares that were subject to redemption at a redemption
price of
$4.50. For debt exchanged with Units that did not have redeemable
common
shares, the value of the securities issued in exchange for the
debt
equaled the face value of the debt exchanged, and accordingly,
no gain or
loss was recognized or recorded by the Company. Due to the higher
value of
the redeemable common shares issued to Petters Group, the Company
realized
a loss of approximately $1.2 million upon the exchange of debt
for Units
with those redeemable common shares. However, as the Petters
Group is
considered a significant related party to the Company, the exchange
was
treated for accounting purposes as a capital transaction and
the resulting
loss was reflected as a dividend to shareholders rather than
as a direct
reduction of net earnings. Therefore, the consideration the Company
received on the Closing Date consisted of approximately $29.5
million in
cash and $15.5 million in cancelled debt. In addition, on the
Closing
Date, the Company issued warrants to purchase 333,333 shares of our
common stock to the bridge note holders as a financing fee, which
warrants
are exercisable for three years at an exercise price of $4.50
and the
value of which, $600,000, was recorded as interest expense. We
also issued
warrants to purchase 230,000 shares of its common stock to its
placement agents in the offering, which warrants are exercisable
for five
years at an exercise price of $4.50 and the value of which, $522,000,
was
recorded as a cost of the equity issuance. These warrants were
valued at $1.80 and $2.27 respectively per warrant for an aggregate
of $1.1 million using a Black-Scholes option-pricing model (see Note
16 for pricing assumptions). Issuance
costs, including the value of the warrants, were $4.7
million.
|
|
On
February 3, 2006, the Company completed the second part
of the private offering to accredited investors. In this
offering, the Company sold on the same terms as described
above for an aggregate of $13.5 million, 3,000,000 shares of its
common stock and warrants to purchase 750,002 shares of its common
stock. The Company also redeemed the 2,666,668 shares of common
stock issued in connection with the merger and the first private
offering that were subject to redemption at a price of $4.50 per
share and issued 600,667 shares of common stock (valued at $4.50
per
share) to Cape Coastal and uBid’s financial advisor, Calico Capital Group.
In addition, the Company issued additional warrants to purchase
90,000 shares of its common stock to its placement agents on the
same terms as described above. The second part of the private
offering
resulted in no net cash proceeds being retained by the Company.
Issuance
costs, including the value of the warrants and the shares issued
to Calico
Capital Group, were $3.2
million.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
5.
|
Merchandise
Inventories
|
Merchandise
inventories consist of the
following:
|
|
December
31,
|
|
2004
|
2005
|
|||||||
|
Merchandise
inventories
|
$
|
6,375
|
$
|
5,973
|
||||||
|
Inventory
in transit
|
1,352
|
331
|
||||||||
|
Less
reserves
|
(521
|
)
|
(315
|
) | ||||||
|
Total
|
$
|
7,206
|
$
|
5,989
|
||||||
|
Activity
relating to inventory reserves is summarized as
follows:
|
|
Predecessor
|
|||||||||||||||
|
March
31,
|
December
31,
|
||||||||||||||
|
|
2003
|
2003
|
2004
|
2005
|
|||||||||||
|
Balance,
beginning of period
|
$
|
(1,421
|
)
|
$ | — |
$
|
(935
|
)
|
$
|
(521
|
)
|
||||
|
Charged
to costs and expenses
|
(1,411
|
)
|
(3,257 | ) |
(1,216
|
)
|
(1,153
|
)
|
|||||||
|
Write-offs
|
1,222
|
2,322
|
1,630
|
1,359
|
|||||||||||
|
Balance,
end of period
|
$
|
(1,610
|
) | $ | (935 | ) |
$
|
(521
|
)
|
$
|
(315
|
)
|
|||
|
6.
|
Major Suppliers |
During
the period ended March 31, 2003, Sony Electronics, Inc. (“Sony”) and
Hewlett-Packard Company (“HP”) accounted for 28.0% and 10.0% respectively,
of the Company's inventory purchases. Amounts due at March 31,
2003
included in accounts payable and the flooring facility were approximately
$2,760 and $579, respectively, due these vendors.
|
|
|
|
During
the period ended December 31, 2003, Sony and HP, accounted for
52.1% and
15.2%, respectively, of the Company’s inventory purchases. Amounts
due at December 31, 2003 included in accounts payable and flooring
facility were approximately $2,522 and $692, respectively, to
these
vendors.
During
the year ended December 31, 2004, Sony and HP, accounted for 54.7%
and 10.9%, respectively, of the Company’s inventory purchases. Amounts due
at December 31, 2004 included in accounts payable and flooring
facility
were approximately $2,166 and $30, respectively, to these
vendors.
|
|
During
the year ended December 31,
2005, Sony and HP, accounted for 33.2% and 8.9%, respectively, of the
Company’s inventory purchases. Amounts due at December 31, 2005 included
in accounts payable and flooring facility were approximately
$752
and $433, respectively, to these
vendors.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
7.
|
Property
and Equipment
|
Property
and equipment consist of the
following:
|
|
December
31,
|
2004
|
2005
|
||||||
|
Computer
hardware
|
$
|
225
|
$
|
423
|
||||
|
Computer
software
|
214
|
222
|
||||||
|
Furniture
and fixtures
|
53
|
53
|
||||||
| Leasehold improvements | – |
20
|
||||||
| Construction in progress | – |
150
|
||||||
|
492
|
868
|
|||||||
|
Less
accumulated depreciation
|
(163
|
)
|
(344
|
)
|
||||
|
Total
|
$
|
329
|
$
|
524
|
||||
|
Depreciation
expense was $2,974, $123, $176 and $181 for the periods ended
March 31, 2003 and December 31, 2003, 2004 and 2005,
respectively.
|
||
|
8.
|
Related
Party Transactions
|
The
following represents significant transactions between the Predecessor
and
CMGI, the sole shareholder of the Predecessor through March 31,
2003.
|
| Predecessor's Allocations |
The
statement of operations for the period
ended March 31, 2003 includes fees charged for certain corporate
functions historically provided to us by CMGI including
administrative services (accounting, human resources, tax services,
legal,
and treasury), inventory management and order fulfillment, information
systems operation and administration, and advertising services.
These fees
were allocated on a specifically identifiable basis or using
the relative
percentages, as compared to CMGI's other businesses, of net revenues,
payroll, net cost of goods sold, square footage, headcount, or
other.
Management believes that the basis of the allocation was reasonable
and
amounts allocated are not materially different than what would
have been
incurred as an unaffiliated entity.
|
|
|
The
following represents significant transactions between the Company
and
Petters Group, a holder of greater than 5% of our voting common
stock
during 2003, 2004 and 2005.
|
||
|
Service
Assistance
|
The
Company had entered into an advisory agreement with Petters Group,
whereby
Petters Group provided financial and management consulting services
to the
Company for a fee of approximately $360 per year. General and
administrative expenses include approximately $198, $264 and $360 for
management fees payable to the Petters Group for services rendered
during
2003, 2004 and 2005, respectively.
|
|
| The agreement was terminated in January 2006. | ||
|
Product
Purchases
|
The
Company purchases products from Petters Group for direct purchase
sales.
Purchases from Petters Group were $486, $1,473 and $1,597 the nine
months ended December 31, 2003 and the periods ended December
31, 2004 and
2005, respectively. At December 31, 2003, 2004 and 2005, amounts due
to Petters Group included in accounts payable were $200, $442 and
$36, respectively.
|
|
|
Product
Sales
|
Petters
Group owns approximately 25% of the outstanding shares of WSS
Media, Inc.,
located in Minneapolis, Minnesota. During the year ended December
31,
2005, we sold approximately $223,000 in product to WSS Media,
Inc. At
December 31, 2005 the balance was
unpaid.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
Promissory
Notes
|
The
Company had a convertible promissory note of $500 due to the
Petters
Group. This note beared an annual interest rate of 8%. This note
and the
related unpaid, earned interest was due and paid in full April
8, 2005.
|
|
|
On
April 2, 2003, the Company entered into a secured revolving credit
agreement with the Petters Group for up to $5,000. On November
22, 2004,
the Company entered into a second secured revolving credit agreement
for
up to $4,000. Both agreements are secured by a subordinated security
interest in all of the assets of the Company. Both agreements
were renewed
on March 21, 2005 and were scheduled to expire on March 31, 2006.
Borrowings beared an annual interest rate of 14%. In April, 2005
the
second secured revolving credit agreement of up to $4,000 was
increased by
$1,500 to $5,500. At December 31, 2004 and 2005, outstanding
borrowings
under both agreements totaled $9,000 and $0, respectively. There were
no financial covenants provided for in the agreements.
|
||
|
On
December 29, 2005, Petters Group debt consisting of $10,500,000
under the
secured credit agreements was cancelled and exchanged for 2,333,334
shares
of common stock and 583,333 warrants with a five year life and
an exercise
price of $5.85. Of the shares of common stock issued, 2,222,224
of these
shares were redeemable at $4.50 per share if the minimum 10,000,000
units
were sold in the first private offering and if the second private
offering
occurred within 40 days of the first private offering. All accrued
interest was paid on December 29, 2005. A loss of $1,156,000
on the
extinguishment of debt was incurred and was recorded as a deemed
dividend.
|
|
The
Lancelot Investment note payable consisted
of a $5,000 note issued in 2005 that beared interest at 14% due
monthly.
The note was paid on December 29, 2005 with proceeds from the
first
private placement. The Lancelot Investment note was guaranteed
by the
Petters Group.
|
||
|
Interest
Expense
|
A
summary of the interest expense on related-party debt is as
follows:
|
|
Predecessor
|
|||||||||||||||
|
March
31,
|
December
31,
|
||||||||||||||
|
|
2003
|
2003
|
2004
|
2005
|
|||||||||||
|
$500
note payable
|
$ –
|
$
53
|
$
67
|
$ 67
|
|||||||||||
|
$5,000
revolver
|
–
|
–
|
624
|
670
|
|||||||||||
|
$5,500
revolver
|
–
|
–
|
42
|
670
|
|||||||||||
|
Lancelot
Investment $5,000 note payable
|
–
|
– | – |
480
|
|||||||||||
|
CMGI
- Interest charge
|
5,711
|
– | – |
–
|
|||||||||||
|
Total
|
$ | 5,711 |
$
|
53
|
$
|
733
|
$
|
1,887
|
|||||||
|
9.
|
Flooring
Facility
|
During
2004 and 2005, the Company maintained a short-term $1,500 and $4,000
secured flooring facility with IBM (the “Flooring Facility”),
respectively, whereby IBM made payments on behalf of the Company
to its
vendors. Under the terms of the agreement, the Flooring Facility
does not
bear interest if outstanding balances are paid within the terms
specific
to each vendor; otherwise, interest is accrued on outstanding
balances at
the prime rate plus 6.5% (effectively 13.75% at December 31,
2005). The
Company accounts for all Flooring Facility purchases as a financing
cash
inflow, with a corresponding cash outflow for the increase in
its
inventory. Upon repayment, the cash outflow is reported as a
financing
activity. The net effect on operating cash flow is the amount
of gross
profit generated. Interest
expense for the periods ended March 31, 2003 and December 31,
2003, 2004
and 2005 relating to the Flooring Facility was $404, $371, $432 and
$140, respectively.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
As
of December 31, 2004 and 2005, amounts outstanding under the Flooring
Facility consist of the following:
|
|
2004
|
2005
|
|||||||||
|
Face
value
|
|
|
$
|
90
|
$
|
1,628
|
||||
|
Less
discount
|
|
|
(1
|
)
|
(16
|
) | ||||
|
Present
value
|
|
|
$
|
89
|
$
|
1,612
|
||||
|
During
2004 and 2005, the Flooring Facility was secured only by a security
deposit of $1,500 and $4,000, respectively. (See Note 2, restricted
investments, for further explanation.) There are no
restrictive covenants on the Flooring Facility in 2004 and
2005.
|
||
|
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
10.
|
Long-Term
Debt
|
Long-term
debt consists of:
|
|
December
31,
|
|
2004
|
2005
|
|||||||
|
Notes
payable to related party (Note 8)
|
|
|
$
|
9,500
|
$
|
–
|
||||
|
Note
payable to CMGI
|
|
1,000
|
–
|
|||||||
|
Other
- Microsoft agreement
|
|
820
|
410
|
|||||||
|
|
||||||||||
|
|
11,320
|
410
|
||||||||
|
Less
current maturities
|
|
(1,910
|
) |
(410
|
) | |||||
|
Long-term
debt, less current maturities
|
|
|
$
|
9,410
|
$
|
–
|
||||
|
On
April 2, 2003, the Company signed a secured promissory note totaling
$2,000 payable to CMGI. The note beared an annual rate of interest
equal
to 1.5% above the rate of interest reported by The Wall Street
Journal as
its United States prime rate (effectively 6.5% at December 31,
2004) due
monthly. Each change in the prime rate became effective on the
day the
corresponding change took place. The interest rate did not exceed the
maximum rate permitted by applicable law. The first principal payment
was due and paid on April 2, 2004 in the amount of $1,000. The
second
principal payment was due and paid in the amount of $1,000 plus
all
interest accrued since April 2, 2003.
|
||
|
On
November 10, 2003, the Company entered into an amended Microsoft
Enterprise Agreement with Microsoft, Inc. (the “Microsoft Agreement”).
This Microsoft Agreement enables the Company to license one or
more of
Microsoft’s license products across the Company’s platform to ensure that
the entire Company’s enterprise will be licensed. Under the terms of the
agreement, amounts are payable in quarterly installments of approximately
$102 through December 31, 2006. The Company accounted for the
amended
agreement by adjusting the then present balance of the obligation
under
the existing agreement to the
new obligation under the amended agreement. The incremental additional
obligation of $80 associated with the amended agreement was capitalized
in
computer software and is being amortized over its estimated useful
life.
Accumulated amortization was $27 at December 31, 2004 and $53
at December
31, 2005.
|
|
On
July 21, 2004, the Company entered into an agreement with Banco
Popular
North America (“Banco Popular”) under which the Company obtained a $5,000
irrevocable letter of credit (“iLOC”) for the benefit of Sony. This iLOC
is used as a security deposit for inventory purchases from
Sony. Sony may
draw upon the iLOC in the event the Company is in payment default.
The
iLOC bears an annual rate of interest of 2%. Sony then reimburses
the
Company 0.5%. The iLOC is secured by all of the assets of the
Company.
Petters Group and Lancelot Investment had provided a guarantee
to Banco
Popular for the full $5,000 in the event Sony drew upon the
iLOC. In
addition, Banco Popular has entered into inventory buyback
agreements with
Sony and the Petters Group. Sony and Petters Group have agreed
to buy back
the Sony product from the Company in the event of a default.
The iLOC
agreement expires on July 21, 2006. On
October 14, 2005, the Sony iLOC was reduced to $2,500; all other
terms remained the same.
|
||
|
The
iLOC agreement contained certain restrictions on additional
borrowings,
guarantees, disposal of assets, transactions with affiliates,
mergers and
acquisitions during the year ended December 31, 2004. The restrictions
were removed during 2005.
|
||
|
On
December 30, 2005, we provided a $5,000 deposit as a restricted
cash
security to Banco Popular to release Lancelot Investment
and Petters Group
from their obligations under the letter of
credit.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
11.
|
Employee
Benefit Plans
|
Company
employees participate in a 401(k) savings plan. The plan is open
to all
full-time eligible employees who have attained age 21 and have
completed
30 days of service. Participants may make tax-deferred contributions
subject to limitations specified by the Internal Revenue Code.
Employee
contributions of up to $3 are currently matched by the Company
at a rate
of 50%. Employees are 100% vested in their pretax contributions
at all
times and become fully vested in the employer-matching contribution
after
two years of service. During the periods ended December 31, 2003,
2004 and
2005, the Company incurred $29, $59 and $70 of expenses,
respectively, related to the 401(k) matching component of this
plan.
|
|
12.
|
Contingent
Liabilities
|
From
time to time, the Company is subject to claims and administrative
proceedings, including product liability matters, resulting from
the
conduct of its business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse
effect on
the financial position or results of operations of the Company.
In
addition, the Company maintains product liability insurance that
is
evaluated annually and considered adequate. There were no significant
contingencies as of December 31, 2005.
|
|
13.
|
Income
Taxes
|
The
income tax provision for the periods ended is as
follows:
|
|
Predecessor
|
December
31,
|
||||||||||||||
|
|
March
31, 2003
|
2003
|
2004
|
2005
|
|||||||||||
|
Current
provision:
|
|||||||||||||||
|
Federal
|
$ | – |
$
|
–
|
$
|
–
|
$
|
–
|
|||||||
|
State
|
–
|
–
|
–
|
–
|
|||||||||||
|
Deferred
benefit
|
(51,226 | ) |
(373
|
)
|
(2,479
|
)
|
(3,572
|
)
|
|||||||
|
Benefit
for income taxes
|
(51,226 | ) |
(373
|
)
|
(2,479
|
)
|
(3,572
|
)
|
|||||||
|
Less
increase in valuation allowance
|
51,226 |
373
|
2,479
|
3,572
|
|||||||||||
|
Income
tax provision
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
–
|
|||||||
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
The
income tax benefit at the federal statutory tax rate is reconciled
to the
actual expense for income taxes for the periods ended as
follows:
|
|
Predecessor
|
December
31,
|
||||||||||||||
|
March
31, 2003
|
2003
|
2004
|
2005
|
||||||||||||
|
Federal
income tax benefit at federal statutory rate
|
$ | (45,915 | ) |
$
|
(327
|
)
|
$
|
(2,159
|
)
|
$
|
(3,077
|
)
|
|||
|
Effect
of state income taxes
|
(5,311 | ) |
(46
|
)
|
(320
|
)
|
(495
|
)
|
|||||||
|
Increase
in valuation allowance
|
51,226 |
373
|
2,479
|
3,572
|
|||||||||||
|
Total
|
$
|
– |
$
|
–
|
$
|
–
|
$
|
–
|
|||||||
|
Components
of deferred income tax assets and liabilities are as
follows:
|
|
December
31,
|
||||||||||
|
|
|
2004
|
2005
|
|||||||
|
Deferred
income tax assets
|
||||||||||
|
Net
operating loss carryforward
|
$
|
2,782
|
$
|
6,204
|
||||||
|
Goodwill
|
–
|
–
|
||||||||
|
Related
party
accruals
|
|
27
|
–
|
|||||||
|
Inventory
|
279
|
270
|
||||||||
|
Allowance
for doubtful
account
|
3
|
24
|
||||||||
|
Fixed
assets
|
36
|
44
|
||||||||
|
Gross
deferred income tax assets
|
3,127
|
6,542
|
||||||||
|
Deferred
income tax liabilities
|
||||||||||
|
Fixed
assets
|
|
(188
|
)
|
–
|
||||||
|
Prepaid
expenses
|
(87
|
)
|
(118
|
)
|
||||||
|
Gross
deferred income tax liabilities
|
(275
|
)
|
(118
|
)
|
||||||
|
Net
deferred income tax assets
|
2,852
|
6,424
|
||||||||
|
Less
valuation allowance
|
(2,852
|
)
|
(6,424
|
)
|
||||||
|
Net
deferred income tax asset
|
|
$
|
–
|
$
|
–
|
|||||
|
The
Company has provided a valuation allowance against its deferred
income tax
assets as it is more likely than not that the deferred income
tax assets
will not be realized.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
The
Company has an estimated net operating loss carryforward as of
December
31, 2005 of $15,908 that expires in 2025.
|
||
|
14.
|
Leases
|
The
Company leases office space and certain equipment under operating
leases
expiring during 2007. The length of the lease terms is three
years. Total
rent expense from operating leases was approximately $1,584,
$486, $568
and $591 for the period ended March 31, 2003 and December 31, in
2003, 2004 and 2005, respectively.
|
|
The
following is a schedule, by year, of future minimum rental payments
required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of December
31,
2005:
|
|
|
|
|||
|
2006
|
$
|
458
|
||
|
2007
|
44
|
|||
|
Total
|
$
|
502
|
||
|
15.
|
Phantom
Stock
Appreciation
Plan
|
The
Company had a Phantom Stock Appreciation Plan in which certain
employees
had been issued phantom shares which were subject to certain
vesting
provisions. The plan was implemented on July 1, 2003 and issued
phantom
shares were scheduled to vest over four years. Effective
July 2005, the Company terminated the Phantom Stock Appreciation
Plan. The
total expense incurred and recorded in conjunction with the plan
termination was $463 in accordance with the plan agreement based
on an
independent third-party valuation. Payouts required under the
plan were
made with a portion of the proceeds from the first private offering
described in Note 4. The Company recorded compensation expense of
$200 and $463 in the periods ended December 31, 2004 and 2005,
respectively.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
|
16.
|
Stock
Warrants
|
The
Company entered into a warrant agreement with CMGI pursuant to
the terms
of the asset purchase agreement dated April 2, 2003. The warrant
agreement
provided CMGI with the right to purchase shares of nonvoting
common stock
equal to up to 5% of the total fully converted common shares
then
outstanding, representing 436,172 shares (on a post - exchange
basis) as of the acquisition date, at a deminimus exercise price. The
warrant was immediately exercisable and had a term of five years. The
warrant was assigned an estimated fair value of $75 in connection
with the
asset purchase agreement as determined by our board of directors
based upon the value of the preferred stock issued by the Company
in
connection with its initial capitalization. The warrants were
exercised on December 29, 2005 prior to the merger described in Note
4.
|
|
Additional
stock warrants issued in December 2005 are described in Note
4. The
following table summarizes information about warrants outstanding
as of
December 31, 2005:
|
|
Warrants
Outstanding
|
||||||||||
|
Number
Outstanding
|
Remaining
|
Warrant
|
||||||||
|
Exercise
Price
|
at
12/31/05
|
Contractual
Life
|
Fair
Value
|
|||||||
|
$
5.85
|
2,500,003
|
5
years
|
$
2.08
|
|||||||
|
|
|
|
|
|||||||
|
$
4.50
|
333,333
|
3
years
|
$
1.80
|
|||||||
|
|
|
|||||||||
|
$
4.50
|
230,000
|
5 years
|
$
2.27
|
|||||||
|
|
|
The
warrants were valued using a Black-Scholes
option-pricing model using the respective expected life, a
risk free
interest rate of 5.0%, no expected dividends and a 68.0% volatility.
Additional warrants to acquire 90,000 shares were issued in
February 2006
at a value of $2.27 using similar assumptions.
|
|
17.
|
Common
Stock and Series
A Convertible Preferred
Stock
|
|
| Common Stock |
As
of December 31, 2004 the Company had 1,072 shares of voting
common stock,
$.001 par value; 5,000 shares authorized (2,487,107 shares
of common stock
on a post-exchange basis see also Note 4).
|
|
| At December 31, 2005 there are 200,000,000 shares of common stock $.001 par value, 20,333,333 shares issued and outstanding. | ||
|
In
accordance with the Securities Purchase Agreement, the Company
agreed to
use reasonable best efforts to prepare and
file, within 45 days of the closing of
the first private offering (December 29, 2005), a registration
statement
registering for resale the shares of common stock acquired
by the investors in the
private offerings, the shares of common stock underlying the
warrants
acquired by the investors, the shares
of common stock retained by the Cape Coastal stockholders that
have not
already been
registered, the shares issued to former uBid,
Inc. stockholders in the merger, the shares of common stock
underlying the
warrants
issued to the placement agents, and the shares
of common stock underlying the warrants issued to the Note
Holders.
If
the registration
statement was not filed within 45 days after the closing of
the December
29, 2005 offering, we would have been required to
pay each investor liquidated damages, in cash, in the amount of
1.0%
of the purchase price
multiplied by the amount of securities held by such investor
as of the
date of default. If the registration statement was not declared
effective by the SEC within 120 days of the closing of the
December 2005
offering, we are required to pay each investor liquidated damages,
in
cash, in the amount of the 1.0% of the purchase price multiplied
by the
amount of securities held by such investor as of the date of
default. The liquidated damage payments are due on a monthly basis
until the applicable event of the default has been cured. Any such
payments shall apply on a pro-rata basis for any portion of
a month before
an event of default is cured. Any late payments shall bear interest
at a rate of 1.0% per month until paid in full.
|
||
|
|
Series
A Convertible
Preferred
Stock
|
As
of December 31, 2004, the Company had 2,500 shares of voting
Series A
Convertible Preferred Stock outstanding (5,800,159 shares of
common stock
on a post-exchange basis see also Note 4). These shares were
convertible at the option of the holder into one share of voting
common
stock at a conversion price of $400 per share which approximated
fair
value at the date of issuance. The voting Series A Preferred
Stock
automatically converted to voting common stock in the event
of a public
offering. Dividends on the voting Series A Convertible Preferred
Stock
were to accrue yearly at an annual rate of 6% however such
dividends were
never paid.
The
shares of preferred stock were converted to common stock
on December 29,
2005. Prior to the merger described in Note 4, the unpaid
dividends totaling $180 were reflected as a contribution
to paid in
capital.
|
|
There
are 25,000,000 shares authorized of preferred stock with preferences
and
rights to be determined by our board of directors. No
shares were issued at December 31,
2005.
|
uBid.com
Holdings, Inc.
Notes
to Consolidated Financial Statements
(Dollars
in Thousands)
| 18. |
2005
Equity Incentive Plan
|
The
2005 Equity Incentive Plan is an equity-based compensation plan
to provide
incentives to, and to attract, motivate
and retain the highest qualified employees, directors, consultants
and
other third party service providers.
The 2005 Equity Incentive Plan enables our board of directors to
provide equity-based incentives through grants
or awards of stock options and restricted stock awards (collectively,
“Incentive Awards”) to present
and future employees, consultants, directors, and other third
party
service providers.
|
|
A
total of 2,500,000 shares of common stock has been reserved
for issuance
under the 2005 Equity Incentive Plan.
If an Incentive Award granted pursuant to the 2005 Equity
Incentive Plan
expires, terminates, is unexercised
or is forfeited, or if any shares are surrendered to the
Company in connection with an Incentive Award, the shares
subject to such award and the surrendered shares will become
available for
further awards under the 2005
Equity Incentive Plan. On December 29, 2005, the Company granted
options under the 2005 Equity Incentive Plan
to purchase 1,721,700 shares of common stock to certain officers
and other
employees immediately
after the Closing Date.
|
||
|
All
of the options issued on December 29, 2005 under the 2005 Equity
Incentive
Plan will expire on December
29, 2015 if not exercised prior to that date. None of the Incentive
Awards
granted under the 2005 Equity
Incentive Plan on December 29, 2005 were issued for cash consideration
collected from the participants.
The Incentive Awards were granted to participants in the 2005
Equity
Incentive Plan on the basis
of services to be provided to the Company by the
participants.
|
||
|
No
compensation expense is recorded under APB 25 because the exercise
price
of
the Company's employee stock options equals the market price
of the
underlying common stock on the grant
date.
|
|
The
number of options outstanding at December 31, 2005 was 1,721,700
at an
exercise price of $4.50. The weighted average remaining contractual
life of the outstanding options was 10 years. There were no options
exercisable at December 31, 2005.
|
||
| There were no options outstanding either March 31, 2003 or December 31, 2003 and 2004. |
| 19. | Bridge Notes |
On
October 3, 2005, the Company issued unsecured promissory notes
in the aggregate amount of $5,000,000 (the “Bridge Notes”) to two
institutional investors (collectively, the “Note Holders”). In connection
with the issuance of the Bridge Notes, the Company, upon
the
first closing of our private offering on December 29, 2005, issued
the Note Holders warrants to purchase 333,333 shares of common
stock for a
period of three years at a purchase price of $4.50. These
warrants were recorded at fair value as interest expense
in the
accompanying statement of operations. In conjunction with the
first closing, the Bridge Notes were exchanged for 1,111,111 units
consisting of 1,111,111 shares
of common stock and 277,778 warrants with a five year life
with an
exercise price of $5.85. These shares did not have a redemption
feature and no gain or loss was recorded in the
exchange.
|
| 20. | Restatement |
On
April 18, 2006, the Company determined that certain adjustments
to its
financial statements were required. The change and adjustments
relate to
our accounting for the extinguishment of certain debt instruments
to a
related party resulting in an additional loss accounted for
as a deemed
dividend as described in Notes 4 and 8. The Company had previously
not
considered the redemption feature of the redeemable shares
as having value
in excess of the underlying redeemable shares exchanged for
the related
party debt. The previously reported accounting also reflected
an equal
value of consideration received in exchange for the debt
and no
corresponding loss to the Company was recognized. Upon further
analysis,
the Company determined the total value of Units exchanged,
including the
redemption feature, exceeded the carrying cost of the related
debt and a
loss on such extinguishment had been incurred. As such, the
Company
restated its financial statements for the year ended December
31, 2005 to
reflect this dividend, including its impact on loss per share,
and to more
fully disclose the accounting impacts of the Units for debt
exchange of
December 29, 2005. Neither
net loss, total assets, total liabilities nor total shareholders’ equity
was impacted by the restatement. Loss per share changed from
a previously
reported $3.45 to a currently reported
$3.88.
|
uBid.com
Holdings, Inc
Consolidated
Balance Sheets
(Dollars
in Thousands. except par value data)
|
March
31, 2006
|
|
December
31, 2005
|
|
||||
|
|
|
(Unaudited)
|
|
|
|||
|
Assets
|
|||||||
|
Current
Assets
|
|||||||
|
Cash
and cash equivalents
|
|
$
|
7,008
|
|
$
|
21,176
|
|
|
Restricted
investments
|
|
|
6,659
|
|
|
7,003
|
|
|
Accounts
receivable, net
|
|
|
2,177
|
|
|
1,306
|
|
|
Merchandise
inventories
|
|
|
16,323
|
|
|
5,989
|
|
|
Prepaid
expenses and other current assets
|
592
|
646
|
|||||
|
Total
Current Assets
|
32,759
|
36,120
|
|||||
|
Property
and Equipment, net
|
500
|
524
|
|||||
|
Total
Assets
|
$
|
33,259
|
$
|
36,644
|
|||
|
Liabilities
and Shareholders' Equity
|
|||||||
|
Current
Liabilities
|
|||||||
|
Flooring
facility
|
|
$
|
892
|
|
$
|
1,612
|
|
|
Accounts
payable
|
|
|
5,043
|
|
|
4,456
|
|
|
Accrued
expenses
|
|||||||
|
Advertising
|
|
|
693
|
|
|
397
|
|
|
Merger
and offering costs
|
|
|
399
|
|
|
2,000
|
|
|
Other
|
1,115
|
1,187
|
|||||
|
Current
maturities of long-term debt
|
307
|
410
|
|||||
|
Total
Current Liabilities
|
8,449
|
10,062
|
|||||
|
|
|||||||
|
Redeemable
Common Stock, $.001
par value
(2,666,668 shares issued and
outstanding)
|
-
|
12,000
|
|||||
|
Shareholders'
Equity
|
|||||||
|
Common
stock, $.001 par value (200,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
20,333,333
and 16,732,666 issued and outstanding, respectively)
|
|
|
20
|
|
|
17
|
|
|
Stock
warrants
|
|
|
8,086
|
|
|
6,322
|
|
|
Additional
paid-in-capital
|
|
|
48,371
|
|
|
25,907
|
|
|
Treasury
stock, at cost (2,666,668 shares)
|
|
|
(12,000
|
)
|
|
-
|
|
|
Retained
deficit
|
(19,667
|
)
|
(17,664
|
)
|
|||
|
Total
Shareholders' Equity
|
24,810
|
14,582
|
|||||
|
Total
Liabilities and Shareholders' Equity
|
$
|
33,259
|
$
|
36,644
|
|||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
F-23
uBid.com
Holdings, Inc
Condensed
Consolidated Statements of Operations
(Dollars
in Thousands, except for per share data)
(Unaudited)
|
|
|
Three
Months Ended March 31, |
|
Three
Months Ended March 31, |
|
||
|
Net
Revenues
|
$
|
26,818
|
$
|
20,088
|
|||
|
Cost
of Revenues
|
24,164
|
17,178
|
|||||
|
Gross
Profit
|
2,654
|
2,910
|
|||||
|
Operating
Expenses
|
|||||||
|
General
and administrative
|
3,147
|
3,534
|
|||||
|
Sales
and marketing
|
1,283
|
1,525
|
|||||
|
Total
operating expenses
|
4,430
|
5,059
|
|||||
|
Loss
From Operations
|
(1,776
|
)
|
(2,149
|
)
|
|||
|
Interest
Income (Expense), net
|
(417
|
)
|
146
|
|
|||
|
Net
Loss
|
(2,193
|
)
|
(2,003
|
)
|
|||
|
Preferred
Stock Dividends
|
(15
|
)
|
-
|
|
|||
|
Net
Loss Available to Common Shareholders
|
$
|
(2,208
|
)
|
$
|
(2,003
|
)
|
|
|
Net
Loss per share - Basic and
|
|||||||
|
Diluted
|
$
|
(0.89
|
)
|
$
|
(0.10
|
)
|
|
|
Weighted
Average Shares - Basic and Diluted
|
2,487,107
|
19,955,536
|
|||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
F-24
uBid.com
Holdings, Inc
Consolidated
Statement of Shareholders' Equity
(Dollars
in Thousands)
(Unaudited)
|
Common
Stock
|
|
|
Treasury
Stock
|
|
|||||||||||||||||||||
|
Shares
|
|
Dollars
|
|
Stock Warrants |
|
Paid-in Capital |
|
Shares
|
|
Dollars
|
|
Retained Deficit |
|
Total
|
|||||||||||
|
Balance,
December 31, 2005
|
16,732,666
|
$
|
17
|
$
|
6,322
|
$
|
25,907
|
—
|
$
|
—
|
$
|
(17,664
|
)
|
$
|
14,582
|
||||||||||
|
Second
private offering
|
3,000,000
|
3
|
1,560
|
11,937
|
—
|
—
|
—
|
13,500
|
|||||||||||||||||
|
Redemption
of common stock
|
—
|
—
|
—
|
12,000
|
2,666,668
|
(12,000
|
)
|
—
|
—
|
||||||||||||||||
|
Stock
compensation expense
|
—
|
—
|
—
|
231
|
—
|
—
|
231
|
||||||||||||||||||
|
Second
private offering costs
|
600,667
|
—
|
204
|
(1,704
|
)
|
—
|
—
|
—
|
(1,500
|
)
|
|||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(2,003
|
)
|
(2,003
|
)
|
|||||||||||||||
|
Balance,
March 31, 2006
|
20,333,333
|
$
|
20
|
$
|
8,086
|
$
|
48,371
|
2,666,668
|
$
|
(12,000
|
)
|
$
|
(19,667
|
)
|
$
|
24,810
|
|||||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
F-25
uBid.com
Holdings, Inc
Consolidated
Statements of Cash Flows
(Dollars
in Thousands)
(Unaudited)
|
|
|
Three Months
Ended |
|
Three Months
Ended |
|||
|
Cash
Flows From Operating Activities
|
|||||||
|
Net
loss
|
$
|
(2,193
|
)
|
$
|
(2,003
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in
|
|||||||
|
Operating
activities
|
|||||||
|
Depreciation
|
51
|
69
|
|||||
|
Non-cash
compensation expense
|
-
|
231
|
|||||
|
Changes
in assets and liabilities
|
|||||||
|
Accounts
receivable
|
(927
|
)
|
(871
|
)
|
|||
|
Merchandise inventories
|
(765
|
)
|
(10,334
|
)
|
|||
|
Prepaid expenses and other current assets
|
(201
|
)
|
54
|
|
|||
|
Accounts payables
|
1,183
|
587
|
|||||
|
Accrued expenses
|
(425
|
)
|
(1,377
|
)
|
|||
|
Net
cash used in operating activities
|
(3,277
|
)
|
(13,644
|
)
|
|||
|
Cash
Flows From Investing Activities
|
|||||||
|
Capital
expenditures
|
(20
|
)
|
(45
|
)
|
|||
|
Change
in restricted investments
|
-
|
344
|
|||||
|
Net
cash provided (used in) by investing activities
|
(20
|
)
|
299
|
|
|||
|
Cash
Flows From financing Activities
|
|||||||
|
Change
in flooring facility
|
1,256
|
|
(720
|
)
|
|||
|
Proceeds
from issuance of related-party debt
|
2,600
|
-
|
|||||
|
Proceeds
from second private placement, net of cash expenses
|
-
|
12,000
|
|||||
|
Redemption
of common stock
|
-
|
|
(12,000
|
)
|
|||
|
Payments
on long-term debt
|
(103
|
)
|
(103
|
)
|
|||
|
Net
cash (used in) provided by financing activities
|
3,753
|
|
(823
|
)
|
|||
|
Net
(Decrease) Increase in Cash and Cash Equivalents
|
|
456
|
|
|
(14,168
|
)
|
|
|
Cash
and Cash Equivalents, beginning of period
|
1,734
|
21,176
|
|||||
|
Cash
and Cash Equivalents, end of period
|
$
|
2,190
|
$
|
7,008
|
|||
|
Supplemented
Cash Flow Disclosure
|
|||||||
|
Cash
paid for interest
|
$
|
305
|
$
|
46
|
|||
|
Warrants
issued in second offering
|
$
|
-
|
$
|
1,560
|
|||
|
Shares
and warrants issued as stock issuance costs
|
$
|
-
|
$
|
204
|
|||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
F-26
UBID.COM
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2006
(Unaudited)
1. Basis
of Presentation
uBid.com
Holdings, Inc. (the “Company”) operates a leading on-line Business to Consumer
and Business to Business marketplace that enables itself, certified merchants,
manufacturers, retailers, distributors and small businesses to offer high
quality excess, new, overstock, close-out, refurbished and limited supply
brand
name merchandise to consumer and business customers primarily located in
the
United States. Through the Company’s website, located at www.ubid.com, the
Company offers merchandise across a wide range of product categories including
but not limited to computer products, consumer electronics, apparel, housewares,
watches, jewelry, travel, sporting goods, home improvement products and
collectibles. The Company’s marketplace employs a combination of auction style
and fixed price formats.
The
Company’s unaudited, consolidated 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 (“GAAP”). Results for interim
periods are not necessarily indicative of the results that may be expected
for a
full year. These interim financial statements should be read along with
the
audited consolidated financial statements included in our Form 10-K/A for
the
year ended December 31, 2005.
The
preparation of financial statements in accordance with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the amounts reported in the Company’s Consolidated Financial Statements
and accompanying notes. Actual results could differ materially from those
estimates.
2. Summary
of Significant Accounting Policies
Since
December 31, 2005, none of the critical accounting policies, or the Company’s
application thereof, as more fully described in the Company’s 2005 Annual
Report, has significantly changed. Certain critical accounting policies
have
been presented below due to the significance of related transactions during
the
three months ended March 31, 2006.
Revenue
Recognition
The
Company sells merchandise under two types of arrangements, direct purchase
sales
and revenue sharing arrangements.
For
direct purchase sales, the Company is responsible for conducting the auction
for
merchandise owned by the Company, billing the customer, shipping the merchandise
to the customer, processing merchandise returns and collecting accounts
receivable. In accordance with the provisions of Staff Accounting Bulletin
104,
the Company recognizes revenue when the following revenue recognition criteria
are met: (1) persuasive evidence of an arrangement exists; (2) the product
has
been shipped (FOB Shipping Point) and the customer takes ownership and
assumes
the risk of loss; (3) the selling price is fixed or determinable; and (4)
collection of the resulting receivable is reasonably
assured.
F-27
For
sales
of merchandise under revenue-sharing agreements, the Company is responsible
for
conducting the auction for merchandise owned by third parties, billing
the
customer, arranging for a third party to complete delivery to the customer,
processing merchandise returns and collecting accounts receivable. The
Company
bears no physical inventory loss or return risk related to these sales.
The
Company records commission revenue at the time of shipment.
Stock
Based Compensation
Effective
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards
No. 123( R) (“SFAS 123R”). This pronouncement requires companies to measure the
cost of employee service received in exchange for a share based award (typically
stock options) based on the fair value of the award. The Company has elected
to
use the “modified prospective” transition method for stock options granted prior
to January 1, 2006, but for which the vesting period is not complete. Under
this
transition method, the Company accounts for such awards on a prospective
basis,
with expense being recognized in its statement of operations beginning
in the
first quarter of 2006 and continuing over the remaining requisite service
period
based on the grant date fair value estimated in accordance with Statement
of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(“SFAS 123”). Prior to 2006, the Company accounted for employee stock options
using the method of accounting prescribed by Accounting Principles Board
Opinion
No. 25, Accounting for Stock Issued to Employees, and associated interpretations
using the intrinsic method. Generally, no expense was recognized related
to its
stock options under this method because the stock option’s exercise price was
set at the stock’s fair market value on the date the option was
granted.
3. Net
Loss Per Share (“EPS”)
The
Company computes loss per share under Statement of Financial Accounting
Standards (“SFAS”) No. 128, “Earnings Per Share.” The statement requires
presentation of two amounts: basic and diluted loss per share. Basic loss
per
share is computed by dividing the loss available to common shareholders
by the
weighted average common shares outstanding. Dilutive earnings per share
would
include all common stock equivalents unless anti-dilutive.
Due
to
losses in each period presented, the Company has not included the following
common stock equivalents in its computation of diluted loss per share as
their
input would have been anti-dilutive. Considering the retroactive reflection
of
the share exchange, no common stock equivalents were outstanding until
December
29, 2005.
|
March
31, 2006
|
||||
|
Shares
subject to stock warrants
|
3,063,336
|
|||
|
Shares
subject to stock options
|
1,763,400
|
|||
|
4,826,736
|
||||
F-28
4. Merger
and Private Offerings
On
December 29, 2005 (the “Closing Date”), Cape Coastal Trading Corporation (or
“Cape Coastal”), uBid Acquisition Co., Inc. (“Acquisition Sub”) and uBid, Inc.
entered into a Merger Agreement and Plan of Reorganization. Under the Merger
Agreement, Acquisition Sub merged with and into uBid, Inc., with uBid,
Inc.
remaining as the surviving corporation and a 100% owned subsidiary of Cape
Coastal Trading Corporation. Just prior to the Closing Date, all
outstanding convertible preferred shares and warrants to acquire shares
of uBid,
Inc. before the merger were converted and exercised such that, just prior
to the
merger, 3,793 shares of common stock were outstanding which were exchanged
on a
2,320 to 1 basis on the closing date into 8,800,000 shares of common stock
of Cape Coastal, with up to 444,444 shares of such common stock subject
to
redemption at a redemption price of $4.50 (the Financial Statements reflect
the
impact of the merger and the resulting exchange of the Company’s common stock
outstanding before the conversion and exercise of the convertible preferred
stock and warrants). The stockholders of Cape Coastal before the merger
retained
599,331 shares of common stock of Cape Coastal after the merger. Before
the
merger, Cape Coastal was a public shell company. Concurrent with the
merger, the Company amended its Certificate of Incorporation to change
its name from Cape Coastal Trading Corporation to “uBid.com Holdings,
Inc.”
The
merger was treated as a recapitalization of uBid, Inc for financial accounting
purposes. Accordingly, the historical financial statements of Cape Coastal
before the merger were replaced with the historical financial statements
of
uBid, Inc. before the merger. All share and per share data has been
retroactively restated to reflect the implicit conversion ratio related
to the
exchange of shares in the merger.
Concurrent
with the merger, the Company completed the first part of a private offering
to accredited investors. The Company sold 10,000,003 shares of
its common stock (of which 2,222,224 shares were subject to redemption) and
warrants to purchase 2,500,003 shares of its common stock at $5.85 for
a period
of 5 years (the shares and warrants are collectively referred to as “Units”),
for aggregate consideration of approximately $45.0 million. These warrants
were valued at $2.08 per warrant for an aggregate of $5.2
million using a Black-Scholes option-pricing model using a 5 year
respective life, a risk free interest rate of 5.0%, no expected dividends and a
68.0% volatility. Some of the investors participating in the first part
of the
private offering held notes that were issued by uBid before the merger,
including $10.5 million of debt held by the Petters Group, a holder greater
than
5% of our voting common stock, (“Petters Group”) and $5.0 million of debt held
by the bridge loan holders. Rather than accepting cash consideration for
the
Units acquired by these investors, the Company agreed to issue Units at a
rate of one Unit for each $4.50 of debt for consideration of the note holders’
cancellation of the existing notes. Therefore, the consideration the
Company received on the Closing Date consisted of approximately $29.5 million
in
cash and $15.5 million in cancelled debt. In addition, on the Closing
Date, the Company issued warrants to purchase 333,333 shares of our common
stock to the bridge note holders as a financing fee, which warrants are
exercisable for three years at an exercise price of $4.50 and the value
of
which, $0.6 million, was recorded as interest expense. The Company also
issued
warrants to purchase 230,000 shares of its common stock to its
placement agents in the offering, which warrants are exercisable for five
years
at an exercise price of $4.50 and the value of which, $0.5 million, was
recorded
as a cost of the equity issuance. These warrants were valued at $1.80 and
$2.27
respectively per warrant for an aggregate of $1.1 million using a
Black-Scholes option-pricing model using the warrants respective life,
a risk
free interest rate of 5.0%, no expected dividends and a 68.0% volatility.
Issuance costs, including the value of the warrants, were $4.7
million.
On
February 3, 2006, the Company completed the second part of the
private offering of Units to accredited investors. In this offering, the
Company sold 3,000,000 shares of its common stock and warrants to
purchase 750,002 shares of its common stock on the same terms as
described above for an aggregate of $13.5 million. The Company also
redeemed the 2,666,668 shares of common stock issued in connection with
the
merger and the first private offering that were subject to
redemption at a price of $4.50 per share and issued 600,667 shares of common
stock (valued at $4.50 per share) to shareholders of Cape Coastal prior
to the
merger and uBid’s financial advisor, Calico Capital Group. In addition, the
Company issued additional warrants to purchase 90,000 shares of its
common stock to its placement agents on the same terms as described above.
The second part of the private offering resulted in no net cash proceeds
being
retained by the Company. Issuance costs, including the value of the warrants
and
the shares issued to Calico Capital Group, were $3.2 million.
F-29
5.
Stock-Based
Compensation
Effective
January 1, 2006, uBid adopted the fair value recognition provision of SFAS
123R, using the modified prospective transition method and therefore has
not
restated results for prior periods. Under this transition method, stock-based
compensation expense for the first quarter of 2006 includes compensation
expense
for all stock-based compensation awards granted prior to, but not yet vested
as
of March 31, 2006, based on the grant date fair value estimated in
accordance with the original provision of SFAS No. 123, Accounting for
Stock-Based Compensation (“SFAS
123”).
Stock-based compensation expense for all stock-based compensation awards
granted
after January 1, 2006 is based on the grant-date fair value estimated
in accordance with the provisions of SFAS 123R. The Company recognizes
these compensation costs on a straight-line basis over the requisite service
period of the award which is generally the option vesting term of four
years.
The total compensation expense related to the stock option plan for the
three
months ended March 31, 2006 is approximately $0.2 million.
6. 2005
Equity Incentive Plan
The
2005
Equity Incentive Plan (the “Plan”) is an equity-based compensation plan to
provide incentives to, and to attract, motivate and retain the highest
qualified
employees, directors, consultants and other third party service providers.
The
2005 Equity Incentive Plan enables the board to provide equity-based incentives
through grants or awards of stock options and restricted stock awards
(collectively, "Incentive Awards") to present and future employees, consultants,
directors, and other third party service providers.
A
total
of 2,500,000 shares of common stock have been reserved for issuance under
the
Plan. If an incentive award granted pursuant to the Plan expires, terminates,
is
unexercised or is forfeited, or if any shares are surrendered to uBid in
connection with an incentive award, the shares subject to such award and
the
surrendered shares will become available for further awards under the Plan.
On
December 29, 2005, uBid granted options under the Plan to purchase 1,721,700
shares of common stock to certain officers and other
employees.
All
of
the options issued on December 29, 2005 under the Plan will expire on December
29, 2015 if not exercised prior to that date. None of the options granted
under
the Plan on December 29, 2005 were issued for cash consideration collected
from
the participants. The options were granted to participants on the basis
of
services to be provided to the Company by the participants. Prior to December
29, 2005, there were no outstanding stock options.
F-30
The
fair
value of the 72,000 options awarded during the quarter ended March 31,
2006 was
estimated using the Black-Sholes option pricing model with the following
assumptions:
|
Three
Months
Ended
March
31, 2006
|
|||||
|
Significant
assumptions (weighted average):
|
|||||
|
Risk
-free rate
|
5
|
%
|
|
||
|
Dividend
yield
|
0.0
|
%
|
|
||
|
Expected
volatility
|
68.0
|
%
|
|
||
|
Expected
life (years)
|
4
|
||||
The
risk-free interest rate is based on the U.S. Treasury Bill rates at the
time of
grant. The dividend reflects the fact that the Company has never paid a
dividend
on its common stock and does not expect to in the future. The Company estimated
the volatility of its common stock at the date of grant based on the historical
volatility of its industry and competitors’ stock. The expected term of the
options is based on what the Company believes will be representative of
future
behavior.
The
following is a summary of all of the Company’s stock option activity and related
information for the three months ended March 31, 2006:
|
|
Shares
under option
|
Weighted-average
exercise price per share
|
|||||
|
December
31, 2005
|
1,721,700
|
$
|
2.08
|
||||
|
Granted
|
72,400
|
3.73
|
|||||
|
Exercised
|
-
|
-
|
|||||
|
Surrendered
|
(30,700
|
)
|
2.08
|
||||
|
March
31, 2006
|
1,763,400
|
$
|
2.15
|
||||
|
Exercise
Price
|
Number
Outstanding
at
March
31, 2006
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
at
March
31, 2006
|
Weighted
Average
Exercise
Price
|
|||||||||||||
|
$4.50
|
1,691,000
|
9.7
|
$
|
2.08
|
-
|
$
|
2.08
|
|||||||||||
|
$7.10
|
1,600
|
9.8
|
$
|
3.92
|
-
|
$
|
3.92
|
|||||||||||
|
$6.50
|
300
|
9.9
|
$
|
3.59
|
-
|
$
|
3.59
|
|||||||||||
|
$6.75
|
70,500
|
10.0
|
$
|
3.73
|
-
|
$
|
3.73
|
|||||||||||
|
1,763,400
|
9.8
|
$
|
2.15
|
-
|
$
|
2.15
|
||||||||||||
The
aggregate intrinsic value of the outstanding options (the difference between
the
closing stock price on the last trading day of the first quarter of 2006
of
$6.40 per share and the exercise price, multiplied by the number of in
the money
options) that would have been received by the option holders had all the
option
holders exercised their options on March 31, 2006 was $3.2 million. This
amount
will change based on changes in the fair market value of the Company’s common
stock.
As
of
March 31, 2006, $3.6 million of total unrecognized compensation cost related
to
stock options is expected to be recognized over a weighted-average period
of
3.75 years.
F-31
7. Subsequent
Events
Pursuant
to registration rights related to many of the securities issued in the
December
2005 and February 2006 transactions, the Company was required to register
certain shares for resale within 120 days of the December 29, 2005 closing
or
incur liquidated damages, in cash, in the amount of 1.0% of the purchase
price
paid for such securities by the investors for each month until the registration
statement is declared effective by the SEC. A registration statement
on Form S-1
was filed within the required period, but was selected for review by
the SEC,
which has delayed the effectiveness of the registration statement. On
April 28,
2006, the Company became obligated to pay $0.4 million for liquidated
damages
and will have to pay additional amounts for each month after April 28,
2006 that
the registration statement is not declared effective. The
Company intends to request an amendment to the securities purchase agreement
and
waiver of the liquidated damages. There is no assurance one will be
granted.
On
May 9, 2006, the Company and its 100%-owned subsidiary, uBid, Inc. entered
into a Credit and Security Agreement with Wells Fargo Bank, National
Association
acting through Wells Fargo Business Credit and related security agreements
and
other agreements described in the Credit and Security Agreement (the
“Credit
Agreement”). The Credit Agreement provides for advances to uBid, Inc. of up
to a maximum of $25.0 million. The amount actually available to us will
vary from time to time, depending on, among other factors, the amount
of our
eligible inventory and the amount of our eligible accounts receivable.
The
obligations under the Credit Agreement and all related agreements are
secured by
all of uBid, Inc.’s assets. The initial term of the Agreement is
three years, expiring on April 28, 2009. Up to $7.0 million of the maximum
amount is available for irrevocable, standby and documentary letters
of credit.
Advances under the Agreement bear interest at a base rate (Wells Fargo
Bank's
prime rate) or LIBOR plus 2.5%. The Credit Agreement requires us to pay
a
prepayment fee of $0.5 million if we terminate the Credit Agreement during
its
first year, $0.4 million if we terminate the Credit Agreement during
its second
year and $0.1 million if we terminate the Credit Agreement during the
third
year. The Credit Agreement also requires us to pay a variety of other
fees and
expenses, including minimum monthly interest of $.01 million.
F-32
PART
II
Information
Not Required in Prospectus
Item
13. Other Expenses of Issuance and Distribution
The
following table sets forth the various expenses payable by the registrant in
connection with the sale of the common stock being registered. All of the
amounts shown are estimated except the Securities and Exchange Commission
registration fee.
|
Amount
|
||||
|
SEC
registration fee
|
$
|
16,706.40
|
||
|
Printing
and engraving expenses
|
$
|
15,000.00
|
||
|
Legal
fees and expenses
|
$
|
210,000.00
|
||
|
Accounting
fees and expenses
|
$
|
130,000.00
|
||
|
Miscellaneous
fees and expenses
|
$
|
15,000.00
|
||
|
Total
|
$
|
386,706.40
|
||
Item
14. Indemnification of Directors and Officers
Section
145(a) of the General Corporation Law of the State of Delaware (the “DGCL”)
provides that a Delaware corporation may indemnify any person who was or is
a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or
investigative (other than one by or in the right of the corporation) by reason
of the fact that the person is or was a director, officer, employee or agent
of
the corporation, or is or was serving at the request of the corporation as
a
director, officer, employee or agent of another corporation, against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys’
fees actually and necessarily incurred as a result of such action or proceeding,
if such director or officer acted, in good faith, for a purpose which such
person reasonably believed to be, in, or not opposed to, the best interests
of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that such conduct was unlawful.
In
the
case of a derivative action, Section 145(b) of the DGCL provides that a Delaware
corporation may indemnify any such person against expense, including attorneys’
fees actually and necessarily incurred by such person in connection with the
defense or settlement of such action or suit if such director or officer if
such
director or officer acted, in good faith, for a purpose which such person
reasonably believed to be, in or not opposed to, the best interests of the
corporation, except that no indemnification will be made in respect on any
claim, issue or matter as to which such person will have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or any other court in which such action was
brought determines such person is fairly and reasonably entitled to indemnity
for such expense.
Section
145 of the DCGL further provides that to the extent that a director or officer
of a Delaware corporation has been successful in the defense of any action,
suit
or proceeding referred to in subsections (a) or (b) of Section 145, or in the
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses actually and reasonably incurred by such person in connection
therewith; that indemnification provided for under Section 145 of the DGCL
shall
not be deemed exclusive of any other rights to which the indemnified party
may
be entitled; and that the corporation may purchase and maintain insurance on
behalf of a director or officer of the corporation against any liability
asserted against such director or officer, or incurred by such director or
officer in any such capacity or arising out of his status as such, whether
or
not the corporation would have the power to indemnify him against such
liabilities under Section 145 of the DGCL.
Delaware
Law permits a corporation to include in its certificate of incorporation a
provision eliminating or limiting a director’s liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. Delaware
Law
provides, however, that liability for breaches of the duty of loyalty, acts
or
omissions not in good faith or involving intentional misconduct, or knowing
violation of the law, and the unlawful purchase or redemption of stock or
payment of unlawful purchase or redemption of stock or payment of unlawful
dividends or the receipt of improper personal benefits cannot be eliminated
or
limited in this manner.
Our
certificate of incorporation and bylaws provide that we will indemnify our
directors to the fullest extent permitted by Delaware law and may, if and to
the
extent authorized by the board of directors, indemnify our officers and any
other person whom we have the power to indemnify against any liability,
reasonable expense or other matter whatsoever. Our certificate of incorporation
further provides that no director shall be liable to us or our stockholders
for
monetary damages for breaches of fiduciary duty, except for breaches of the
director’s duty of loyalty, the director’s acts or omissions not in good faith
or involving intentional misconduct or knowing violation of the law, and the
director’s unlawful purchase or redemption of stock or payment of unlawful
purchase or redemption of stock or payment of unlawful dividends or the receipt
of improper personal benefits.
Any
amendment, modification or repeal of the foregoing provisions shall be
prospective only, and shall not affect any rights or protections of any of
our
directors existing as of the time of such amendment, modification or
repeal.
We
may
also, at the discretion of the board of directors, purchase and maintain
insurance to the fullest extent permitted by Delaware law on behalf of any
of
our directors, officers, employees or agents against any liability asserted
against such person and incurred by such person in any such
capacity.
On
December 29, 2005, we entered into indemnification agreements with all of
our officers and directors providing for the indemnification of each of them
for
actions brought against any of them by reason of the fact that they are or
were
our agents. The indemnification agreements provide for indemnification of
certain expenses, judgments, fines, and settlement amounts incurred by the
indemnitee in any action or proceeding, including any action by or in the right
of uBid arising out of such person’s services to us, to any of our subsidiaries,
or to any other company or enterprise to which such indemnitee provides services
at our request. The indemnity agreements provide for the advancement of
expenses, make indemnification contingent on the indemnitee’s good faith in
acting or failing to act, and except the obligation to indemnify for expenses
or
liabilities paid directly to the indemnitee by directors’ and officers’
insurance. A form of indemnity agreement was filed as an Exhibit to our Current
Report on Form 8-K, filed with the SEC on January 5, 2006.
Item
15. Recent Sales of Unregistered Securities
Set
forth
below is certain information regarding securities issued by us and by our
subsidiary uBid, Inc. in chronological order, since January 2003 in transactions
that were not registered under the Securities Act of 1933, as amended, including
the consideration received by us and uBid for each of such transactions.
From
January 2003 to March 2003, Cape Coastal completed an offering of 66,500 shares
of common stock at a price of $0.10 per share to a total of 18 purchasers (the
“2003 Offering”). The last subscription for shares in the 2003 Offering was
completed on March 31, 2003. The total amount of proceeds received from the
2003
Offering was $6,650.00. The 2003 Offering and sales were deemed to be exempt
under Rule 506 of Regulation D and Section 4(2) of the Securities Act, because
the shares were sold to less than 35 purchasers, as calculated pursuant to
Rule
501 of the Securities Act. No advertising or general solicitation was employed
in offering the securities. The offerings and sales were made to a limited
number of persons and we made an independent determinations that all of such
persons were sophisticated investors, and that they were capable of analyzing
the merits and risks of their investment.
In
connection with the incorporation of Takumi (now known as uBid) in March 2003,
1,072 shares of voting common stock were issued to Messrs. Tomlinson and
Takesue, as founders, for de minimus consideration. In April 2003, 2,500 shares
of voting convertible preferred stock were issued to Petters Group for its
$1.0 million capital contribution. The
offering and sale were deemed to be exempt under Rule 506 of Regulation D and
Section 4(2) of the Securities Act, because the shares were sold to less than
35
purchasers, as calculated pursuant to Rule 501 of the Securities Act. No
advertising or general solicitation was employed in the
offering.
In
connection with the April 2003 acquisition of uBid from CMGI, and as part of
the
consideration paid in that acquisition, CMGI was issued warrants to acquire
188
shares of uBid’s non-voting common stock. The offering and sales were deemed to
be exempt under Rule 506 of Regulation D and Section 4(2) of the Securities
Act,
because the shares were sold to less than 35 purchasers, as calculated pursuant
to Rule 501 of the Securities Act. No advertising or general solicitation was
employed in offering the securities. The offerings and sales were made to a
limited number of persons and uBid made independent determinations that all
of
such persons were sophisticated investors, and that they were capable of
analyzing the merits and risks of their investment.
In
October 2005, uBid sold 33 shares of its common non-voting stock to three of
its
executive officers: Anthony Priore, Miguel A. Martinez, Jr. and Manoharan
Sivashanmugam. The total amount of consideration paid for these shares was
$443,712. These sales of shares of uBid’s common stock were exempt from
securities registration under Rule 506 of Regulation D as promulgated by the
SEC
under the Securities Act, because the shares were sold to less than 35
purchasers, as calculated pursuant to Rule 501 of the Securities
Act.
Upon
the
December 29, 2005 closing of the merger of uBid Acquisition Co., Inc. with
and
into uBid, following which uBid became our wholly-owned subsidiary, the
stockholders of uBid before the merger surrendered all of the issued and
outstanding shares of uBid and received 8,800,000 shares of our common stock.
On
February 6, 2006, 444,444 of such shares of our common stock were redeemed,
at a
price of $4.50 per share. The Cape Coastal stockholders before the merger
retained 599,331 shares of common stock. The
offering and sale were deemed to be exempt under Rule 506 of Regulation D and
Section 4(2) of the Securities Act, because the shares were sold to less than
35
purchasers, as calculated pursuant to Rule 501 of the Securities Act. No
advertising or general solicitation was employed in the
offering.
Immediately
following the closing of the merger, we granted options to purchase 1,721,700
shares of common stock under our 2005 Equity Incentive Plan to our Named
Executive Officers and other employees. Except as otherwise described herein,
the options are issuable pursuant to the 2005 Equity Incentive Plan at an
exercise price of $4.50 per share and will vest in equal annual increments
over
the four year period following the date of grant.
Also
on
December 29, 2005, we completed the first part of a private offering to
accredited investors. We sold 10,000,003 shares of our common stock and warrants
to purchase 2,500,003 shares of our common stock, for aggregate consideration
of
$45 million. The warrants issued to the investors are exercisable for five
years
at an exercise price of $5.85. Some of the investors participating in the
first
part of the private offering held notes that were issued by uBid before the
merger, including $10.5 million of debt held by the Petters Group and $5.0
million of debt held by the bridge loan holders. Rather than accepting cash
consideration for the Units acquired by these investors, we agreed to issue
Units at a rate of one Unit for each $4.50 of debt for consideration of the
note
holders’ cancellation of the existing notes. Of the 3,444,444 Units issued in
exchange for debt, 2,222,224 Units were issued to Petters Group with common
shares that were subject to redemption at a redemption price of $4.50. For
debt
exchanged with Units that did not have redeemable common shares, the value
of
the securities issued in exchange for the debt equaled the face value of
the
debt exchanged, and accordingly, we did not recognize or record a gain
or loss. Due to the higher value of the redeemable common shares issued to
Petters Group, we realized a loss of approximately $1.2 million upon the
exchange of debt for Units with those redeemable common shares. However,
as the
Petters Group is considered a significant related party to us, the exchange
was
treated for accounting purposes as a capital transaction and the resulting
loss
was reflected as a dividend to shareholders rather than as a direct reduction
of
net earnings. Therefore, the consideration we received on the Closing Date
consisted of approximately $29.5 million in cash and $15.5 million in cancelled
debt. In addition, on the Closing Date, we issued warrants to purchase 333,333
shares of our common stock to the bridge note holders as a financing fee,
which
warrants are exercisable for three years at an exercise price of $4.50 and
the
value of which, $600,000, was recorded as interest expense. We also issued
warrants to purchase 230,000 shares of our common stock to our placement
agents
in the offering, which warrants are exercisable for five years at an exercise
price of $4.50 and the value of which, $522,000, was recorded as a cost of
the
equity issuance.
On
February 3, 2006, we completed the second part of our private offering to
accredited investors. In this offering, we sold 3,000,000 shares of our common
stock and warrants to purchase 750,002 shares of our common stock. On
February 6, 2006, we redeemed the 2,666,668 shares of our common stock
issued subject to redemption to former uBid stockholders and certain
participants in the first part of the private offering, at a
redemption price of $4.50 per share and issued 600,667 shares of common
stock to Cape Coastal and uBid’s financial advisor, Calico Capital Group, LLC.
We issued additional warrants to purchase 90,000 shares of our common stock
to
our placement agents, which warrants are exercisable for five years at
an exercise price of $4.50 and the value of which, $162,000, was recorded
as additional costs of the equity issuance.
In
connection with the First Closing, on December 29, 2005, we issued warrants
to
the holders of our bridge notes to purchase 333,333 shares of common stock
for a
period of three years at an exercise price of $4.50. These warrants were issued
as a deferred fee for providing bridge loans to uBid on October 3,
2005.
On
February 3, 2006, we closed another round of financing with accredited investors
(the “Second Closing”). We issued 3,000,000 shares of our common stock and
warrants to purchase 750,002 shares of common stock to various accredited
investors for a purchase price of $13.5 million. We also redeemed 1,000,001
shares from Petters Group for a total of $4.5 million and 1,222,223 shares
from
the Petters Company, Inc. for $5.5 million. On February 6, 2006, in
connection with the Second Closing, we redeemed a total of 444,444 shares of
our
common stock from Robert Tomlinson and Timothy Takesue for a total of $2
million. Additionally, we issued 600,667 shares of our common stock to Calico
Capital Group, LLC, our financial advisors. Pursuant to a letter agreement,
Calico subsequently transferred a total of 50,000 of its shares to two
stockholders of the former Cape Coastal Trading Corporation. Our placement
agents were issued warrants to acquire an additional 90,000 shares of our common
stock for five years at an exercise price $4.50 per share, also in connection
with the Second Closing.
The
private offerings and related transactions discussed above are exempt from
registration under Section 4(2) of the Securities Act or Rule 506 of Regulation
D, promulgated by the SEC. With respect to the issuance of securities in
connection with the First Closing and the Second Closing, no general
solicitation was made by us or any person acting on our behalf; the securities
were sold subject to transfer restrictions, and the certificates for the shares
and warrants contained an appropriate legend stating that such securities have
not been registered under the Securities Act and may not be offered or sold
absent registration or an exemption therefrom.
No
underwriters were involved in connection with any of the sales of securities
by
Cape Coastal Trading Corporation or by uBid described in this Item 15.
Item
16. Exhibits and Financial Statement Schedules.
(a) Exhibits
|
Exhibit
No.
|
Description
|
Reference
|
|
2.1
|
Agreement
and Plan of Merger dated as of December 15, 2005, by and between
Cape
Coastal Trading Corporation, a New York corporation and Cape Coastal
Trading Corporation, a Delaware corporation.
|
Incorporated
by reference to Exhibit 2.1 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on December 21, 2005 (File
No.
000-50995).
|
|
2.2
|
Merger
Agreement and Plan of Reorganization dated as of December 29, 2005,
by and
among Cape Coastal Trading Corporation, uBid Acquisition Co., Inc.
and
uBid, Inc.
|
Incorporated
by reference to Exhibit 2.2 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
Exhibit
No.
|
Description
|
Reference
|
|
3.1
|
Certificate
of Incorporation.
|
Incorporated
by reference to Exhibit 3.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 21, 2005
(File No.
000-50995).
|
|
3.2
|
Bylaws.
|
Incorporated
by reference to Exhibit 3.2 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 21, 2005
(File No.
000-50995).
|
|
4.1
|
Form
of Warrant to be issued to the Investors.
|
Incorporated
by reference to Exhibit 4.1 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
4.2
|
Form
of Warrant to be issued to the Placement Agents.
|
Incorporated
by reference to Exhibit 4.2 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
4.3
|
Form
of Warrant to be issued to the Note Holders.
|
Incorporated
by reference to Exhibit 4.3 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
4.4
|
Form
of Lockup Agreement.
|
Incorporated
by reference to Exhibit 4.4 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
5.1
|
Opinion
of McGuireWoods LLP.*
|
|
|
10.1
|
Asset
Purchase Agreement dated as of January 13, 2005, by and between Cape
Coastal Trading Corporation, a New York corporation and Kwajo
Sarfoh.
|
Incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 14, 2005 (File
No.
000-50995).
|
|
Exhibit
No.
|
Description
|
Reference
|
|
10.2
|
Form
of Securities Purchase Agreement by and among Cape Coastal Trading
Corporation, uBid, Inc. and the Investors named therein.
|
Incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
10.3
|
Employment
Agreement dated as of December 29, 2005 by and between Cape Coastal
Trading Corporation and Robert H. Tomlinson, Jr.
|
Incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
10.4
|
Employment
Agreement dated as of December 29, 2005 by and between Cape Coastal
Trading Corporation and Timothy E. Takesue.
|
Incorporated
by reference to Exhibit 10.4 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
10.5
|
Employment
Agreement dated as of December 29, 2005 by and between Cape Coastal
Trading Corporation and Anthony Priore.
|
Incorporated
by reference to Exhibit 10.5 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
10.6
|
2005
Equity Incentive Plan, effective as of December 15, 2005.
|
Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 23, 2005
(File No.
000-50995).
|
|
10.7
|
Form
of Incentive Stock Option Agreement.
|
Incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 23, 2005
(File No.
000-50995).
|
|
10.8
|
Form
of Non-Qualified Stock Option Agreement.
|
Incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 23, 2005
(File No.
000-50995).
|
|
10.9
|
Form
of Indemnity Agreement.
|
Incorporated
by reference to Exhibit 10.9 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
Exhibit
No.
|
Description
|
Reference
|
|
10.10
|
Form
of Amendment Number 1 to Securities Purchase Agreement dated as of
February 28, 2006.
|
Incorporated
by reference to Exhibit 10.10 to the Annual Report on Form 10-K filed
with
the Securities and Exchange Commission on March 28, 2006 (File No.
000-50995).
|
|
16.1
|
Letter
re Change in Certifying Accountant.
|
Incorporated
by reference to Exhibit 16.1 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
16.2
|
Letter
re change in Certifying Accountant.†
|
|
|
21.1
|
List
of Subsidiaries.
|
Incorporated
by reference to Exhibit 21.1 to the Annual Report on Form 10-K filed
with
the Securities and Exchange Commission on March 28, 2006 (File No.
000-50995).
|
|
23.1
|
Consent
of McGuireWoods LLP (included in Exhibit 5.1).*
|
|
|
23.2
|
Consent
of BDO Seidman, LLP.*
|
| * |
Filed
herewith.
|
| † |
Filed
previously with the Registration Statement on Form S-1 filed on February
10, 2006 (File No. 333-131733) and incorporated by reference
herein.
|
(b) Financial
Statement Schedules.
The
information required by Schedule I: "Condensed Financial Information of
Registrant," as provided in Regulation S-X, is not presented in addition to
the
consolidated financial statements or the notes thereto, because uBid.com
Holdings, Inc. (the registrant) has no assets or operations apart from its
wholly-owned subsidiary uBid, Inc.
All
other Schedules have been omitted as the required
information is inapplicable or the information is presented in the consolidated
financial statements or related notes.
Item
17. Undertakings.
A. Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers, and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted against the registrant by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy
as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
B. That,
for
the purpose of determining any liability under the Securities Act of 1933 to
any
purchaser:
(1) If
the
registrant is relying on Rule 430B:
(a) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed
to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(b) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7)
as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose
of
providing the information required by section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the registration statement
as
of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter,
such
date shall be deemed a new effective date of the registration statement relating
to the securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be deemed to
be
the initial bona
fide
offering
thereof. Provided,
however,
that no
statement made in a registration statement or prospectus that is incorporated
by
reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such effective date, supersede or modify any statement that was made
in
the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective
date;
or
(2) If
the
registrant is subject to Rule 430C, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses filed
in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided,
however,
that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of
the
registration statement will, as to a purchaser with a time of contract of sale
prior to such first use, supersede or modify any statement that was made in
the
registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first
use.
C. The
undersigned Registrant hereby undertakes:
(1) To
file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To
include any prospectus required by section 10(a)(3) of the Securities Act of
1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement;
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That,
for
the purpose of determining any liability under the Securities Act of 1933,
each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(3) To
remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the
offering.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant
has duly caused this registration statement to be signed on its behalf by
the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on May 19, 2006.
uBid.com
Holdings, Inc.
By:
/s/ Robert H. Tomlinson, Jr.
Name: Robert
H.
Tomlinson, Jr.
Title: President
and Chief Executive Officer
Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons in the capacities and on
the
dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/
Robert H. Tomlinson, Jr.
|
President,
Chief Executive Officer and Director
|
|||
|
Robert
H. Tomlinson, Jr.
|
(Principal
Executive Officer)
|
May
19, 2006
|
||
|
/s/
Miguel A. Martinez, Jr.
|
|
Vice
President, Finance
|
|
|
|
Miguel
A. Martinez, Jr.
|
(Principal
Financial Officer and
Principal
Accounting Officer)
|
May
19, 2006
|
||
|
/s/
Stuart R. Romenesko
|
||||
|
Stuart
R. Romenesko
|
Director
|
May
19, 2006
|
EXHIBIT
INDEX
|
Exhibit
No.
|
Description
|
Reference
|
|
2.1
|
Agreement
and Plan of Merger dated as of December 15, 2005, by and between
Cape
Coastal Trading Corporation, a New York corporation and Cape Coastal
Trading Corporation, a Delaware corporation.
|
Incorporated
by reference to Exhibit 2.1 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on December 21, 2005 (File
No.
000-50995).
|
|
2.2
|
Merger
Agreement and Plan of Reorganization dated as of December 29, 2005,
by and
among Cape Coastal Trading Corporation, uBid Acquisition Co., Inc.
and
uBid, Inc.
|
Incorporated
by reference to Exhibit 2.2 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
3.1
|
Certificate
of Incorporation.
|
Incorporated
by reference to Exhibit 3.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 21, 2005
(File No.
000-50995).
|
|
3.2
|
Bylaws.
|
Incorporated
by reference to Exhibit 3.2 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 21, 2005
(File No.
000-50995).
|
|
4.1
|
Form
of Warrant to be issued to the Investors.
|
Incorporated
by reference to Exhibit 4.1 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
4.2
|
Form
of Warrant to be issued to the Placement Agents.
|
Incorporated
by reference to Exhibit 4.2 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
4.3
|
Form
of Warrant to be issued to the Note Holders.
|
Incorporated
by reference to Exhibit 4.3 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
4.4
|
Form
of Lockup Agreement.
|
Incorporated
by reference to Exhibit 4.4 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
5.1
|
Opinion
of McGuireWoods LLP.*
|
|
|
10.1
|
Asset
Purchase Agreement dated as of January 13, 2005, by and between Cape
Coastal Trading Corporation, a New York corporation and Kwajo
Sarfoh.
|
Incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 14, 2005 (File
No.
000-50995).
|
|
10.2
|
Form
of Securities Purchase Agreement by and among Cape Coastal Trading
Corporation, uBid, Inc. and the Investors named therein.
|
Incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
10.3
|
Employment
Agreement dated as of December 29, 2005 by and between Cape Coastal
Trading Corporation and Robert H. Tomlinson, Jr.
|
Incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
Exhibit
No.
|
Description
|
Reference
|
|
10.4
|
Employment
Agreement dated as of December 29, 2005 by and between Cape Coastal
Trading Corporation and Timothy E. Takesue.
|
Incorporated
by reference to Exhibit 10.4 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
10.5
|
Employment
Agreement dated as of December 29, 2005 by and between Cape Coastal
Trading Corporation and Anthony Priore.
|
Incorporated
by reference to Exhibit 10.5 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
10.6
|
2005
Equity Incentive Plan, effective as of December 15, 2005.
|
Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 23, 2005
(File No.
000-50995).
|
|
10.7
|
Form
of Incentive Stock Option Agreement.
|
Incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 23, 2005
(File No.
000-50995).
|
|
10.8
|
Form
of Non-Qualified Stock Option Agreement.
|
Incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 23, 2005
(File No.
000-50995).
|
|
10.9
|
Form
of Indemnity Agreement.
|
Incorporated
by reference to Exhibit 10.9 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
10.10
|
Form
of Amendment Number 1 to Securities Purchase Agreement dated as of
February 28, 2006.
|
Incorporated
by reference to Exhibit 10.10 to the Annual Report on Form 10-K filed
with
the Securities and Exchange Commission on March 28, 2006 (File No.
000-50995).
|
|
16.1
|
Letter
re Change in Certifying Accountant.
|
Incorporated
by reference to Exhibit 16.1 to the Current Report on Form 8-K filed
with
the Securities and Exchange Commission on January 5, 2006 (File No.
000-50995).
|
|
16.2
|
Letter
re change in Certifying Accountant.†
|
|
|
21.1
|
List
of Subsidiaries.
|
Incorporated
by reference to Exhibit 21.1 to the Annual Report on Form 10-K filed
with
the Securities and Exchange Commission on March 28, 2006 (File No.
000-50995).
|
|
23.1
|
Consent
of McGuireWoods LLP (included in Exhibit 5.1).*
|
|
|
23.2
|
Consent
of BDO Seidman, LLP.*
|
| * |
Filed
herewith.
|
| † |
Filed
previously with the Registration Statement on Form S-1 filed on February
10, 2006 (File No. 333-131733) and incorporated by reference
herein.
|