You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations together with our consolidated financial statements and notes to those consolidated financial statements included elsewhere in this Annual Report. This discussion contains forward-looking statements that are based on our management's current expectations, estimates and projections about our business and operations. Our actual results may differ from those currently anticipated and expressed in such forward-looking statements. The terms "Enable Holdings" "we," "us," and "our," refer to Enable Holdings, Inc. and our subsidiaries.

Overview

We operate leading online websites located at www.uBid.com and www.RedTag.com, respectively. The two websites offer high quality excess, new, overstock, close-out, recertified and limited supply brand name merchandise to both consumers and businesses using auction style and fixed price formats. We offer consumers a trustworthy buying environment in which we continually monitor and certify activity to minimize the potential for fraud by certifying all merchants and processing 100% of all transactions between buyers and sellers. Our online properties offer brand-name merchandise from over 200 product categories including computer products, consumer electronics, apparel, housewares, watches, jewelry, travel, sporting goods, home improvement products and collectibles.

Our current business model provides value for consumers, manufacturers, distributors, retailers and other approved third party merchants. Consumers shop in a trustworthy and secure online environment and have the opportunity to bid their own prices on popular, brand-name products realizing product savings of generally 20% to 80% off retail prices. Our online properties 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 currently consists of three distinct business channels:
Certified Merchant (CM), Managed Supply and Cash Recovery.

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

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

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

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

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

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

º •
º RedTag.com: Our new fixed price internet site launched in August 2008, offers name brand merchandise with a low shipping and handling fee of only $1.95.

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

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

º •
º Commerce Innovations: A software service company which licenses auction software to third party companies. Companies, businesses and governments can use our platform to sell excess furniture, appliances, autos, and other surplus. This allows them to utilize a trusted platform while reducing live auction costs, as well as an efficient way to reach a wider target audience. The Company is currently in the process of developing and testing this hosted solution and anticipates its launch in the second half of 2009.

The Company's financial results for the twelve months ended December 31, 2008 have been negatively impacted by the planned change in the business model and the severe global economic downturn. To achieve the objective of becoming the leading excess inventory provider, the Company has made significant investments in increased staffing levels and information technology infrastructure, specifically in the first nine months of 2008. We have also made major changes to our traditional operations as we transition to the new business model.

As part of the transition to a new business model, we significantly reduced our marketing spending while realigning the marketing and advertising resources to better position them to each new operating division. The sales and marketing expenses decreased 24.9% in the fiscal year 2008 compared to the fiscal year 2007. The result was a significant decline in the visitor traffic to our website and decreased revenue volume. The visitor traffic in the fiscal year ended December 31, 2008 decreased 10.8% compared to 2007.

The Company also made the strategic decision to eliminate outside advertisement on its website. Historically advertisement sales have added a revenue stream but have negatively impacted overall sales by redirecting visitor traffic from the Company's website to competing websites. As a result of the elimination of advertisement sales, outside advertisement revenues decreased $885 or 82.2% for the year ended December 2008.

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

In line with the above changes, we have suffered increased losses compared to the prior year. The losses were consistent with management projections as we strategically transform the Company to a leading excess inventory solutions company. The transition to the new business model was primarily completed in 2008 and we expect all aspects of the new model to be fully implemented in the first half of 2009.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses, as well as the disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of our assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates, and we include any revisions to our estimates in our results for the period in which the actual amounts become known.

Our management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made or changes in the estimate or different estimates that could have been selected that could have a material impact on our results of operations or financial condition.

We believe the critical accounting policies described below affect the more significant judgments and estimates used in the preparation of our financial statements.

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 CM 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.

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.

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.

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).

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

A total of 2,500,000 shares of common stock have been reserved for issuance under the 2005 Equity Incentive Plan. If an Incentive Award granted pursuant to the 2005 Equity Incentive Plan expires, terminates, expires and is unexercised or is forfeited, or if any shares are surrendered to the Company in connection with an Incentive Award, the shares subject to such award and the surrendered shares will become available for future awards under the 2005 Equity Incentive Plan. Options generally vest over a period of four years and have a ten year contractual life.

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

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.

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

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

                                        2008                                        2007
                      Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
                         4          3          2          1          4          3          2          1
uBid.com
GMS (in thousands)    $ 12,374   $ 14,385   $ 17,117   $ 16,671   $ 21,765   $ 22,731   $ 23,304   $ 23,340
Number of Orders            94         95         97         95        115        129        136        133
(in thousands)
Average Order Value   $ 131.38   $ 151.77   $ 175.97   $ 174.58   $ 188.49   $ 176.78   $ 171.49   $ 175.64
Visitors to Bidders       2.93 %     3.32 %     3.61 %     4.08 %     3.09 %     2.70 %     2.88 %     3.06 %
%
Auctions Closed (in        383        215        181        455        780        715        619        539
thousands)
Auction Success          15.03 %    26.64 %    30.85 %    12.94 %     8.55 %    10.88 %    12.54 %    14.13 %
Rate

RedTag.com(1)
GMS (in thousands)    $    474   $    304          -          -          -          -          -          -
Number of Orders             5          3          -          -          -          -          -          -
(in thousands)
Average Order Value   $  96.43   $ 119.25          -          -          -          -          -          -
Visitors to Bidders      30.19 %    15.14 %        -          -          -          -          -          -
%
Auctions Closed (in         36         14          -          -          -          -          -          -
thousands)
Auction Success           8.46 %     8.68 %        -          -          -          -          -          -
Rate


--------------------------------------------------------------------------------
   º (1)

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

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

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

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

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

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

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

Segment Information and Financial Comparison

Prior to the change in the business model in 2008, the Company was organized into four operating segments: Direct sales channel, uBid Certified merchant ("UCM") sales channel, Wholesale (Business to Business) sales channel and Other.

For the Direct sales channel, the Company was responsible for conducting the auction or listing the fixed sale price for merchandise owned by the Company, billing the customer, shipping the merchandise to the customer, processing merchandise returns and collecting accounts receivable.

For the UCM sales channel, the Company was 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 bore no physical inventory loss or risk for returns related to these sales and recorded commission revenue at the time of shipment.

For the Wholesale sales channel, the Company sold product purchased directly to other businesses. Revenues were recognized upon shipment.

All other revenues consisted primarily of advertising revenue derived principally from the sale of online advertisements. Advertising revenues on contracts are recognized as "impressions" (i.e., the number of times that an advertisement appears in pages viewed by users of our websites). Impressions are delivered over the term of the agreement where such agreements provide for minimum monthly, quarterly or annual advertising commitments.

The revenue and gross profit breakdown of the Company based on the segments prior to the change in the business model is as follows:

                                           Year Ended December 31,
                                          2008       2007       2006
                                            (Dollars in Thousands)
                 Net Revenue
                 Direct                 $ 14,499   $ 31,135   $ 50,382
                 UCM                       4,544      5,533      4,686
                 Business to Business      9,324      5,258     10,790
                 Live Events               2,999          -          -
                 Other(1)                    213      1,135        701

                 Total                  $ 31,579   $ 43,061   $ 66,559

                 Gross Profit (Loss)
                 Direct                 $   (378 ) $  2,469   $  3,955
                 UCM                       4,544      5,533      4,686
                 Business to Business       (306 )      592        817
                 Live Events                 514          -          -
                 Other(1)                    213      1,134        680

                 Total                  $  4,587   $  9,728   $ 10,138

                 Gross Profit %
                 Direct                     -2.6 %      7.9 %      7.9 %
                 UCM                       100.0 %    100.0 %    100.0 %
                 Wholesale                  -3.3 %     11.3 %      7.6 %
                 Other(1)                  100.0 %     99.9 %     97.0 %

                 Total                      14.5 %     22.6 %     15.2 %

Bidville.com was an intangible asset bought in 2006 and fully amortized in 2008. See purchased intangible assets in the notes to the financial statements. Advertising revenues were eliminated during 2008.

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

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

º 2.
º RedTag.com: Our new fixed price internet site launched in August 2008, offers name brand merchandise with a low shipping and handling fee of only $1.95.

º 3.
º RedTag Live: Our live liquidation group, dedicated to selling through the traditional in-store sales and live liquidation sales.

º 4.
º Dibu Trading Company: A wholesale inventory liquidation company dedicated to Business-to-Business solutions, providing manufacturers and distributors the ability to sell large quantities of excess inventory. For example, when a retailer needs to liquidate a large quantity of inventory, they contact us to find a buyer that will buy the entire inventory in a single transaction. Our B2B experience allows us to present deals to multiple interested buyers to get the most profitable one.

º 5.
º Commerce Innovations: A software service company which licenses auction software to third party companies. Companies, businesses and governments can use our platform to sell excess furniture, appliances, autos, and other surplus. This allows them to utilize a trusted platform while reducing live auction costs, as well as an efficient way to reach a wider target audience. The Company is currently in the process of developing and testing this hosted solution and anticipates its launch in the second half of 2009.

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

                                           Year Ended December 31,
                                          2008       2007       2006
                                            (Dollars in Thousands)
                 Net Revenue
                 uBid.com(1)            $ 18,624   $ 37,803   $ 55,769
                 RedTag.com                  632          -          -
                 RedTag LIVE               2,999          -          -
                 Dibu Trading Co.          9,324      5,258     10,790
                 Commerce Innovations          -          -          -

                 Total                  $ 31,579   $ 43,061   $ 66,559

                 Gross Profit (Loss)
                 uBid.com(1)            $  4,283   $  9,136   $  9,321
                 RedTag.com                   96          -          -
                 RedTag LIVE                 514          -          -
                 Dibu Trading Co.           (306 )      592        817
                 Commerce Innovations          -          -          -

                 Total                  $  4,587   $  9,728   $ 10,138

                 Gross Profit %
                 uBid.com(1)                23.0 %     24.2 %     16.7 %
                 RedTag.com                 15.2 %        -          -
                 RedTag LIVE                17.1 %        -          -
                 Dibu Trading Co.           -3.3 %     11.3 %      7.6 %
                 Commerce Innovations          -          -          -

                 Total                      14.5 %     22.6 %     15.2 %

. . .