uBid.com Holdings Inc.: An Activist Shareholder Speaks Out

On August 21 I sent an activist shareholder letter to UBid.com Holdings Inc. (UBHI.OB). The entire letter follows:

Mr. Robert H. Tomlinson, Jr. UBid.com Holdings, Inc. 8725 West Higgins Road 9th Floor Chicago, IL 60631

CC: Steven Sjoblad David E. Baer Mary L. Jeffries Kenneth J. Roering Casey Gunnell.

Dear Mr. Tomlinson and UBid.com Holdings Board Members:

As you may or may not be aware I beneficially own a sum of stock in UBid.com Holdings, Inc. ("uBid"; or the "Company") that exceeds the current ownership of stock in the Company of the entire Board of Directors combined, with the exception of Mr. Tomlinson, who has announced he seeks to depart the company when his employment contract terminates.

I also represent the interests of nine other shareholders who own a similar combined amount of shares. As you are aware uBid’s stock prices continues to languish, even after the company repurchased 11% of the outstanding stock on April 25th, 2007. I’d like to take the time to discuss a few cost-cutting and shareholder value enhancement ideas which I believe will unlock the underlying inherent value within uBid that is being obscured by the reporting of operational losses.

I agree with the plan to transition from the Direct Channel to the UCM format however, I question the speed of this process as Direct Channel orders increased 38% in Q2 2007, from Q1 2007. In addition Direct Channel in Q2 2007 was also higher than the main holiday selling season in Q4 2006 as well as Q3 2006. I’d think that a full transition from Direct to UCM format would cut significant SG&A expenses particularly in salary and benefits, as well as warehousing costs as those expenses should no longer be necessary, putting the Company on a an accelerated path to profitability. In regards to the underlying assets of the Company, the stock price trades around the current net asset value and is off rather significantly from the IPO price not long ago. The IPO shows us a few things, first being that investors were willing to pay a significant amount more for shares in the Company when it was smaller (based on users and auctions) and generating larger losses.

Second it shows the ability of the Company to raise funds in the public market through equity offerings. Considering the Company trades around tangible book value and given the significant cash position, it is my opinion that the Board of Directors should authorize an immediate buy back of stock in the open market at the currently depressed prices. I’d like to see a minimum authorization of $5,000,000 and shares repurchased daily at market prices below two dollars per share. Continued buy-back of shares can be reassessed if the stock price exceeds two dollars. Need be the Company can also tap their credit facility from Wells Fargo leveraging assets and inventory to further free up cash for continued share repurchases. At the current stock price and given that the Company’s majority shareholder controls about half of the stock, essentially a good chunk of the public float of stock could be re-purchased and retired. If the Company needs cash for operations at a later date, I believe a secondary offering can be achieved at a much higher stock price, still resulting in a significant net decrease in overall shares outstanding.

In terms of the advertising budget, the current cable television "uBid Uphoria" ads are mediocre at best and in my opinion are completely forgettable with the monotone narrator. Secondly uBid’s efforts to track which ones work are causing further harm as users should be just be directed UBid.com and not a domain such as www.123uBid.com which corresponds to a certain network station and cable provider. I’d even encourage the Company to cut advertising entirely and come back with an a television ad that fires directly at #1 auction site eBay (EBAY) and their rampant problems with fraud. This would catch the attention of the people and fuel the shift over to a site such as uBid that many people are unaware even exists. This same strategy can be used to court the massive numbers of users eBay disenfranchised when they announced they were adding new restrictions to selling "gun parts" which are perfectly legal to sell and which most local sporting goods stores or national chains carry and sell without restriction. Paid NRA membership alone would constitute a doubling of uBid’s customer base, not to mention 2nd Amendment supporters far exceed their paid membership and are between 25-50 million adults in America. This is a large base of disenfranchised users that could fuel the growth of uBid not only by gun parts, but as these people buy electronics, collectibles, etc, and come back to the site as their preferred online auction site. I don’t think it’s hard to determine what influence and loyalty NRA members and supporters have. One only needs to look at Congressional election data over the last couple decades.

Advertising expense can also be reduced through promotions such as giving a new user a credit of 10 dollars for registering and spending an amount similar to the average UCM order. The net revenue from the transaction would essentially be a wash, but after the user experiences the site and is satisfied with their first transaction, they will most likely return as a revenue generating customer. Brand awareness should also grow. I believe the company did a promotion in the past with Google Check Out that was similar, perhaps that might be something to reconsider for another campaign.

Lastly what this company spends in advertising a quarter if they cut that level to zero for one quarter, they could run a Superbowl ad, which will generate awareness and users. The success of such ads from GoDaddy.com shows the potential there, again I think the ad would be best to fire a direct salvo at eBay over their fraud concerns. I don’t understand the Company’s plan for the Bidville asset as well. I’d think that if the company’s employees devoted even 5-10% of their time to working on sprucing up/improving Bidville, the UBid.com site would not suffer, but it would do wonders at Bidville and further build up that asset than allowing it to wither on the vine. Again that’s a site that can benefit from the huge base of users disenfranchised with #1 eBbay and will help chip away at their market share. Engaging in strategic alternatives, should also be explored. Although at this time I not advocating a sale of the company, there are a few groups where I believe the Company operating the #2 and #3 online auction sites would fit nicely.

First is with Overstock.com Inc (OSTK). Although Overstock has issues of their own, they also run auctions and operate in the surplus/close-out merchandise market. Strategic synergies could be achieved between the two companies and I’m sure Overstock shareholders would welcome uBid’s massive user base as well as giving them an alternative auction outlet for auctioning some of their fixed price merchandise.

The second fit would be Liquidity Services Inc. (LQDT), which also operates online auction formats for government and surplus assets. They could benefit from the integration of uBid’s user base and also by integrating the end consumer to bid up bulk lot quantities by splitting up the lots such as sellers do off the Company’s "Mega Auctions".

Lastly perhaps the Company’s majority shareholder would have an interest in acquiring the Company’s remaining outstanding shares at a reasonable price that is at a premium to where the stock currently trades.

Lastly I have a few ideas that could improve the functionality and user experience for the UBid.com and Bidville.com sites. Please feel free to contact me if you wish to discuss anything in this letter further.

Sincerely,

Norbert Klimer

Comments

[Harris Shapiro:]

Management of UBID have disregarded the public shareholders by not listing on AMEX or NASDAQ and not retaining an IR firm. I am also a shareholder. [e-mail]

2007 Aug 22 07:34 AM

[Thomas Wilber:]

As another shareholder I must agree with the letter as posted. I am also confused as to why uBid is not actively taking advantage of eBay's decisions by altering their marketing to emphasize the UCM program (in response to eBay's continuing problems with fraud) as well as attempting to pick up the many sellers and buyers that left eBay due to their decisions to stop the sale of firearms related items.

2007 Aug 22 09:07 AM

[bklimer:]

The board needs to be proactive and act in the interests of the shareholders and when the stock is cheap, they should be buying it up on the open market. They also need to grow the business and I believe that means going after Ebay and tapping into the resentment of their users for various reasons from high fees, to alienating and driving them off with some of their more ridiculous "policies" to the rampant fraud.

2007 Aug 22 11:56 AM

[andrea313:]

I agree with Mr. Klimer's statements regarding Bidville. As an online seller, I am tired of eBay's lack of competition in the auction market. If Bidville were a viable alternative - advertised and maintained - I would happily provide business there. After using Bidville for a while and getting few, if any, auction hits, I abandoned it...

2007 Aug 22 01:23 PM

[Harry Buehne:]

Everything I have read here appears to be extremely correct. Like many others, I was an active member of the Yahoo Auction when they decided to eliminate the auction. As a group we decided to go to Bidville and we have been extremely disappointed. Bidville is not about the same size as Yahoo was then it ended but the sales simply are not there and many sellers are re-thinking their decision to use Bidville. We find Bidville very rigid and not subject to suggestions from their seller base. Ideas like a community board appear to be out of the question becuase we might not agree with their ideas. Advertising might be a great help if properly presented. Ebay is out of the price range for the average small seller and no one appears to want the business. Dr. Harry E. Buehne

2007 Aug 22 02:58 PM

[dseitz:]

I am also a Bidville seller after Yahoo's closing. At first I thought it would be a great alternative to Yahoo but although my sales are satisfactory (mostly because I let my Yahoo regulars know where I was moving to), the customer service is non existent. I agree that more time should be spent sprucing up the site....it has great potential and could be a viable alternative to Ebay. More and more folks are getting disgusted with Ebay, but since Ebay is so big they could care less. Unfortunately sometimes I get the impression that Bidville has that same attitude. Customer service, their community boards, and advertising would all go a long way to building up your Bidville asset, which right now is a real sleeper.

2007 Aug 23 07:22 AM