UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
COMMISSION FILE NUMBER 0-28720
PAID, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 73-1479833
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4 Brussels Street, Worcester, Massachusetts 01610
(Address of Principal Executive Offices) (Zip Code)
(508) 791-6710
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated filer",
and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated Filer [X]
Non-accelerated filer [ ] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 6, 2008, the issuer had outstanding 237,379,330 shares of its
Common Stock, par value $.001 per share.
Paid, Inc.
and Subsidiary
Form 10-Q
For the Three Months ended March 31, 2008
TABLE OF CONTENTS
-----------------
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2008 (unaudited) and December 31, 2007 ................ 3
Consolidated Statements of Operations
Three months ended March 31, 2008 and
2007 (unaudited) ................................................ 4
Consolidated Statements of Cash Flows
Three months ended March 31, 2008 and
2007 (unaudited) ................................................ 5
Consolidated Statements of Changes in Shareholders' Equity
Three months ended March 31, 2008
(unaudited) ..................................................... 6
Notes to Consolidated Financial Statements
Three months ended March 31, 2008 and 2007 ...................... 7-16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk ......... 20
Item 4. Controls and Procedures ............................................ 20
Part II - Other Information
Item 1. Legal Proceedings .................................................... 20
Item 1A. Risk Factors ......................................................... 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .......... 20
Item 3. Defaults Upon Senior Securities ...................................... 21
Item 4. Submission of Matters to a Vote of Security Holders .................. 21
Item 5. Other Information .................................................... 21
Item 6. Exhibits ............................................................. 21
Signatures .................................................................... 22
- 2 -
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
PAID, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2008 2007
------------- -------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 87,361 $ 264,811
Inventories, net 1,215,995 1,195,689
Prepaid expenses and other current assets 214,736 185,553
Due from employees 39,538 39,362
------------- -------------
Total current assets 1,557,630 1,685,415
Property and equipment, net 59,444 74,338
Intangible asset, net 10,593 10,828
------------- -------------
Total assets $ 1,627,667 $ 1,770,581
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 50,000 $ --
Accounts payable 439,415 272,476
Accrued expenses 361,194 380,276
Deferred revenues 112,433 109,500
------------- -------------
Total current liabilities 963,042 762,252
------------- -------------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value, 350,000,000 shares
authorized; 236,109,175 and 234,636,742 shares
issued and outstanding at March 31, 2008 and
December 31, 2007, respectively 236,109 234,637
Additional paid-in capital 32,599,852 32,083,880
Accumulated deficit (32,171,336) (31,310,188)
------------- -------------
Total shareholders' equity 664,625 1,008,329
------------- -------------
Total liabilities and shareholders' equity $ 1,627,667 $ 1,770,581
============= =============
See accompanying notes to consolidated financial statements
- 3 -
PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
(Unaudited)
2008 2007
------------- -------------
Revenues $ 253,972 $ 468,421
Cost of revenues 86,789 187,395
------------- -------------
Gross profit 167,183 281,026
------------- -------------
Operating expenses:
Selling, general, and administrative expenses 940,683 1,100,112
Web site development costs 88,228 98,295
------------- -------------
Total operating expenses 1,028,911 1,198,407
------------- -------------
Loss from operations (861,728) (917,381)
------------- -------------
Other income (expense):
Interest expense -- (2,263)
Other income 580 2,394
------------- -------------
Total other income, net 580 131
------------- -------------
Loss before income taxes (861,148) (917,250)
Provision for income taxes -- --
------------- -------------
Net loss $ (861,148) $ (917,250)
============= =============
Loss per share (basic and diluted) $ -- $ --
============= =============
Weighted average shares (basic and diluted) 235,012,192 222,498,093
============= =============
See accompanying notes to consolidated financial statements
- 4 -
PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2008 2007
---------- ----------
Operating activities:
Net loss $ (861,148) $ (917,250)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 23,359 32,787
Share based compensation 113,000 --
Intrinsic value of stock options awarded to
professionals and consultants in payment
of fees for services provided 278,391 405,926
Intrinsic value of stock options awarded to
employees in payment of compensation 2,308 85,038
Changes in assets and liabilities:
Accounts receivable -- (15,340)
Inventories, net (20,306) (1,269)
Deferred expenses (5,814)
Prepaid expense and other current assets (29,359) (196,691)
Accounts payable 166,939 (92,728)
Accrued expenses (19,082) (232,359)
Deferred revenue 2,933 561,051
---------- ----------
Net cash used in operating activities (342,965) (376,649)
---------- ----------
Investing activities:
Property and equipment additions (8,230) (2,532)
---------- ----------
Financing activities:
Net proceeds (repayments) of notes and loans payable 50,000 (18,000)
Proceeds from assignment of call options 103,245 15,538
Proceeds from exercise of stock options 20,500 --
Proceeds from sale of common stock -- 763,400
---------- ----------
Net cash provided by financing activities 173,745 760,938
---------- ----------
Net (decrease) increase in cash and cash equivalents (177,450) 381,757
Cash and cash equivalents, beginning 264,811 138,326
---------- ----------
Cash and cash equivalents, ending $ 87,361 $ 520,083
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ -- $ --
========== ==========
Interest $ -- $ 663
========== ==========
See accompanying notes to consolidated financial statements
- 5 -
PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2008
(Unaudited)
Common stock Additional
------------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
------------ --------- ------------ ------------- -----------
Balance, December 31, 2007 234,636,742 $ 234,637 $ 32,083,880 $ (31,310,188) $ 1,008,329
Issuance of common stock pursuant to exercise of stock
options granted to employees for services 5,783 6 2,302 -- 2,308
Issuance of common stock pursuant to exercise of stock
options granted to professionals and consultants 966,650 966 277,425 -- 278,391
Proceeds from assignment of call options -- -- 103,245 -- 103,245
Options exercised 500,000 500 20,000 -- 20,500
Share based compensation related to issuance of incentive
stock options -- -- 113,000 -- 113,000
Net loss -- -- -- (861,148) (861,148)
------------ --------- ------------ ------------- -----------
Balance, March 31, 2008 236,109,175 $ 236,109 $ 32,599,852 $ (32,171,336) $ 664,625
======================================================================
See accompanying notes to consolidated financial statements
- 6 -
PAID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
Note 1. Organization and Significant Accounting Policies
Paid, Inc. and subsidiary (the "Company") provides businesses and clients with
marketing, management, merchandising, auction management, website hosting, and
authentication and consignment services for the entertainment, sports and
collectible industries. The Company offers celebrities, musical artists and
athletes official web sites and fan-club services including e-commerce, VIP
ticketing, fan club management, fan experiences, storefronts, articles, polls,
message boards, contests, biographies and custom features. The Company also
sells merchandise for celebrities, through official fan websites, on tour or at
retail.
General
The Company has prepared the consolidated financial statements pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC) regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements and should be
read in conjunction with the Company's audited financial statements included in
the Annual Report on Form 10-KSB for the year ended December 31, 2007.
In the opinion of management, the Company has prepared the accompanying
consolidated financial statements on the same basis as its audited financial
statements, and these financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of the interim periods presented. The operating results for the interim
periods presented are not necessarily indicative of the results expected for the
full year 2008.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of Paid,
Inc. and its wholly-owned subsidiary, Rotman Collectibles, Inc. On December 27,
2007 Rotman Collectibles was merged into Paid, Inc. All inter-company balances
and transactions have been eliminated.
Inventories
Inventories consist of collectible merchandise for sale and are stated at the
lower of average cost or market on a first-in, first-out (FIFO) method. When a
purchase contains multiple copies of the same item, they are stated at average
cost.
On a periodic basis management reviews inventories on hand to ascertain if any
is slow moving or obsolete. In connection with this review, at both March 31,
2008 and December 31, 2007 the Company provided for reserves totaling $325,000.
Website Development Costs
The Company accounts for website development costs in accordance with the
provisions of EITF 00-2, "Accounting for Web Site Development Costs", which
requires that costs incurred in planning, maintaining, and operating stages that
do not add functionality to the site be charged to operations as incurred.
External costs incurred in the site application and infrastructure development
stage and graphic development are capitalized. Such capitalized costs are
included in "Property and equipment."
- 7 -
Revenue Recognition
The Company generates revenue from sales of fan experiences, from fan club
membership fees, from sales of its purchased inventories, and from web hosting
services.
Fan experiences sales include tickets and related experiences at concerts and
other events conducted by performing artists. Revenues associated with these fan
experiences are generally reported gross, rather than net, following the
criteria of EITF 99-19, "Reporting Revenue Gross as a Principal versus Net as an
Agent", and are deferred until the related event has been concluded, at which
time the revenues and related direct costs are recognized.
Fan club membership fees are recognized ratably over the term of the related
membership, generally one year.
For sales of merchandise owned and warehoused by the Company, the Company is
responsible for conducting the sale, billing the customer, shipping the
merchandise to the customer, processing customer returns and collecting accounts
receivable. The Company recognizes revenue upon verification of the credit card
transaction and shipment of the merchandise, discharging all obligations of the
Company with respect to the transaction.
The Company provides web hosting services in conjunction with two types of
arrangements - cash and receipt of publicly recognized autographs on
merchandise. Revenue is recognized on a monthly basis as the services are
provided under both arrangements. The amounts of revenues related to
arrangements settled in other than cash are determined based upon management's
estimate of the fair value of the service provided or the fair value of the
autographs received, depending upon which measure is most reliable.
Advertising costs
Advertising costs totaling approximately $15,300 in 2008 and $18,700 in 2007,
are charged to expense when incurred.
Shipping and Handling fees and costs
All amounts billed to customers in sales transactions related to shipping and
handling represent revenues earned and are reported as revenues. Costs incurred
by the Company for shipping and handling totaling $20,300 and $30,300 in 2008
and 2007, respectively, are reported as a component of selling, general and
administrative expenses.
Segment reporting
The Company has determined that it has only one discreet operating segment
consisting of activities surrounding the sale of fan experiences, fan club
memberships, and merchandise associated with its relationships with performing
artists and publicly recognized people.
Concentrations
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents. The Company places its cash
and cash equivalents with high credit quality institutions.
- 8 -
Approximately 74% and 67% of the Company's revenues for the three months ended
March 31, 2008 and 2007, respectively, were generated from fan experiences and
sales of merchandise related to one performing artist, Aerosmith.
Share Based Compensation
The Company accounts for share-based compensation in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) 123(R),
Share-Based Payment. Under the provisions of SFAS 123(R), share-based
compensation cost is measured at the grant date, based on the fair value of the
award, and is recognized as an expense over the employee's requisite service
period (generally the vesting period of the equity grant).
The Company estimates the fair value of stock options using the Black-Scholes
valuation model. Key input assumptions used to estimate the fair value of stock
options include the exercise price of the award, the expected option term, the
expected volatility of the Company's stock over the option's expected term, the
risk-free interest rate over the option's expected term, and the Company's
expected annual dividend yield. The Company believes that the valuation
technique and the approach utilized to develop the underlying assumptions are
appropriate in calculating the fair values of the Company's stock options.
Estimates of fair value are not intended to predict actual future events or the
value ultimately realized by persons who receive equity awards.
Earnings Per Common Share
Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
Potential common shares that may be issued by the Company relate to outstanding
stock options and warrants. The number of common shares that would be included
in the calculation of outstanding options and warrants is determined using the
treasury stock method. The assumed conversion of outstanding dilutive stock
options and warrants would increase the shares outstanding but would not require
an adjustment of income as a result of the conversion. Stock options and
warrants applicable to 30,636,054 shares and 27,280,198 shares at March 31, 2008
and 2007, respectively, have been excluded from the computation of diluted
earnings per share because they were antidilutive. Diluted earnings per share
have not been presented as a result of the Company's net loss for each year.
Fair value Measurements
On January 1, 2008 the Company adopted the provisions of SFAS No. 157, "Fair
Value Measurements," ("SFAS 157"). SFAS 157 defines fair value, establishes a
framework for measuring fair value in accordance with Generally Accepted
Accounting Principles, and expands disclosures about fair value measurements.
The Statement codifies the definition of fair value as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The standard
clarifies the principle that fair value should be based on the assumptions
market participants would use when pricing the asset or liability and
establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. Adoption of SFAS 157 had no material impact on the
Company's financial statements for the three months ended March 31, 2008.
On January 1, 2008 the Company adopted the provisions of SFAS No. 159, "The Fair
Value Option for Financial Assets and Financial Liabilities," ("SFAS 159"). SFAS
159 allows an entity the irrevocable option to elect fair value for the initial
and subsequent measurement for certain financial assets and liabilities on a
contract-by-contract basis. Subsequent changes in fair value of these financial
assets and liabilities would be recognized in earnings when they occur. SFAS 159
further establishes certain
- 9 -
additional disclosure requirements. Adoption of SFAS 159 had no material impact
on the company's financial statements for the three months ended March 31, 2008.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations",
which replaces SFAS No. 141. SFAS No. 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. The
Statement also establishes disclosure requirements which will enable users to
evaluate the nature and financial effects of the business combination. SFAS
141(R) is effective for calendar year companies on January 1, 2009. The adoption
of SFAS 141(R) will have an impact on accounting for business combinations once
adopted, but the effect is dependent upon acquisitions at that time.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51", which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent's ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The
Statement also establishes reporting requirements that provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. SFAS 160 is effective
for calendar year companies on January 1, 2009. The Company has not determined
the effect that the application of SFAS 160 will have on its consolidated
financial statements.
In December 2007, the SEC issued Staff Accounting Bulletin 110. SAB 110
expresses the views of the staff regarding the use of a "simplified" method, as
discussed in SAB No. 107 ("SAB 107"), in developing an estimate of expected term
of "plain vanilla" share options in accordance with Statement of Financial
Accounting Standards No. 123 (revised 2004). SAB 110 is not expected to have a
significant impact on the entity consolidated financial statements.
Note 2. Patent
During January 2008, the United States Patent and Trademark Office issued the
Company's patent #7324968 providing the Company with the rights granted to
patent holders, including the ability to seek licenses for patent use and to
protect the patent from infringement. The Company's patent is for the real-time
calculation of shipping costs for items purchased online using a zip code as a
destination location indicator. It includes shipping charge calculations across
multiple carriers and accounts for additional characteristics of the item being
shipped, such as weight, special packaging or handling, and insurance costs.
Note 3. Accrued Expenses
Accrued expenses are comprised of the following:
- 10 -
March 31, December 31,
2008 2007
--------- ------------
Interest $ 3,879 $ 3,879
Payroll and related costs 175,205 169,969
Professional and consulting fees 116,425 164,145
Commissions 50,066 13,965
Other 15,619 28,318
--------- ------------
$ 361,194 $ 380,276
========= ============
Note 4. Common Stock
Call Option Agreements
In connection with a May 9, 2005 settlement with Leslie Rotman regarding the
value paid and the value received in a 2001 transaction the Company received a
call option for 2,000,000 shares of the Company's common stock at $.001 per
share. Leslie Rotman is the mother, of Gregory Rotman, President of the Company,
and Richard Rotman, CFO/Vice President/Secretary of the Company. The option is
assignable by the Company and, as most recently amended, expires on May 9, 2009.
As of March 31, 2008 the Company had assigned options to purchase a total of
1,485,000 shares of stock from Leslie Rotman to certain individuals in exchange
for $547,515. The Company assigned 260,000 and 50,000 during the three months
ended March 31, 2008 and 2007 in exchange for $103,245 and $15,538,
respectively. The proceeds from the assignments of these options were added to
the paid in capital of the Company. At March 31, 2008, 515,000 call options
remain outstanding.
Warrants
During the year ended December 31, 2005, the Company entered into an Agreement
and sold a warrant to purchase common stock ("Warrant") to an investor. The
investor paid the Company $50,000 as a deposit ("Deposit") for the right to
acquire up to 2,000,000 shares of unregistered common stock at any time within
one year of the Agreement at $.15 per share. During 2006 the expiration date of
the Warrant was extended pending receipt of an additional $50,000 payment which
was received during 2007. If exercised, $100,000 will be applied as partial
payment of the exercise price. If the Warrants are not exercised by June 1, 2008
the deposits will be forfeited. The deposits have been recorded in Additional
Paid in Capital.
Share-based Incentive Plans
At March 31, 2008, the Company had a number of stock option plans that include
both incentive and non-qualified options to be granted to certain eligible
employees, non-employee directors, or consultants of the Company.
The 1999 Plan ("1999 Plan") provides for the award of non-qualified options for
up to 1,000,000 shares. The maximum number of shares currently reserved for
issuance is 492,000 shares. The options granted have ten-year contractual terms
and vested either immediately or annually over a five-year term. There were no
options granted under this plan during 2008 and 2007 and at both March 31, 2008
and December 31, 2007 there were 37,000 options outstanding with a weighted
average exercise price of $1.625.
The 2002 Plan ("2002 Plan") provides for the award of qualified and
non-qualified options for up to 30,000,000 shares. As of March 31, 2008 there
are no shares currently reserved for issuance. The options granted have ten-year
contractual terms and vested either immediately or annually over a five-year
term. Information with respect to stock options granted under the above plans is
as follows:
- 11 -
Weighted
average exercise
Number of shares price per share
---------------- ----------------
Options outstanding at December 31, 2007 24,000,000 $ .041
Granted 5,000,000 $ .415
Exercised (500,000) .041
----------
Options outstanding at March 31, 2008 28,500,000 $ .106
==========
The total intrinsic value of options exercised under the 2002 Plan during the
three months ended March 31, 2008 was $113,000.
The grant date fair value of the Company's 2008 option grants was $1,815,000
estimated at the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:
2008
-------
Expected term (based upon historical experience) 6 years
Expected volatility 120.38%
Expected dividends None
Risk free interest rate 3.75%
The incremental fair value calculated using the above assumptions over the
intrinsic value was determined to be $1,815,000 which is being amortized over
the four year vesting period of the grant resulting in $113,000 being charged to
operations during the three months ended March 31, 2008.
On February 1, 2001 the Company adopted the 2001 Non-Qualified Stock Option Plan
(the "2001 Plan") and has filed Registration Statements on Form S-8 to register
90,000,000 shares of its common stock. Under the 2001 Plan, employees and
consultants may elect to receive their gross compensation in the form of
options, exercisable at $.001 per share, to acquire the number of shares of the
Company's common stock equal to their gross compensation divided by the fair
value of the stock on the date of grant. Information with respect to stock
options granted under the above plans is as follows:
Weighted
average exercise
Number of shares price per share
---------------- ----------------
Options outstanding at December 31, 2007 99,054 $ .001
Granted 972,433 .001
Exercised (972,433) .001
--------
Options outstanding at March 31, 2008 99,054 $ .001
========
A summary of the awards under this plan during the three months ended March 31,
2008 and 2007 is as follows:
- 12 -
Number of Intrinsic
Shares Value
--------- ---------
2008
----
Employee payroll 5,783 $ 2,308
Consulting and professional fees 966,650 278,393
--------- ---------
Total 972,433 $ 280,701
========= =========
2007
----
Employee payroll 276,985 $ 85,038
Consulting and professional fees 2,480,209 405,927
--------- ---------
Total 2,757,194 $ 490,965
========= =========
At March 31, 2008 the maximum number of shares reserved for issuance was
6,394,373 shares. The options granted have ten-year contractual terms and vest
immediately.
The fair value of the Company's 2008 and 2007 option grants was estimated at the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:
2008 2007
------- -------
Expected term (based upon historical experience) <1 week <1 week
Expected volatility 117.91% 118.48%
Expected dividends None None
Risk free interest rate 3.75% 4%
The incremental fair value calculated using the above assumptions over the
intrinsic value was determined to be immaterial and no related additional share
based compensation has been recorded.
During July 1999, the Company's Board of Directors adopted, subject to
stockholders' approval, the 1999 Omnibus Share Plan (the "Omnibus Plan") that
provides for both incentive and non-qualified stock options, stock appreciation
rights and other awards to directors, officers, and employees of the Company to
purchase or receive up to 1,000,000 shares of the Company's stock. A committee
of the Board of Directors ("Committee") establishes the option price at the time
each option is granted, which price may, in the discretion of the Committee, be
less than 100% of the fair market value of the shares on the date of the grant.
Any options granted will have a maximum term of ten years and will be
exercisable during a period as specified by the Committee. No options have ever
been granted under the Omnibus Plan.
All but 5,000,000 options outstanding at March 31, 2008 are fully vested and
exercisable. Information pertaining to options outstanding at March 31, 2008 is
as follows:
- 13 -
Options Outstanding
Weighted Average Aggregate
Number of Remaining Intrinsic
Exercise Prices shares Contractual Life Value
--------------- ---------- ---------------- -----------
$ 1.62 37,000 1.75 --
.001 99,054 7.75 $ 29,617
.041 23,500,000 5.75 6,086,000
.415 5,000,000 9.75
----------
27,636,054
==========
The total intrinsic value of options exercised during the three months ended
March 31, 2008 under all plans was $397,701 in exchange for $20,500 of cash.
Note 5. Income Taxes
On January 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board Interpretation No. 48 "Accounting for the Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109 ("FIN No. 48"). FIN No. 48
requires that the impact of tax positions be recognized in the financial
statements if they are more likely than not of being sustained based upon the
technical merits of the position. The Company has a valuation allowance against
the full amount of its net deferred taxes. The Company currently provides a
valuation allowance against deferred taxes when it is more likely than not that
some portion, or all, of its deferred tax assets will not be realized.
The implementation of FIN No. 48 had no impact on the Company's financial
statements due to the valuation allowances that have historically been provided
against all deferred tax assets.
The Company has not been audited by the Internal Revenue Service ("IRS") or any
states in connection with income taxes. The Company files income tax returns in
the U.S. federal jurisdiction and various state jurisdictions. The periods from
2004-2007 remain open to examination by the IRS and state jurisdictions. The
Company believes it is not subject to any tax risk beyond the preceding
discussion. The Company's policy is to recognize interest and penalties accrued
on any unrecognized tax benefits as a component of income tax expense. As of the
date of adoption of FIN No. 48, the Company did not have any accrued interest or
penalties associated with any unrecognized tax benefits, nor was any significant
interest expense recognized during the three months ended March 31, 2008.
There was no provision for income taxes for the three months ended March 31,
2008 and 2007 due to the Company's net operating loss and its valuation reserve
against deferred income taxes.
The difference between the provision for income taxes using amounts computed by
applying the statutory federal income tax rate of 34% and the Company's
effective tax rate is due primarily to the net operating loss incurred by the
Company and the valuation reserve against the Company's deferred tax asset.
The tax effects of significant temporary differences and carry forwards that
give rise to deferred taxes are as follows:
- 14 -
March 31, December 31,
2008 2007
----------- ------------
Federal net operating loss carry forwards $ 8,469,000 $ 8,206,000
State net operating loss carry forwards 1,359,000 1,273,000
----------- ------------
9,828,000 9,479,000
Valuation reserve (9,828,000) (9,479,000)
----------- ------------
Net deferred tax asset $ -- $ --
=========== ============
The valuation reserve applicable to net deferred tax asset as of March 31, 2008
and December 31, 2007 is due to the likelihood of the deferred tax not to be
utilized.
At March 31, 2008, the Company has federal and state net operating loss carry
forwards of approximately $26,000,000 and $14,000,000, respectively, available
to offset future taxable income. The state carry-forwards will expire
intermittently through 2014, while the federal carry forwards will expire
intermittently through 2029.
Note 6. Related party transactions
Steven Rotman is the father, and Leslie Rotman is the mother, of Gregory Rotman,
President of the Company, and Richard Rotman, CFO/Vice President/Secretary of
the Company. The Company entered into a number of transactions over the past two
years with both Steven Rotman and Leslie Rotman. Management believes that these
transactions are fair and reasonable to the Company and no less favorable than
could have been obtained by an unaffiliated third party.
In December 2001, the Company engaged Steven Rotman to provide consulting
services to the Company. During the three months ended March 31, 2007, the
Company incurred $72,000 of consulting fees paid to Steven Rotman, who elected
to receive this compensation in the form of options under the 2001 Plan.
As of December 31, 2006, the Company owed Steven Rotman $80,000 in principal,
and $40,322 in interest at 8%. Interest expense charged to operations during the
three months ended March 31, 2008 related to this obligation was $1,600. Late in
2007 the Company repaid the $80,000 of principal plus $46,598 of then
outstanding interest through the issuance of 527,488 restricted shares of the
Company's common stock.
The Company leases facilities, as a tenant at will, from a company in which
Steven Rotman is a shareholder. During the three months ended March 31, 2008 and
2007 the Company charged $7,800 to operations under this arrangement.
Note 7. Commitments and contingencies
Lease commitment
The Company leases office facilities in Boston Massachusetts under a five year
lease that began in May 2006 requiring monthly payments of approximately $5,800,
plus increases in real estate taxes and operating expenses, through April 2011.
- 15 -
Legal matters
In the normal course of business, the Company periodically becomes involved in
litigation. As of March 31, 2008, in the opinion of management, the Company had
no pending litigation that would have a material adverse effect on the Company's
financial position, results of operations, or cash flows. In Parshall v. Paid,
Inc., Paul L. Parshall filed a lawsuit against the Company in the Court of
Common Pleas of Franklin County, Ohio on October 3, 2006. Mr. Parshall claims to
be the owner of 423,415 shares represented by Stock Certificate Number 01123.
According to the Company's transfer agent, the Company's stock records show that
Stock Certificate Number 01123 was cancelled on May 15, 1997. Mr. Parshall was
affiliated with a previous transfer agent of the Company. The Company filed a
motion to dismiss based on lack of personal jurisdiction through its Ohio
counsel. The Court of Common Pleas granted the Company's motion to dismiss on
November 7, 2007. The order to dismiss is now on appeal before the Ohio Court of
Appeals, Tenth Appellate District, Franklin County, Ohio. Mr. Parshall requests
damages equal to the market value of the shares and for any loss for not
recognizing the shares. The Company disputes Mr. Parshall's claims.
Note 8. Subsequent event
On April 29, 2008 the Company entered into an unsecured $2,500,000 Promissory
Note with Lewis Asset Management ("Lender") that is due on April 29, 2009.
Amounts outstanding will bear interest at 15%, and for each $100,000 advanced,
Lender will receive a warrant for 100,000 shares of the Company's common stock.
The warrants are exercisable at $.25 per share and will expire three years from
the date of issue. The $50,000 balance of short term debt on the accompanying
balance sheet was advanced by Lender and it was included in the Promissory Note.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
------------------------------------
Forward Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements
(within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934) regarding the Company and its business,
financial condition, results of operations and prospects. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions or variations of such words are intended to identify
forward-looking statements in this report. Additionally, statements concerning
future matters such as the development of new services, technology enhancements,
purchase of equipment, credit arrangements, possible changes in legislation and
other statements regarding matters that are not historical are forward-looking
statements.
Although forward-looking statements in this Quarterly Report reflect the good
faith judgment of the Company's management, such statements can only be based on
facts and factors currently known by the Company. Consequently, forward-looking
statements are inherently subject to risks, contingencies and uncertainties, and
actual results and outcomes may differ materially from results and outcomes
discussed in this report. Although the Company believes that its plans,
intentions and expectations reflected in these forward-looking statements are
reasonable, the Company can give no assurance that its plans, intentions or
expectations will be achieved. For a more complete discussion of these risk
factors, see Exhibit 99, "Risk Factors", in the Company's Form 10-KSB for the
fiscal year ended December 31, 2007.
For example, the Company's ability to achieve positive cash flow and to become
profitable may be adversely affected as a result of a number of factors that
could thwart its efforts. These factors include the Company's inability to
successfully implement the Company's business and revenue model, tour or event
cancellations, higher costs than anticipated, the Company's inability to sell
its products and services to a
- 16 -
sufficient number of customers, the introduction of competing products by
others, the Company's failure to attract sufficient interest in and traffic to
its sites, the Company's inability to complete development of its sites, the
failure of the Company's operating systems, and the Company's inability to
increase its revenues as rapidly as anticipated. If the Company is not
profitable in the future, it will not be able to continue its business
operations.
Overview
Our primary focus is to provide businesses and clients with marketing,
management, merchandising, auction management, website hosting, and
authentication services for the entertainment, sports and collectible
industries. We offer entertainers and athletes official web sites and fan club
services including e-commerce, VIP ticketing, fan club management, fan
experiences, storefronts, articles, polls, message boards, contests, biographies
and custom features. We also sell merchandise for celebrities, through official
fan websites, on tour or at retail. Our celebrity services proprietary content
management system provides an opportunity for our clients to offer more
information, merchandise and experiences to their customers and communities. We
provide business management tools for online retailers, through AuctionInc,
which is home to our patented shipping calculator and automated auction checkout
and order processing system.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 to our
consolidated financial statements included in our Form 10-KSB filed on March 31,
2008. However, certain of our accounting policies are particularly important to
the portrayal of our financial position and results of operations and require
the application of significant judgment by our management; as a result, they are
subject to an inherent degree of uncertainty. In applying these policies, our
management makes estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosures. Those
estimates and judgments are based upon our historical experience, the terms of
existing contracts, our observance of trends in the industry, information that
we obtain from our customers and outside sources, and on various other
assumptions that we believe to be reasonable and appropriate under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. Our critical accounting policies include:
Inventories: Inventories are stated at the lower of average cost or market on a
first-in, first-out method. On a periodic basis we review inventories on hand to
ascertain if any is slow moving or obsolete. In connection with this review, we
establish reserves based upon management's experience and assessment of current
product demand. The Company's inventories are comprised of merchandise and
collectibles that relates to performing artists and athletes and valuation of it
is more subjective than with more standard inventories. General economic
conditions, tour schedules of performing artists, and the reputation of the
performing artists/athletes, might make sale or disposition of these inventories
more or less difficult. Any increases in the reserves would cause a decline in
profitability, since such increases are recorded as charges against operations.
Revenue recognition: Certain components of revenues are recognized based upon an
estimate of value, since they are received in non-monetary transactions.
Management estimates the amount of revenue based upon its historical experience
in comparable cash transactions or its estimation of the value received,
whichever is more reliable in the circumstances. Variations in the reliability
of these judgments may result in enhancement or impairment of gross margins and
results of operations in future periods.
- 17 -
Results of Operations
The following discussion compares the Company's results of operations for the
three months ended March 31, 2008 with those for the three months ended March
31, 2007. The Company's financial statements and notes thereto included
elsewhere in this quarterly report contain detailed information that should be
referred to in conjunction with the following discussion.
Revenues. For the three months ended March 31, 2008, revenues were $254,000, 90%
of which was attributable to sales of fan club memberships, merchandise, and fan
experiences related to tours of performing artists. Sales of the Company's own
product and fees from buyers and sellers represented 10% of revenues. Gross
sales of the Company's own product were $24,900. Fan experience, fan club
membership and related merchandise sales revenues were $228,000. Management
anticipates increases from fan club memberships, merchandise, and fan
experiences from tours, products and services related to several other
performing artists during 2008. Performing artists typically do not announce
tour plans until two to four months in advance of the first show. Several
performing artists represented by the Company have announced tours that are
scheduled to begin during the second and third quarter of 2008. Some of these
tours are expected to continue into the fourth quarter of 2008.
The Company's revenues for the three months ended March 31, 2008 represent a
decrease of approximately $214,400 from the same period in 2007 when revenues
were $468,400. For the three months ended March 31, 2007, sales of the Company's
product were $117,500 or 25% of gross sales, fan club membership and related
merchandise sales revenues were $315,200, 67% of gross revenues, and sports
marketing revenues were $35,800, or 8% of gross revenues.
The main reasons for the decrease in revenues was an $87,200 decrease related to
the tours of performing artists, lower revenues related to sports marketing
services of $35,800, and lower sales of Company owned product of approximately
$92,700 from the same period in 2007. Revenues related tours of performing
artists are dependent upon tour schedules, the popularity of the artist(s) on
tour, and whether the tour(s) are domestic or international. There were no
artists touring during the three months ended March 31, 2008 and 2007. Gross
Profit from celebrity services for the three months ended March 31, 2008 and
2007 was approximately $122,400 and $141,600 respectively. As a result of the
lower sales of Company owned product, gross profit from Company owned product
sales for the three months ended March 31, 2008 was approximately $14,700,
$100,000 less than in 2007.
Operating Expenses. Total operating expenses for the three months ended March
31, 2008 were $1,028,900 compared to $1,198,400 in 2007, a decrease of $169,500.
Sales, general and administrative ("SG&A") expenses for the three months ended
March 31, 2008 were $940,700, compared to $1,100,100 for the three months ended
March 31, 2007. The decrease of $159,400 in SG&A costs includes decreases in
payroll and related costs of $65,000, credit card commissions of $14,000, travel
of $55,900, tour expenses of $7,000, shipping and postage of $12,200, and
professional fees of $137,000, offset by an increase in share based compensation
of $113,000. The credit card commissions and postage and shipping decreases are
principally attributable to lower levels of tours, both current and those to
begin after the end of the quarter, of performing artists.
Costs associated with planning, maintaining and operating our web sites for the
three months ended March 31, 2008 decreased by $10,100 from 2007. This decrease
is due primarily to decreases in computer costs of $9,500 and depreciation of
$9,000, offset by an increase in consulting costs of $9,200.
Net Loss. The Company realized a net loss for the three months ended March 31,
2008 of $861,100 compared to a net loss of $917,200 for the three months ended
March 31, 2007. Losses for both years represent less than $.01 per share.
- 18 -
Inflation. The Company believes that inflation has not had a material effect on
its results of operations.
Assets
At March 31, 2008, total assets of the Company were $1,628,000 compared to
$1,771,000 at December 31, 2007.
Operating Cash Flows
A summarized reconciliation of the Company's net losses to cash provided by
(used in) operating activities for the three months ended March 31, 2008
compared to March 31, 2007, is as follows:
2008 2007
----------- -----------
Net loss $ (861,100) $ (917,200)
Depreciation and amortization 23,000 33,000
Option compensation 113,000 --
Intrinsic value of stock options awarded in payment of services 281,000 491,000
Net current assets and liabilities associated with advance
ticketing -- 364,000
Changes in current assets and liabilities 101,100 (347,400)
----------- -----------
Net cash provided by (used in) operating activities ($ 343,000) ($ 376,600)
=========== ===========
Working Capital and Liquidity
The Company had cash and cash equivalents of $87,000 at March 31, 2008, compared
to $265,000 at December 31, 2007. The Company had $595,000 of working capital at
March 31, 2008 compared to $923,000 at December 31, 2007. At March 31, 2008
current liabilities were $963,000 compared to $762,000 at December 31, 2007.
Current liabilities increased at March 31, 2008 compared to December 31, 2007
primarily due to new short term debt and higher levels of accounts payable.
The Company's independent registered public accounting firm has issued a going
concern opinion on the Company's consolidated financial statements for the year
ended December 31, 2007. The Company may need an infusion of additional capital
to fund anticipated operating costs over the next 12 months. Management
anticipates growth in revenues and gross profits for the remainder of 2008 from
its celebrity services products and websites, and similar services to other
entities; including memberships, fan experiences and ticketing, appearances,
website development and hosting, and merchandise sales from both existing and
new clients. In addition, our suite of management tools and patented shipping
calculator solutions for small ecommerce enterprises, and web hosting are
expected to increase revenues and result in higher total gross profit. Subject
to the discussion below, management believes that the Company has sufficient
cash resources to fund operations during the next 12 months. These resources
include call options, expiring on May 9, 2009, for approximately 515,000 shares
of common stock, which, once assigned by the Company, can generate between
$85,000 and $275,000 (based solely upon the 52 week high and low closing prices
of the Company's common stock) of cash. In addition, in April 2008 the Company
entered into a financing agreement for up to $2,500,000 of additional financing
and management is exploring opportunities to monetize its recently issued
patent. However, there can be no assurance that all of the financing will be
received, that assignment of the call options can be concluded on reasonably
acceptable terms, or that the Company will be successful in monetizing its
patent. Finally, management is seeking alternative sources of capital to support
operations.
- 19 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
-----------------------------------------------------------
No discussion is required pursuant to Form 10-Q Instruction to paragraph
305(c).
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
Evaluation of Disclosure Controls and Procedures
The Company's management, including the President of the Company and the
Chief Financial Officer of the Company, has evaluated the effectiveness of the
Company's "disclosure controls and procedures," as such term is defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Based upon this evaluation, the principal executive officer and
principal financial officer concluded that, as of the end of the period covered
by this report, the Company's disclosure controls and procedures were effective,
except with respect to material weaknesses in internal control over financial
reporting described below, for the purpose of ensuring that the information
required to be disclosed in the reports that the Company files or submits under
the Exchange Act with the Securities and Exchange Commission is recorded,
processed, summarized and reported within the time period specified by the
Securities and Exchange Commission's rules and forms, and is accumulated and
communicated to the Company's management, including its principal executive and
financial officers, as appropriate to allow timely decisions regarding required
disclosure. There were no significant changes in the Company's internal controls
during the last fiscal quarter and as of the end of the period covered by this
annual report or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Management, with the participation of our principal executive officer and
principal financial officer, is required to evaluate the effectiveness of our
internal controls based on criteria established under the COSO framework, an
integrated framework for evaluation of internal controls issued to identify the
risks and control objectives related to the evaluation of the control
environment by the Committee of Sponsoring Organizations of the Treadway
Commission. Management has concluded that our internal controls over financial
reporting were not effective as of March 31, 2008 due to our inability to
perform sufficient testing of internal controls on financial reporting. A factor
for our internal control deficiencies is the small size of the Company and the
lack of a financial expert on the Audit Committee of the Board of Directors and
other corporate governance controls. As defined by the Public Company Accounting
Oversight Board Auditing Standard No. 2, a material weakness is a significant
control deficiency or a combination of significant control deficiencies that
results in there being more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. Management continues to monitor and assess the controls to ensure
compliance. Please refer to Item8A(T) of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2007 for a further
description of this material weakness in internal control over financial
reporting.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting
during the quarter ended March 31, 2008 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
There have been no material developments with respect to any previously
reported legal proceedings.
ITEM 1A. RISK FACTORS
------------
There are no material changes for the risk factors previously disclosed on
Form 10-KSB for the year ended December 31, 2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
-----------------------------------------------------------
None.
- 20 -
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
-----------------
None.
ITEM 6. EXHIBITS
--------
4.1 Form of Warrant to Lewis Asset Management with respect to
Promissory Note dated April 29, 2008
10.1 Amendment No. 3 to Settlement Agreement and Mutual Release
10.2 Promissory Note dated April 29, 2008 for up to $2,500,000 to
Lewis Asset Management
31.1 CEO Certification required under Section 302 of Sarbanes-Oxley
Act of 2002
31.2 CFO Certification required under Section 302 of Sarbanes-Oxley
Act of 2002
32 CEO and CFO Certification required under Section 906 of
Sarbanes-Oxley Act of 2002
- 21 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAID, INC.
Registrant
Date: May 12, 2008 /s/ Gregory Rotman
------------ ---------------------------------------------
Gregory Rotman, President
Date: May 12, 2008 /s/ Richard Rotman
------------ ---------------------------------------------
Richard Rotman, Chief Financial Officer, Vice
President and Secretary
- 22 -
LIST OF EXHIBITS
Exhibit No. Description
-----------------------
4.1 Form of Warrant to Lewis Asset Management with respect to Promissory
Note dated April 29, 2008
10.1 Amendment No. 3 to Settlement Agreement and Mutual Release
10.2 Promissory Note dated April 29, 2008 for up to $2,500,000 to Lewis
Asset Management
31.1 CEO Certification required under Section 302 of Sarbanes-Oxley Act
of 2002
31.2 CFO Certification required under Section 302 of Sarbanes-Oxley Act
of 2002
32 CEO and CFO Certification required under Section 906 of
Sarbanes-Oxley Act of 2002
- 23 -