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, 2009
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 has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(ss.232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). |_| Yes
|_| 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 April 30, 2009, the issuer had outstanding 255,909,348 shares of its
Common Stock, par value $.001 per share.
Paid, Inc.
Form 10-Q
For the Three Months ended March 31, 2009
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets
March 31, 2009 (unaudited) and December 31, 2008.................3
Statements of Operations
Three months ended March 31, 2009 and
2008 (unaudited).................................................4
Statements of Cash Flows
Three months ended March 31, 2009 and
2008 (unaudited).................................................5
Statements of Changes in Shareholders' Equity
Three months ended March 31, 2009
(unaudited)......................................................6
Notes to Financial Statements
Three months ended March 31, 2009 and 2008.......................7-15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................16
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........19
Item 4. Controls and Procedures.............................................20
Part II - Other Information
Item 1. Legal Proceedings......................................................21
Item 1A. Risk Factors...........................................................21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...........21
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
-1-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAID, INC.
BALANCE SHEETS
March 31, December 31,
ASSETS 2009 2008
------------ ------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 59,231 $ 106,948
Accounts receivable, net 27,944 1,425
Inventories, net 1,024,679 1,016,938
Prepaid expenses and other current assets 473,225 404,876
Due from employees and others 42,497 42,497
------------ ------------
Total current assets 1,627,576 1,572,684
Property and equipment, net 26,479 30,967
Intangible asset, net 9,653 9,888
------------ ------------
Total assets $ 1,663,708 $ 1,613,539
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 47,500 $ --
Accounts payable 528,192 399,383
Accrued expenses 513,370 495,139
Deferred revenues 250,850 119,700
------------ ------------
Total current liabilities 1,339,912 1,014,222
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value, 350,000,000 shares
authorized; 254,523,996 and 251,369,046 shares
issued and outstanding at March 31, 2009 and
December 31, 2008, respectively 254,524 251,369
Additional paid-in capital 36,952,635 36,392,504
Accumulated deficit (36,883,363) (36,044,556)
------------ ------------
Total shareholders' equity 323,796 599,317
------------ ------------
Total liabilities and shareholders' equity $ 1,663,708 $ 1,613,539
============ ============
See accompanying notes to financial statements
-2-
PAID, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2009 2008
------------- -------------
Revenues 326,866 $ 253,972
Cost of revenues 137,149 86,789
------------- -------------
Gross profit 189,717 167,183
------------- -------------
Operating expenses:
Selling, general, and administrative expenses 949,767 940,683
Website development costs 76,261 88,228
------------- -------------
Total operating expenses 1,026,028 1,028,911
------------- -------------
Loss from operations (836,311) (861,728)
------------- -------------
Other income (expense):
Interest expense (2,500) --
Other income 4 580
------------- -------------
Total other income (expense), net (2,496) 580
------------- -------------
Loss before income taxes (838,807) (861,148)
Provision for income taxes -- --
------------- -------------
Net loss $ (838,807) $ (861,148)
============= =============
Loss per share (basic and diluted) $ (0.00) $ (0.00)
============= =============
Weighted average shares 252,826,173 235,012,192
============= =============
See accompanying notes to consolidated financial statements
-3-
PAID, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2009 2008
---- ----
Operating activities:
Net loss $(838,807) $(861,148)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,723 23,359
Share based compensation 113,000 113,000
Intrinsic value of stock options awarded to
professionals and consultants in payment
of fees for services provided 450,286 278,391
Intrinsic value of stock options awarded to
employees in payment of compensation -- 2,308
Changes in assets and liabilities:
Accounts receivable (26,519) --
Inventories (7,741) (20,306)
Prepaid expense and other current assets (68,349) (29,359)
Accounts payable 128,809 166,939
Accrued expenses 18,231 (19,082)
Deferred revenue 131,150 2,933
--------- ---------
Net cash used in operating activities (95,217) (342,965)
--------- ---------
Investing activities:
Property and equipment additions -- (8,230)
--------- ---------
Financing activities:
Net proceeds of notes and loans payable 47,500 50,000
Proceeds from assignment of call options -- 103,245
Proceeds from exercise of stock options -- 20,500
--------- ---------
Net cash provided by financing activities 47,500 173,745
--------- ---------
Net increase in cash and cash equivalents (47,717) (177,450)
Cash and cash equivalents, beginning 106,948 264,811
--------- ---------
Cash and cash equivalents, ending $ 59,231 $ 87,361
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ -- $ --
========= =========
Interest $ -- $ --
========= =========
See accompanying notes to financial statements
-4-
PAID, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2009
(Unaudited)
Common stock Additional
------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ------------ ------------ -----------
Balance, December 31, 2008 251,369,046 $ 251,369 $ 36,392,504 $(36,044,556) $ 599,317
Issuance of common stock pursuant to exercise of stock
options granted to professionals and consultants 3,154,950 3,155 447,131 -- 450,286
Share based compensation related to issuance of
incentive stock options -- -- 113,000 -- 113,000
Net loss -- -- -- (838,807) (838,807)
----------- ----------- ------------ ------------ -----------
Balance, March 31, 2009 254,523,996 $ 254,524 $ 36,952,635 ($36,883,363) $ 323,796
=========== =========== ============ ============ ===========
See accompanying notes to financial statements
-5-
PAID, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2009 AND 2008
Note 1. Organization and Significant Accounting Policies
Paid, Inc. (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 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-K for the year ended December 31, 2008 that was filed
on March 16, 2009.
In the opinion of management, the Company has prepared the accompanying
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 2009.
Liquidity
The Company's independent registered public accounting firm has issued a going
concern opinion on the Company's financial statements for the year ended
December 31, 2008. 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 2009 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. 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, 2010, for
approximately 435,000 shares of common stock, which, once assigned by the
Company, can generate between $35,000 and $117,000 (based solely upon the 52
week high and low closing prices of the Company's common stock) of cash. In
addition, management continues to explore opportunities to monetize its patent
#7324968 issued for real-time calculation of shipping costs. However, there can
be no assurance that assignment of the call options can be concluded on
reasonably acceptable terms, or that the Company will be successful in
monetizing its patent. Management continues to seek alternative sources of
capital to support operations. Finally, world economic conditions, in particular
those in the United States, are likely to impact sales of fan experiences and
the availability of financing.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
-6-
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,
2009 and December 31, 2008 the Company provided for reserves totaling $475,000.
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." During the three months ended March 31,
2009 and 2008 no website development costs were capitalized.
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.
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 $30,200 and $20,300 during the
three months ended March 31, 2009 and 2008, respectively, are reported as a
component of selling, general and administrative expenses.
-7-
Advertising costs
Advertising costs, totaling approximately $7,200 in 2009 and $15,300 in 2008,
are charged to expense when incurred.
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.
Approximately 38% and 74% of the Company's revenues for 2009 and 2008,
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 32,914,625 and 30,636,054 shares at March 31, 2009 and
2008, 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.
-8-
Recent Accounting Pronouncements
In January 2009, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 161, "Disclosures about Derivative Instruments and Hedging
Activities" ("SFAS 161"), which changes the disclosure requirements for
derivative instruments and hedging activities. SFAS 161 requires enhanced
disclosures about (a) how an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS
133, "Accounting for Derivative Instruments and Hedging Activities" and its
related interpretations, and (C) how derivative instruments and related hedged
items affect an entity's financial position, financial performance, and cash
flows. Adoption did not have a material impact on our financial statements.
In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141(R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements. SFAS No. 141(R) requires an acquirer to
measure the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in the acquired entity at their fair values on the
acquisition date, with goodwill being the excess value over the net identifiable
assets acquired. SFAS No. 160 clarifies that a noncontrolling interest in a
subsidiary should be reported as equity in the consolidated financial
statements. The calculation of earnings per share will continue to be based on
income amounts attributable to the parent. Adoption did not have a material
impact on our financial statements
In April 2008, the FASB issued FSP No. 142-3, "Determination of the Useful Life
of Intangible Assets". FSP No. 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill and
Other Intangible Assets. We adopted FSP No. 142-3 as of January 1, 2009 with no
material impact on our financial statements.
In June 2008, the FASB ratified the consensus reached on Emerging Issues Task
Force (EITF) Issue No. 07-05, "Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entity's Own Stock". EITF Issue No. 07-05 clarifies
the determination of whether an instrument (or an embedded feature) is indexed
to an entity's own stock, which would qualify as a scope exception under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". We
adopted EITF Issue No. 07-05 as of January 1, 2009 with no material impact on
our consolidated financial statements.
In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, "Recognition and
Presentation of Other-Than-Temporary Impairments", which provides operational
guidance for determining other-than-temporary impairments ("OTTI") for debt
securities. FSP No. 115-2 and 124-2 are effective for interim and annual periods
ending after June 15, 2009 and will be adopted by the Company beginning in the
third quarter of 2009. Although the Company will continue to evaluate the
application of FSP No. 115-2 and 124-2, management does not currently believe
adoption of this accounting pronouncement will have a material impact on the
Company's financial condition or operating results.
Note 2. Intangible Assets
In 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 through online auctions 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.
The patent is presented net of accumulated amortization of $6,347 and $6,112 at
March 31, 2009 and December 31, 2008, respectively.
-9-
Amortization expense of intangible assets for the three months ended March 31,
2009 and 2008 was $235.
Estimated future annual amortization expense is $940 for each year through 2019.
Note 3. Notes payable
At March 31, 2009 the Company was obligated on two short term, unsecured, notes
payable that were repaid on April 17, 2009.
Note 4. Accrued Expenses
Accrued expenses are comprised of the following:
March 31, December 31,
--------- ------------
2009 2008
---- ----
Payroll and related costs 181,933 130,380
Professional and consulting fees 128,929 232,259
Commissions 184,472 107,963
Other 18,036 24,537
--------- ------------
$ 513,370 $ 495,139
========= ============
Note 5. 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, 2010.
As of March 31, 2009 the Company had assigned options to purchase 1,565,000
shares of stock from Leslie Rotman to certain individuals in exchange for
$567,734. The Company did not assign any call options during the three months
ended March 31, 2009, while it assigned 260,000 call options during the three
months ended March 31, 2008 in exchange for $103,245. The proceeds from the
assignments of these options were added to the paid in capital of the Company.
At March 31, 2009, 435,000 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 has paid the Company $110,000 in deposits ("Deposits") for the right to
acquire up to 2,000,000 shares of unregistered common stock at any time prior to
June 2, 2009 at $.15 per share. If exercised, all Deposits will be applied as
partial payment of the exercise price. If the Warrants are not exercised by June
1, 2009 the Deposits will be forfeited. The Deposits have been recorded in
Additional Paid in Capital.
-10-
During the second and third quarters of 2008, in connection with $1,100,000 of
short term notes payable, the Company granted warrants for 1,100,000 shares of
common stock exercisable at $.25 per share. If not exercised these warrants
expire at various dates between April and August 2011.
Share-based Incentive Plans
At March 31, 2009, 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 a ten-year contractual term
and vested either immediately or annually over a five-year term. There were no
options granted under this plan during the three months ended March 31, 2009 and
2008, and at March 31, 2009 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, 2009 there
were no shares reserved for issuance. The options granted have a ten-year
contractual term and vested either immediately or four years from the date of
grant. There were no options granted under this plan during the three months
ended March 31, 2009, while during the three months ended March 31, 2008 there
were 5,000,000 options granted at an exercise price of $.415. At March 31, 2009
there were 28,250,000 options outstanding with a weighted average exercise price
of $.107.
The incremental fair value of options granted during the first quarter of 2008
was 1,815,000 which, assuming no forfeiture rate, resulted in $113,000 being
charged to operations during each of the three months ended March 31, 2009 and
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
100,000,000 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, 2008 1,527,625 $ .001
Granted 3,154,950 $ .001
Exercised (3,154,950) $ .001
------------
Options outstanding at March 31, 2009 1,527,625 $ .001
============
A summary of the awards under this plan during the three months ended March 31
is as follows:
-11-
Number of Intrinsic
Shares Value
------ -----
2009
----
Consulting and professional fees 3,154,950 $ 450,286
========= =========
2008
----
Employee payroll 5,783 $ 2,308
Consulting and professional fees 966,650 278,393
--------- ---------
Total 972,433 $ 280,701
========= =========
The maximum number of shares currently reserved for issuance is 4,237,023
shares. The options granted have a ten-year contractual term and vest
immediately.
The fair value of the Company's option grants was estimated at the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
2009 2008
------- -------
Expected term (based upon historical experience) <1 week <1 week
Expected volatility 208.60% 117.91%
Expected dividends None None
Risk free interest rate 2.82% 3.75%
The stock volatility for each grant is determined based on a review of the
experience of the weighted average of historical daily price changes of the
Company's common stock over the expected option term. The expected term was
determined using the simplified method for estimating expected option life,
which qualify as "plain-vanilla" options; and the risk-free rate is based on the
U.S. Treasury yield curve in effect at the time of grant for periods
corresponding with the expected life of the option. 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, 2009 are fully vested and
exercisable. Information pertaining to options outstanding at March 31, 2009 is
as follows:
-12-
Options Outstanding
Weighted Average Aggregate
Number of Remaining Intrinsic
Exercise Prices Shares Contractual Life Value
--------------- ------ ---------------- -----
$1.62 37,000 .25 --
.001 1,527,625 9.50 $ 197,064
.041 23,250,000 3.50 2,069,250
.415 5,000,000 8.75 --
-----------
29,814,625
===========
The total intrinsic value of options exercised during the three months ended
March 31, 2009 under all plans was 450,286, in exchange for no cash, since they
were all exercised under the 2001 Plan.
Note 6. Income Taxes
There was no provision for income taxes for the three months ended March 31,
2009 and 2008 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 losses 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:
March 31, December 31,
2009 2008
------------ ------------
Federal net operating loss carry $ 9,826,000 $ 9,502,000
forwards
State net operating loss carry 1,454,000 1,682,000
------------ ------------
11,280,000 11,184,000
Valuation reserve (11,280,000) (11,184,000)
------------ ------------
Net deferred tax asset $ -- $ --
============ ============
The valuation reserve applicable to net deferred tax asset at March 31, 2009 and
December 31, 2008 is due to the likelihood of the deferred tax not to be
utilized.
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 Massachusetts. The periods from 2005-2008
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, 2009 and
2008.
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At March 31, 2009, the Company has federal and state net operating loss carry
forwards of approximately $30,400,000 and $15,300,000, 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 7. 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 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.
The Company leases office and warehouse facilities, as a tenant at will, to a
company in which Steven Rotman is a shareholder. Monthly payments under this
arrangement total $2,600.
Note 8. Commitments and contingencies
Lease commitment
The Company leases office facilities in Boston, Massachusetts under a five year
lease expiring in April 2011. The lease requires monthly payments of
approximately $5,800, plus increases in real estate taxes and operating
expenses.
Legal matters
In the normal course of business, the Company periodically becomes involved in
litigation. As of March 31, 2009, 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.
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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",
"could", "may", "should", "will", "would", 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 10K for the
fiscal year ended December 31, 2008 that was filed on March 16, 2009.
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 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 utilizes 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
financial statements included in our Form 10-K filed on March 16, 2009. However,
certain of our accounting policies are particularly
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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 relate 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
estimates 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.
Results of Operations
The following discussion compares the Company's results of operations for the
three months ended March 31, 2009 with those for the three months ended March
31, 2008. The Company's financial statements and notes thereto included
elsewhere in this annual report contain detailed information that should be
referred to in conjunction with the following discussion.
Revenues. In 2009 revenues were $326,900, 92% 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 7% of revenues. Gross sales of the Company's own product
were $24,100. Fan experience, fan club membership and related merchandise sales
revenues were $299,900. Other revenues were $2,800, 1% of gross revenues.
Management anticipates increases from fan club memberships, merchandise, and fan
experiences from tours, products and services related to several performing
artists during the remainder of 2009. 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/or third quarters of 2009.
The Company's 2009 revenues represent an increase of approximately $72,900 or
29%, from 2008, when revenues were $254,000. For the three months ended March
31, 2008, sales of the Company's product were $18,700 or 7% of gross sales,
while fan club membership and related merchandise sales revenues were $235,000,
or 93% of gross revenues.
The main reasons for the increase in revenues was a $64,900 increase related to
the fan club memberships and tours of performing artists, and higher sales of
Company owned product of $5,400. Revenues related tours of performing artists
are dependent upon tour schedules, the popularity of the artist(s) on tour, and
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whether the tour(s) are domestic or international. While there was an increase
in the number of artists represented by the Company in 2009, there were nearly
no concerts held during the first quarter of either 2009 or 2008. Gross profit
from celebrity services in 2009 and 2008 was $165,000 and $151,900,
respectively. Gross profit from Company owned product sales was $21,900, $6,900
more than in 2008. This increase in Company owned product sales, and gross
profit, is attributable to a 2009 sale of old inventory that was carried at
reduced cost.
Operating Expenses. Total operating expenses during 2009 were $1,026,000
compared to $1,028,900 in 2008, a decrease of $2,900.
Sales, general and administrative ("SG&A") expenses in 2009 were $949,800,
compared to $940,700 in 2008. The increase of $9,100 includes an increase in
professional fees of $46,100, offset by decreases in payroll and related costs
of $18,100, advertising of $8,100, and other expenses of $9,200. The increase in
professional fees is attributable to new business development, Sarbanes-Oxley
compliance testing, and legal services associated with the Company's enhanced
reporting requirements to the Securities and Exchange Commission.
Costs associated with planning, maintaining and operating our web sites in 2009
decreased by $12,000 from 2008. This decrease is due primarily to decreases in
depreciation of $16,600 and consulting of $7,200 offset by increases in payroll
and related costs of $6,100 and computer expense of $5,700.
Interest Expense. The Company incurred approximately $2,500 of interest charges
in 2009, while in 2008 there were no such costs. The 2009 interest expense is
associated with short term notes payable.
Net Loss. The Company realized a net loss in 2009 of $838,800 compared to a net
loss of $861,100 in 2008. The 2009 and 2008 losses each represent less than $.01
per share.
Assets
At March 31, 2009, total assets of the Company were $1,664,000 compared to
$1,614,000 at December 31, 2008.
Operating Cash Flows
A summarized reconciliation of the Company's net loss to cash used in operating
activities for the three months ended March 31 is as follows:
2009 2008
--------- ---------
Net loss $(838,800) $(861,100)
Depreciation and amortization 4,700 23,000
Share based compensation 113,000 113,000
Intrinsic value of stock options awarded
in payment of outside services and compensation 450,300 281,000
Deferred revenues 131,200 2,900
Changes in current assets and liabilities 44,400 98,200
--------- ---------
Net cash used in operating activities $ (95,200) $(343,000)
========= =========
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Working Capital and Liquidity
The Company had cash and cash equivalents of $59,000 at March 31, 2009, compared
to $107,000 at December 31, 2008. The Company had $288,000 of working capital at
March 31, 2009 compared to $558,000 at December 31, 2008. At March 31, 2009
current liabilities were $1,340,000 compared to $1,014,000 at December 31, 2008.
Current liabilities increased at March 31, 2009 compared to December 31, 2008
primarily due to higher levels of notes payable, extending payments of accounts
payable and accrued expenses, and deferred revenues.
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, 2008. 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 2009 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. 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, 2010, for
approximately 435,000 shares of common stock, which, once assigned by the
Company, can generate between $35,000 and $117,000 (based solely upon the 52
week high and low closing prices of the Company's common stock) of cash. In
addition, management continues to explore opportunities to monetize its patent.
However, there can be no assurance that anticipated touring activity will occur,
that assignment of the call options can be concluded on reasonably acceptable
terms, and that the Company will be successful in monetizing its patent.
Management continues to seek alternative sources of capital to support
operations. Finally, world economic conditions, in particular those in the
United States, are likely to impact sales of fan experiences and the
availability of financing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market Risk
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as foreign currency rates, interest rates, and other relevant
market rates or price changes. In the ordinary course of business, the Company
is exposed to market risk resulting from changes in foreign currency exchange
rates, and the Company regularly evaluates its exposure to such changes. The
Company's overall risk management strategy seeks to balance the magnitude of the
exposure and the costs and availability of appropriate financial instruments.
Impact of Inflation and Changing Prices
Historically, our business has not been materially impacted by inflation.
We price and provide our service within a short time frame.
Foreign Currency Fluctuation
Our revenue is primarily denominated in U.S. dollars. Therefore, we are
not directly affected by foreign exchange fluctuations. However, fluctuations in
foreign exchange rates may have an effect on merchandise sales for concerts
occurring outside the U.S. We do not believe that foreign exchange fluctuations
will materially affect our results of operations.
Seasonality
Our revenue is subject to seasonality and fluctuations during the year
primarily related to artist touring activities. More outdoor venues are
available during May through September. In addition, the timing of tours for
top-grossing acts could impact comparability of quarterly results year over
year.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management, including the President of the Company, as its
principal executive officer, and the Chief Financial Officer of the Company, as
its principal financial officer, 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 President and Chief Financial
Officer concluded that, as of March 31, 2009, the Company's disclosure controls
and procedures were not effective, due to material weaknesses in internal
control over financial reporting, 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.
The Company has identified five material weaknesses in internal control
over financial reporting. We identified three weaknesses with respect to entity
level controls: (1) lack of corporate governance; (2) ineffective control
environment; and (3) lack of segregation of duties. We identified two weaknesses
with respect to activity level controls: (1) Lack of procedures and control
documentation; and (2) lack of information technology controls and
documentation. Because of these material weaknesses, we concluded that, as of
March 31, 2009 our internal control over financial reporting was not effective
based on the criteria outlined in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
Accordingly, we have also concluded that our disclosure controls and procedures
were not effective as of March 31, 2009.
We intend to implement procedures and controls throughout 2009 to
remediate the remaining material weaknesses at the entity and activity levels,
and to review further our procedures and controls. We have not remediated any of
the material weaknesses during the first quarter of 2009 other than what was
described previously in our Annual Report on Form 10-K for the year ended
December 31, 2008 that was filed on March 16, 2009. In addition, we will make
additional changes to our infrastructure and related processes that we believe
are also reasonably likely to strengthen and materially affect our internal
control over financial reporting.
Prior to the complete remediation of these material weaknesses, there
remains risk that the processes and procedures on which we currently rely will
fail to be sufficiently effective, which could result in material misstatement
of our financial position or results of operations and require a restatement.
Moreover, because of the inherent limitations in all control systems, no
evaluation of controls--even where we conclude the controls are operating
effectively--can provide absolute assurance that all control issues including
instances of fraud, if any, have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the controls. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, our control systems, as we develop them, may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected and could be material to our financial statements.
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Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting
during the quarter ended March 31, 2009 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-K for the year ended December 31, 2008.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
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
10.1 Amendment No. 4 to Settlement Agreement and Mutual Release
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
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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
/s/ Gregory Rotman
Date: May 8, 2009 -----------------------------------------
----------- Gregory Rotman, President
/s/ Richard Rotman
Date: May 8, 2009 -----------------------------------------
----------- Richard Rotman, Chief Financial Officer,
Vice President and Secretary
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LIST OF EXHIBITS
Exhibit No. Description
-----------------------
10.1 Amendment No. 4 to Settlement Agreement and Mutual Release
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
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