UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
COMMISSION FILE NUMBER 0-28720
PAID, INC.
(Exact Name of Small Business Issuer 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)
(508) 791-6710
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_|
As of May 3, 2004, the issuer had outstanding 160,742,278 shares of its
Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format
Yes |_| No |X|
Paid, Inc.
and Subsidiary
Form 10-QSB
For the Three Months ended March 31, 2004
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2004 and December 31, 2003 (unaudited)......................3
Consolidated Statements of Operations
Three months ended March 31, 2004 and
2003 (unaudited)......................................................4
Consolidated Statements of Cash Flows
Three months ended March 31, 2004 and
2003 (unaudited)......................................................5
Consolidated Statements of Changes in Shareholders' Deficit
Three months ended March 31, 2004
(unaudited)...........................................................6
Notes to Consolidated Financial Statements
Three months ended March 31, 2004 and 2003............................7-11
Item 2. Management's Discussion and Analysis or
Plan of Operation..............................................................12
Item 3. Controls and Procedures........................................................15
Part II - Other Information
Item 1. Legal Proceedings.................................................................16
Item 2. Changes in Securities and Small Business Issuer
Purchases of Equity Securities....................................................16
Item 3. Defaults Upon Senior Securities...................................................16
Item 4. Submission of Matters to a Vote of Security Holders...............................16
Item 5. Other Information ................................................................16
Item 6. Exhibits and Reports on Form 8-K..................................................16
Signatures...................................................................................17
-2-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAID, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 2004 2003
---- ----
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 113,379 $ 104,397
Accounts receivable 11,891 3,529
Inventories, net 668,997 702,078
Prepaid expenses 98,270 57,364
Other current assets 26,560 22,331
------------ ------------
Total current assets 919,097 889,699
Property and equipment, net 308,655 397,950
Other intangible assets, net 1,210,982 1,414,737
------------ ------------
Total assets $ 2,438,734 $ 2,702,386
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 130,000 $ 145,000
Accounts payable 71,676 204,698
Accrued expenses 773,118 663,993
------------ ------------
Total current liabilities 974,794 1,013,691
------------ ------------
Convertible debt 3,123,246 3,001,573
------------ ------------
Shareholders' deficit:
Common stock, $.001 par value, 350,000,000 shares
authorized; 160,437,419 and 159,100,218 shares issued
and outstanding at March 31, 2004
and December 31, 2003, respectively 160,437 159,100
Additional paid-in capital 18,335,219 17,832,123
Accumulated deficit (20,154,962) (19,304,101)
------------ ------------
Total shareholders' deficit (1,659,306) (1,312,878)
------------ ------------
Total liabilities and shareholders' deficit $ 2,438,734 $ 2,702,386
============ ============
See accompanying notes to consolidated financial statements
3
PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2004 2003
---- ----
Revenues $ 385,982 $ 425,900
Cost of revenues 200,914 212,597
------------- -------------
Gross profit 185,068 213,303
------------- -------------
Operating expenses:
Selling, general, and administrative expenses 760,132 804,018
Web site development costs 147,603 182,591
------------- -------------
Total operating expenses 907,735 986,609
------------- -------------
Loss from operations (722,667) (773,306)
------------- -------------
Other income (expense):
Interest expense (128,238) (88,477)
Other income 44 7
------------- -------------
Total other expense, net (128,194) (88,470)
------------- -------------
Loss before income taxes (850,861) (861,776)
Provision for income taxes -- --
------------- -------------
Net loss $ (850,861) $ (861,776)
============= =============
Loss per share (basic and diluted) $ (0.01) $ (0.01)
============= =============
Weighted average shares 159,978,229 130,726,073
============= =============
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)
2004 2003
---- ----
Operating activities:
Net loss $(850,861) $(861,776)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 293,409 396,312
Amortization of unearned compensation -- 44,619
Beneficial conversion feature 80,131 52,673
Common stock issued in payment of
professional and consulting fees 283,639 168,090
Issuance of common stock pursuant to exercise of
stock options granted to employees for services 31,734 15,984
Changes in assets and liabilities:
Accounts receivable (8,362) (2,311)
Inventories 33,081 (54,251)
Prepaid expenses and other current assets (45,135) 9,349
Accounts payable (133,022) 96,250
Accrued expenses 109,125 51,157
--------- ---------
Net cash used in operating activities (206,261) (83,904)
--------- ---------
Investing activities:
Property and equipment additions (359) --
--------- ---------
Financing activities:
Net proceeds from notes payable (15,000) 40,000
Proceeds from convertible debt 65,926 36,700
Proceeds from assignment of call options 164,500 --
Proceeds from exercise of stock options 176 --
--------- ---------
Net cash provided by financing activities 215,602 76,700
--------- ---------
Net increase (decrease) in cash and cash equivalents 8,982 (7,204)
Cash and cash equivalents, beginning 104,397 41,283
--------- ---------
Cash and cash equivalents, ending $ 113,379 $ 34,079
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ -- $ --
========= =========
Interest $ 1,125 $ 367
========= =========
See accompanying notes to consolidated financial statements
5
PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(Unaudited)
Common stock Additional
------------------------- Paid-in Accumulated
Shares Amount Capital deficit Total
----------- -------- ----------- ------------ -----------
Balance, December 31, 2003 159,100,218 $159,100 $17,832,123 $(19,304,101) $(1,312,878)
Common stock issued pursuant to exercise of stock
options granted to employees for services 143,814 144 31,590 -- 31,734
Common stock issued in payment of
professional and consulting fees 1,017,137 1,017 282,622 -- 283,639
Stock options exercised 176,250 176 -- 176
Beneficial conversion discount -- -- 24,384 -- 24,384
Proceeds from assignment of call options 164,500 164,500
Net loss -- -- -- (850,861) (850,861)
----------- -------- ----------- ------------ -----------
Balance, March 31, 2004 160,437,419 $160,437 $18,335,219 $(20,154,962) $(1,659,306)
=========== ======== =========== ============ ===========
See accompanying notes to consolidated financial statements
6
PAID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
Note 1. Organization and Summary Of Significant Accounting Policies
Line of business
Paid, Inc. and subsidiary (the "Company") operates and maintains an internet
portal dedicated to collectibles in a variety of categories. The Company
conducts person-to-person online auctions of its own merchandise and items
posted under consignment arrangements by third party sellers.
General
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the United States Securities
and Exchange Commission for interim financial reporting and include all
adjustments (consisting only of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation). These financial
statements have not been audited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations for interim reporting. The Company believes that the
disclosures contained herein are adequate to make the information presented not
misleading. However, these financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's annual
report for the year ended December 31, 2003, which are included in the Company's
Form 10-KSB.
Principles of consolidation
The accompanying financial statements include the accounts of Paid, Inc. and its
wholly-owned subsidiary, Rotman Collectibles, Inc.
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.
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,
2004 and December 31, 2003 the Company has provided for reserves totaling
$270,000.
Revenue Recognition
The Company generates revenue on sales of its purchased inventories, from fees
and commissions on sales of merchandise under consignment type arrangements,
from web hosting services, from appraisal services and from advertising and
promotional services.
For sales of merchandise owned and warehoused by the Company, the Company is
responsible for conducting the auction, 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.
7
For sales of merchandise under consignment-type arrangements, the Company takes
physical possession of the merchandise, but is not obligated to, and does not
take title or ownership of merchandise. When an auction is completed, consigned
merchandise that has been sold is shipped upon receipt of payment. The Company
recognizes the net commission and service revenues relating to the consigned
merchandise upon receipt of the gross sales proceeds and shipment of the
merchandise. The Company then releases the net sales proceeds to the Consignor,
discharging all obligations of the Company with respect to the transaction.
The Company provides web hosting services under two types of arrangements.
Revenue is recognized on a monthly basis as the services are provided for those
where payment is to be received in cash. Professional athletes' web sites are
hosted under arrangements that are settled by the athlete providing a certain
number of autographs on merchandise to be sold by the Company. Revenue related
to player websites is recognized upon sale of the autographed merchandise.
Appraisal revenues are recognized when the appraisal is delivered to the
customer.
Advertising revenues are recognized at the time the advertisement is initially
displayed on the Company's web site. Sponsorship revenues are recognized at the
time that the related event is conducted.
Advertising Costs
Advertising costs totaling approximately $26,000 in 2004 and $23,000 in 2003 are
charged to expense when incurred.
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 convertible
debt and outstanding stock options and warrants. The number of common shares
that would be issued upon conversion of the convertible debt would have been
12,413,286 as of March 31, 2004, and 119,217,282 as of March 31, 2003. 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 totaling 25,466,000 at March 31, 2004
and 25,642,250 at March 31, 2003 have been excluded from the computation of
diluted earnings per share, as have the common shares that would be issued upon
conversion of the convertible debt, because they are antidilutive. Diluted
earnings per share have not been presented as a result of the Company's net loss
for each period.
Web Site and Software Development Costs
The Company accounts for website development costs in accordance with the
provisions of EITF 00-2, "Accounting for Web Site Development Costs" ("EITF
00-2"), 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."
8
Note 2. Notes and Loan Payable
At March 31, 2004 and December 31, 2003, the Company was obligated on short-term
notes payable totaling $130,000 and $145,000, respectively. At both March 31,
2004 and December 31, 2003 $130,000 was to a related party. The related party
notes bear interest at 8%, while the remainder bear interest at 18%. All of the
short-term debt is due in 2004. Interest expense charged to operations in
connection with the related party notes totaled $2,628 and $2,500 for the three
months ended March 31, 2004 and 2003 respectively.
Note 3. Common Stock
Call Option Agreements
The Company was granted call options for 2,283,565 unregistered common shares
held by ChannelSpace Entertainment, Inc. ("CSEI") at an exercise price of $.001
per share. The call options expire on January 31, 2005.
In February and March 2004 the Company assigned options to purchase 275,000
shares of stock from CSEI to certain individuals in exchange for $164,500, which
was added to the paid in capital of the Company.
Stock Options
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
60,000,000 shares of its common stock. Under the 2001 Plan employees and
consultants may elect to receive their gross compensation in the form of options
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.
During the three months ended March 31, 2004, the Company granted options for
1,160,951 shares at various dates aggregating $315,373 under this plan. During
the three months ended March 31, 2003 the Company granted options for 3,933,774
shares at various dates aggregating $184,074 under this plan. All options
granted during each period were exercised.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans. Accordingly,
compensation cost has been recognized based on the difference between the fair
market value of the common stock at the grant date and the exercise price. The
following table reflects proforma net loss and loss per share had the Company
elected to adopt the fair value approach for SFAS No. 123, as amended by SFAS
No. 148.
For the three months ended
--------------------------
March 31, 2004 March 31, 2003
-------------- --------------
Net loss, as reported ($ 850,861) ($861,776)
Add stock compensation costs on
options granted below fair
market value 44,619
Less stock compensation costs (67,650) (333,737)
had option expense been measured ----------- ------------
at fair value
Proforma net loss, as ($918,511) ($1,150,894)
adjusted =========== ============
Weighted average shares 159,978,229 130,726,073
=========== ============
Loss per share (basic and ($.01) ($.01)
diluted), as reported =========== ============
Proforma loss per share (basic ($.01) ($.01)
and diluted), as adjusted =========== ============
9
These proforma amounts may not be representative of future disclosures since the
estimated fair value of stock options is amortized to expense over the vesting
period, and additional options may be granted in future years.
Note 4. Income Taxes
There was no provision for income taxes for the periods ended March 31, 2004 and
2003 due to the Company's net operating loss and its valuation reserve against
deferred income taxes.
The difference between the provision for income taxes from 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.
At March 31, 2004, the Company has federal and state net operating loss carry
forwards of approximately $16,000,000 available to offset future taxable income.
The state carry-forwards will expire intermittently through 2009, while the
federal carry forwards will expire intermittently through 2024.
Note 5. Convertible Debt Financing
As of March 31, 2004 the Company has issued $3,438,480 of convertible debt,
which is presented net of unamortized beneficial conversion discounts of
$315,234.
On March 23, 2000, the Company entered into a Securities Purchase Agreement (the
"Agreement") whereby the Company sold an 8% convertible note in the amount of
$3,000,000 (the "Series A Note") due in shares of common stock on March 31, 2002
to Augustine Fund, L.P. (the "Buyer"). The Series A Note, as most recently
modified on May 21, 2002, is convertible into common stock at a conversion price
equal to the lesser of: (1) $.375 per share, or (2) seventy-three percent (73%)
of the average of the closing bid price for the common stock for the five (5)
trading days immediately preceding the conversion date. In connection with the
agreement, the Company also issued warrants to the Buyer and Delano Group
Securities to purchase 300,000 and 100,000 shares of common stock, respectively.
The purchase price per share of common stock is equal to $2.70, one hundred and
twenty percent (120%) of the lowest of the closing bid prices for the common
stock during the five (5) trading days prior to the closing date. The warrants
will expire on March 31, 2005. A May 21, 2002 modification agreement extended
the maturity date of the note until September 30, 2002, provided for additional
ninety-day extensions, the most recent of which was exercised on March 31, 2004,
beyond that date until March 31, 2005, waived interest for periods after March
31, 2002, and released the Company from all requirements to register any common
shares issuable under the note or to keep any existing registration statements
effective. As of March 31,
10
2004 the outstanding balance of this note was $1,188,480, since $1,811,520 has
been converted into 20,431,313 shares of the Company's common stock during 2002
and 2003 at conversion prices ranging from $.028 to $.159 per share.
On November 7, 2001, the Company entered into a Loan Agreement, whereby it
issued an 8% convertible note in the amount of $1,000,000, due November 7, 2003
(the "Series B Note") to Buyer. This note was modified most recently on October
31, 2003, to, among other things, allow the Company to borrow up to $2,250,000.
The Series B Note, as modified, is convertible into common stock at a conversion
price equal to the lesser of: (1) $.25 per share, or (2) seventy-three percent
(73%) of the average of the closing bid price for the common stock for the five
(5) trading days immediately preceding the conversion date. Based upon advances
through March 31, 2004, had the Buyer converted the Series B Note at issuance,
Buyer would have received $3,082,193 in aggregate value of the Company's common
stock upon conversion of the convertible note. As a result, in accordance with
EITF 00-27, the intrinsic value of the beneficial conversion feature of $832,193
is being charged to interest expense over the term of the related note. The
beneficial conversion feature that was charged to interest expense totaled
$80,131 and $52,673 during the three months ended March 31, 2004 and 2003,
respectively. The total beneficial conversion discount related to this note has
been recorded as an increase in additional paid in capital and the unamortized
portion as a reduction in the related note. In addition, the Company entered
into a Registration Rights Agreement whereby the Company agreed to file a
Registration Statement with the Securities and Exchange Commission (SEC) within
sixty (60) days of a request from the Buyer ("Filing Date"), covering the common
stock to be issued upon conversion of the Series B Note. If this Registration
Statement is not declared effective by the SEC within sixty (60) days of the
filing date the conversion percentage shall decrease by two percent (2%) for
each month that the Registration Statement is not declared effective. One of the
modification agreements extended the maturity date of the Series B Note to
November 7, 2004, provided the opportunity to extend the maturity date to
November 7, 2005, required that principal and interest be payable in shares of
common stock, or cash, at the discretion of the Company, and provided that any
fees or expenses related to any registration of the common stock will be borne
equally by the Company and the Buyer.
Note 6. Issuance of Common Stock
During the three months ended March 31, 2004 and 2003 the Company issued
1,017,137 and 3,573,282 shares of common stock respectively, in connection with
the payment of approximately $284,000 and $168,000 of professional and
consulting fees, respectively.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Our primary business, based on our revenues, is the purchase and sale of
collectibles and memorabilia. We operate an online auction site that provides a
full range of services to sellers and buyers, and maintain multiple collectibles
portals, offering integrated information and services to the collectibles
community. The collectibles industry includes every person that collects items
having either economic or sentimental value, such as antiques, sports and
entertainment memorabilia, stamps, coins, figurines, dolls, collector plates,
plush and die cast toys, cottage/village reproductions and other decorative or
limited edition items that are intended for collecting and other memorabilia. A
portal is an Internet web site that enables visitors to search for, and visit,
other related sites, access related services, and obtain relevant data. Over the
past two years, our focus has been portal development in our own industry of
collectibles. To that end, we developed our web site www.CollectingChannel.com,
and we acquired a large collection of entertainment memorabilia. We plan to turn
our multiple sites into one integrated site in 2004. We also plan to build other
portals, some that will charge fees to access their services, and others to
leverage company-owned technology and web sites. In 2003, we began to offer
"AuctionInc" software, a suite of online management tools developed by us during
2001 and 2002, to other online sellers, and we expanded our online appraisal
services and autograph signing events.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 to
our financial statements. 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 our experience and management's
assessment of current product demand.
Property and Equipment and Intangible Assets: Property and equipment and
intangible assets are stated at cost. Depreciation and amortization are computed
over estimated useful lives that are reviewed periodically. In connection with
this review we consider changes in the economic environment, technological
advances, and management's assessment of future revenue potential.
Results of Operations
The following discussion compares the Company's results of operations for
the three months ended March 31, 2004 with those for the three months ended
March 31, 2003. 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.
12
Revenue. For the three months ended March 31, 2004, revenue was $386,000,
98% of which is attributable to sales of the Company's own product and fees from
buyers and sellers through the Rotman Auction operations. Gross sales of the
Company's own product were approximately $378,500. Advertising and web hosting
fees were approximately $2,900 or 1% of gross revenues during the quarter ended
March 31, 2004.
The Company's 2004 first quarter revenues represent an decrease of
approximately $39,900, or 9%, from the three-month period ended March 31, 2003,
in which revenue was approximately $425,900. For the three month period ended
March 31, 2003, sales of the Company's product were approximately $415,600, or
98% of gross sales, and advertising and web hosting fees were $6,200, or 1% of
gross revenues.
The reason for the decrease in revenues was lower sales of Company owned
product of approximately $37,000 from the same period in 2003. Lower sales of
Company owned product are a result of lower availability of product at
attractive prices. Gross profit from Company owned product sales for the three
months ended March 31, 2004 was approximately $178,000, which represents an
decrease of $26,800 from the comparable quarter in 2003, in which gross profit
from Company owned product sales was $204,600. Since gross margin percentages on
Company owned product were approximately 2% lower for the first quarter of 2004
than in 2003, and sales of Company owned product were approximately $37,000
lower in the quarter ended March 31, 2004, the Company produced approximately
$27,000 fewer gross margin dollars.
Operating Expenses. Total operating expenses for the three months ended
March 31, 2004 were approximately $907,700, compared to $986,600 for the
corresponding period in 2003, a decrease of $78,900. Sales, general and
administrative ("SG&A") expenses for the three months ended March 31, 2004 were
approximately $760,000, compared to $804,000 for the three months ended March
31, 2003. The decrease of $44,000 in SG&A costs includes a decrease in
depreciation and amortization of $38,400 due to certain assets becoming fully
depreciated during 2004. Costs associated with planning, maintaining and
operating our web sites for the three months ended March 31, 2004 decreased
approximately $35,000 from the corresponding period in 2003. This decrease is
due primarily to a decrease in computer expense of $17,000 and depreciation of
$14,500.
Interest Expense. For the quarter ended March 31, 2004, the Company
incurred interest charges of approximately $128,200 principally associated with
one convertible note, compared to interest charges of $88,500 for the
corresponding period in 2003. The increase of $39,700 is attributable to higher
balances of interest-bearing debt in 2004 as well as greater amortization of
beneficial conversion features.
Net Loss. The Company realized a net loss for the three months ended March
31, 2004 of approximately $850,900, or $.01 per share, as compared to a loss of
$861,800, or $.01 per share for the three months ended March 31, 2003.
Inflation. The Company believes that inflation has not had a material
effect on its results of operations.
Assets
At March 31, 2004, total assets of the Company were $2,439,000, compared
to $2,702,400 at December 31, 2003. The decrease was primarily due to
depreciation and amortization totaling $293,400.
13
Operating Cash Flows
A summarized reconciliation of the Company's net losses to cash used in
operating activities for the three months ended March 31, 2004 compared to March
31, 2003, is as follows:
2004 2003
---- ----
Net loss $(850,900) $(861,800)
Depreciation and amortization 293,400 440,900
Amortization of beneficial conversion
Discount and debt discount 80,100 52,700
Common stock issued in payment services 315,400 184,100
Changes in current assets and (44,300) 100,200
liabilities
--------- ---------
Net cash used in operating activities $(206,300) $ (83,900)
========= =========
Working Capital and Liquidity
The Company had cash and cash equivalents of $113,400 at March 31, 2004,
compared to $104,400 at December 31, 2003. The Company had a $55,700 deficit in
working capital at March 31, 2004, compared to working capital deficit of
$124,000 at December 31, 2003. At March 31, 2004 current liabilities were
$974,800 compared to $1,013,700 at December 31, 2003. During the quarter ended
March 31, 2004 current liabilities decreased primarily due to reductions in
accounts payable, offset by increases in accrued interest and consulting fees.
As discussed in Note 5 of the Financial Statements, the Company has
outstanding convertible notes held by Augustine Fund, L.P. ("Augustine Fund").
The Series A Note, in the original principal amount of $3,000,000, has been
reduced by $1,811,500 through the conversion of common stock.
The Company's independent auditors have issued a going concern opinion on
the Company's consolidated financial statements for the year ended December 31,
2003. The Company needs an infusion of $600,000 of additional capital to fund
anticipated operating costs over the next 12 months. However, management
anticipates growth in gross profit, that its suite of management tools, called
"AuctionInc", sales of movie posters, both from inventory and on consignment,
and celebrity web hosting will increase revenues and result in higher gross
profit. Subject to the discussion below, management believes that the Company
has sufficient cash commitments to fund operations during the next 12 months.
These commitments include call options for approximately 2 million shares of
common stock, which, once assigned by the Company, can generate between $63,000
and $1,446,000 (based solely upon the 52 week high and low closing prices of the
Company's common stock) of cash.
Management believes that these plans should result in obtaining sufficient
operating cash through the next 12 months. However, there can be no assurance
assignment of the call options can be concluded on reasonably acceptable terms.
If assignments are not made, management may need to seek alternative sources of
capital to support operations.
14
Forward Looking Statements
This Quarterly Report on Form 10-QSB 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, 2003.
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, the
collectibles community not accepting the services the Company offers, 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, it will not be able to continue its business operations.
ITEM 3. 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 their 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 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 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.
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES
(c) During the first quarter of 2004, Augustine Fund, L.P. did not convert
any of its March 23, 2000 convertible note into shares of common stock of the
Company. Augustine Fund, L.P. is an accredited investor that represented that it
acquired the convertible notes and the warrants issued in connection with the
note for its own account. The issuance of the securities is exempt from
registration under Section 4(2) of the Securities Act of 1933 and Regulation D
promulgated thereunder. The Company did not issue any shares of its common
stock, par value $.001 per share, to Augustine Fund, L.P., for interest due
pursuant to the eight percent convertible note issued by the Company to the
Augustine Fund, L.P. on November 7, 2001.
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 AND REPORTS ON FORM 8-K
(a) Exhibits:
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
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with the Securities and Exchange
Commission as of January 15, 2004, pursuant to Item 5, announcing that the
Company had set a second mandatory exchange date of its stock certificates as
January 16, 2004 because the operational processing by the industry for a
mandatory exchange that the Company had intended upon its first mandatory
exchange announces did not occur.
The Company filed a report on Form 8-K with the Securities and Exchange
Commission as of February 24, 2004, pursuant to Item 5, announcing that the
Company had substantially completed its mandatory exchange of stock
certificates, which began on January 16, 2004, and that the Company expects in
the future that all trades will be settled and cleared through physical delivery
of stock certificates rather than through Depository Trust Company (DTC).
16
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 13, 2004 PAID, INC.
Registrant
/s/ Gregory Rotman
---------------------------------------------
Gregory Rotman, President
/s/ Richard Rotman
---------------------------------------------
Richard Rotman, Chief Financial Officer, Vice
President and Secretary
17
LIST OF EXHIBITS
Exhibit No. Description
----------- -----------
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
18