UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2007
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 |_|
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 November 12, 2007, the issuer had outstanding 229,568,470 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 and Nine Months ended September 30, 2007
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2007 (unaudited) and December 31, 2006.......3
Consolidated Statements of Operations
Three and Nine months ended September 30, 2007 and
2006 (unaudited)...........................................4
Consolidated Statements of Cash Flows
Nine months ended September 30, 2007 and
2006 (unaudited)...........................................5
Consolidated Statement of Changes in Shareholders' Equity
Nine months ended September 30, 2007
(unaudited)................................................6
Notes to Consolidated Financial Statements.................7-11
Item 2. Management's Discussion and Analysis or
Plan of Operation.............................................12
Item 3. Controls and Procedures.......................................16
Part II - Other Information
Item 1. Legal Proceedings..............................................16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...16
Item 3. Defaults Upon Senior Securities................................16
Item 4. Submission of Matters to a Vote of Security Holders............17
Item 5. Other Information .............................................17
Item 6. Exhibits ......................................................17
Signatures..............................................................18
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAID, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 2007 2006
---- ----
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 641,159 $ 138,326
Accounts receivable 18,693 34,731
Inventories, net 1,162,790 1,181,361
Prepaid expenses 204,519 80,975
Due from employees 46,343 32,803
Other current assets 9,073 9,073
------------ ------------
Total current assets 2,082,577 1,477,269
Property and equipment, net 104,228 191,518
Other intangible asset, net 11,063 11,768
------------ ------------
Total assets $ 2,197,868 $ 1,680,555
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes and loans payable $ 580,000 $ 98,000
Accounts payable 346,503 396,257
Accrued expenses 748,565 915,176
Deferred revenues 8,241 --
------------ ------------
Total current liabilities 1,683,309 1,409,433
------------ ------------
Commitments and contingencies -- --
------------ ------------
Shareholders' equity:
Common stock, $.001 par value, 350,000,000 shares
authorized; 228,523,182 and 218,329,910 shares
issued and outstanding at September 30, 2007 and
December 31, 2006, respectively 228,523 218,330
Additional paid-in capital 30,649,184 28,638,897
Accumulated deficit (30,363,148) (28,586,105)
------------ ------------
Total shareholders' equity 514,559 271,122
------------ ------------
Total liabilities and shareholders' equity $ 2,197,868 $ 1,680,555
============ ============
See accompanying notes to consolidated financial statements
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PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months Three months Nine months Nine months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
------------- ------------- ------------- -------------
Revenues $ 1,586,602 $ 1,499,154 $ 2,898,968 $ 4,910,383
Cost of revenues 1,006,081 1,048,913 1,710,253 3,220,384
------------- ------------- ------------- -------------
Gross profit 580,521 450,241 1,188,715 1,689,999
------------- ------------- ------------- -------------
Operating expenses:
Selling, general, and administrative expenses 911,970 942,920 2,662,586 2,723,393
Web site development costs 114,607 153,400 308,585 406,642
------------- ------------- ------------- -------------
Total operating expenses 1,026,577 1,096,320 2,971,171 3,130,035
------------- ------------- ------------- -------------
Loss from operations (446,056) (646,079) (1,782,456) (1,440,036)
------------- ------------- ------------- -------------
Other income (expense):
Interest expense (1,871) (6,628) (6,210) (15,386)
Other income 5,321 5,351 11,623 5,360
------------- ------------- ------------- -------------
Total other income (expense), net 3,450 (1,277) 5,413 (10,026)
------------- ------------- ------------- -------------
Loss before income taxes (442,606) (647,356) (1,777,043) (1,450,062)
Provision for income taxes -- -- -- --
------------- ------------- ------------- -------------
Net loss $ (442,606) $ (647,356) $ (1,777,043) $ (1,450,062)
============= ============= ============= =============
Loss per share (basic and diluted) $ (0.00) $ (0.00) $ (0.01) $ (0.01)
============= ============= ============= =============
Weighted average shares (basic and diluted) 227,655,800 215,893,397 225,307,315 208,018,220
============= ============= ============= =============
See accompanying notes to consolidated financial statements
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PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2007 2006
---- ----
Operating activities:
Net loss $ (1,777,043) $ (1,450,062)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 97,301 115,621
Bad debt expense 250 --
Issuance of common stock for payment of
professional and consulting fees 1,012,044 748,425
Issuance of common stock pursuant to exercise of
stock options granted to employees for services 176,999 212,437
Common stock issued in payment of interest -- 137,794
Changes in assets and liabilities:
Accounts receivable 15,788 39,837
Inventories, net 18,571 (39,864)
Deferred expenses -- 76,234
Prepaid expense and other current assets (135,584) (73,305)
Accounts payable (49,754) 15,209
Accrued expenses (136,111) (166,030)
Deferred revenue 8,241 (578,545)
------------ ------------
Net cash (used in) operating activities (769,298) (962,249)
------------ ------------
Investing activities:
Property and equipment additions (9,306) (60,773)
------------ ------------
Financing activities:
Net proceeds (repayments) of notes and loans payable 482,000 (50,000)
Proceeds from assignment of call options 15,537 283,000
Proceeds from exercise of stock options 20,500 --
Proceeds from sale of common stock 763,400 --
------------ ------------
Net cash provided by financing activities 1,281,437 233,000
------------ ------------
Net increase (decrease) in cash and cash equivalents 502,833 (790,022)
Cash and cash equivalents, beginning 138,326 1,502,987
------------ ------------
Cash and cash equivalents, ending $ 641,159 $ 712,965
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ -- $ --
============ ============
Interest $ 1,357 $ 6,458
============ ============
See accompanying notes to consolidated financial statements
- 5 -
PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
Common stock Additional
--------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2006 218,329,910 $ 218,330 $ 28,638,897 $(28,586,105) $ 271,122
Issuance of common stock pursuant to exercise of stock
options granted to employees for services 559,077 559 176,440 -- 176,999
Issuance of common stock pursuant to exercise of stock
options granted to professionals and consultants 5,016,299 5,016 1,007,028 -- 1,012,044
Issuance of common stock 4,017,896 4,018 759,382 -- 763,400
Options exercised 500,000 500 20,000 -- 20,500
Common stock issued in connection with acquisition of
assets of K-sports & Entertainment, LLC 100,000 100 31,900 -- 32,000
Proceeds from assignment of call options -- -- 15,537 -- 15,537
Net loss -- -- -- (1,777,043) (1,777,043)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 2007 228,523,182 $ 228,523 $ 30,649,184 $(30,363,148) $ 514,559
============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements
- 6 -
PAID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 AND 2006
Note 1. Organization and Significant Accounting Policies
Paid, Inc. and subsidiary (the "Company") provides businesses and clients with
marketing, management, merchandising, auction management, website hosting, and
authentication and consignment services for the entertainment, sports and
collectibles industries. The Company also provides other services for
celebrities and sports personalities including autograph signings, appearances,
marketing opportunities and event ticketing. The Company continues to sell
sports collectibles and merchandise through a variety of outlets, including
online auctions and wholesale and distribution outlets.
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). Except for the
balance sheet at December 31, 2006, 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 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, 2006, which are included in the Company's Form
10-KSB.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of Paid,
Inc. and its wholly-owned subsidiary, Rotman Collectibles, Inc. All
inter-company balances and transactions have been eliminated.
Inventories
Inventories consist of collectible merchandise for sale and are stated at the
lower of average cost or market on a first-in, first-out (FIFO) method. When a
purchase contains multiple copies of the same item, they are stated at average
cost.
On a periodic basis management reviews inventories on hand to ascertain if any
is slow moving or obsolete. The reserve for excess/obsolete inventories totaled
$200,000 at both September 30, 2007 and December 31, 2006.
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." There
- 7 -
were no such costs capitalized during the nine months ended September 30, 2007,
while during the nine months ended September 30, 2006 the Company capitalized
approximately $50,000 of such costs.
Revenue Recognition
The Company generates revenue from sales of fan experiences, from fan club
membership fees, from sales of its purchased inventories, from web hosting
services, from appraisal services and from advertising and promotional 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 when the member joins and all direct
costs associated with the membership have been incurred.
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 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.
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 $39,000 in 2007 and $59,000 in 2006, 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 potentially dilutive 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 26,886,054 shares and 27,165,054 shares at September 30,
2007 and 2006 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 period.
- 8 -
Note 2. Notes and Loans Payable
At September 30, 2007 and December 31, 2006 the Company was obligated on
short-term demand notes payable to a related party totaling $80,000. The notes
bear interest at 8%. Interest expense charged to operations in connection with
these related party notes during each of the nine months ended September 30,
2007 and 2006 totaled $4,900. In addition, included in notes and loans payable
at September 30, 2007 and December 31, 2006 were $500,000 and $18,000,
respectively, of non interest bearing loans.
Note 3. Accrued Expenses
At September 30, 2007 and December 31, 2006, accrued expenses are comprised of
the following:
2007 2006
---- ----
Interest $ 49,054 $ 44,201
Payroll and related costs 239,062 268,702
Professional and consulting fees 149,605 115,111
Consignments 172,782 172,782
Due to K Sports -- 30,500
Commissions 108,415 266,246
Other 29,647 17,634
-------- --------
$748,565 $915,176
======== ========
Note 4. Common Stock
Call Option Agreement
On May 9, 2005, the Company entered into a Settlement Agreement and Mutual
Release with Leslie Rotman ("Seller") to settle all outstanding disputes
regarding the value paid and the value received in the 2001 transaction in which
Seller, Rotman Collectibles, Inc., and the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement"), pursuant to which Rotman Collectibles,
Inc., a Massachusetts corporation, was merged into the Company's Delaware
subsidiary, now named Rotman Collectibles, Inc. Seller is the mother of Gregory
Rotman, President of the Company, and Richard Rotman, CFO/Vice
President/Secretary of the Company. To settle any possible differences or
disputes between the value paid and the value received, Seller delivered
2,000,000 shares of the Company's common stock into escrow on May 6, 2005 (as
set forth in the Settlement Agreement and Mutual Release) and granted the
Company an option to purchase the shares for $.001 per share. The option is
assignable by the Company and, as most recently amended, expires on May 9, 2008.
During 2006 and 2005 the Company assigned options to purchase 800,000 and
375,000 shares, respectively, of stock from Leslie Rotman to certain individuals
in exchange for approximately $331,800 and $96,900. During the nine months ended
September 30, 2007 the Company assigned options to purchase 50,000 to certain
individuals in exchange for approximately $15,500. The proceeds from the
assignments of these options were added to the paid in capital of the Company.
At September 30, 2007, 775,000 call options remain outstanding.
Warrant
During the year ended December 31, 2005, the Company entered into an Agreement
and sold a warrant to purchase common stock ("Warrant") to an investor. The
investor paid the Company $50,000 as a deposit ("Deposit") for the right to
acquire up to 2,000,000 shares of unregistered common stock at any time within
one year of the Agreement at $.15 per share. During 2006 the expiration date of
the Warrant was extended upon receipt of an additional $50,000 payment. If
exercised, $100,000 will be applied as partial
- 9 -
payment of the exercise price. If the Warrants are not exercised by June 1, 2008
the deposits will be forfeited. The deposits have been recorded as additions to
paid in capital.
Share-based Incentive Plan
At September 30, 2007, the Company had 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 maximum number of
shares currently reserved for issuance is 31,000,000 shares. The options granted
have ten-year contractual terms and vest either immediately or annually over a
five-year term.
At September 30, 2007, there were 5,492,000 shares available for future grants
under the above stock option plans. The weighted average exercise price of
options outstanding was $.044 at September 30, 2007. No options were granted
during the nine months ended September 30, 2007, while options for 500,000 at
$.041 were exercised during that period. The total intrinsic value of options
exercised during the nine months ended September 30, 2007 was $179,500.
All options outstanding at September 30, 2007 are fully vested and exercisable.
Information pertaining to options outstanding at September 30, 2007 is as
follows:
Options Outstanding
Weighted Average
Remaining Contractual
Exercise Prices Number of shares Life Intrinsic Value
--------------- ---------------- ---- ---------------
$ .001 99,054 8 $ 44,475
.041 24,500,000 6 10,020,500
1.62 37,000 2 --
---------- -----------
24,636,054 $10,064,975
========== ===========
Note 5. Income Taxes
The Company adopted the provisions of FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109"
("FIN No. 48"), on January 1, 2007. FIN No. 48 requires that the impact of tax
positions be recognized in the financial statements if they are more likely than
not of being sustained upon examination, based upon the technical merits of the
position. As discussed in the consolidated financial statements in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2006, the Company
has a valuation allowance against the full amount of its deferred tax assets.
The Company currently provides a valuation allowance against deferred tax assets
when it is more likely than not that some portion, or all, of its deferred tax
assets, will not be realized. The implementation of FIN No. 48 had no effect on
the Company's financial position or results of operations.
The Company recognizes interest accrued related to unrecognized tax benefits in
interest expense. Penalties, if incurred, are recognized as a component of
income tax expense. State and Federal tax returns for years beginning after
December 31, 2003 remain open for examination by the taxing authorities.
There were no provisions for income taxes for the nine months ended September
30, 2007 and 2006 due to the Company's net operating loss and its valuation
reserve against deferred income taxes.
- 10 -
The difference between the provision for income taxes using amounts computed by
applying the statutory federal income tax rate of 34% and the Company's
effective tax rate is due primarily to the net operating loss incurred by the
Company and the valuation reserve against the Company's deferred tax asset.
At September 30, 2007 the Company has federal and state net operating loss carry
forwards of approximately $23,100,000 and $15,400,000, respectively, available
to offset future taxable income. The state carry-forwards will expire
intermittently through 2012, while the federal carry forwards will expire
intermittently through 2027.
Note 6. Related party transactions
During the nine months ended September 30, 2007 and 2006 the Company incurred
$144,000 and 86,000 of consulting fees paid to Steven Rotman, the father of Greg
and Richard Rotman.
Note 7. Commitments
The Company leases office facilities in Boston Massachusetts under a five year
lease beginning May 2006 requiring monthly payments of $5,800, plus increases in
real estate taxes and operating expenses, through April 2011.
In August 2006 the Company began paying rent, as a tenant at will, to a company
in which Steven Rotman, the father of Gregory and Richard Rotman, is a
shareholder. Monthly payments under this arrangement of $2,600 began on August
1, 2006.
During the nine months ended September 30, 2007 rent expense charged to
operations under the above leases totaled $75,000, including $23,000 to the
related party.
- 11 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Overview
Our innovative products and services are utilized in celebrity services,
ticketing, fan experiences, merchandising, online auctions and management, and
web site development. 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. This proprietary
system uses the AuctionInc. shipping calculator tools to provide improved
customer service and fulfillment services. The technology is based on our
patented process that streamlines back-office and shipping processes for online
auctions and e-commerce. Our celebrity services offer athletes and entertainers
official web sites and fan-club services including e-commerce storefronts,
articles, polls, message boards, contests, biographies and custom features to
attract thousands of visitors daily. Our autograph signing events, working in
conjunction with our sports agent marketing services, have created more services
and opportunities for our sports clientele.
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 management's experience and assessment of current
product demand.
Property and Equipment: Property and equipment 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 and a review of the estimated useful lives of the various
assets.
Results of Operations
Three months ended September 30, 2007 to three months ended September 30, 2006
The following discussion compares the Company's results of operations for the
three months ended September 30, 2007 with those for the three months ended
September 30, 2006. The Company's financial statements and notes thereto
included elsewhere in this quarterly report contain detailed information that
should be referred to in conjunction with the following discussion.
Revenues. For the three months ended September 30, 2007, revenues were
$1,586,600, 96% of which was attributable to sales of fan club memberships and
merchandise related to performing artists.
- 12 -
Management anticipates increases from fan club memberships, merchandise, and fan
experiences from tours, products and services related to several performing
artists during into 2008.
The Company's third quarter 2007 revenues represent an increase of approximately
$87,400 from 2006 when revenues were $1,499,200. For the three months ended
September 30, 2006, sales of the Company's product were $118,700, or 8% of gross
sales, fan experiences, fan club memberships, and related merchandise sales
revenues were $1,338,300, 89% of gross revenues, sports marketing revenues were
$38,000, or 3% of gross revenues. Gross profit from Company owned product for
the three months ended September 30, 2007 was approximately $47,400, a $24,500
decrease from the same period in 2006.
The principal reasons for the increase in revenues were a $188,800 increase
related to tours of performing artists, offset by lower revenues related to
sports marketing services of $37,900 and lower sales of Company owned product of
approximately $77,300 from the same period in 2006. The increase in revenues
related to tours of performing artists is attributable to higher tour activity
in the 2007 quarter. At September 30, 2007 the Company had very little deferred
revenues related to tours to continue during the remainder of 2007.
Operating Expenses. Total operating expenses for the three months ended
September 30, 2007 were $1,026,600 compared to $1,096,300 in 2006, a decrease of
$69,700.
Sales, general and administrative ("SG&A") expenses for the three months ended
September 30, 2007 were $912,000, compared to $942,900 for the three months
ended September 30, 2006. The decrease of $30,900 in SG&A costs includes
decreases in payroll and related costs of $128,700, offset by increases in
professional and consulting fees of $111,200.
Costs associated with planning, maintaining and operating our web sites for the
three months ended September 30, 2007 decreased by $38,800 from 2006. This
decrease is due primarily to decreases in consulting and computer expenses.
Interest Expense. For the three months ended September 30, 2007, the Company
incurred approximately $1,900 of interest charges compared to interest charges
of $6,600 in 2006, a decrease of $4,800. The decrease is attributable to lower
borrowing levels in 2007.
Net Loss. The Company realized a net loss for the three months ended September
30, 2007 of $442,600 compared to a net loss of $647,400 for the three months
ended September 30, 2006. The 2007 and 2006 losses each represented less than
$.01 per share.
Inflation. The Company believes that inflation has not had a material effect on
its results of operations.
Nine months ended September 30, 2007 to nine months ended September 30, 2006
The following discussion compares the Company's results of operations for the
nine months ended September 30, 2007 with those for the nine months ended
September 30, 2006. The Company's financial statements and notes thereto
included elsewhere in this quarterly report contain detailed information that
should be referred to in conjunction with the following discussion.
Revenues. For the nine months ended September 30, 2007, revenues were
$2,899,000, 93% of which was attributable to sales of fan club memberships and
merchandise related to performing artists. Sales of the Company's own product
and fees from buyers and sellers through the Rotman Auction operations
represented 3% of revenues, sports marketing revenues represented 1% of revenues
and other revenues represented 3% of gross revenues. Gross sales of the
Company's own product were $97,000. Fan club membership and related merchandise
sales revenues were $2,698,600, and sports marketing revenues were $35,800.
Management anticipates increases from fan club memberships, merchandise, and fan
- 13 -
experiences from tours, products and services related to several performing
artists during 2008. During the nine months ended September 30, 2007 the Company
generated $8,200 of deferred revenues related to artist's tours to continue
during the remainder of 2007.
The Company's revenues for the first nine months of 2007 represent a decrease of
approximately $2,011,400 from 2006 when revenues were $4,910,400. For the nine
months ended September 30, 2006, sales of the Company's product were $294,100,
or 6% of gross sales, fan experiences, fan club memberships, and related
merchandise sales revenues were $4,419,400, 90% of gross revenues, sports
marketing revenues were $169,800, or 3% of gross revenues.
The reason for the decrease in revenues was a $1,720,800 decrease related to the
tours of performing artists, lower revenues related to sports marketing services
of $134,000 and lower sales of Company owned product of approximately $197,200
from the same period in 2006. The decrease in revenues related to tours of
performing artists is attributable to lower U.S. tour activity in the 2007
quarter. Gross profit from Company owned product sales for the nine months ended
September 30, 2007 was approximately $87,700, $24,100 less than the same period
in 2006.
Operating Expenses. Total operating expenses for the nine months ended September
30, 2007 were $2,971,200 compared to $3,130,000 in 2006, a decrease of $158,900.
Sales, general and administrative ("SG&A") expenses for the nine months ended
September 30, 2007 were $2,662,600, compared to $2,723,400 for the nine months
ended September 30, 2006. The decrease of $60,800 in SG&A costs includes
decreases in payroll and related costs of $163,100, credit card commissions of
$32,700, postage and shipping costs of $74,500, advertising of $19,300, and
depreciation and amortization of $20,400, offset by increases in professional
and consulting fees of $230,100, rents of $34,000, and travel of $16,200. The
credit card commissions and postage and shipping decreases are all principally
attributable to lower level of artists' touring activities during 2007.
Costs associated with planning, maintaining and operating our web sites for the
nine months ended September 30, 2007 decreased by $98,100 from 2006. This
decrease is due primarily to a decrease in consulting costs of $131,200 and
computer expenses of $19,400, offset by $49,500 fewer web site development costs
being capitalized in 2007 than in 2006.
Interest Expense. For the nine months ended September 30, 2007, the Company
incurred approximately $6,200 of interest charges compared to interest charges
of $15,400 in 2006, a decrease of $9,200. This decrease is attributable to lower
balances of interest bearing debt in 2007.
Net Loss. The Company realized a net loss for the nine months ended September
30, 2007 of $1,777,000 compared to a net loss of $1,450,100 for the nine months
ended September 30, 2006. Both losses represent $.01 per share.
Inflation. The Company believes that inflation has not had a material effect on
its results of operations.
Assets
At September 30, 2007, total assets of the Company were $2,198,000 compared to
$1,681,000 at December 31, 2006. The increase was primarily due to higher cash
balances generated from the issuance of short term debt.
Operating Cash Flows
A summarized reconciliation of the Company's net losses to cash used in
operating activities for the nine months ended September 30, 2007 compared to
September 30, 2006, is as follows:
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2007 2006
---- ----
Net loss $(1,777,000) $(1,450,100)
Depreciation and amortization 97,300 115,600
Common stock issued in payment of services 1,189,000 960,900
Common stock issued in payment of interest -- 137,800
Net current assets and liabilities associated with advance ticketing 8,200 (502,300)
Changes in current assets and liabilities (286,800) (224,100)
----------- -----------
Net cash used in operating activities $ (769,300) $ (962,200)
=========== ===========
Working Capital and Liquidity
The Company had cash and cash equivalents of $641,200 at September 30, 2007,
compared to $138,300 at December 31, 2006. The Company had $399,300 of working
capital at September 30, 2007 compared to $67,800 at December 31, 2006. At
September 30, 2007 current liabilities were $1,683,300 compared to $1,409,400 at
December 31, 2006. Current liabilities increased at September 30, 2007 compared
to December 31, 2006 primarily due to a $482,000 increase in short term debt
offset by lower accounts payable and accrued expenses.
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, 2006. 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 during 2008, from its celebrity
services products and websites, and similar services to other entities;
including memberships, fan experiences and ticketing, appearances, website
development and hosting, and merchandise sales from both existing and new
clients. In addition, "AuctionInc" which hosts a suite of management tools and
enhanced shipping calculator solutions for small e-commerce enterprises, sales
of movie posters, both from inventory and on consignment, and web hosting are
expected to increase revenues and result in higher total gross profit. Subject
to the discussion below, management believes that the Company has sufficient
cash commitments to fund operations during the next 12 months. These commitments
include call options, expiring on May 9, 2008, for approximately 775,000 shares
of common stock, which, once assigned by the Company, will generate between
$126,000 and $412,000 (based solely upon the 52 week high and low closing prices
of the Company's common stock) of cash. However, there can be no assurance that
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.
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
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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, 2006.
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.
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
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In each of the second and third quarters of 2007, the Company paid to
Kristen Kuliga 50,000 shares of common stock, for an aggregate of 100,000
shares, at $.32 per share, as final payment of $32,000 in connection with the
Company's acquisition of K Sports & Entertainment LLC. The issuance of the
securities is exempt from registration under Section 4(2) of the Securities Act
of 1933 and Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. 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
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SIGNATURES
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.
PAID, INC.
Registrant
Date: November 13 , 2007 /s/ Gregory Rotman
--------------------- ----------------------------------------
Gregory Rotman, President
Date: November 13, 2007 /s/ Richard Rotman
--------------------- ----------------------------------------
Richard Rotman, Chief Financial Officer,
Vice President and Secretary
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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
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