PAID INC - Quarter Report: 2009 September (Form 10-Q)
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 September 30, 2009
COMMISSION
FILE NUMBER 0-28720
PAID,
INC.
(Exact
Name of Registrant as Specified in its Charter)
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DELAWARE
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73-1479833
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|
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(State
or Other Jurisdiction of Incorporation
or Organization)
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(I.R.S.
Employer Identification
No.)
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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 T No
o
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 (§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). o Yes o 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):
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Large
accelerated filer o
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Accelerated
Filer T
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Non-accelerated
filer o
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Smaller
reporting company o
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(Do
not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes o No T
As of
November 6, 2009, the issuer had outstanding 267,412,123 shares of its Common
Stock, par value $.001 per share.
1
Paid, Inc.
Form
10-Q
For
the Three and Nine months ended September 30, 2009
TABLE OF
CONTENTS
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Part
I – Financial Information
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Item
1.
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3
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4
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5
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6
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7-17
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Item
2.
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18
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Item
3.
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22
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Item
4.
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23
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Part
II – Other Information
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Item
1.
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25
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Item
1A.
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25
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Item
2.
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25
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Item
3.
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25
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Item
4.
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25
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Item
5.
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25
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Item
6.
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25
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26
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PART I - FINANCIAL
INFORMATION
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ITEM 1.
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FINANCIAL
STATEMENTS
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PAID, INC.
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BALANCE
SHEETS
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September
30,
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December
31,
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ASSETS
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2009
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2008
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||||||
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(Unaudited)
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(Audited)
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|||||||
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Current
assets:
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||||||||
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Cash
and cash equivalents
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$ | 966,596 | 106,948 | |||||
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Accounts
receivable, net
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1,520,523 | 1,425 | ||||||
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Inventories,
net
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1,124,994 | 1,016,938 | ||||||
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Prepaid
expenses and other current assets
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713,122 | 404,876 | ||||||
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Due
from employees and others
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20,336 | 42,497 | ||||||
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Total
current assets
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4,345,571 | 1,572,684 | ||||||
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Property
and equipment, net
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37,084 | 30,967 | ||||||
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Intangible
asset, net
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9,183 | 9,888 | ||||||
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Total
assets
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$ | 4,391,838 | $ | 1,613,539 | ||||
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
liabilities:
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Accounts
payable
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$ | 767,537 | $ | 399,383 | ||||
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Accrued
expenses
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512,130 | 495,139 | ||||||
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Deferred
revenues
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365,690 | 119,700 | ||||||
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Total
current liabilities
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1,645,357 | 1,014,222 | ||||||
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Commitments
and contingencies
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Shareholders'
equity:
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||||||||
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Common
stock, $.001 par value, 350,000,000 shares authorized; 266,723,674 and
251,369,046 shares issued and outstanding at September 30, 2009 and
December 31, 2008, respectively
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266,724 | 251,369 | ||||||
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Additional
paid-in capital
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40,360,139 | 36,392,504 | ||||||
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Accumulated
deficit
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(37,780,382 | ) | (36,044,556 | ) | ||||
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Stock
subscription receivable
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(100,000 | ) | - | |||||
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Total
shareholders' equity
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2,746,481 | 599,317 | ||||||
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Total
liabilities and shareholders' equity
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$ | 4,391,838 | $ | 1,613,539 | ||||
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See
accompanying notes to financial statements
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PAID, INC.
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STATEMENTS
OF OPERATIONS
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(Unaudited)
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Three
months
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Three
months
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Nine
months
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Nine
months
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|||||||||||||
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ended
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ended
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ended
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ended
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September
30,
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September
30,
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September
30,
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September
30,
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|||||||||||||
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2009
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2008
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2009
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2008
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Revenues
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$ | 2,116,536 | $ | 945,257 | $ | 4,064,317 | $ | 1,924,685 | ||||||||
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Cost
of revenues
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766,201 | 653,762 | 1,921,118 | 1,100,903 | ||||||||||||
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Gross
profit
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1,350,335 | 291,495 | 2,143,199 | 823,782 | ||||||||||||
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Operating
expenses:
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Selling,
general, and administrative expenses
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1,031,689 | 1,377,196 | 3,571,306 | 3,447,414 | ||||||||||||
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Web
site development costs
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109,517 | 96,145 | 310,595 | 356,531 | ||||||||||||
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Total
operating expenses
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1,141,206 | 1,473,341 | 3,881,901 | 3,803,945 | ||||||||||||
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Income
(loss) from operations
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209,129 | (1,181,846 | ) | (1,738,702 | ) | (2,980,163 | ) | |||||||||
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Other
income (expense):
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||||||||||||||||
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Interest
expense
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- | (40,636 | ) | (2,500 | ) | (67,782 | ) | |||||||||
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Other
income
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677 | 394 | 5,376 | 1,170 | ||||||||||||
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Total
other income (expense), net
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677 | (40,242 | ) | 2,876 | (66,612 | ) | ||||||||||
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Income
(loss) before income taxes
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209,806 | (1,222,088 | ) | (1,735,826 | ) | (3,046,775 | ) | |||||||||
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Provision
for income taxes
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- | - | - | - | ||||||||||||
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Net
income (loss)
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$ | 209,806 | $ | (1,222,088 | ) | $ | (1,735,826 | ) | $ | (3,046,775 | ) | |||||
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Income
(loss) per share:
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Basic
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$ | - | $ | - | $ | (0.01 | ) | $ | (0.01 | ) | ||||||
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Diluted
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$ | - | N/A | N/A | N/A | |||||||||||
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Weighted
average shares - basic and diluted
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Basic
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257,294,430 | 240,000,388 | 255,072,645 | 237,514,333 | ||||||||||||
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Diluted
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286,541,637 | N/A | N/A | N/A | ||||||||||||
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See
accompanying notes to financial statements
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PAID, INC.
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STATEMENTS
OF CASH FLOWS
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FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
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(Unaudited)
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2009
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2008
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Operating
activities:
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Net
loss
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$ | (1,735,826 | ) | $ | (3,046,775 | ) | ||
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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Depreciation
and amortization
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12,936 | 58,390 | ||||||
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Share
based compensation
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340,000 | 340,000 | ||||||
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Amortization
of debt discount
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- | 52,782 | ||||||
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Intrinsic
value of stock options awarded to professionals and consultants in payment
of fees for services provided
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2,165,900 | 1,351,016 | ||||||
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Intrinsic
value of stock options awarded to employees in payment of
compensation
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119,501 | 90,308 | ||||||
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Services
provided in consideration of payment of stock subscription
receivable
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20,000 | |||||||
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Changes
in assets and liabilities:
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||||||||
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Accounts
receivable
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(622,878 | ) | (123,768 | ) | ||||
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Inventories
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(108,056 | ) | 30,574 | |||||
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Prepaid
expense and other current assets
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(286,085 | ) | (280,213 | ) | ||||
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Accounts
payable
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368,154 | 31,139 | ||||||
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Accrued
expenses
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16,991 | 455,461 | ||||||
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Deferred
revenue
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245,990 | (30,720 | ) | |||||
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Net
cash provided by (used in) operating activities
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536,627 | (1,071,806 | ) | |||||
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Investing
activities:
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Property
and equipment additions
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(18,348 | ) | (21,478 | ) | ||||
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Financing
activities:
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||||||||
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Net
proceeds of notes and loans payable
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- | 1,100,000 | ||||||
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Proceeds
from assignment of call options
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158,245 | 123,464 | ||||||
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Proceeds
from sale of warrants
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80,000 | 10,000 | ||||||
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Proceeds
from issuance of common stock
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103,124 | - | ||||||
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Proceeds
from exercise of stock options
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- | 30,750 | ||||||
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Net
cash provided by financing activities
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341,369 | 1,264,214 | ||||||
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Net
increase in cash and cash equivalents
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859,648 | 170,930 | ||||||
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Cash
and cash equivalents, beginning
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106,948 | 264,811 | ||||||
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Cash
and cash equivalents, ending
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$ | 966,596 | $ | 435,741 | ||||
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SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
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Cash
paid during the period for:
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Income
taxes
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$ | 1,885 | $ | 3,283 | ||||
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Interest
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$ | - | $ | - | ||||
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SUPPLEMENTAL
DISCLOSURES OF NON-CASH FINANCING ACTIVITIES
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||||||||
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Amounts
due in connection with issuance of common stock
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$ | 896,220 | $ | - | ||||
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See
accompanying notes to financial statements
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PAID, INC.
|
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STATEMENT
OF CHANGES IN SHAREHOLDERS' EQUITY
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||||||||||||||||||||||||
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FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009
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(Unaudited)
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Additional
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Stock
|
|||||||||||||||||||||||
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Common stock
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Paid-in
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Accumulated
|
subscription
|
|||||||||||||||||||||
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Shares
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Amount
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Capital
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Deficit
|
receivable
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Total
|
|||||||||||||||||||
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Balance,
December 31, 2008
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251,369,046 | $ | 251,369 | $ | 36,392,504 | $ | (36,044,556 | ) | $ | - | $ | 599,317 | ||||||||||||
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Issuance
of common stock pursuant to exercise of stock options granted to employees
for services
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630,780 | $ | 631 | $ | 118,870 | - | - | 119,501 | ||||||||||||||||
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Issuance
of common stock pursuant to exercise of stock options granted to
professionals and consultants
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7,896,924 | 7,897 | 1,553,641 | - | - | 1,561,538 | ||||||||||||||||||
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Intrinsic
value of stock options granted to consultant for services
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- | - | 74,398 | - | - | 74,398 | ||||||||||||||||||
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Proceeds
from assignment of call options
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- | - | 158,245 | - | - | 158,245 | ||||||||||||||||||
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Issuance
of common stock
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4,826,924 | 4,827 | 1,524,481 | - | - | 1,529,308 | ||||||||||||||||||
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Share
based compensation related to issuance of incentive stock
options
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- | - | 340,000 | - | - | 340,000 | ||||||||||||||||||
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Exercise
of warrants
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2,000,000 | 2,000 | 198,000 | - | (120,000 | ) | 80,000 | |||||||||||||||||
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Services
provided in consideration of payment of stock subscription
receivable
|
- | - | - | - | 20,000 | 20,000 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (1,735,826 | ) | - | (1,735,826 | ) | ||||||||||||||||
|
Balance,
September 30, 2009
|
266,723,674 | $ | 266,724 | $ | 40,360,139 | $ | (37,780,382 | ) | $ | (100,000 | ) | $ | 2,746,481 | |||||||||||
|
See
accompanying notes to financial
statements
|
||||||||||||||||||||||||
PAID, INC.
NOTES
TO FINANCIAL STATEMENTS
September
30, 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
notes 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 and into 2010
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 cash on hand, accounts receivable,
and management's continued exploration of 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.
Recent
Accounting Pronouncements
Adoption
of New Accounting Standards
In June
2009, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles - a
Replacement of FASB Statement No. 162" ("The Codification"). The
Codification reorganized existing U.S. accounting and reporting standards issued
by the FASB and other related private sector standard setters into a single
source of authoritative accounting principles arranged by topic. The
Codification supersedes all existing U.S. accounting standards; all other
accounting literature not included in the Codification (other than Securities
and Exchange Commission guidance for publicly-traded companies) is considered
non-authoritative. The Codification was effective on a prospective
basis for interim and annual reporting periods ending after September 15,
2009. The adoption of the Codification changed the Company's
references to U.S. GAAP accounting standards but did not impact the Company's
financial statements.
In
December 2007, the FASB issued revised guidance for the accounting for business
combinations. The revised guidance, which is now part of Accounting
Standards Codification ("ASC") 805, "Business Combinations" ("ASC 805"),
requires the fair value measurement of assets acquired, liabilities assumed, and
any non-controlling interest in the acquire, at acquisition date with limited
exceptions. ASC 805 is applicable to business combinations for acquisitions
occurring after January 1, 2009. Adoption of ASC 805 on January 1,
2009 did not have a material impact on our financial statements.
In March
2008, the FASB issued new guidance related to disclosures about derivative
instruments and hedging activities. The new guidance, which is now
part of ASC 815, "Derivatives and Hedging", requires enhanced disclosures about
(a) how an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for, and (c) how derivative instruments
and related hedged items affect an entity's financial position, financial
performance, and cash flows. The new guidance was effective for
interim and annual periods beginning after November 15,
2008. Adoption of ASC 815 on January 1, 2009 did not have a material
impact on our financial statements.
In April
2008, the FASB issued revised guidance about the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. The revised guidance,
which is now part of ASC 350, "Intangibles - Goodwill and Other", was adopted on
January 1, 2009 with no material impact on our financial
statements.
In June
2008, the FASB issued guidance for determining whether an equity-linked
financial instrument is indexed to an entity's own stock. The revised
guidance, which is now part of ASC 815, "Derivatives and Hedging", was adopted
on January 1, 2009 with no material impact on our financial
statements.
In April
2009, the FASB issued interpretive guidance for determining other-than-temporary
impairments for debt securities. The interpretive guidance, which is now part of
ASC 320, "Investments - Debt and Equity Securities", was adopted by the Company
on April 1, 2009 with no material impact on our financial
statements.
In April
2009, the FASB issued new guidance related to the disclosure of the fair value
of financial instruments. The new guidance, which is now part of ASC
825, "Financial Instruments" ("ASC 825"), requires disclosure of the fair value
of financial instruments whenever publicly traded company issues financial
information in interim reporting periods in addition to the annual disclosure
required at year-end. ASC 825 was adopted by the Company on
April 1, 2009 with no material impact on our financial statements.
In April
2009, the FASB issued new guidance for determining when a transaction is not
orderly and of estimating fair value when there has been a significant decrease
in the volume and level of activity of an asset or
liability. The new guidance, which is now part of ASC
820, "Fair Value Measurements and Disclosures" ("ASC 820"), requires disclosure
of the inputs and valuation techniques used, as well as any changes in valuation
techniques and inputs used during the period, to measure fair value in interim
and annual periods. In addition, presentation of the fair value
hierarchy is required to be presented by major security type as described in ASC
820. ASC 820 was adopted by the Company on April 1, 2009 with no
material impact on our financial statements.
In May
2009, the FASB issued new guidance for accounting for subsequent
events. The new guidance, which is now part of ASC 855, "Subsequent
Events" ("ASC 855"), sets forth the period after the balance sheet during which
management shall evaluate events or transactions that may occur for potential
recognition or disclosure, the circumstances under which an entity shall
recognize such events or transactions in the financial statements, and the
disclosures required about such events or transactions. ASC 855 was
adopted by the Company for the quarter ended June 30, 2009 with no material
impact on our financial statements.
Accounting
Standards not yet Adopted
In August
2009, the FASB issued new guidance for the accounting for the fair value
measurement of liabilities. The new guidance, which is part of ASC
820, provides clarification that in certain circumstances in which a quoted
price in an active market for the identical liability is not available, a
company is required to measure the fair value using one or more of the following
valuation techniques: the quoted price of the identical liability when traded as
an asset, the quoted prices for similar liabilities or similar liabilities when
traded as an asset, and/or another valuation technique that is consistent with
the principles of fair value measurements. The new guidance clarifies
that a company is not required to include an adjustment for restrictions that
prevent the transfer of the liability and if an adjustment is applied to the
quoted price used in a valuation technique, the result is a Level 2 or 3 fair
value measurements. The new guidance is effective for interim and
annual periods beginning after August 27, 2009. The Company does not
expect the provisions of this new guidance to have a material effect on its
financial statements.
In
October 2009 the FASB issued revised guidance for the determination of whether
an arrangement involving multiple deliverables contains more than one unit of
accounting and how arrangement consideration shall be measured and allocated to
the separate units of accounting in the arrangement. The revised
guidance is part of ASC 605, "Revenue Recognition" ("ASC 605") and is effective
for revenue arrangements entered into, or materially modified, after June 15,
2010. The Company has not yet determined whether adoption of ASC 605 will have a
material impact on its financial statements.
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.
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 September 30,
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 ASC 350,
"Intangibles - Goodwill and Other", 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 nine months ended September 30, 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 generally 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 ASC 605, "Revenue", 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 $54,700 and $56,100 in 2009
and 2008, respectively, are reported as a component of selling, general and
administrative expenses.
Advertising
costs
Advertising
costs, totaling approximately $49,900 in 2009 and $43,600 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
74% of the Company's revenues for the nine months ended September 30, 2009 were
generated from fan experiences and sales of merchandise related to one
performing artist, Aerosmith, while approximately 67% of the Company's revenues
for the nine months ended September 30, 2008 were generated from fan experiences
and sales of merchandise related to two performing artists, Aerosmith and Return
to Forever.
Share
Based Compensation
The
Company accounts for share-based compensation in accordance with the provisions
of ASC 505, "Equity", and ASC 718, "Compensation - Stock
Compensation". Under the provisions of ASC 505 and ASC 718,
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 or
non-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 31,373,612 and 31,486,054 shares at September 30, 2009 and 2008,
respectively, have been excluded from the computation of diluted earnings per
share because they were anti-dilutive. Diluted earnings per share have only been
presented for periods with net income.
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 $6,817 and $6,112 at
September 30, 2009 and December 31, 2008, respectively.
Amortization
expense of intangible assets for the nine months ended September 30, 2009 and
2008 was $705.
Estimated
future annual amortization expense is $940 for each year through
2019.
Note
3. Accrued Expenses
Accrued
expenses are comprised of the following:
|
September 30,
2009
|
December 31,
2008
|
|||||||
|
Payroll
and related costs
|
189,220 | 130,380 | ||||||
|
Professional
and consulting fees
|
194,638 | 232,259 | ||||||
|
Commissions
|
84,801 | 107,963 | ||||||
|
Other
|
43,471 | 24,537 | ||||||
| $ | 512,130 | $ | 495,139 | |||||
Note
4. Common Stock
Call
Option Agreements
In
connection with a May 9, 2005 settlement with Leslie Rotman regarding the value
paid and the value received in a 2001 transaction the Company received a call
option for 2,000,000 shares of the Company's common stock at $.001 per share.
Leslie Rotman is the mother, of Gregory Rotman, President of the Company, and
Richard Rotman, CFO/Vice President/Secretary of the Company. The option is
assignable by the Company and, as most recently amended, expires on May 9,
2010.
As of
September 30, 2009 the Company had assigned options to purchase 1,941,665 shares
of stock from Leslie Rotman to certain individuals in exchange for $725,979. The
Company assigned 376,665 call options during the nine months ended September 30,
2009 in exchange for $158,245, while it assigned 340,000 call options during the
nine months ended September 30, 2008 in exchange for $123,464. The
proceeds from the assignments of these options were added to the paid in capital
of the Company. At September 30, 2009, 58,335 call options remain
outstanding.
Warrants
During
the year ended December 31, 2005, the Company entered into an Agreement and sold
a warrant to purchase common stock ("Warrant") to an investor. The investor paid
the Company $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. On June 1, 2009 the expiration date of the Warrant was
extended to June 30, 2009 in exchange for a reduction in the Deposits of
$10,000. On June 28, 2009 the Warrant was exercised with the
remaining $200,000 of consideration paid in the form of $80,000 of cash and an
agreement for $120,000 for future consulting services valued at
$120,000. During the three months ended September 30, 2009 the
investor provided consulting services valued at $20,000. The unused portion of
the consulting services ($100,000) is included in stock subscription
receivable.
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.
Issuance
of Common Stock
Under
agreements with certain individual artists of a single band, the Company issued
4,826,924 shares of common stock and guaranteed the individual artists that
those shares would sell for a minimum of $1,600,000. If the shares
sold for less than the minimum agreed upon amount the artists would receive cash
or additional shares to make up the difference. The shares and
guaranteed amounts were based upon a minimum number of tour dates. A
portion of the related tour was canceled after only approximately 35% of the
dates were performed. The artists sold the related shares, and as a
result of an unanticipated increase in the market value of the Company's stock,
and the tour cancellation, received in excess of the guaranteed amounts.
Consequently, the Company is to receive back $1,346,220 which represents the
amount of the original advance payment associated with the canceled portion of
the tour totaling $346,876 plus $999,344 representing the amount in excess of
the guaranteed payment for the tour dates performed. These
transactions are reported in the statement of changes in stockholders' equity as
issuance of common stock.
At
September 30, 2009, there remained outstanding receivables related to this
arrangement totaling approximately $896,000, of which $475,000 was collected in
early October.
Share-based
Incentive Plans
Active
Plans:
At
September 30, 2009, the Company had a two active 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 2002
Plan (“2002 Plan”) provides for the award of qualified and non-qualified options
for up to 30,000,000 shares. As of September 30, 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 nine
months ended September 30, 2009, while during the nine months ended September
30, 2008 there were 5,000,000 options granted at an exercise price of $.415. At
September 30, 2009 there were 28,250,000 options outstanding with a weighted
average exercise price of $.107.
The
incremental fair value of options granted under the 2002 Plan during the first
nine months of 2008 was $1,815,000 which, assuming no forfeiture rate, resulted
in $340,000 being charged to operations during each of the nine months ended
September 30, 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
110,000,000 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:
|
Number of shares
|
Weighted
average exercise price per
share
|
|||||||
|
Options
outstanding at December 31, 2008
|
1,527,625 | $ | .001 | |||||
|
Granted
|
13,850,615 | $ | .001 | |||||
|
Exercised
|
(13,354,628 | ) | $ | .001 | ||||
|
Options
outstanding at September 30, 2009
|
2,023,612 | $ | .001 | |||||
A summary
of the awards under this plan during the nine months ended September 30 is as
follows:
|
Number
of
Shares
|
Intrinsic
Value
|
||||||
|
2009
|
|||||||
|
Employee
payroll
|
630,780 | $ | 119,501 | ||||
|
Consulting
and professional fees
|
13,219,835 | 2,165,900 | |||||
|
Total
|
13,850,615 | $ | 2,285,401 | ||||
| 2008 | |||||||
|
Employee
payroll
|
387,551 | $ | 90,308 | ||||
|
Consulting
and professional fees
|
5,747,194 | 1,351,017 | |||||
|
Total
|
6,134,745 | $ | 1,441,325 | ||||
The
maximum number of shares currently reserved for issuance is 3,541,358 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
|
109 | % | 115 | % | ||||
|
Expected
dividends
|
None
|
None
|
||||||
|
Risk
free interest rate
|
3.31 | % | 3.77 | % | ||||
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.
All but
5,000,000 options outstanding at September 30, 2009 are fully vested and
exercisable. Information pertaining to options outstanding at September 30, 2009
is as follows:
Options
Outstanding
|
Exercise Prices
|
Number
of Shares
|
Weighted
Average Remaining Contractual
Life
|
Aggregate
Intrinsic
Value
|
|||||||||||
| $ | .001 | 2,023,612 | 8.95 | $ | 766,948 | |||||||||
| .041 | 23,250,000 | 3.00 | 7,881,750 | |||||||||||
| .415 | 5,000,000 | 8.25 | -- | |||||||||||
| 30,273,612 | ||||||||||||||
The total
intrinsic value of options exercised during the nine months ended September 30,
2009 under all plans was $2,211,003, in exchange for no cash, since they were
all exercised under the 2001 Plan.
Expired
Plans:
During
July 1999, the Company's Board of Directors adopted The 1999 Plan (“1999 Plan”)
which provided for the award of non-qualified options for up to 1,000,000
shares. The 1999 Plan expired in July 2009 as did all 37,000 options
that were outstanding with an exercise price of $1.62 per share.
Also
during July 1999, the Company's Board of Directors adopted, subject to
stockholders' approval, the 1999 Omnibus Share Plan (the "Omnibus Plan") that
provided 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. The Omnibus
Plan also expired in July 2009. No options were ever granted under
the Omnibus Plan.
Note
5. Income Taxes
There was
no provision for income taxes for the nine months ended September 30, 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:
|
September
30,
2009
|
December
31,
2008
|
|||||||
|
Federal
net operating loss carry forwards
|
$ | 10,065,000 | $ | 9,502,000 | ||||
|
State
net operating loss carry forwards
|
1,530,000 | 1,682,000 | ||||||
| 11,595,000 | 11,184,000 | |||||||
|
Valuation
reserve
|
(11,595,000 | ) | (11,184,000 | ) | ||||
|
Net
deferred tax asset
|
$ | -- | $ | -- | ||||
The
valuation reserve applicable to net deferred tax asset at September 30, 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 2006-2008
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 ASC 740, 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 nine months ended September 30, 2009 and
2008.
At
September 30, 2009, the Company has federal and state net operating loss carry
forwards of approximately $29,600,000 and $16,100,000, respectively, available
to offset future taxable income. The state carry-forwards will expire
intermittently through 2015, while the federal carry forwards will expire
intermittently through 2030.
Note
6. Related party transactions
Steven
Rotman is the father, and Leslie Rotman is the mother, of Gregory Rotman,
President of the Company, and Richard Rotman, CFO/Vice President/Secretary of
the Company. The Company entered into a number of transactions over the 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, from a
company in which Steven Rotman is a shareholder. Monthly payments under this
arrangement total $2,600.
During
the nine months ended September 30, 2009 and 2008 the Company incurred $60,000
and $50,000, respectively, of consulting fees paid to Stephen Rotman, who
elected to receive this compensation in the form of options under the 2001
Plan.
Note
7. 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 September 30, 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.
Subsequent
events
In
preparing the financial statements, and in accordance with ASC 855, the Company
evaluated subsequent events after the balance sheet date of September 30, 2009
through November 9, 2009.
|
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 10-K 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 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
Three months ended September
30, 2009 compared to the three months ended September 30,
2008.
The
following discussion compares the Company's results of operations for the three
months ended September 30, 2009 with those for the three months ended September
30, 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 $2,116,500, 98% of which was attributable to sales of fan club
memberships, merchandise, and fan experiences related to tours of performing
artists. Other income represented 2% of revenues. Fan
experience, fan club membership and related merchandise sales revenues were
$2,072,100. During the three months ended September 30, 2009 a major artist
canceled the remainder of its tour. In the event of concert
cancellations, the Company's terms with respect to sales of fan experiences are
that customers are entitled to a refund of all but certain convenience fees,
based upon the type of fan experience purchased. Consequently, included in fan
experience revenues is approximately $414,000 of these non-recurring convenience
fees. 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 and the early part of
2010. Performing artists typically do not announce tour plans until two to four
months in advance of the first show. Several performing artists and clients
represented by the Company have announced tours or events that are scheduled to
continue or begin during the fourth quarter of 2009 and the first quarter of
2010.
The
Company's 2009 revenues represent an increase of approximately $1,171,300 or
124%, from 2008, when revenues were $945,300. For the three months ended
September 30, 2008, fan club membership and related merchandise sales revenues
were $899,300, or 95% of gross revenues.
The main
reasons for the increase in revenues were a $1,172,800 increase related to the
fan club memberships and tours of performing artists. Revenues related tours of
performing artists are dependent upon tour schedules, the popularity of the
artist(s) on tour, and whether the tour(s) are domestic or international. Fan
experience packages marketed for certain artists include a ticket of admission,
while for others they do not. While there was an increase in the
number of artists represented by the Company in 2009 and a major artist was on
tour for part of the quarter, there were no other significant artists on tour
during the third quarter of 2009. Fan experiences for artists on tour
in 2008 did not include tickets, while those for the artist on tour in 2009
did. Gross profit from celebrity services in 2009 and 2008 was
$1,305,900 and $256,200, respectively.
Operating
Expenses. Total operating expenses during 2009 were $1,141,200
compared to $1,473,300 in 2008, a decrease of $332,100.
Sales,
general and administrative ("SG&A") expenses in 2009 were $1,031,700,
compared to $1,377,200 in 2008. The decrease of $345,500 includes decreases in
professional fees of $270,600, and payroll and related costs of $82,300. The
decrease in professional fees is attributable to lower required payments to
consultants and professionals.
Costs
associated with planning, maintaining and operating our web sites in 2009
increased by $13,400 from 2008. This increase is due primarily to an increase in
computer expenses of $14,000.
Interest
Expense. The Company incurred no interest charges in 2009,
while in 2008 interest expense was $40,600. The 2008 interest expense was
associated with short term notes payable and amortization of debt
discount.
Net
Income/(Loss). The Company generated a net income during the
three months ended September 30, 2009 of $209,800 compared to a net loss of
$1,222,100 for the same period in 2008. The 2009 profit and 2008 loss each
represent less than $.01 per share on both a basic and diluted
basis.
Nine months ended September
30, 2009 compared to the nine months ended September 30,
2008.
The
following discussion compares the Company's results of operations for the nine
months ended September 30, 2009 with those for the nine months ended September
30, 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 $4,064,300, 98% of which was attributable to sales of fan club
memberships, merchandise, and fan experiences related to tours of performing
artists. During the nine months ended September 30, 2009 a major
artist canceled the remainder of its tour. In the event of concert
cancellations, the Company's terms with respect to sales of fan experiences are
that customers are entitled to a refund of all but certain convenience fees,
based upon the type of fan experience purchased. Consequently,
included in fan experience revenues is approximately $414,000 of these
nonrecurring convenience fees. Fan experience, fan club membership and related
merchandise sales revenues were $3,966,500. 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
and the first quarter of 2010. 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
continue or begin during the fourth quarter of 2009 and first quarter of
2010.
The
Company's 2009 revenues represent an increase of approximately $2,139,600 or
111%, from 2008, when revenues were $1,924,700. For the nine months ended
September 30, 2008 while fan club membership and related merchandise sales
revenues were $1,771,500, or 92% of gross revenues.
The main
reasons for the increase in revenues were a $2,194,900 increase related to the
fan club memberships and tours of performing artists. Revenues related tours of
performing artists are dependent upon tour schedules, the popularity of the
artist(s) on tour, and whether the tour(s) are domestic or
international. Fan experience packages marketed for certain artists
include a ticket of admission, while for others they do not. While
there was an increase in the number of artists represented by the Company in
2009, there were no artists on tour until the middle of June and those concerts
held during 2008 were for artists for whom our fan experiences did not include a
ticket. Gross profit from celebrity services in 2009 and 2008 was
$2,047,900 and $693,600, respectively. Gross profit from Company owned product
sales was $91,000, $9,800 less than in 2008.
Operating
Expenses. Total operating expenses during 2009 were $3,881,900
compared to $3,803,900 in 2008, an increase of $78,000.
Sales,
general and administrative ("SG&A") expenses in 2009 were $3,571,300,
compared to $3,447,400 in 2008. The increase of $123,900 includes increases in
payroll and related costs of $32,600, touring costs of $33,600, and credit card
commissions and shipping costs of $240,300 offset by decreases in professional
fees of $104,000 and other items of $63,300. Increases in payroll, credit card
commissions and shipping are attributable to tours of performing artists and the
related refunds due to the cancellation of the remainder of a major artists'
tour during the third quarter.
Costs
associated with planning, maintaining and operating our web sites in 2009
decreased by $45,900 from 2008. This decrease is due primarily to decreases in
depreciation of $39,800, consulting of $10,700, and payroll and related costs of
$16,400 offset by an increase in computer expense of $20,900.
Interest
Expense. The Company incurred $2,500 of interest charges in
2009, while in 2008 interest expense was $67,800. The 2009 interest expense is
associated with short term notes payable while the 2008 interest expense was
associated with short term notes payable and amortization of debt
discount.
Net Loss. The
Company realized a net loss for the nine months ended September 30, 2009 of
$1,735,800 compared to a net loss of $3,046,800 for the same period in 2008. The
2009 and 2008 losses each represent $.01 per share.
Assets
At
September 30, 2009, total assets of the Company were $4,392,000 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 nine months ended September 30 is as
follows:
|
2009
|
2008
|
|||||||
|
Net
loss
|
$ | (1,735,800 | ) | $ | (3,046,800 | ) | ||
|
Depreciation
and amortization
|
12,900 | 58,400 | ||||||
|
Share
based compensation
|
340,000 | 340,000 | ||||||
|
Amortization
of debt discount
|
-- | 52,800 | ||||||
|
Intrinsic
value of stock options awarded in payment of outside services and
compensation
|
2,285,400 | 1,441,300 | ||||||
|
Services
provided in consideration of payment of stock subscription
receivable
|
20,000 | -- | ||||||
|
Net
current assets and liabilities associated with advanced
ticketing
|
245,900 | (30,700 | ) | |||||
|
Changes
in current assets and liabilities
|
(631,800 | ) | 113,200 | |||||
|
Net
cash used in operating activities
|
$ | 536,600 | $ | (1,071,800 | ) | |||
Working
Capital and Liquidity
The
Company had cash and cash equivalents of $967,000 at September 30, 2009,
compared to $107,000 at December 31, 2008. The Company had $2,700,000 of working
capital at September 30, 2009 compared to $558,000 at December 31,
2008. At September 30, 2009 current assets were $4,346,000 compared
to $1,573,000 at December 31, 2008. The increase in current assets is
related to increases in cash and cash equivalents of $860,000 and accounts
receivable of $1,519,000. Both of these increases are attributable to
concerts canceled during the third quarter of 2009. Accounts
receivable totaling $963,000 were collected during October 2009. At
September 30, 2009 current liabilities were $1,645,000 compared to $1,014,000 at
December 31, 2008. Current liabilities increased at September 30, 2009 compared
to December 31, 2008 primarily due to deferred revenues and unclaimed customer
refunds totaling $600,000 related to concerts canceled during the third quarter
of 2009.
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 and
the early part of 2010 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 cash on hand,
accounts receivable, and management's continued exploration of 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.
|
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.
|
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 September 30, 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 September 30, 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 September 30,
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 third 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.
Changes
in Internal Control Over Financial Reporting
There was
no change in our internal control over financial reporting during the quarter
ended September 30, 2009 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.
PART II - OTHER
INFORMATION
|
LEGAL
PROCEEDINGS
|
|
|
None.
|
|
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
|
|
|
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
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
|
PAID,
INC.
|
||
|
Registrant
|
||
|
Date:
November 9,
2009
|
/s/
Gregory Rotman
|
|
|
Gregory
Rotman, President
|
||
|
Date:
November 9,
2009
|
/s/
Richard Rotman
|
|
|
Richard
Rotman, Chief Financial Officer, Vice President and
Secretary
|
LIST OF
EXHIBITS
|
Exhibit No.
|
Description
|
|
|
CEO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
||
|
CFO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
||
|
CEO
and CFO Certification required under Section 906 of Sarbanes-Oxley Act of
2002
|
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