PAID INC - Quarter Report: 2010 March (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2010
COMMISSION
FILE NUMBER 0-28720
PAID,
INC.
(Exact
Name of Registrant as Specified in its Charter)
|
DELAWARE
|
73-1479833
|
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
4
Brussels Street, Worcester, Massachusetts 01610
(Address
of Principal Executive Offices) (Zip Code)
(508)
791-6710
(Registrant’s
Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
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):
|
Large
accelerated filer o
|
Accelerated
Filer x
|
|
Non-accelerated
filer o
|
Smaller
reporting company o
|
(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
As of May
7, 2010, the issuer had outstanding 271,312,583 shares of its Common Stock,
par value $.001 per share.
Paid, Inc.
Form
10-Q
For
the Three Months ended March 31, 2010
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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7-14
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Item
2.
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15
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Item
3.
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18
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Item
4.
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19
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Part
II – Other Information
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Item
1.
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20
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Item
1A.
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20
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Item
2.
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20
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Item
3.
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20
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Item
4.
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20
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Item
5.
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20
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Item
6.
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20
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21
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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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March
31,
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December
31,
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|||||||
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ASSETS
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2010
|
2009
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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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Cash
and cash equivalents
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$ | 908,194 | 730,433 | |||||
|
Accounts
receivable, net
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351,578 | 622,145 | ||||||
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Inventories,
net
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1,063,916 | 1,042,700 | ||||||
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Prepaid
expenses and other current assets
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791,839 | 518,722 | ||||||
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Due
from employees
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20,788 | 19,640 | ||||||
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Total
current assets
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3,136,315 | 2,933,640 | ||||||
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Property
and equipment, net
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50,475 | 40,517 | ||||||
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Intangible
asset, net
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8,713 | 8,948 | ||||||
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Total
assets
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$ | 3,195,503 | $ | 2,983,105 | ||||
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LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
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Current
liabilities:
|
||||||||
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Accounts
payable
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$ | 347,019 | $ | 159,716 | ||||
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Accrued
expenses
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647,616 | 592,350 | ||||||
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Deferred
revenues
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401,579 | 190,753 | ||||||
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Total
current liabilities
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1,396,214 | 942,819 | ||||||
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Commitments
and contingencies (Note 7)
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- | - | ||||||
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Shareholders'
equity:
|
||||||||
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Common
stock, $.001 par value, 350,000,000 shares authorized; 271,078,336 and
268,174,642 shares issued and outstanding at March 31, 2010 and December
31, 2009, respectively
|
271,079 | 268,175 | ||||||
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Additional
paid-in capital
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41,880,154 | 41,370,985 | ||||||
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Accumulated
deficit
|
(40,311,944 | ) | (39,528,874 | ) | ||||
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Stock
subscription receivable
|
(40,000 | ) | (70,000 | ) | ||||
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Total
shareholders' equity
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1,799,289 | 2,040,286 | ||||||
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Total
liabilities and shareholders' equity
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$ | 3,195,503 | $ | 2,983,105 | ||||
See
accompanying notes to financial statements
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PAID, INC.
|
||||||||
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STATEMENTS
OF OPERATIONS
|
||||||||
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THREE
MONTHS ENDED MARCH 31,
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||||||||
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(Unaudited)
|
||||||||
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2010
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2009
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|||||||
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Revenues
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1,078,084 | 326,866 | ||||||
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Cost
of revenues
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577,547 | 137,149 | ||||||
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Gross
profit
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500,537 | 189,717 | ||||||
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Selling,
general, and administrative expenses
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1,283,648 | 1,026,028 | ||||||
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Loss
from operations
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(783,111 | ) | (836,311 | ) | ||||
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Other
income (expense):
|
||||||||
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Interest
expense
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- | (2,500 | ) | |||||
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Other
income
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41 | 4 | ||||||
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Total
other income (expense), net
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41 | (2,496 | ) | |||||
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Loss
before income taxes
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(783,070 | ) | (838,807 | ) | ||||
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Provision
for income taxes
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- | - | ||||||
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Net
loss
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$ | (783,070 | ) | $ | (838,807 | ) | ||
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Loss
per share - basic and diluted
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$ | (0.00 | ) | $ | (0.00 | ) | ||
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Weighted
average shares - basic and diluted
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269,918,897 | 252,826,173 | ||||||
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 THREE MONTHS ENDED MARCH 31,
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||||||||
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(Unaudited)
|
||||||||
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2010
|
2009
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|||||||
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Operating
activities:
|
||||||||
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Net
loss
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$ | (783,070 | ) | $ | (838,807 | ) | ||
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Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||
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Depreciation
and amortization
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5,846 | 4,723 | ||||||
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Share
based compensation
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113,000 | 113,000 | ||||||
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Amortization
of debt discount
|
||||||||
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Fair
value of stock options awarded to professionals and consultants in payment
of fees for services provided
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199,077 | 450,286 | ||||||
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Fair
value of stock options awarded to employees in payment of
compensation
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117,996 | - | ||||||
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Services
received in consideration of payment of stock subscription
receivable
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30,000 | - | ||||||
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Changes
in assets and liabilities:
|
||||||||
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Accounts
receivable
|
270,567 | (26,519 | ) | |||||
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Inventories
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(21,216 | ) | (7,741 | ) | ||||
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Prepaid
expense and other current assets
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(274,265 | ) | (68,349 | ) | ||||
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Accounts
payable
|
187,303 | 128,809 | ||||||
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Accrued
expenses
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55,266 | 18,231 | ||||||
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Deferred
revenue
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210,826 | 131,150 | ||||||
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Net
cash provided by (used in) operating activities
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111,330 | (95,217 | ) | |||||
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Investing
activities:
|
||||||||
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Property
and equipment additions
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(15,569 | ) | - | |||||
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Financing
activities:
|
||||||||
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Net
proceeds of notes and loans payable
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- | 47,500 | ||||||
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Proceeds
from exercise of stock options
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82,000 | - | ||||||
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Net
cash provided by financing activities
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82,000 | 47,500 | ||||||
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Net
increase (decrease)in cash and cash equivalents
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177,761 | (47,717 | ) | |||||
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Cash
and cash equivalents, beginning
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730,433 | 106,948 | ||||||
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Cash
and cash equivalents, ending
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$ | 908,194 | $ | 59,231 | ||||
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SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
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||||||||
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Cash
paid during the period for:
|
||||||||
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Income
taxes
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$ | - | $ | - | ||||
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Interest
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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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FOR
THE THREE MONTHS ENDED MARCH 31, 2010
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||||||||||||||||||||||||
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(Unaudited)
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||||||||||||||||||||||||
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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, 2009
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268,174,642 | $ | 268,175 | $ | 41,370,985 | $ | (39,528,874 | ) | $ | (70,000 | ) | $ | 2,040,286 | |||||||||||
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Issuance
of common stock pursuant to exercise of stock options granted to employees
for services
|
328,304 | 328 | 117,668 | - | - | 117,996 | ||||||||||||||||||
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Issuance
of common stock pursuant to exercise of stock options granted to
professionals and consultants
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575,390 | 576 | 198,501 | - | - | 199,077 | ||||||||||||||||||
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Share
based compensation related to issuance of incentive stock
options
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- | - | 113,000 | - | - | 113,000 | ||||||||||||||||||
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Services
received in consideration of payment of stock subscription
receivable
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- | - | - | - | 30,000 | 30,000 | ||||||||||||||||||
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Options
exercised
|
2,000,000 | 2,000 | 80,000 | - | - | 82,000 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (783,070 | ) | - | (783,070 | ) | ||||||||||||||||
|
Balance,
March 31, 2010
|
271,078,336 | $ | 271,079 | $ | 41,880,154 | $ | (40,311,944 | ) | $ | (40,000 | ) | $ | 1,799,289 | |||||||||||
See
accompanying notes to financial statements
PAID, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2010 AND 2009
Note
1. Organization and Significant Accounting Policies
Paid,
Inc. (the “Company”) provides businesses and clients with brand management,
brand marketing, product merchandising, website design, development, and hosting
and authentication services for the entertainment, sports and collectible
industries. We offer businesses, entertainers, and celebrity athletes
comprehensive web-presence related services supporting and managing clients'
official websites and fan-community services including VIP ticketing, live event
fan experiences, e-commerce, user generated content, client content publishing
and distribution, fan forums, social network management and social media
marketing.
General
The
Company has prepared the financial statements pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements and should be read in
conjunction with the Company's audited financial statements included in the
Annual Report on Form 10-K for the year ended December 31, 2009 that was filed
on March 12, 2010.
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 2010.
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, 2009. 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 the remainder of 2010 from its
celebrity services products and websites, and similar services to other
entities; including memberships, fan experiences and ticketing, 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. In addition, management
continues to explore opportunities to monetize its patent. However,
there can be no assurance that anticipated touring activity will occur, and that
the Company will be successful in monetizing its patent. Management continues to
seek alternative sources of capital to support operations. Finally, world
economic conditions, in particular those in the United States, may impact sales
of fan experiences and the availability of financing.
Cash
and cash equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories
consist of merchandise for sale and are stated at the lower of average cost or
market determined on a first-in, first-out (FIFO) method. When a purchase
contains multiple copies of the same item, they are stated at average
cost.
On a
periodic basis management reviews inventories on hand to ascertain if any is
slow moving or obsolete. In connection with this review, at both March 31, 2010
and December 31, 2009 the Company provided for reserves totaling
$587,000.
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
development and 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.
Web
hosting revenues are billed to customers and recognized on a monthly basis as
the services are provided.
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 $71,400 and $30,200 during the
three months ended March 31, 2010 and 2009, respectively, are reported as a
component of selling, general and administrative expenses.
Advertising
costs
Advertising
costs, totaling approximately $4,800 in 2010 and $7,200 in 2009 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
71% and 65% of the Company's revenues for 2010 and 2009 were generated from fan
experiences and sales of merchandise related to a limited number of performing
artists.
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 25,877,625 and 32,914,625 shares at March 31, 2010 and 2009,
respectively, have been excluded from the computation of diluted earnings per
share because they were anti-dilutive. Diluted earnings per share have not been
presented as a result of the Company’s net loss for each year.
Recent
Accounting Pronouncements
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," and is effective for revenue
arrangements entered into, or materially modified, after June 15, 2010. The
Company has not yet determined whether adoption of these new provisions of ASC
605 will have a material impact on its financial statements.
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 $7,287 and $7,052 at
March 31, 2010 and December 31, 2009, respectively.
Amortization
expense of intangible assets for each of the three months ended March 31, 2010
and 2009 was $235.
Estimated
future annual amortization expense is $940 for each year through
2019.
Note
3. Accrued Expenses
Accrued
expenses are comprised of the following:
|
March 31,
2010
|
December 31,
2009
|
|||||||
|
Payroll
and related costs
|
88,674 | 179,605 | ||||||
|
Professional
and consulting fees
|
180,429 | 186,064 | ||||||
|
Commissions
|
325,866 | 184,519 | ||||||
|
Other
|
52,647 | 42,162 | ||||||
| $ | 647,616 | $ | 592,350 | |||||
Note
4. Common Stock
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 remainder of 2009 the investor provided
consulting services valued at $50,000. The unused portion of the consulting
services ($40,000 and $70,000, respectively) is included in stock subscription
receivable at March 31, 2010 and December 31, 2009.
During
the second and third quarters of 2008, in connection with $1,100,000 of short
term notes payable, the Company granted warrants for 1,100,000 shares of common
stock exercisable at $.25 per share. If not exercised these warrants expire at
various dates between April and August 2011.
Share-based
Incentive Plans
At March
31, 2010, the Company had two 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 March 31, 2010 there were
3,000,000 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. Information with respect to stock options granted under
the above plan is as follows:
|
Number of shares
|
Weighted
average exercise price per
share
|
|||||||
|
Options
outstanding at December 31, 2009
|
25,250,000 | $ | .115 | |||||
|
Options
exercised
|
(2,000,000 | ) | $ | .041 | ||||
|
Options
outstanding at March 31, 2010
|
23,250,000 | $ | .121 | |||||
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
120,000,000 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, 2009
|
2,023,612 | $ | .001 | |||||
|
Granted
|
903,694 | $ | .001 | |||||
|
Exercised
|
(903,694 | ) | $ | .001 | ||||
|
Options
outstanding at March 31, 2010
|
2,023,612 | $ | .001 | |||||
A summary
of the awards under this plan during the three months ended March 31 is as
follows:
|
Number
of
Shares
|
Gross
Compensation
|
|||||||||||
|
2010
|
||||||||||||
|
Employee
payroll
|
328,304 | $ | 117,996 | |||||||||
|
Consulting
and professional fees
|
575,390 | 199,077 | ||||||||||
|
Total
|
903,694 | $ | 317,073 | |||||||||
| 2009 | ||||||||||||
|
Consulting
and professional fees
|
3,154,950 | $ | 450,286 | |||||||||
The
maximum number of shares currently reserved for issuance is 11,186,696 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:
|
2010
|
2009
|
||
|
Expected
term (based upon historical experience)
|
<1
week
|
<1
week
|
|
|
Expected
volatility
|
106.61%
|
208.60%
|
|
|
Expected
dividends
|
None
|
None
|
|
|
Risk
free interest rate
|
3.7%
|
2.8%
|
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 gross
compensation was determined to be immaterial and no related additional share
based compensation has been recorded.
All but
5,000,000 options outstanding at March 31, 2010 are fully vested and
exercisable. Information pertaining to options outstanding at March 31, 2010 is
as follows:
Options
Outstanding
|
Exercise Prices
|
Number
of Shares
|
Weighted
Average Remaining Contractual
Life
|
Aggregate
Intrinsic
Value
|
||||||||||
| $.001 | 2,023,612 | 8.50 | $ | 706,240 | |||||||||
| .041 | 18,250,000 | 2.50 | 5,639,250 | ||||||||||
| .415 | 5,000,000 | 7.75 | -- | ||||||||||
| 25,273,612 | |||||||||||||
The total
intrinsic value of options exercised during the three months ended March 31,
2010 under all plans was $955,072 ($638,000 under the 2002 Plan and $317,072
under the 2001 Plan)in exchange for $82,000 of cash.
Note
5. Income Taxes
There was
no provision for income taxes for the three months ended March 31, 2010 and 2009
due to the Company's net operating loss and its valuation reserve against
deferred income taxes.
The
difference between the provision for income taxes using amounts computed by
applying the statutory federal income tax rate of 34% and the Company's
effective tax rate is due primarily to the net operating losses incurred by the
Company and the valuation reserve against the Company's deferred tax
asset.
The tax
effects of significant temporary differences and carry forwards that give rise
to deferred taxes are as follows:
|
March
31,
2010
|
December
31,
2009
|
|||||||
|
Federal
net operating loss carry forwards
|
$ | 10,773,000 | $ | 10,568,000 | ||||
|
State
net operating loss carry forwards
|
1,378,000 | 1,311,000 | ||||||
| 12,151,000 | 11,879,000 | |||||||
|
Valuation
allowance
|
(12,151,000 | ) | (11,879,000 | ) | ||||
|
Net
deferred tax asset
|
$ | -- | $ | -- | ||||
The
valuation reserve applicable to net deferred tax asset at March 31, 2010 and
December 31, 2009 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 2006-2009
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 three months ended March 31, 2010 and
2009.
At March
31, 2010, the Company has federal and state net operating loss carry forwards of
approximately $33,100,000 and $14,489,000, respectively, available to offset
future taxable income. The state carry-forwards will expire intermittently
through 2014, while the federal carry forwards will expire intermittently
through 2029.
Note
6. Related party transactions
Steven
Rotman is the father, and Leslie Rotman is the mother, of Gregory Rotman,
President of the Company, and Richard Rotman, Vice President/Secretary, and
former CFO of the Company. The Company entered into a number of transactions
over the past two years with both Steven Rotman and Leslie Rotman. Management
believes that these transactions are fair and reasonable to the Company and no
less favorable than could have been obtained by an unaffiliated third
party.
The
Company pays rent, as a tenant at will, to a company in which Steven Rotman is a
shareholder. Monthly payments under this arrangement are $2,600.
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 March 31, 2010, 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.
|
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 Item 1A, "Risk Factors", in the Company's Form 10K for the fiscal
year ended December 31, 2009 that was filed on March 12, 2010.
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 brand management, brand
marketing, product merchandising, development, and hosting and authentication
services for the entertainment, sports and collectible industries. We
offer businesses, entertainers, and celebrity athletes comprehensive
web-presence related services supporting and managing clients' official websites
and fan-community services including VIP ticketing, live event fan experiences,
e-commerce, user generated content, client content publishing and distribution,
fan forums, social network management and social media marketing. We also
provide business management tools for online retailers, through AuctionInc,
which utilizes our patented shipping calculator and automated auction checkout
and order processing system. Operations are directly affected by the
number and type of clients to whom we provide
services. Performing artists that tour have the potential to generate
larger amounts of revenue than clients that do not tour, and the revenue
potential of celebrity athletes is dependent upon their
performance.
Critical
Accounting Policies
Our
significant accounting policies are more fully described in Note 3 to our
financial statements included in our Form 10-K filed on March 12, 2010. 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. A
substantial portion of the Company's inventories is comprised of
movie posters for which valuation is more subjective than with more
standard inventories. The balance is comprised of merchandise and collectibles
that relate to performing artists. 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.
Results
of Operations
The
following discussion compares the Company's results of operations for the three
months ended March 31, 2010 with those for the three months ended March 31,
2009. 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
The
following table compares total revenue for the periods indicated.
|
Three
Months Ended March 31,
|
||||||||||||
|
2010
|
2009
|
%
Change
|
||||||||||
|
Online
Merchandise and fulfillment
|
$ | 509,800 | $ | 300,600 | 70 | % | ||||||
|
Film
and video services
|
106,500 | 26,300 | 305 | % | ||||||||
|
Tour
merchandise and VIP services
|
461,800 | -- | -- | |||||||||
|
Total
revenues
|
$ | 1,078,100 | $ | 326,900 | 230 | % | ||||||
Celebrity
services revenues for the first quarter of 2010 increased $751,200 or 230% to
$1,078,100 compared to revenues of $326,900 for the first quarter of
2009. The online merchandise and fulfillment revenues increased
$209,200 or 70% to $509,800 in the first quarter of 2010, as compared to
$300,600 in the first quarter of 2009. The increase was primarily
attributed to an increase in the number of clients using our online merchandise
and fulfillment services. Revenues associated with film and video
services increased $80,200 or 305% in the first quarter of 2010, compared to
$26,300 in the first quarter of 2009. The increase was primarily due
to the completion of several projects from both new and existing
customers. Revenues from tour merchandise and VIP services were
$461,800 in the first quarter of 2010. There were no such revenues
for the first quarter in 2009. The increase in tour merchandise and
VIP services revenues is primarily due to an earlier tour cycle for both new and
existing clients. 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 will continue to tour during the second and third
quarters of 2010, and another has announced a tour that is scheduled to begin
during the second quarter.
Gross Profit
Gross
profit for the first quarter of 2010 increased by 310,800, or 164%, to $500,500
compared to gross profit of $189,700 for the first quarter of
2009. $148,800 of the increase in gross profit is related to the
increase in revenues from tour merchandise and VIP services discussed
above. $162,000 of the increase gross margin is attributable to the
increase in Film and video services and Online merchandise and fullfillment
revenues. Gross margin percentage decreased to 46% in the first
quarter of 2010, from 58% for the first quarter of 2009. This
decrease is primarily the result of lower gross profit margins in tour
merchandise and VIP service revenues compared to those generated in other
revenue sources.
Operating
Expenses
Total
operating expenses for the first quarter of 2010 were $1,284,000, compared to
$1,026,000 for the same period in 2009, an increase of $258,000 or
25%. The increase in operating costs was attributable to the addition
of personnel and the use of outside consultants. The additional
personnel were needed to support the growth in revenues. These
operating expense increases, were offset by a decrease in insurance and computer
related expenses.
Net Loss
The
Company realized a net loss in the first quarter of $783,000, as compared to a
net loss of $838,800 for the same period in 2009. The losses for the
first quarter 2010 and 2009 each represent less than $0.01 per
share.
Assets
At March
31, 2010, total assets of the Company were $3,195,000 compared to $2,983,000 at
December 31, 2009.
Operating
Cash Flows
A summarized reconciliation of the
Company's net loss to cash provided by (used in) operating activities for the
three months ended March 31 is as follows:
|
2010
|
2009
|
|||||||
|
Net
loss
|
$ | (783,100 | ) | $ | (838,800 | ) | ||
|
Depreciation
and amortization
|
5,800 | 4,700 | ||||||
|
Share
based compensation
|
113,000 | 113,000 | ||||||
|
Fair
value of stock options awarded in payment of outside services and
compensation
|
317,100 | 450,300 | ||||||
|
Services
provided in consideration of stock subscription receivable
|
30,000 | -- | ||||||
|
Deferred
revenues
|
210,800 | 131,200 | ||||||
|
Changes
in current assets and liabilities
|
217,700 | 44,400 | ||||||
|
Net
cash provided by (used in) operating activities
|
$ | 111,300 | $ | ( 95,200 | ) | |||
Working
Capital and Liquidity
The
Company had cash and cash equivalents of $908,200 at March 31, 2010, compared to
$730,400 at December 31, 2009. The Company had approximately $1,740,000 of
working capital at March 31, 2010 compared to $1,991,000 at December 31,
2009. At March 31, 2010 current liabilities were $1,396,000 compared
to $943,000 at December 31, 2009. Current liabilities increased at March 31,
2010 compared to December 31, 2009 primarily due to extending payments of
accounts payable and accrued expenses, and deferred revenues.
The
Company's independent registered public accounting firm has issued a going
concern opinion on the Company's financial statements for the year ended
December 31, 2009. 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 2010 from its
celebrity services products and websites, and similar services to other
entities; including memberships, fan experiences and ticketing, 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. In addition, management
continues to explore opportunities to monetize its patent. However,
there can be no assurance that anticipated touring activity will occur, and that
the Company will be successful in monetizing its patent. Management continues to
seek alternative sources of capital to support operations. Finally,
world economic conditions, in particular those in the United States, may impact
sales of fan experiences and the availability of financing.
|
ITEM 3.
|
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
Market
Risk
Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency rates, interest rates, and other relevant market rates or price
changes. In the ordinary course of business, the Company is exposed
to market risk resulting from changes in foreign currency exchange rates, and
the Company regularly evaluates its exposure to such changes. The
Company’s overall risk management strategy seeks to balance the magnitude of the
exposure and the costs and availability of appropriate financial
instruments.
Impact
of Inflation and Changing Prices
Historically,
our business has not been materially impacted by inflation. We price and provide
our service within a short time frame.
Foreign
Currency Fluctuation
Our
revenue is primarily denominated in U.S. dollars. Therefore, we are not
directly affected by foreign exchange fluctuations. However,
fluctuations in foreign exchange rates may have an effect on merchandise sales
for concerts occurring outside the U.S. We do not believe that
foreign exchange fluctuations will materially affect our results of
operations.
Seasonality
Our
revenue is subject to seasonality and fluctuations during the year primarily
related to artist touring activities. More outdoor venues are
available during May through September. In addition, the timing of
tours for top-grossing acts could impact comparability of quarterly results year
over year.
|
ITEM 4.
|
CONTROLS AND
PROCEDURES
|
Evaluation of Disclosure Controls and
Procedures
The Company’s management, including the
President of the Company, as its principal executive officer, and the Chief
Financial Officer of the Company, as its principal financial officer, has
evaluated the effectiveness of the Company’s “disclosure controls and
procedures,” as such term is defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based
upon this evaluation, the President and Chief Financial Officer concluded that,
as of March 31, 2010, 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
remaining material weaknesses in internal control over financial
reporting. We identified three weaknesses with respect to entity
level controls: (1) lack of corporate governance; (2) ineffective
control environment; and (3) lack of segregation of duties. We
identified two weaknesses with respect to activity level
controls: (1) Lack of procedures and control documentation; and (2)
lack of information technology controls and documentation. Because of
these material weaknesses, we concluded that, as of March 31, 2010 our internal
control over financial reporting was not effective based on the criteria
outlined in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Accordingly, we have also
concluded that our disclosure controls and procedures were not effective as of
March 31, 2010.
We intend to implement procedures and
controls throughout 2010 to remediate the remaining material weaknesses at the
entity and activity levels, and to review further our procedures and controls.
We have not remediated any of the material weaknesses during the first quarter
of 2010 other than what was described previously in our Annual Report on Form
10-K for the year ended December 31, 2009 that was filed on March 12,
2010. 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 March 31, 2010 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
PART II -
OTHER INFORMATION
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
There have been no material
developments with respect to any previously reported legal
proceedings.
|
ITEM 1A.
|
RISK
FACTORS
|
There are no material changes for the
risk factors previously disclosed on Form 10-K for the year ended December 31,
2009.
|
ITEM 2.
|
UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF
PROCEEDS
|
None.
|
ITEM 3.
|
DEFAULTS UPON SENIOR
SECURITIES
|
None.
|
ITEM 4.
|
(REMOVED AND
RESERVED)
|
|
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
|
|
|
/s/ Gregory Rotman
|
|
|
Date:
May 10,
2010
|
|
|
Gregory
Rotman, President
|
|
|
/s/ Christopher Culross
|
|
|
Date:
May 10,
2010
|
|
|
Christopher
Culross, Chief Financial Officer and
Treasurer
|
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
|
- 22 -