UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
COMMISSION FILE NUMBER 0-28720
PAID, INC.
(Exact Name of Small Business Issuer as specified in its Charter)
DELAWARE 73-1479833
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
4 Brussels Street, Worcester, Massachusetts 01610
(Address of principal executive offices)
(508) 791-6710
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
As of May 9, 2006, the issuer had outstanding 203,862,080 shares of its
Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format
Yes |_| No |X|
Paid, Inc.
and Subsidiary
Form 10-QSB
For the Three Months ended March 31, 2006
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2006 and December 31, 2005 (unaudited)..................3
Consolidated Statements of Operations
Three months ended March 31, 2006 and
2005 (unaudited)..................................................4
Consolidated Statements of Cash Flows
Three months ended March 31, 2006 and
2005 (unaudited)..................................................5
Consolidated Statements of Changes in Shareholders' Deficit
Three months ended March 31, 2006
(unaudited).......................................................6
Notes to Consolidated Financial Statements
Three months ended March 31, 2006 and 2005........................7-13
Item 2. Management's Discussion and Analysis or
Plan of Operation......................................................13
Item 3. Controls and Procedures................................................17
Part II - Other Information
Item 1. Legal Proceedings......................................................17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...........17
Item 3. Defaults Upon Senior Securities........................................17
Item 4. Submission of Matters to a Vote of Security Holders....................17
Item 5. Other Information .....................................................18
Item 6. Exhibits ..............................................................18
Signatures........................................................................19
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAID, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2006 2005
---- ----
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 408,855 $ 1,502,987
Accounts receivable 192,682 72,317
Inventories, net 1,343,778 1,364,248
Investment in call options 276,250 300,625
Deferred expenses 261,349 556,250
Prepaid expenses 60,358 67,981
Due from employees 70,103 66,558
Other current assets 9,073 9,073
------------ ------------
Total current assets 2,622,448 3,940,039
Property and equipment, net 282,881 256,244
Other intangible assets, net 26,191 33,290
------------ ------------
Total assets $ 2,931,520 $ 4,229,573
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 130,000 $ 130,000
Accounts payable 316,631 275,336
Accrued expenses 1,154,837 1,077,081
Customer refunds payable 748,685 --
Deferred revenues 220,654 2,305,278
------------ ------------
Total current liabilities 2,570,807 3,787,695
------------ ------------
Long term liabilities:
Convertible debt 1,150,000 1,150,000
------------ ------------
Shareholders' deficit:
Common stock, $.001 par value, 350,000,000 shares
authorized; 201,675,377 and 200,405,555 shares
issued and outstanding at March 31, 2006 and
December 31, 2005, respectively 201,676 200,406
Additional paid-in capital 25,769,863 25,575,959
Accumulated deficit (26,760,826) (26,484,487)
------------ ------------
Total shareholders' deficit (789,287) (708,122)
------------ ------------
Total liabilities and shareholders' deficit $ 2,931,520 $ 4,229,573
============ ============
See accompanying notes to consolidated financial statements
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PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2006 2005
---- ----
Revenues $ 2,806,841 $ 859,653
Cost of revenues 1,951,495 527,509
------------- -------------
Gross profit 855,346 332,144
------------- -------------
Operating expenses:
Selling, general, and administrative expenses 946,230 1,105,390
Website development costs 134,400 111,901
------------- -------------
Total operating expenses 1,080,630 1,217,291
------------- -------------
Loss from operations (225,284) (885,147)
------------- -------------
Other income (expense):
Interest expense (26,683) (93,789)
Loss on call options (24,375) --
Other income 3 1
------------- -------------
Total other expense, net (51,055) (93,788)
------------- -------------
Loss before income taxes (276,339) (978,935)
Provision for income taxes -- --
------------- -------------
Net loss $ (276,339) $ (978,935)
============= =============
Loss per share (basic and diluted) $ (0.00) $ (0.01)
============= =============
Weighted average shares 198,844,439 174,303,402
============= =============
See accompanying notes to consolidated financial statements
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PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2006 2005
---- ----
Operating activities:
Net loss $ (276,339) $ (978,935)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 36,917 229,551
Amortization of unearned compensation -- 15,000
Beneficial conversion feature -- 30,062
Loss on call options 24,375 --
Common stock issued in payment of professional
and consulting fees 148,828 282,222
Issuance of common stock pursuant to exercise of
stock options granted to employees for services 46,346 94,430
Common stock issued in payment of interest -- 8,000
Changes in assets and liabilities:
Accounts receivable (120,365) 11,384
Inventories 20,470 17,032
Deferred expenses 294,901 --
Prepaid expense and other current assets 4,079 81,669
Accounts payable 41,295 53,627
Accrued expenses 77,757 52,154
Customer refunds payable 748,685 --
Deferred revenue (2,084,624) --
------------ ------------
Net cash used in operating activities (1,037,675) (103,804)
------------ ------------
Investing activities:
Property and equipment additions (56,457) (89,179)
------------ ------------
Financing activities:
Proceeds from sale of warrants -- 50,000
Proceeds from sale of common stock -- 30,000
Proceeds from assignment of call options -- 99,610
Proceeds from exercise of stock options -- 136
------------ ------------
Net cash provided by financing activities -- 179,746
------------ ------------
Net decrease in cash and cash equivalents (1,094,132) (13,237)
Cash and cash equivalents, beginning 1,502,987 43,558
------------ ------------
Cash and cash equivalents, ending $ 408,855 $ 30,321
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ -- $ --
============ ============
Interest $ 2,473 $ --
============ ============
See accompanying notes to consolidated financial statements
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PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2006
(Unaudited)
Common stock Additional
--------------------------- Paid-in Accumulated
Shares Amount Capital deficit Total
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2005 200,405,555 $ 200,406 $ 25,575,959 $(26,484,487) $ (708,122)
Issuance of common stock pursuant to exercise of stock
options granted to employees for services 262,226 262 46,084 -- 46,346
Common stock issued in payment of
professional and consulting fees 1,007,596 1,008 147,820 -- 148,828
Net loss -- -- -- (276,339) (276,339)
------------ ------------ ------------ ------------ ------------
Balance, March 31, 2006 201,675,377 $ 201,676 $ 25,769,863 $(26,760,826) $ (789,287)
============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements
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PAID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2006 AND 2005
Note 1. Organization
Paid, Inc. and subsidiary (the "Company") provides businesses and clients with
marketing, management, merchandising, auction management, website hosting, and
authentication and consignment services for the entertainment, sports and
collectibles industries. The Company also provides other services for
celebrities and sports personalities including autograph signings, appearances,
marketing opportunities and event ticketing. The Company continues to sell
sports collectibles and merchandise through a variety of outlets, including
online auctions and wholesale and distribution outlets.
General
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the United States Securities
and Exchange Commission for interim financial reporting and include all
adjustments (consisting only of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation). These financial
statements have not been audited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to rules
and regulations for interim reporting. The Company believes that the disclosures
contained herein are adequate to make the information presented not misleading.
However, these financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
for the year ended December 31, 2005, which are included in the Company's Form
10-KSB.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of Paid,
Inc. and its wholly-owned subsidiary, Rotman Collectibles, Inc. All
inter-company balances and transactions have been eliminated.
Inventories
Inventories consist of collectible merchandise for sale and are stated at the
lower of average cost or market on a first-in, first-out (FIFO) method. When a
purchase contains multiple copies of the same item, they are stated at average
cost.
On a periodic basis management reviews inventories on hand to ascertain if any
is slow moving or obsolete. In connection with this review, at both March 31,
2006 and December 31, 2005 the Company has provided for reserves totaling
$50,000.
Investment in call options
The Company accounts for investment in call options in accordance with EITF
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services".
Accordingly, call options are recorded at fair value, determined by the closing
price of the Company's common stock, on the date they are received and adjusted
to fair value at
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the balance sheet date. Any realized or unrealized gains or losses are recorded
in other income (expense).
Revenue Recognition
The Company generates revenue from sales of fan experiences, from fan club
membership fees, on sales of its purchased inventories, from fees and
commissions on sales of merchandise under consignment type arrangements, from
web hosting services, from appraisal services and from advertising and
promotional services.
Fan experiences sales include tickets and related experiences at concerts and
other events conducted by performing artists. Revenues associated with these fan
experiences are reported gross, rather than net, following the criteria of EITF
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent", and are
deferred until the related event has been concluded, at which time the revenues
and related direct costs are recognized.
Fan club membership fees are recognized when the member joins and all direct
costs associated with the membership have been incurred.
For sales of merchandise owned and warehoused by the Company, the Company is
responsible for conducting the auction, billing the customer, shipping the
merchandise to the customer, processing customer returns and collecting accounts
receivable. The Company recognizes revenue upon verification of the credit card
transaction and shipment of the merchandise, discharging all obligations of the
Company with respect to the transaction.
For sales of merchandise under consignment-type arrangements, the Company takes
physical possession of the merchandise, but is not obligated to, and does not
take title or ownership of merchandise. When an auction is completed, consigned
merchandise that has been sold is shipped upon receipt of payment. The Company
recognizes the net commission and service revenues relating to the consigned
merchandise upon receipt of the gross sales proceeds and shipment of the
merchandise. The Company then releases the net sales proceeds to the Consignor,
discharging all obligations of the Company with respect to the transaction.
The Company provides web hosting services under two types of arrangements.
Revenue is recognized on a monthly basis as the services are provided for those
where payment is to be received in cash. Professional athletes' web sites are
hosted under arrangements that are settled by the athlete providing a certain
number of autographs on merchandise to be sold by the Company. Revenue related
to player websites is recognized upon sale of the autographed merchandise.
Appraisal revenues are recognized when the appraisal is delivered to the
customer.
Advertising revenues are recognized at the time the advertisement is initially
displayed on the Company's web site. Sponsorship revenues are recognized at the
time that the related event is conducted.
Advertising Costs
Advertising costs totaling approximately $33,400 in 2006 and $43,000 in 2005,
are charged to expense when incurred.
- 8 -
Earnings Per Common Share
Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
Potential common shares that may be issued by the Company relate to convertible
debt and outstanding stock options and warrants. The number of common shares
that would be issued upon conversion of the convertible debt would have been
9,274,194 as of March 31, 2006 and 16,666,667 as of March 31, 2005. 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 27,165,054 shares and
27,465,054 shares at March 31, 2006 and 2005, respectively, have been excluded
from the computation of diluted earnings per share, as have the common shares
that would be issued upon conversion of the convertible debt, because they were
antidilutive. Diluted earnings per share have not been presented as a result of
the Company's net loss for each period.
Website Development Costs
The Company accounts for website development costs in accordance with the
provisions of EITF 00-2, "Accounting for Web Site Development Costs" ("EITF
00-2"), which requires that costs incurred in planning, maintaining, and
operating stages that do not add functionality to the site be charged to
operations as incurred. External costs incurred in the site application and
infrastructure development stage and graphic development are capitalized. Such
capitalized costs are included in "Property and equipment." During the three
months ended March 31, 2006 the Company capitalized approximately $49,500 of
website development costs. During the three months ended March 31, 2005 the
Company capitalized approximately $87,000 of website development costs.
Share based Compensation
Effective January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) 123R, Share-Based Payment, which
establishes accounting for equity instruments exchanged for employee services.
Under the provisions of SFAS 123(R), share-based compensation cost is measured
at the grant date, based on the fair value of the award, and is recognized as an
expense over the employee's requisite service period (generally the vesting
period of the equity grant). Prior to January 1, 2006, the Company accounted for
share-based compensation to employees in accordance with Accounting Principles
Board (APB) Opinion No. 25, Accounting for stock issued to Employees, and
related interpretations. The Company also followed the disclosure requirements
of SFAS 123, Accounting for Stock-Based Compensation. The Company elected to
adopt the modified prospective transition method as provided by SFAS 123(R) and,
accordingly, financial statement amounts for the prior periods presented in the
Form 10-QSB have not been restated to reflect the fair value method of expensing
share-based compensation.
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.
- 9 -
At the date of adoption, there were no unvested options outstanding and no
options were granted during the quarter ended March 31, 2006. Consequently,
there was no share-based compensation expense recorded during the quarter ended
March 31, 2006.
The Company did not recognize compensation expense for employee stock option
grants for the three months ended March 31, 2005, since the Company had
previously adopted the provisions of SFAS 123, through disclosure only. The
following illustrates the effects on net income and earnings per share for the
three months ended March 31, 2005 as if the Company had applied the fair value
recognition provisions of SFAS 123 to share-based employee awards.
Net loss as reported $ (978,935)
Share based compensation as recorded
(net of any related income tax effects) 15,000
Share based compensation expense determined
Under the fair value method (net of any
Related income tax effects) (15,000)
----------
Proforma net income $ (978,935)
==========
Note 2. Notes Payable
At March 31, 2006 and December 31, 2005, the Company was obligated on short-term
notes payable totaling $130,000, of which $80,000 was to a related party. The
related party notes bear interest at 8%, while the remainder bear interest at
10%. All of this short-term debt was due on demand. Interest expense charged to
operations during the three months ended March 31, 2006 and 2005 in connection
with the related party notes totaled $1,600 and $2,600, respectively.
Note 3. Accrued Expenses
Accrued expenses are comprised of the following:
March 31, December 31,
2006 2005
---- ----
Interest $ 196,700 $ 172,490
Payroll and related costs 213,819 204,280
Professional and Consulting fees 171,725 134,411
Consignments 172,782 172,782
Due to K Sports 62,500 62,500
Commissions 300,000 300,000
Other 37,311 30,618
----------- -----------
$ 1,154,837 $ 1,077,081
=========== ===========
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Note 4. Common Stock
Call Option Agreements
In connection with a settlement agreement with CSEI, the Company was granted
call options for 2,283,565 unregistered common shares held by CSEI at an
exercise price of $.001 per share.
During January 2005 the remaining 394,565 options were assigned in exchange for
approximately $100,000. The proceeds from the assignment of these options were
added to the paid in capital of the Company.
On May 9, 2005, the Company entered into a Settlement Agreement and Mutual
Release with Leslie Rotman ("Seller") to settle all outstanding disputes
regarding the value paid and the value received in the 2001 transaction in which
Seller, Rotman Collectibles, Inc., and the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement"), pursuant to which Rotman Collectibles,
Inc., a Massachusetts corporation, was merged into the Company's Delaware
subsidiary, now named Rotman Collectibles, Inc. Seller is the mother of Gregory
Rotman, President of the Company, and Richard Rotman, CFO/Vice
President/Secretary of the Company. To settle any possible differences or
disputes between the value paid and the value received, Seller delivered
2,000,000 shares of the Company's common stock into escrow, with a fair market
value of $600,000 based on the closing bid price of $.30 on May 6, 2005 (as set
forth in the Settlement Agreement and Mutual Release) and granted the Company an
option to purchase the shares for $.001 per share. The options are assignable by
the Company and were modified on March 31, 2006 to expire two years from the
date of grant. At March 31, 2006, 1,625,000 call options remain outstanding.
Stock Options and Warrants
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
70,000,000 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.
During the three months ended March 31, 2006 the Company granted options for
1,269,822 shares at various dates aggregating $193,904 under this plan. During
the three months ended March 31, 2005 the Company granted options for 1,697,771
shares at various dates aggregating $344,652 under this plan. All options
granted during these periods were exercised.
Share-based Incentive Plan
At March 31, 2006, the Company had stock option plans that include both
incentive stock options and non-statutory stock options to be granted to certain
eligible employees, non-employee directors, or consultants of the Company. The
maximum number of shares currently reserved for issuance is 31,000,000 shares.
The options granted have ten-year contractual terms and vest either immediately
or annually over a five-year term.
At March 31, 2006, there were 5,874,000 shares available for future grants under
the above stock option plans. The weighted average exercise price of options
outstanding was $0.045 at March 31, 2006.
The following table presents the average price and contractual life information
about options outstanding and exercisable at March 31, 2006:
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Weighted Average
Remaining
Number of Contractual Life Options Currently
Exercise Price Outstanding Shares (years) Exercisable
-------------- ------------------ ------- -----------
$ .81 9,000 3.50 9,000
1.62 57,000 3.25 57,000
.001 99,054 8.75 99,054
.041 25,000,000 6.75 25,000,000
The aggregated intrinsic value of options outstanding and vested at March 31,
2006 was $3,241,740.
Note 5. Income Taxes
There was no provision for income taxes for the three months ended March 31,
2006 and 2005 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 loss incurred by the
Company and the valuation reserve against the Company's deferred tax asset.
The tax effects of temporary differences and carry forwards that give rise to
deferred taxes are as follows:
At March 31, 2006, the Company has federal and state net operating loss carry
forwards of approximately $20,000,000 and $16,000,000, respectively, available
to offset future taxable income. The state carry-forwards will expire
intermittently through 2011, while the federal carry forwards will expire
intermittently through 2026.
Note 6. Convertible Debt Financing
As of March 31, 2006 the Company has outstanding $1,150,000 of convertible debt.
On March 23, 2000, the Company entered into a Securities Purchase Agreement (the
"Agreement"), whereby the Company sold an 8% convertible note in the amount of
$3,000,000 (the "Series A Note"), due in shares of common stock on March 31,
2002 to Augustine Fund, L.P. ("Buyer"). As of March 31, 2005 this note has been
paid in full through a series of conversions to common stock. During the three
months ended March 31, 2005 the Company received conversion requests for the
remaining $251,892 balance into 1,412,942 common shares at prices ranging from
$.149 to $.213 per share. During 2004, 2003, and 2002 $2,748,108, had been
converted into 25,314,096 shares of the Company's common stock at conversion
prices ranging from $.028 to $.375 per share.
The Company entered into a second Loan Agreement, most recently modified in
October 2005, whereby it issued an 8% convertible note in the amount of
$2,250,000, due November 7, 2006 (the "Series B Note") to Buyer. The Series B
Note is convertible into common stock at a conversion price equal to the lesser
of: (1) $.25 per share, or (2) seventy-three percent (73%) of the average of the
closing bid price for the common stock for the five (5) trading days immediately
preceding the conversion date. Based upon advances through March 31, 2005
totaling $2,250,000, had the Buyer converted the Series B Note at issuance,
Buyer would have received $3,082,193 in aggregate value of the Company's common
stock upon conversion of the convertible note. As a result, in accordance with
EITF 00-27, the intrinsic value of the beneficial conversion feature of $832,193
was charged to interest expense over the original two
- 12 -
year term of the related note. The entire beneficial conversion feature was
charged to operations as of December 31, 2005. The beneficial conversion feature
that was charged to interest expense during the three months ended March 31,
2005 totaled $30,062. The total beneficial conversion discount related to this
note was recorded as an increase in additional paid in capital and the
unamortized portion as a reduction in the related note.
Note 7. Concentrations
For the three months ended March 31, 2006 approximately 94% of the Company's
revenue was derived from the sale of fan experiences and merchandise related to
a major performing artist that was touring. The tour concluded in late March
2006.
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
Overview
Our innovative products and services are utilized in celebrity services,
ticketing, fan experiences, merchandising, online auctions and management, and
web site development. Our celebrity services proprietary content management
system provides an opportunity for our clients to offer more information,
merchandise and experiences to their customers and communities. This proprietary
system uses the AuctionInc. shipping calculator tools to provide improved
customer service and fulfillment services. The technology is based on our
patent-pending process that streamlines back-office and shipping processes for
online auctions and e-commerce. Our new celebrity services offer athletes,
entertainers and other celebrities official web sites and fan-club services
including e-commerce storefronts, articles, polls, message boards, contests,
biographies and custom features to attract tens of thousands of visitors daily.
Our autograph signing events, working in conjunction with our new sports agent
marketing services, have created more services and opportunities for our sports
clientele.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 to our
financial statements. However, certain of our accounting policies are
particularly important to the portrayal of our financial position and results of
operations and require the application of significant judgment by our
management; as a result, they are subject to an inherent degree of uncertainty.
In applying these policies, our management makes estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosures. Those estimates and judgments are based upon our historical
experience, the terms of existing contracts, our observance of trends in the
industry, information that we obtain from our customers and outside sources, and
on various other assumptions that we believe to be reasonable and appropriate
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Our critical accounting
policies include:
Inventories: Inventories are stated at the lower of average cost or market on a
first-in, first-out method. On a periodic basis we review inventories on hand to
ascertain if any is slow moving or obsolete. In connection with this review, we
establish reserves based upon management's experience and assessment of current
product demand.
Property and Equipment and Intangible Assets: Property and equipment and
intangible assets are stated at cost. Depreciation and amortization are computed
over estimated useful lives that are reviewed periodically. In connection with
this review we consider changes in the economic environment,
- 13 -
technological advances, and management's assessment of future revenue potential
and a review of the estimated useful lives of the various assets.
Results of Operations
The following discussion compares the Company's results of operations for the
three months ended March 31, 2006 with those for the three months ended March
31, 2005. The Company's financial statements and notes thereto included
elsewhere in this quarterly report contain detailed information that should be
referred to in conjunction with the following discussion.
Revenues. For the three months ended March 31, 2006, revenues were $2,806,800,
94% of which was attributable to sales of fan club memberships, merchandise, and
fan experiences related to the tour of a major performing artist which ended in
March 2006. Sales of the Company's own product and fees from buyers and sellers
through the Rotman Auction operations represented 2% of revenues, and sports
marketing revenues represented 3% of revenues. Gross sales of the Company's own
product were $48,800. Fan experience, Fan club membership and related
merchandise sales revenues were $2,645,400, and sports marketing revenues were
$89,100. Advertising and web hosting fees were $23,500, less than 1% of gross
revenues, during the three months ended March 31, 2006. Management anticipates
continued increases from fan club memberships, merchandise, and fan experiences
from tours, products and services related to several other performing artists
during the remainder of 2006.
The Company's first quarter 2006 revenues represent an increase of approximately
$1,947,200, or 225%, from the first quarter of 2005, in which revenue was
$859,700. For the three months ended March 31, 2005, sales of the Company's
product were $467,100, or 54% of gross sales, fan club membership and related
merchandise sales revenues were $268,000, 31% of gross revenues, sports
marketing revenues were $121,100, or 14% of gross revenues, and advertising and
web hosting fees were $3,500, or less than 1% of gross revenues.
The reason for the increase in revenues was a $2,377,400 increase related to the
tour by a major performing artist which concluded during the first quarter of
2006, offset by lower revenues related to sports marketing services of $32,000
and lower sales of Company owned product of approximately $418,300 from the same
period in 2005. Gross profit from Company owned product sales for the three
months ended March 31, 2006 was approximately $11,300, $98,100 less than in
2005. Since gross margin percentages on Company owned product were substantially
the same in both 2006 and 2005 and sales of Company owned product were $418,300
lower in the three months ended March 31, 2006, the Company produced $98,100
lower gross margin dollars in 2006. The decrease in sales and gross profit
margin is attributable to a management decision late in 2005 to streamline sales
channels for Company owned product and, in turn, terminating sales on eBAY, in
an effort to reduce related overhead.
Operating Expenses. Total operating expenses for the three months ended March
31, 2006 were $1,080,600, compared to $1,217,300 for the corresponding period in
2005, a decrease of $136,700.
Sales, general and administrative ("SG&A") expenses for the three months ended
March 31, 2006 were $946,200, compared to $1,105,400 for the three months ended
March 31, 2005. The decrease of $159,200 in SG&A costs includes decreases in
payroll and related costs of $51,800, depreciation and amortization of $210,400
as certain assets became fully depreciated during 2006 and 2005, and
professional fees of $75,900, offset by increases in travel of $41,300, credit
card commissions of $27,400, and postage and shipping costs of $41,900. The
travel, credit card commissions and postage and shipping increases are all
principally attributable to the tour of a major performing artist.
Costs associated with planning, maintaining and operating our web sites for the
three months ended March 31, 2006 increased by $22,500 from 2005. This increase
is due primarily to an increase in
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depreciation and amortization of $17,800. In addition, during the three months
ended March 31, 2006 the Company capitalized $49,500 of website development
costs, while during the comparable 2005 period the Company capitalized $87,000.
Interest Expense. For the three months ended March 31, 2006, the Company
incurred interest charges of approximately $26,700 principally associated with
convertible debt, compared to interest charges of $93,800 for the corresponding
period in 2005, a decrease of $67,100. $36,900 of the decrease is attributable
to lower balances of interest-bearing debt in 2006 and $30,100 to lower
amortization of beneficial conversion features.
Net Loss. The Company realized a net loss for the three months ended March 31,
2006 of $276,300 compared to a loss of $978,900 for the three months ended March
31, 2005. Losses in both years represented less than $.01 per share.
Inflation. The Company believes that inflation has not had a material effect on
its results of operations.
Assets
At March 31, 2006, total assets of the Company were $2,931,500 compared to
$4,229,600 at December 31, 2005. The decrease was primarily due lower cash and
deferred expenses of $1,389,000 associated with the conclusion of entertainment
events held during the first quarter of 2006. The Company also reports a
$1,335,900 lower related liabilities, in the form of deferred revenues and
customer refunds payable, at March 31, 2006 than at December 31, 2005.
Operating Cash Flows
A summarized reconciliation of the Company's net losses to cash used in
operating activities for the three months ended March 31, 2006 and 2005 is as
follows:
2006 2005
---- ----
Net loss $ (276,300) $ (978,900)
Depreciation and amortization
Amortization of beneficial conversion 36,900 229,600
Discount and debt discount 30,100
Common stock issued in payment
of services 195,200 376,700
Net current assets and liabilities
associated with advance ticketing (1,041,000) --
Call Options 24,400 --
Changes in current assets (23,100) 238,700
and liabilities -- --
Net cash used in
operating activities $(1,037,700) $ (103,800)
=========== ===========
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Working Capital and Liquidity
The Company had cash and cash equivalents of $408,900 at March 31, 2006,
compared to $1,503,000 at December 31, 2005. The Company had $51,600 of working
capital at March 31, 2006 compared to $152,300 at December 31, 2005. At March
31, 2006 current liabilities were $2,570,800 compared to $3,787,700 at December
31, 2005. Current liabilities decreased at March 31, 2006 compared to December
31, 2005 primarily due to the decrease in deferred revenues of $2,084,600 and an
increase in customer refunds payable of $748,700 associated with the
cancellation of a major performing artist's tour late in the first quarter of
2006 and fewer scheduled future events for other artists.
As discussed in greater detail in Note 6 to the Financial Statements, the
Company has outstanding a convertible note held by Augustine Fund, L.P. The
Series B Note has a principal amount outstanding as of March 31, 2006 of
$1,150,000.
The Company's independent auditors have issued a going concern opinion on the
Company's consolidated financial statements for the year ended December 31,
2005. 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 in 2006 from its celebrity services products and
websites, and similar services to other entities; including memberships, fan
experiences and ticketing, appearances, website development and hosting, and
merchandise sales from both existing and new clients. In addition, "AuctionInc"
which hosts a suite of management tools and enhanced shipping calculator
solutions for small ecommerce enterprises, sales of movie posters, both from
inventory and on consignment, and web hosting are expected to increase revenues
and result in higher total gross profit. Subject to the discussion below,
management believes that the Company has sufficient cash commitments to fund
operations during the next 12 months. These commitments include call options for
approximately 1,625,000 shares of common stock, which, once assigned by the
Company, can generate between $168,000 and $527,000 (based solely upon the 52
week high and low closing prices of the Company's common stock) of cash.
However, there can be no assurance that assignment of the call options can be
concluded on reasonably acceptable terms. If assignments are not made,
management may need to seek alternative sources of capital to support
operations.
Forward Looking Statements
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
(within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934) regarding the Company and its business,
financial condition, results of operations and prospects. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions or variations of such words are intended to identify
forward-looking statements in this report. Additionally, statements concerning
future matters such as the development of new services, technology enhancements,
purchase of equipment, credit arrangements, possible changes in legislation and
other statements regarding matters that are not historical are forward-looking
statements.
Although forward-looking statements in this quarterly report reflect the good
faith judgment of the Company's management, such statements can only be based on
facts and factors currently known by the Company. Consequently, forward-looking
statements are inherently subject to risks, contingencies and uncertainties, and
actual results and outcomes may differ materially from results and outcomes
discussed in this report. Although the Company believes that its plans,
intentions and expectations reflected in these forward-looking statements are
reasonable, the Company can give no assurance that its plans, intentions or
expectations will be achieved. For a more complete discussion of these risk
factors, see Exhibit 99, "Risk Factors", in the Company's Form 10-KSB for the
fiscal year ended December 31, 2005.
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For example, the Company's ability to achieve positive cash flow and to become
profitable may be adversely affected as a result of a number of factors that
could thwart its efforts. These factors include the Company's inability to
successfully implement the Company's business and revenue model, tour or event
cancellations, higher costs than anticipated, the Company's inability to sell
its products and services to a sufficient number of customers, the introduction
of competing products by others, the Company's failure to attract sufficient
interest in and traffic to its sites, the Company's inability to complete
development of its sites, the failure of the Company's operating systems, and
the Company's inability to increase its revenues as rapidly as anticipated. If
the Company is not profitable in the future, it will not be able to continue its
business operations.
ITEM 3. CONTROLS AND PROCEDURES
The Company's management, including the President of the Company and the Chief
Financial Officer of the Company, has evaluated the effectiveness of the
Company's "disclosure controls and procedures," as such term is defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Based upon their evaluation, the principal executive officer
and principal financial officer concluded that, as of the end of the period
covered by this report, the Company's disclosure controls and procedures were
effective for the purpose of ensuring that the information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act with the Securities and Exchange Commission is recorded, processed,
summarized and reported within the time period specified by the Securities and
Exchange Commission's rules and forms, and is accumulated and communicated to
the Company's management, including its principal executive and financial
officers, as appropriate to allow timely decisions regarding required
disclosure.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) As of March 31, 2006 the Company has outstanding $1,150,000 of debt
outstanding on its 8% convertible note issued by the Company in the original
principal amount of $2,250,000 to the Augustine Fund, L.P. on November 7, 2001.
For the three months ended March 31, 2006, the Company did not issue any shares
of its common stock to Augustine Fund, L.P., for principal or interest on this
convertible note.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
10.1 Amendment No. 1 to Settlement Agreement and Mutual Release,
between the Company and Leslie Rotman, dated March 31, 2006.
31.1 CEO Certification required under Section 302 of Sarbanes-Oxley
Act of 2002
31.2 CFO Certification required under Section 302 of Sarbanes-Oxley
Act of 2002
32 CEO and CFO Certification required under Section 906 of
Sarbanes-Oxley Act of 2002
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In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 15, 2006 PAID, INC.
Registrant
/s/ Gregory Rotman
------------------------------------
Gregory Rotman, President
/s/ Richard Rotman
----------------------------------------
Richard Rotman, Chief Financial Officer,
Vice President and Secretary
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LIST OF EXHIBITS
Exhibit No. Description
----------- -----------
10.1 Amendment No. 1 to Settlement Agreement and Mutual Release,
between the Company and Leslie Rotman, dated March 31, 2006.
31.1 CEO Certification required under Section 302 of Sarbanes-Oxley
Act of 2002
31.2 CFO Certification required under Section 302 of Sarbanes-Oxley
Act of 2002
32 CEO and CFO Certification required under Section 906 of
Sarbanes-Oxley Act of 2002
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