UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2007
Commission File No. 0-28720
PAID, INC.
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(Name of Small Business Issuer in its Charter)
Delaware 73-1479833
--------------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
4 Brussels Street, Worcester, Massachusetts 01610
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(Address of Principal Executive Offices)(Zip Code)
(508) 791-6710
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(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
------------------------------
(Title of Class)
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ]
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
State Issuer's revenues for its most recent fiscal year: $3,383,294.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates on March 21, 2008 was approximately $49,112,928 based upon the
closing price of $.23 per share on March 20, 2008.
As of March 21, 2008, the issuer had outstanding 235,525,700 shares of its
Common Stock, par value of $0.001, its only class of voting securities.
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Annual Report except those
Exhibits so incorporated as set forth in the Exhibit Index.
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Description of Business .................................. 2
Item 2. Description of Property .................................. 8
Item 3. Legal Proceedings ........................................ 8
Item 4. Submission of Matters to a Vote of Security Holders ...... 8
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and
Small Business Issuer Purchases of Equity Securities ..... 8
Item 6. Management's Discussion and Analysis or Plan of
Operation ................................................ 10
Item 7. Financial Statements ..................................... 13
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure ...................... 14
Item 8A(T). Controls and Procedures .................................. 14
Item 8B. Other Information ........................................ 15
PART III
Item 9. Directors, Executive Officers, Promoters, Control Persons
and Corporate Governance; Compliance with Section 16(a) of
the Exchange Act ......................................... 15
Item 10. Executive Compensation ................................... 17
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters ............... 18
Item 12. Certain Relationships and Related Transactions, and
Director Independence .................................... 19
Item 13. Exhibits ................................................. 20
Item 14. Principal Accountant Fees and Services ................... 21
Signatures .......................................................... 22
1
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB (including without limitation the Risk
Factors included as Exhibit 99) may contain forward looking statements. We
caution you to be aware of the speculative nature of "forward-looking
statements". Statements that are not historical in nature, including the words
"anticipate," "estimate," "should," "expect," "believe," "intend," and similar
expressions, are intended to identify forward-looking statements. Although these
statements reflect our good faith belief based on current expectations,
estimates and projections about (among other things) the industry and the
markets in which we operate, they are not guarantees of future performance.
Whether actual results will conform to our expectations and predictions is
subject to a number of known and unknown risks and uncertainties, including the
risks and uncertainties discussed in this Annual Report; general economic,
market, or business conditions; the opportunities that may be presented to and
pursued by us; competitive actions by other companies; changes in laws or
regulations; and other circumstances, many of which are beyond our control.
Consequently, all of the forward-looking statements made in this Annual Report
are qualified by these cautionary statements and there can be no assurance that
the actual results anticipated by us will be realized or, even if substantially
realized, that they will have the expected consequences to, or effects on, us or
our business or operations. Except as required by applicable laws, we do not
intend to publish updates or revisions of any forward-looking statements we make
to reflect new information, future events or otherwise. Readers are urged to
review carefully and to consider the various disclosures made by Paid, Inc. in
this Annual Report, which attempts to advise interested parties of the risks and
factors that may affect our business, financial condition, results of operations
and prospects.
PART I.
Item 1. Description of Business.
Paid, Inc. (the "Company") was incorporated in Delaware as Rose
International Ltd. on August 9, 1995. The Company's main web address is located
at www.paid.com, which offers updated information on various aspects of our
operations. Information contained in the Company's website shall not be deemed
to be a part of this Annual Report. The Company's principal executive offices
are located at 4 Brussels Street, Worcester, Massachusetts 01610, and the
Company's telephone number is (508) 791-6710.
BUSINESS
Our Business
The Company's primary focus is to provide businesses and clients with
marketing, management, merchandising, auction management, website hosting, and
authentication services for the entertainment, sports and collectible
industries. We offer entertainers and athletes official web sites and fan-club
services including e-commerce, VIP ticketing, fan club management, fan
experiences, storefronts, articles, polls, message boards, contests, biographies
and custom features. We also sell merchandise for celebrities, through official
fan websites, on tour or at retail. Our celebrity services proprietary content
management system provides an opportunity for our clients to offer more
information, merchandise and experiences to their customers and communities. We
provide business management tools for online retailers, through AuctionInc,
which is home to our patented shipping calculator and automated auction checkout
and order processing system. This system provides the fundamental structure for
our celebrity web hosting and development services, and for individuals seeking
a professional and interactive presence on the Internet.
2
All the sales for our celebrity and entertainment services, other than
retail and tour merchandising, are made through the artist's personal website
and Paid's proprietary content managed system. A customer interested in a
membership, merchandise, fan experience or ticketing would use our system to
make purchases, and then depending on the sale, the Company either ships the
merchandise, or delivers the fan experience at a concert or other event. The
services offered by a client depend upon the client's desire and willingness to
offer different initiatives. Not all artists and fan bases are the same and the
Company works closely with its different clients to cater to their needs. Our
services also include video production, marketing, management, sponsorship,
mobile marketing, and website development and management. We provide these
services for artists such as Aerosmith, Rockapella, The New Cars, Keith
Lockhart, Joey Kramer, DMC, Patti LaBelle, Deep Purple and Return to Forever.
Other revenue in 2007 was derived primarily from sales of collectibles,
and fees from buyers and sellers and sports marketing revenues. The sale of
collectibles occurs in various sales channels; retail, online auction, charity
auction, online direct sale, and wholesale distribution. Our merchandise consist
of sports and non-sports cards, collectibles, Americana, autographed items, and
movie memorabilia, among other types of collectibles from the 1800s to the
present day. We also maintain a substantial inventory of memorabilia with
popular and historical significance which allows customers to directly purchase
the memorabilia without the competition from bidders in an auction format. We
acquire inventory in the ordinary course of our business from a number of
companies and individuals. We also may acquire inventory through acquisition of
companies that own collectibles, or through the acquisition of substantially all
the assets of a company that holds collectibles.
To assist with the inventory management and order processing the Company
uses the AuctionInc platform for reducing order processing time, increasing
sales and improving customer service. The AuctionInc system was originally
designed to assist and improve just the Company's sales, but management realized
that there was a need for an order management system for individuals and
businesses that sell on the Internet, specifically at auction. In 2000 the
Company's technology team focused its attention on the core fundamental piece of
the system called the Shipping Calculator. The Company realized the potential
importance of the calculator and filed for a patent before launching it to the
public in April of 2001. The Company obtained a patent on the shipping
calculator in January 2008. The product is modular based and continues to
develop new tools and products for its customers.
AuctionInc Software. AuctionInc is a suite of online management tools
assisting businesses with e-commerce storefronts, order processing, customer
service, shipping solutions, inventory management, and auction processing. The
application was designed originally to reduce overhead costs for auction sales,
but based on its marketability the Company began to offer the application to
other sellers in 2003. A seller's use of the application reduces overhead and
labor costs, and through its customer-friendly setup improves customer relations
and increases sales.
AIship is a shipping calculator that automatically estimates the shipping,
sales tax, and insurance on auction listings. This module automatically
calculates shipping costs, carrier insurance fees, optional shipping services,
and offers an adjustable shipping fee markup, and co-branded shipping calculator
page. It pre-configures shipping rates with handling costs, and provides a
multiple auctions tab to calculate shipping on numerous auctions. The Company
receives a transaction fee for each auction listing that uses AIship.
AIseller is an auction management tool used to streamline a seller's order
processing for improved customer service and higher sales. This module is
designed for sellers who are selling more than 50 items per month at online
auctions. It offers summary and detail order and sales reporting, auction/sales
tracking, automated personalized e-mail notifications, auction re-listing
reports, a complete integrated order management system, a customer checkout
system, as well as automatic shipping rates
3
and sales tax calculations for consolidating multiple auctions. The Company does
not actively market this product, but would receive a transaction fee for each
listing at auction that uses AIseller.
PaidShipCalc is a shipping calculator that provides the most comprehensive
shipping calculations available today. A customer can use this tool anywhere on
the Internet, including its website, web store, or even classified listing.
Shoppers can then choose from the shipping methods that the customer offers
along with the ability to combine shipping, include your flexible handling
charges, and calculate insurance and taxes if necessary.
PaidShopCart provides website and e-commerce store owners a fully
functional shopping cart with shipping calculations from all the major carriers.
We have designed the Paid ShopCart with a customer's needs in mind; an
affordable, simple, easy to use cart that is feature heavy and an enhanced
replacement for the carts being utilized today. This Paypal integrated shopping
cart can be inserted into any web page by just pasting in just a few lines of
HTML. It provides accurate rates for 25 domestic shipping services from USPS,
UPS, FedEx, and DHL, and is configurable to match with a customer's web site
design.
Paid Inc's Global Module is a direct plug into the PaidShopCart and
PaidShipCalc. This module is used to add comparative international rate
calculations to your PaidShopCart or PaidShipCalc products.
Paid's Shipping API provides e-Tailers and businesses the ability to
integrate a shipping rating, comparison, and packaging engine into existing
websites or applications. We provide developers access to a pre-built software
module using a well defined data structure and subroutine calls. The shipping
API enhances shipping calculation functionality with a quick and easy
integration into existing products.
Interested clients may purchase any and all of our tools or applications
for a flat quarterly fee and/or per-transaction fee depending on the module
chosen. The Company may add more features and modules to the suite to enable it
to grow with sellers and continue to provide them superior online selling tools.
Web Hosting and Development. The Company provides web hosting and
development for various clients that pay monthly hosting fees and maintenance
fees for updates. This service also uses the core AuctionInc platform for
maintaining web portals and storefronts systems. The Company also maintains
several corporate websites which it hopes to continue to expand and grow.
Through improved customer awareness and a larger customer base we hope these
websites will continue to grow and offer a revenue source to the Company. These
websites provide minimal revenue to the Company, but offer awareness and
advertising opportunities for the Company's other products.
Industry Background
Growth of the Internet and the Web
The Internet enables millions of people worldwide to share information,
communicate and conduct business electronically. The growth in the number of Web
users is being driven by the increasing importance of the Internet as a
communications medium, an information resource, and a sales and distribution
channel. The Internet has also evolved into a unique marketing channel. Unlike
the traditional marketing channels, Internet retailers do not have many of the
overhead costs borne by traditional retailers. The Internet offers the
opportunity to create a large, geographically dispersed customer base more
quickly than traditional retailers. The Internet also offers customers a broader
selection of goods to purchase, provides sellers the opportunity to sell their
goods more efficiently to a broader base of buyers and allows business
transactions to occur at all hours.
4
State of Viral Communities on the Internet
The massive growth of online communities over the past decade has reached
viral proportions. Internet communities are built revolving around ideas, music,
individuals, artists, writers, or any tangible or intangible entity, and new
content can be distributed within minutes of exposure. Artists can announce
tours or other news, sell premium tickets to fan club members, sell merchandise,
and other fan experiences. Viral communities and viral marketing are a
phenomenon that web users are embracing with vigor. As traffic and communities
continue to grow, more services will be required to sustain the appetite of
these users.
Business Strategy
During 2007 we experienced continued expansion of our celebrity
web-hosting and fan club and membership programs. We believe there will be an
increase in online communities that will create an opportunity for more
celebrity web-hosting and fan club services. It is our view that our services
and programs will become more desirable as these communities grow. Our
proprietary system was built to handle news, events, ticketing, fan experiences,
e-commerce, authentication, charity auctions, chat, video editing, music
streaming, mobile services, downloads and forums.
Our goal for our celebrity services is to build the best communication and
quality services that provide unparalleled opportunities for viral communities,
celebrities and their fans. This goal can be accomplished by implementing the
following strategy:
o Increase the number of celebrity services clients and programs we offer to
capitalize on internet communities. Provide high quality services and
continued impeccable customer and fulfillment services building on our
solid reputation.
o Expand into new services being offered that will generate larger
partnerships and marketing opportunities for our clients.
o Shift to a quarterly billing system on AuctionInc, reducing the initial
fee but increasing the number of renewal receivables.
o Increase the general awareness of our Shipping Calculators and continuing
to offer cutting edge technology and services in the industry.
o Offer more authentication services increasing our distribution and
partnerships and limited costs and overhead associated with this service.
o Increase our web hosting services, charging a one time set up fee plus
monthly maintenance fees, and an hourly fee for any design or feature
enhancements we make;
We expect the above plan will enable us to increase our celebrity services
and offer a wider variety of management services providing more resources for a
sales and a marketing campaign to promote the Company.
The business strategy described above is intended to enhance our
opportunities in the online e-commerce market. However, there are a number of
factors that may impact our plans and inhibit our success. See "Risk Factors"
included as Exhibit 99. Therefore, we have no guarantees and can provide no
assurances, that our plans will be successful.
5
Marketing and Sales
Successful branding of our corporate identity and services is the key to
our success. We changed our name to Paid, Inc. at the end of 2003 and have
consolidated our websites and brands under one internet presence.
Promoting and marketing Paid's celebrity services will continue by using
various mediums of marketing; "adword" campaigns, traditional print methods, and
industry trade shows. However, as our celebrity services continue to gain
exposure, we have had substantial opportunity to grow our business through
referrals. Networking and referral business is a large portion of sales and
marketing for these types of services. As we market and promote our celebrity
services, we also will be supporting our proprietary content management system
and our shipping calculator products.
The Company will continue to market AuctionInc throughout 2008. In the
past, representatives of the Company attended trade shows, events and
conferences to analyze the potential for AuctionInc and to narrow the Company's
marketing base. Based on experience with existing partnerships that promote
AuctionInc, the Company believes that creating partnerships is an effective
marketing tool to promote and encourage new registrations. The Company will
continue to seek new partnerships. The Company may promote the AuctionInc
product line in trade publications to reach small and midsize companies.
Although we believe that this marketing strategy, if successful, will lead
to increased revenues, and attract more users to our site, we have no
commitments that our marketing will be successful or our sales will increase.
There are a number of factors that may impact our plans and inhibit our success.
See "Risk Factors" described in Exhibit 99. Therefore, we have no guarantees and
can provide no assurances that our plans will be successful.
Revenue Sources
In 2007, 93% of our revenues were derived from our celebrity services, fan
club management, and ticketing and fan experiences. We also generated retail
revenues from the sale of autographed merchandise and collectibles. Adding to
these revenues were marketing opportunities for athletes and celebrity clients.
As additional services, we currently provide web hosting services. To
date, we have generated minimal revenues from these services, but if the
awareness of the AuctionInc product line increases, we will be able to increase
our advertising and marketing efforts, which we expect will generate revenue and
may attract more visitors that will utilize these services on our site. In
addition to web hosting, we expect to increase revenues through the development
and design of third party websites.
Although we expect that this revenue model will generate increased
revenue, if we are not successful in implementing this model, if the
entertainment industry and fans do not accept the services we provide, if costs
are higher than anticipated, or if revenues do not increase as rapidly as
anticipated, we may not be able to continue positive cash flow. There are a
number of factors that may impact our plans and inhibit our success. See "Risk
Factors" included as Exhibit 99. Therefore, we have no guarantees and can
provide no assurances, that our plans will be successful.
Competition
Electronic content management, fan club membership and fan experiences and
ticketing services, are relatively new and growing industries. This industry has
several hurdles for new companies; building a strong reputation, proficient
operational skills in customer service and fulfillment, and gaining a client
base. While these are big hurdles and present a strong barrier to entry, they
are not insurmountable. There are several competitors in this industry like Live
Nation, Music Today, UltraStar, and FanAsylum, each of whom offer unique
solutions and services. There are other indirect competitors who deal in just
merchandising or electronic memberships, but these companies serve a different
customer base.
6
The electronic commerce market is relatively new, rapidly evolving and
intensely competitive. Furthermore, we expect competition to intensify in the
future. Barriers to entry are relatively low, and current and new competitors
can launch new sites at relatively low cost using commercially available
software.
There can be no assurance that we can maintain our competitive position
against potential competitors, especially those with greater financial,
marketing, customer support, technical and other resources than us. Increased
competition is likely to result in reduced operating margins, loss of market
share and a diminished brand franchise, any one of which could materially and
adversely affect our business, results of operations and financial condition.
Intellectual Property
Our web hosting software program, AuctionInc software suite, is
proprietary. We received a patent related to AIShip in January 2008. We do not
have any other patents for our designs or innovations and we may not be able to
obtain copyright, patent or other protection for our proprietary technologies or
for the processes developed by our employees. Legal standards relating to
intellectual property rights in computer software are still developing and this
area of the law is evolving with new technologies. Our intellectual property
rights do not guarantee any competitive advantage and may not sufficiently
protect us against competitors with similar technology. To protect our interest
in our intellectual property, we restrict access by others to our proprietary
software. In addition, we have federally registered the "Paid" marks.
We believe that our products and other proprietary rights do not infringe
on the proprietary rights of third parties. However, there can be no assurance
that third parties will not assert infringement claims against us in the future
with respect to current or future products or other works of ours. This
assertion may require us to enter into royalty arrangements or result in costly
litigation.
We also utilize free open-source technology in certain areas. Unlike
proprietary software, open-source software has publicly available source code
and can be copied, modified and distributed with minimal restrictions. Our
principal web servers' software is Apache, a free web server software. We are
using PHPShop for our e-commerce to provide highly customizable storefronts. In
addition to PHPShop we develop a substantial portion of our websites with the
language PHP.
Research and Development
Over the past 2 years the Company has not made additional investments in
research and development.
Employees
The Company currently employs 25 personnel, 20 of whom are employed full
time. We believe that our future success will depend in part on our continued
ability to attract, hire and retain qualified personnel.
Subsidiaries
Effective December 2007, the Company merged its only subsidiary, Rotman
Collectibles, Inc., into it. The Company currently has no subsidiaries.
Government Regulation
We are not currently subject to direct federal, state or local regulation,
and laws or regulations applicable to access or commerce on the Internet, other
than regulations applicable to businesses generally. However, due to the
increasing popularity and use of the Internet and other online services, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet or other online services covering issues such as user privacy,
freedom of expression, pricing, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.
7
Item 2. Description of Property.
Our corporate headquarters are located at 4 Brussels Street, Worcester,
Massachusetts 01610. Currently, we are tenants-at-will, and pay $2,600 monthly
in rent. We also have an office at 236 Huntington Avenue, Boston, 5th Floor, and
pay $5,822 monthly under a 5-year lease. The condition of our offices is
excellent. We do not invest in real estate or interests in real estate, real
estate mortgages, or securities of or interests in persons primarily engaged in
real estate activities, and we have no policies related to such investments.
Item 3. Legal Proceedings.
In Parshall v. Paid, Inc., Paul L. Parshall filed a lawsuit against the
Company in the Court of Common Pleas of Franklin County, Ohio on October 3,
2006. Mr. Parshall claims to be the owner of 423,415 shares represented by Stock
Certificate Number 01123. According to the Company's transfer agent, the
Company's stock records show that Stock Certificate Number 01123 was cancelled
on May 15, 1997. Mr. Parshall was affiliated with a previous transfer agent of
the Company. The Company filed a motion to dismiss based on lack of personal
jurisdiction through its Ohio counsel. The Court of Common Pleas granted the
Company's motion to dismiss on November 7, 2007. The order to dismiss is now on
appeal before the Ohio Court of Appeals, Tenth Appellate District, Franklin
County, Ohio. Mr. Parshall requests damages equal to the market value of the
shares and for any loss for not recognizing the shares. The Company disputes Mr.
Parshall's claims.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II.
Item 5. Market for Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity Securities.
Our common stock, par value $.001 per share, is presently traded on the
Over-the-Counter Bulletin Board ("OTCBB") under the symbol, "PAYD".
The following table sets forth the high and low bid prices, rounded to the
nearest penny, for our common stock as reported by OTCBB for the eight quarters
ended December 31, 2007. The quotations from the OTCBB reflect inter-dealer
prices without retail mark-up, mark-down, or commission and may not represent
actual transactions.
2006 High Low
---- ----
Quarter ended March 31, 2006 $.22 $.14
Quarter ended June 30, 2006 $.71 $.12
Quarter ended September 30, 2006 $.58 $.24
Quarter ended December 31, 2006 $.38 $.18
8
2007 High Low
---- ----
Quarter ended March 31, 2007 $.57 $.24
Quarter ended June 30, 2007 $.59 $.34
Quarter ended September 30, 2007 $.49 $.34
Quarter ended December 31, 2007 $.50 $.28
As of March 21, 2008, there were approximately 1,892 holders of record of
our common stock. Because many of the shares are held by brokers and other
institutions on behalf of stockholders, the Company is unable to estimate the
total number of individual stockholders represented by these holders of record.
We have not previously paid cash dividends on our common stock, and intend
to utilize current resources to operate the business; thus, it is not
anticipated that cash dividends will be paid on our common stock in the
foreseeable future.
Equity Compensation Plan Information
Number of Securities
Remaining Available For
Number of Securities Future Issuance Under
To be Issued Upon Weighted-Average Equity Compensation
Exercise of Exercise Price of Plans (Excluding
Outstanding Options, Outstanding Options, Securities Reflected in
Warrants and Rights Warrants and Rights Column (a))
(a) (b) (c)
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Equity Compensation Plans Approved by
Security Holders 24,000,000 $.041 5,000,000
Equity Compensation Plans Not Approved by
Security Holders 136,054 $.044 6,325,329
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Total 24,136,054 $.043 11,325,329
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Refer to Note 7, Notes to Consolidated Financial Statements for the Years ended
December 31, 2007 and 2006, incorporated by reference herein from Part II, Item
7, of this Annual Report, for a discussion of the material features of the stock
options, warrants and related stock plans.
We compensate a number of employees and consultants through stock option
grants under the Company's 2001 Non-Qualified Stock Option Plan. Ninety million
shares were registered under that plan since its inception in 2001. Typically,
shares are immediately exercised by the employee or consultant. In 2007,
employees received options for 778,044 shares equal to $224,964 in compensation,
and consultants and professionals received 6,663,479 shares equal to $1,510,010
in compensation. The Company recently discovered that issuances and, most
likely, sales of up to 2,633,194 shares under the 2001 Non-Qualified Stock
Option Plan were issued and likely sold prior to an amendment to the
registration being filed on Form S-8/A with the SEC on February 5, 2008. The
Company has filed a registration statement covering an additional 10,000,000
shares.
9
Item 6. Management's Discussion and Analysis or Plan of Operation.
Overview
Our primary focus is to provide businesses and clients with marketing,
management, merchandising, auction management, website hosting, and
authentication services for the entertainment, sports and collectible
industries. We offer entertainers and athletes official web sites and fan club
services including e-commerce, VIP ticketing, fan club management, fan
experiences, storefronts, articles, polls, message boards, contests, biographies
and custom features. We also sell merchandise for celebrities, through official
fan websites, on tour or at retail. Our celebrity services proprietary content
management system provides an opportunity for our clients to offer more
information, merchandise and experiences to their customers and communities. We
provide business management tools for online retailers, through AuctionInc,
which is home to our patented shipping calculator and automated auction checkout
and order processing system.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 3 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. The Company's inventories are comprised of merchandise and
collectibles that relates to performing artists and athletes and valuation of it
is more subjective than with more standard inventories. General economic
conditions, tour schedules of performing artists, and the reputation of the
performing artists/athletes, might make sale or disposition of these inventories
more or less difficult. Any increases in the reserves would cause a decline in
profitability, since such increases are recorded as charges against income.
Revenue recognition: Certain components of revenues are recognized based upon an
estimate of value since they are received in non-monetary transactions.
Management estimates the amount of revenue based upon its historical experience
in comparable cash transactions or its estimation of the value received,
whichever is more reliable in the circumstances. Variations in the reliability
of these judgments may result in enhancement or impairment of gross margins and
results of operations in future periods.
Results of Operations
The following discussion compares the Company's results of operations for the
year ended December 31, 2007 with those for the year ended December 31, 2006.
The Company's financial statements and notes
10
thereto included elsewhere in this annual report contain detailed information
that should be referred to in conjunction with the following discussion.
Revenues. For the year ended December 31, 2007, revenues were $3,383,000, 93% of
which was attributable to sales of fan club memberships, merchandise, and fan
experiences related to tours of performing artists. Sales of the Company's own
product and fees from buyers and sellers represented 6% of revenues, and sports
marketing revenues represented 1% of revenues. Gross sales of the Company's own
product were $175,000. Fan experience, fan club membership and related
merchandise sales revenues were $3,144,000, and sports marketing revenues were
$36,000. Other revenues were $28,000, less than 1% of gross revenues, during the
year ended December 31, 2007. Management anticipates increases from fan club
memberships, merchandise, and fan experiences from tours, products and services
related to several other performing artists during 2008. Performing artists
typically do not announce tour plans until two to four months in advance of the
first show. Several performing artists represented by the Company have announced
tours that are scheduled to begin during the third and/or fourth quarter of
2008.
The Company's 2007 revenues represent a decrease of approximately $4,666,000 or
58%, from 2006, when revenues were $8,049,000. For the year ended December 31,
2006, sales of the Company's product were $491,000 or 6% of gross sales, fan
club membership and related merchandise sales revenues were $7,278,000, 90% of
gross revenues, sports marketing revenues were $247,000, or 3% of gross
revenues, and other revenues were $33,000, or less than 1% of gross revenues.
The main reasons for the decrease in revenues was a $4,133,000 decrease related
to the tours of performing artists, lower revenues related to sports marketing
services of $212,000 and lower sales of Company owned product of approximately
$316,000 from the same period in 2006. Revenues related tours of performing
artists are dependent upon tour schedules, the popularity of the artist(s) on
tour, and whether the tour(s) are domestic or international. During 2006 a major
artist was touring domestically while in 2007 this artist was touring
internationally. Gross Profit from celebrity services for the years ended
December 31, 2007 and 2006 was approximately $1,209,000 and $2,273,000
respectively. Gross profit from Company owned product sales for the year ended
December 31, 2007 was approximately $94,000, $68,000 more than in 2006.
Operating Expenses. Total operating expenses for the year ended December 31,
2007 were $4,074,000 compared to $4,185,000 in 2006, a decrease of $111,000.
Sales, general and administrative ("SG&A") expenses for the year ended December
31, 2007 were $3,651,000, compared to $3,666,000 for the year ended December 31,
2006. The decrease of $15,000 in SG&A costs includes decreases in payroll and
related costs of $225,000, depreciation and amortization of $21,000 as certain
assets became fully depreciated during 2007, credit card commissions of $59,000,
tour expenses of $82,000 and shipping and postage of $105,000, offset by
increases in professional fees of $452,000, travel of $33,000, and rents of
$34,000. The credit card commissions and postage and shipping decreases are
principally attributable to lower levels of tours of performing artists. The
increase in professional fees is attributable to new business development costs,
which are expected to generate additional revenues in future periods.
Costs associated with planning, maintaining and operating our web sites for the
year ended December 31, 2007 decreased by $96,000 from 2006. This decrease is
due primarily to a decrease in consulting costs of $127,000, and computer costs
of $48,000, offset by $49,500 less website development costs being capitalize in
2007 than in 2006.
Interest Expense. For the year ended December 31, 2007, the Company incurred
approximately $83,000 of interest charges compared to interest charges of
$18,000 in 2006, an increase of $65,000. This increase
11
is attributable to the discount related to restricted stock granted in
settlement of notes payable, interest and accrued expenses offset by lower
average balances of short term interest bearing debt.
Net Loss. The Company realized a net loss for the year ended December 31, 2007
of $2,724,000 compared to a net loss of $1,704,000 for the year ended December
31, 2006. Losses for both years represent $.01 per share.
Inflation. The Company believes that inflation has not had a material effect on
its results of operations.
Assets
At December 31, 2007, total assets of the Company were $1,771,000 compared to
$1,681,000 at December 31, 2006.
Operating Cash Flows
A summarized reconciliation of the Company's net losses to cash provided by
(used in) operating activities for the years ended December 31, 2007 compared to
December 31, 2006, is as follows:
2007 2006
------------ -----------
Net loss $(2,724,100) $(1,704,100)
Depreciation and amortization 129,100 148,400
Intrinsic value of stock options awarded
in payment of services 1,735,000 1,282,300
Common stock issued in payment of interest 75,000 137,800
Net current assets and liabilities associated with advance ticketing -- (1,749,000)
Changes in current assets and liabilities (379,500) 232,200
------------ -----------
Net cash provided by (used in) operating activities ($ 1,164,500) ($1,652,400)
============ ===========
Working Capital and Liquidity
The Company had cash and cash equivalents of $265,000 at December 31, 2007,
compared to $138,000 at December 31, 2006. The Company had $923,000 of working
capital at December 31, 2007 compared to $68,000 at December 31, 2006. At
December 31, 2007 current liabilities were $762,000 compared to $1,409,000 at
December 31, 2006. Current liabilities decreased at December 31, 2007 compared
to December 31, 2006 primarily due to lower levels of short term debt, accounts
payable and accrued expenses, offset by an increase deferred revenues.
The Company's independent registered public accounting firm has issued a going
concern opinion on the Company's consolidated financial statements for the year
ended December 31, 2007. 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 2008 from its celebrity
services products and websites, and similar services to other entities;
including memberships, fan experiences and ticketing, appearances, website
development and hosting, and merchandise sales from both existing and
12
new clients. In addition, our suite of management tools and patented shipping
calculator solutions for small ecommerce enterprises, 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 resources to fund operations during the next 12 months. These resources
include call options, expiring on May 9, 2008, for approximately 775,000 shares
of common stock, which, once assigned by the Company, can generate between
$181,000 and $405,000 (based solely upon the 52 week high and low closing prices
of the Company's common stock) of cash. In addition, management is exploring
opportunities to monetize its recently issued patent. However, there can be no
assurance that assignment of the call options can be concluded on reasonably
acceptable terms or that the Company will be successful in monetizing its
patent. Finally, management is seeking alternative sources of capital to support
operations.
Forward Looking Statements
This Annual Report on Form 10-KSB 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 Annual 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, 2007.
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 7. Financial Statements.
The consolidated financial statements and supplementary data required by
this item appear on Page F-1 immediately following the signature page, and are
incorporated by reference herein.
13
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 8A(T). Controls and Procedures.
Evaluation of Disclosure 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 this 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,
except with respect to material weaknesses in internal control over financial
reporting described below, 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
during the last fiscal quarter and as of the end of the period covered by this
annual report 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.
Managements' Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting of the Company. Internal control over
financial reporting is a process designed by, or under the supervision of, our
chief executive and chief financial officers and effected by our board of
directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principals.
Management, with the participation of our principal executive officer and
principal financial officer, is required to evaluate the effectiveness of our
internal controls over financial reporting as of December 31, 2007 based on
criteria established under the COSO framework, an integrated framework for
evaluation of internal controls issued to identify the risks and control
objectives related to the evaluation of the control environment by the Committee
of Sponsoring Organizations of the Treadway Commission. Management has concluded
that our internal controls over financial reporting were not effective as of
December 31, 2007 due to our inability to perform sufficient testing of internal
controls on financial reporting. A factor for our internal control deficiencies
is the small size of the Company and the lack of a financial expert on the Audit
Committee of the Board of Directors and other corporate governance controls. As
defined by the Public Company Accounting Oversight Board Auditing Standard No.
2, a material weakness is a significant control deficiency or a combination of
significant control deficiencies that results in there being more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. Management continues to monitor
and assess the controls to ensure compliance.
14
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation requirements by
our registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management's report in this annual report.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting
during the quarter ended December 31, 2007 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Item 8B. Other Information.
None.
Part III.
Item 9. Directors, Executive Officers, Promoters, Control Persons and
Corporate Governance; Compliance with Section 16(a) of the
Exchange Act.
Directors and Executive Officers
The following table sets forth certain information regarding the directors
and executive officers of Paid, Inc.:
Name Age Position
---- --- ---------
Gregory Rotman* 42 Director, Chief Executive Officer & President
Richard Rotman* 37 Director, Chief Financial Officer, Vice President,
Treasurer & Secretary
Andrew Pilaro 38 Director
----------
*Gregory Rotman and Richard Rotman are brothers.
Each of the directors was elected as of September 19, 2000, for a term
expiring at the 2001 Annual Meeting of Stockholders and until their successors
are elected and qualified. The Company has not held an annual meeting or elected
directors since September 19, 2000. Under the Delaware General Corporation Law,
each director holds office until such director's successor is elected and
qualified or until such director's earlier resignation or removal. The following
is a description of the current occupation and business experience for at least
five years for each director and executive officer.
Gregory Rotman has served as a Director and the Chief Executive Officer
and President of Paid, Inc. since February 1999. From 1995 to 1998, he served as
a Partner of Teamworks, LLC, which was responsible for the design, financing and
build-out of MCI National Sports Gallery.
15
Richard Rotman has served as a Director and the Chief Financial Officer,
Vice President, Treasurer and Secretary of Paid, Inc. since February 1999. Prior
to joining Paid, Inc., he was involved in the management and day-to-day
operations of Rotman Auction, which he formed in February 1997. From 1995 until
February 1997, Mr. Rotman worked for the family business, Rotman Collectibles,
where he focused on sale and distribution of collectibles, including through
auctions and on the Internet.
Andrew Pilaro has served as a Director of Paid, Inc. since September 2000.
Since August, 1996, he has served as the Assistant to the Chairman of CAP
Advisors Limited, an investment management company, with responsibility for
asset management.
Other Significant Persons
Keith Garde, age 54, is President of the celebrity services group. Mr.
Garde has more than 25 years of management and production experience in the
entertainment industry. In 1995, Mr. Garde founded PKA Management, a
Boston-based firm that manages national talent, manages video production and
provides consulting services. Mr. Garde was one of the early pioneers in
leveraging the Internet for entertainment entities, utilizing it for the digital
distribution of artists' content and intellectual property. Mr. Garde has
collaborated on special projects for MTV, VH1, A&E, ESPN, NFL, Disney, Paramount
Pictures, Daimler-Chrysler, multiple record labels and many other major
corporations and artists. He also serves as special projects manager for the
artist Aerosmith.
Audit Committee/Code of Ethics
The Securities and Exchange Commission has adopted rules to implement
certain requirements of the Sarbanes-Oxley Act of 2002 pertaining to public
company audit committees. One of the rules requires a company to disclose
whether it has an "audit committee financial expert" serving on its audit
committee. Based on its review of the criteria of an audit committee financial
expert under the rule adopted by the SEC, the Board of Directors does not
believe that any member of the Board of Directors' Audit Committee would be
described as an audit committee financial expert. At this time, the Board of
Directors believes it would be desirable for the Audit Committee to have an
audit committee financial expert serving on the committee. While from time to
time informal discussions as to potential candidates have occurred, no formal
search process has commenced.
The Company has adopted a Code of Ethics that applies to all of its
directors, officers, and employees, including its principal executive officer,
principal financial officer, principal accounting officer, or controller, or
persons performing similar functions. A written copy of the Company's Code of
Ethics will be provided to anyone, free of charge, upon request to: Richard
Rotman, CFO, Paid, Inc., 4 Brussels Street, Worcester, Massachusetts 01610.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's outstanding Common Stock to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock. These persons are required by SEC regulation to furnish the
Company with copies of all such reports they file. To the Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company
and representations that no other reports were required, all Section 16(a)
filing requirements applicable to its officers and directors and beneficial
owners of more than 10% of the Company's stock, have been complied with for the
period which this Form 10-KSB relates, except that Augustine Fund, L.P. filed no
reports on Form 4 or Form 5. The Company has no knowledge as to whether
Augustine Fund, L.P. or its affiliates should have filed a Form 4 or Form 5 or
whether such entities were engaged in any reporting transactions.
16
Item 10. Executive Compensation.
The following table sets forth the compensation of the Company's chief
executive officer, the chief financial officer, and each officer whose total
cash compensation exceeded $100,000, for the last two fiscal years ended
December 31, 2007 and 2006.
SUMMARY COMPENSATION TABLE
Name and
Principal Position Year Salary (1) Total
--------------------------------------------------------------------------------
Gregory Rotman 2007 $100,000 $100,000
President and Chief Executive
Officer 2006 $100,000 $100,000
Richard Rotman 2007 $102,134 $102,134
Chief Financial Officer, Vice
President, Treasurer and
Secretary 2006 $ 88,461 $ 88,461 (1)
(1) In 2006, with respect to Richard Rotman only, the Company paid the
amount shown as compensation, but has accrued the difference between these
amounts per annum for Richard Rotman and $100,000.
On October 11, 2002, both Gregory Rotman and Richard Rotman were granted
options to purchase 10,000,000 shares of common stock at an exercise price of
$.041, under the Company's 2002 Stock Option Plan, pursuant to the following
vesting schedule: options to purchase 4,000,000 shares of common stock vested on
April 11, 2003; options to purchase 3,000,000 shares of common stock vested on
October 11, 2003, and options to purchase 3,000,000 shares vested on October 11,
2004. Each of Gregory Rotman and Richard Rotman exercised options to purchase
500,000 shares during 2007.
On January 10, 2008, each of Gregory Rotman and Richard Rotman received
options to purchase 2,500,000 shares of common stock at $.415 per share.
The following table sets forth certain information related to equity
awards as of December 31, 2007 for Gregory Rotman and Richard Rotman. Other than
the option awards described in the table below, there were no other equity or
stock awards.
17
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Option Awards
---------------------------------------------------------------------------------------
Equity
Incentive
Plan
Awards:
Number Number Number
of of of
Securities Securities Securities
Underlying Underlying Underlying
Unexercised Unexercised Unexercised Option
Options Options Unearned Exercise Option
(#) (#) Option Price Expiration
Name Exercisable Unexercisable (#) ($) Date
---------------------------------------------------------------------------------------
Gregory Rotman, 9,500,000 0 0 $.041 10/11/12
President and CEO
Richard Rotman, 9,500,000 0 0 $.041 10/11/12
CFO, Vice President
and Secretary
None of the Company's directors received any separate compensation from
the Company for serving as directors in 2007. However, on October 11, 2002,
Andrew Pilaro received options to purchase 2,000,000 shares of common stock at
an exercise price of $.041, pursuant to the 2002 Stock Option Plan, subject to
the following vesting schedule: options to purchase 800,000 shares of common
stock vested immediately; options to purchase an additional 600,000 shares of
common stock vested on October 11, 2003, and options to purchase 600,000 shares
of common stock vested on October 11, 2004. These options expire on October 11,
2012.
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
To the knowledge of the management of the Company the following table sets
forth the beneficial ownership of our common stock as of March 21, 2008 of each
of our directors and executive officers, and all of our directors and executive
officers as a group.
Name and Address of Number of Shares % of
Beneficial Owner (1) Beneficially Owned Class (5)
-------------------- ------------------ ----------
Gregory Rotman 19,401,079 (2) 7.57%
Richard Rotman 21,271,451 (3) 8.30%
Andrew Pilaro 2,068,700 (4) .80%
All directors and executive
officers as a group (3 individuals) 42,741,230 16.67%
----------
(1) The address of each person named is the address of the Company.
18
(2) Includes options to purchase 9,500,000 shares of the Company's common stock
at an exercise price of $.041, granted on October 11, 2002, and options to
purchase 2,500,000 shares of the Company's common stock at an exercise price of
$.415, granted on January 10, 2008.
(3) Includes options to purchase 9,250,000 shares of the Company's common stock
at an exercise price of $.041, granted on October 11, 2002, and options to
purchase 2,500,000 shares of the Company's common stock at an exercise price of
$.415, granted on January 10, 2008.
(4) Includes 17,200 shares held indirectly as custodian for Mr. Pilaro's minor
sons and options to purchase 2,000,000 shares of the Company's common stock at
an exercise price of $.041, 800,000 of which vested on October 11, 2002, 600,000
of which vested on October 11, 2003, and 600,000 of which vested on October 11,
2004.
(5) Percentages are calculated on the basis of the amount of outstanding
securities plus for such person or group, any securities that person or group
has the right to acquire within 60 days.
To the knowledge of the management of the Company, based solely on our
review of SEC filings, and with respect to Augustine Fund, L.P., on our review
of such fund's Form 13G/A dated March 14, 2007, the following table sets forth
the beneficial ownership of our common stock as of March 21, 2008 of each
beneficial owner of more than five percent of any class of the Company's Common
Stock, other than as held by our directors and executive officers.
Name and Address of Number of Shares % of
Beneficial Owner (1) Beneficially Owned Class
-------------------- ------------------ ----------
Augustine Fund, L.P. 22,473,741 9.54%
141 W. Jackson Blvd., Suite 2182
Chicago, IL 60604
--------------------------------
The information regarding the Company's "Equity Compensation Plan
Information" is incorporated herein by reference in Part II, Item 5 of this
Annual Report on Form 10-KSB.
Item 12. Certain Relationships and Related Transactions, and Director
Independence.
Steven Rotman is the father, and Leslie Rotman is the mother, of Gregory
Rotman, President of the Company, and Richard Rotman, CFO/Vice
President/Secretary of the Company. The Company entered into a number of
transactions in the past 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.
In December 2001, the Company engaged Steven Rotman to provide consulting
services to the Company. Steven Rotman did not provide any consulting services
in 2005. However, during 2005, for consulting fees owed and for consulting
services provided prior to 2005, including $160,000 in fees and services
provided in 2004, the Company paid Steven Rotman $251,659 in the form of options
to purchase 1,264,630 shares of common stock of the Company pursuant to the
Company's 2001 Non-Qualified Stock Option Plan. During 2006, the Company
incurred $86,154 of consulting fees paid to Steven Rotman. During 2007 the
Company incurred $144,000 of consulting fees paid to Steven Rotman which was
paid to him in the form of options to purchase 757,299 shares of the Company's
common stock. Under the 2001 Non-Qualified Stock Option Plan, employees and
consultants may elect to receive their gross compensation in the form of options
to acquire the number of shares of the Company's common stock equal to their
gross compensation divided by the fair value of the stock on the date of grant.
In 2002, the Company obtained private financing from Mr. Steven Rotman in
the aggregate amount of $115,000 at an 8% interest rate, and borrowed an
additional $15,000 in 2003. In 2005, the Company repaid $50,000, but as of
December 31, 2006 continued to owe Steven Rotman $80,000 in
19
principal, and $40,322 in interest, including $6,489 in interest which accrued
in 2006. On December 19, 2007 the Company repaid the $80,000 of principal plus
$46,646 of then outstanding interest through the issuance of 527,488 restricted
shares of the Company's common stock. This conversion resulted in $31,600 of
additional interest representing the discount granted due to the restriction.
During 2003 and 2004 the Company sold a number of items owned by Mr.
Steven Rotman under consignment arrangements resulting in accrued liabilities to
Steven Rotman of $62,776 and $110,006, respectively. During 2007 the Company
issued 719,925 restricted shares of its common stock in settlement of this
$172,782 accrued liability. This conversion resulted in $43,400 of additional
interest representing the discount granted due to the restriction.
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, pursuant to which Rotman Collectibles, Inc., a Massachusetts
corporation, was merged into the Company's Delaware subsidiary, named Rotman
Collectibles, Inc. 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 (as set forth in the Settlement Agreement and
Mutual Release) and granted the Company an option to purchase the shares for
$.001 per share. The option is assignable by the Company and now expires May 9,
2008. During 2006 the Company assigned options to purchase 800,000 shares of
stock from Leslie Rotman to certain individuals in exchange for $331,848. During
2007, the Company assigned options to purchase 50,000 shares of stock from
Leslie Rotman to certain individuals in exchange for $15,537. The Company still
holds options to assign 775,000 shares.
In August 2006 the Company began paying rent, as a tenant at will, to a
company in which Steven Rotman, the father of Greg and Richard Rotman, is a
shareholder. Monthly payments under this arrangement of $2,600 began on August
1, 2006. The Company had previously occupied the premises rent-free.
Item 13. Exhibits.
Exhibits are numbered in accordance with Item 601 of Regulation S-B.
Exhibit
No. Description of Exhibits
------- -----------------------
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to Form 8-K, filed on November 25,
2003)
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to Form 8-K, filed on December 8, 2004)
4.1 Specimen of certificate for Common Stock (incorporated by
reference to Exhibit 4.1 to Form SB-2/A filed on December 1,
2000)
4.2 Agreement dated November 21, 2007, by and between the Company
and Lewis Asset Management Equity Fund, LLP with respect to the
purchase of 2,500,000 shares at $.20 per share*
10.1 1999 Stock Option Plan (incorporated by reference to Exhibit
10.2 to Form SB-2/A filed on December 1, 2000)
10.2 1999 Omnibus Share Plan (incorporated by reference to Exhibit
10.3 to Form SB-2/A filed on December 1, 2000)
10.3 2001 Non-Qualified Stock Option Plan, as amended (incorporated
by reference from Exhibit 99.1 to Form S-8 filed on September 5,
2003)
20
10.4 2002 Stock Option Plan (incorporated by reference from Exhibit
10.17 to Form 10-KSB filed on March 31, 2003)
10.5 Settlement Agreement and Mutual Release dated May 9, 2005
between the Company and Leslie Rotman (incorporated by reference
to Exhibit 10.1 to Form 10-QSB filed on May 13, 2005)
10.6 Escrow Agreement dated May 9, 2005 between the Company, Leslie
Rotman, and Escrow Agent (incorporated by reference to Exhibit
10.2 to Form 10-QSB filed on May 13, 2005)
23 Consent of Carlin, Charron & Rosen, LLP*
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*
99 Risk Factors*
----------
* filed herewith
Item 14. Principal Accountant Fees and Services.
Audit Fees. The aggregate fees billed by Carlin, Charron & Rosen, LLP for
the audit of the Company's annual consolidated financial statements for the
fiscal year ended December 31, 2007 and 2006, and the reviews of the quarterly
consolidated financial statements included in the Company's Forms 10-QSB for
fiscal years 2007 and 2006, were $55,200 and $52,200, respectively.
Audit Related Fees. There were no fees billed to the Company by Carlin,
Charron & Rosen, LLP for fiscal year ended December 31, 2007 or 2006 for
assurance and related services that are reasonably related to the performance of
the audit or review of the Company's financial statements.
Tax Fees. There were no fees billed to the Company by Carlin, Charron &
Rosen, LLP in either of the past two fiscal years for professional services for
tax compliance, tax advice, and tax planning.
All Other Fees. There were no fees billed to the Company by Carlin,
Charron & Rosen, LLP for any other services for the past two fiscal years. The
Audit Committee approves all audit and audit-related fees.
The Audit Committee is required to pre-approve all non-audit services to
be performed by the auditor. The percentage of hours expended on the principal
accountant's engagement to audit the Company's financial statements for the most
recent fiscal year that were attributed to work performed by persons other than
the principal accountant's full-time, permanent employees was 0%.
21
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PAID, INC.
By: /s/ Gregory Rotman
--------------------------------
Gregory Rotman, President
Date: March 31, 2008
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ Gregory Rotman
--------------------------------------------
Gregory Rotman, President and Director
Date: March 31, 2008
/s/ Richard Rotman
--------------------------------------------
Richard Rotman, Vice President, Treasurer,
Secretary and Director
Date: March 31, 2008
/s/ Andrew Pilaro
--------------------------------------------
Andrew Pilaro, Director
Date: March 31, 2008
22
PAID, INC. AND SUBSIDIARY
DECEMBER 31, 2007 AND 2006
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting
Firm ........................................................... F-2
Consolidated Balance Sheets at December 31, 2007 and 2006 ......... F-3
Consolidated Statements of Operations
Years ended December 31, 2007 and 2006 ......................... F-4
Consolidated Statement of Changes in Shareholders' Equity (Deficit)
Years ended December 31, 2007 and 2006 ......................... F-5
Consolidated Statements of Cash Flows
Years ended December 31, 2007 and 2006 ......................... F-6
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006 ......................... F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Paid, Inc.
We have audited the accompanying consolidated balance sheets of Paid, Inc. and
subsidiary (the Company) as of December 31, 2007 and 2006, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion of the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Paid, Inc. and
subsidiary as of December 31, 2007 and 2006, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered substantial losses
in recent years and has an accumulated deficit of approximately $31,300,000 at
December 31, 2007. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding those
matters are also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Carlin, Charron & Rosen, LLP
Westborough, Massachusetts
March 31, 2008
F-2
PAID, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
2007 2006
------------ ------------
ASSET
Current assets:
Cash and cash equivalents 264,811 138,326
Accounts receivable, net -- 34,731
Inventories, net 1,195,689 1,181,361
Prepaid expenses and other current assets 185,553 90,048
Due from employees 39,362 32,803
------------ ------------
Total current assets 1,685,415 1,477,269
Property and equipment, net 74,338 191,518
Other intangible asset, net 10,828 11,768
------------ ------------
Total assets $ 1,770,581 $ 1,680,555
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes and loans payable -- 98,000
Accounts payable 272,476 396,257
Accrued expenses 380,276 915,176
Deferred revenues 109,500 --
------------ ------------
Total current liabilities 762,252 1,409,433
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value, 350,000,000
shares authorized; 234,636,742 and
218,329,910 shares issued and outstanding
at December 31, 2007 and 2006, respectively 234,637 218,330
Additional paid-in capital 32,083,880 28,638,897
Accumulated deficit (31,310,188) (28,586,105)
------------ ------------
Total shareholders' equity 1,008,329 271,122
------------ ------------
Total liabilities and shareholders' equity $ 1,770,581 $ 1,680,555
============ ============
See accompanying notes to consolidated financial statements
F-3
PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2007 2006
------------ -------------
Revenues 3,383,294 8,048,854
Cost of revenues 1,965,619 5,556,635
------------ -------------
Gross profit 1,417,675 2,492,219
------------ -------------
Operating expenses:
Selling, general, and administrative expenses 3,650,646 3,665,846
Web site development costs 423,308 519,096
------------ -------------
Total operating expenses 4,073,954 4,184,942
------------ -------------
Loss from operations (2,656,279) (1,692,723)
------------ -------------
Other income (expense):
Interest expense (82,659) (17,877)
Other income 14,855 6,492
------------ -------------
Total other income (expense), net (67,804) (11,385)
------------ -------------
Loss before income taxes (2,724,083) (1,704,108)
Provision for income taxes -- --
------------ -------------
Net loss $ (2,724,083) $ (1,704,108)
============ =============
Loss per share (basic and diluted) $ (0.01) $ (0.01)
============ =============
Weighted average shares (basic and diluted) 226,679,082 210,364,212
============ =============
See accompanying notes to consolidated financial statements
F-4
PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
Common stock Additional
---------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------------ ------------- ------------- ------------- -------------
Balance, December 31, 2005 200,405,555 $ 200,406 $ 25,672,844 $ (26,881,997) $ (1,008,747)
Issuance of common stock pursuant to
exercise of stock options granted to
employees for services 1,195,799 1,196 261,820 -- 263,016
Issuance of common stock pursuant to
exercise of stock options granted to
professionals and consultants 6,769,876 6,770 1,012,549 -- 1,019,319
Common stock issued in payment of
interest on note payable 838,450 838 136,956 -- 137,794
Common stock issued for payment of
convertible debt 9,020,230 9,020 1,140,980 -- 1,150,000
Common stock issued in connection with
acquisition of assets of K-sports &
Entertainment, LLC 100,000 100 31,900 -- 32,000
Proceeds from assignment of call options -- -- 331,848 -- 331,848
Proceeds from sale of warrants -- -- 50,000 -- 50,000
Net loss -- -- -- (1,704,108) (1,704,108)
------------ ------------- ------------- ------------- -------------
Balance, December 31, 2006 218,329,910 $ 218,330 $ 28,638,897 $ (28,586,105) $ 271,122
Issuance of common stock pursuant to
exercise of stock options granted to
employees for services 778,044 778 224,186 -- 224,964
Issuance of common stock pursuant to
exercise of stock options granted to
professionals and consultants 6,663,479 6,663 1,503,347 -- 1,510,010
Issuance of common stock 6,517,896 6,519 1,256,881 -- 1,263,400
Options exercised 1,000,000 1,000 40,000 -- 41,000
Common stock issued in connection with
acquisition of assets of K-sports &
Entertainment, LLC 100,000 100 31,900 -- 32,000
Common stock issued in payment of notes
payable 333,333 333 99,667 -- 100,000
Common stock issued in payment of
interest 194,155 194 58,052 -- 58,246
Common stock issued in payment of
accrued expenses 719,925 720 215,413 -- 216,133
Proceeds from assignment of call options -- -- 15,537 -- 15,537
Net loss -- -- -- (2,724,083) (2,724,083)
------------ ------------- ------------- ------------- -------------
Balance, December 31, 2007 234,636,742 $ 234,637 $ 32,083,880 $ (31,310,188) $ 1,008,329
============ ============= ============= ============= =============
See accompanying notes to consolidated financial statements
F-5
PAID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2007 2006
------------ ------------
Operating activities:
Net loss $ (2,724,083) $ (1,704,108)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 129,074 148,366
Bad debt expense 26,622 6,762
Inventory reserve -- 150,000
Intrinsic value of stock options awarded to professionals and consultants in 1,510,010 1,019,319
payment of fees for services provided
Intrinsic value of stock options awarded to employees in payment of 224,964 263,016
compensation
Issuance of common stock in payment of interest on notes payable -- 137,794
Interest charge on discounted stock issuance 75,000 --
Changes in assets and liabilities:
Accounts receivable 8,109 30,824
Inventories, net (14,328) 32,887
Deferred expenses -- 556,250
Prepaid expense and other current assets (100,564) 20,761
Accounts payable (123,781) 120,921
Accrued expenses (285,021) (129,905)
Deferred revenue 109,500 (2,305,278)
------------ ------------
Net cash (used in) operating activities (1,164,498) (1,652,391)
------------ ------------
Investing activities:
Property and equipment additions (10,954) (62,118)
------------ ------------
Financing activities:
Net proceeds (repayments) of notes and loans payable (18,000) (32,000)
Proceeds from sale of warrant -- 50,000
Proceeds from assignment of call options 15,537 331,848
Proceeds from exercise of stock options 41,000 --
Proceeds from sale of common stock 1,263,400 --
------------ ------------
Net cash provided by financing activities 1,301,937 349,848
------------ ------------
Net increase (decrease) in cash and cash equivalents 126,485 (1,364,661)
Cash and cash equivalents, beginning 138,326 1,502,987
------------ ------------
Cash and cash equivalents, ending $ 264,811 $ 138,326
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ -- $ --
============ ============
Interest $ 1,357 $ 8,371
============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued in final payment of amounts due in
connection with the 2004 acquisition of K-Sports
and Entertainment, LLC $ 32,000 $ --
============ ============
Common stock issued in payment of notes payable $ 80,000 $ --
============ ============
Common stock issued in payment of accrued consignments
and interest $ 219,379 $ --
============ ============
See accompanying notes to consolidated financial statements
F-6
PAID, INC. AND SUBSIDIARY
DECEMBER 31, 2007 AND 2006
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
collectible industries. The Company offers celebrities, musical artists and
athletes official web sites and fan-club services including e-commerce, VIP
ticketing, fan club management, fan experiences, storefronts, articles, polls,
message boards, contests, biographies and custom features. The Company also
sells merchandise for celebrities, through official fan websites, on tour or at
retail.
Note 2. Management's Plans
The Company has continued to incur significant losses. For the years ended
December 31, 2007 and 2006 the Company reported losses of approximately
$2,724,000 and $1,704,000, respectively. These conditions raise substantial
doubt about the Company's ability to grow as a going concern.
To date the Company has met its cash needs from the proceeds of convertible
debt, equity financing, and the assignment of call options discussed in Note 7.
Management anticipates growth in revenues and gross profits in 2008 from its
celebrity services products and websites; including memberships, fan experiences
and ticketing, appearances, and merchandise sales. In addition, "AuctionInc"
which hosts a suite of management tools and our patented shipping calculator
solutions for small e-commerce enterprises, and web hosting are expected to
increase revenues and result in higher total gross profit. In addition,
management is exploring opportunities to monetize its recently issued patent.
A 2005 Settlement Agreement provided the Company with call options for
approximately 2 million shares of the Company's common stock. As of December 31,
2007 the Company still held call options for 775,000 shares of common stock,
which currently expire on May 9, 2008. Assignment of these call options may
generate between $181,000 and $405,000 based solely upon 52 week high and low
closing prices of the Company's common stock.
Although there can be no assurances, the Company believes that the above
anticipated additional revenues, and additional financing will be sufficient to
meet the Company's working capital requirements through the end of 2008.
Note 3. Summary of Significant Accounting Policies
Principles of consolidation
The accompanying consolidated financial statements include the accounts of Paid,
Inc. and its wholly-owned subsidiary, Rotman Collectibles, Inc. On December 27,
2007 Rotman Collectibles was merged into Paid, Inc. All inter-company balances
and transactions have been eliminated.
F-7
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories consist of collectible merchandise for sale and are stated at the
lower of average cost or market on a first-in, first-out (FIFO) method. When a
purchase contains multiple copies of the same item, they are stated at average
cost.
On a periodic basis management reviews inventories on hand to ascertain if any
is slow moving or obsolete. In connection with this review, at both December 31,
2007 and 2006 the Company provided for reserves totaling $325,000.
Website Development Costs
The Company accounts for website development costs in accordance with the
provisions of EITF 00-2, "Accounting for Web Site Development Costs", which
requires that costs incurred in planning, maintaining, and operating stages that
do not add functionality to the site be charged to operations as incurred.
External costs incurred in the site application and infrastructure development
stage and graphic development are capitalized. Such capitalized costs are
included in "Property and equipment." During the year ended December 31, 2007 no
website development costs were capitalized while for the year ended December 31,
2006 the Company capitalized approximately $49,500.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight line and double declining balance method over the estimated useful
lives of 3 to 5 years.
Intangible Assets
Intangible assets, comprised principally of a patent, are being amortized on a
straight-line basis over an estimated useful life of 17 years.
Revenue Recognition
The Company generates revenue from sales of fan experiences, from fan club
membership fees, from sales of its purchased inventories, and from web hosting
services.
Fan experiences sales include tickets and related experiences at concerts and
other events conducted by performing artists. Revenues associated with these fan
experiences are generally reported gross, rather than net, following the
criteria of EITF 99-19, "Reporting Revenue Gross as a Principal versus Net as an
Agent", and are deferred until the related event has been concluded, at which
time the revenues and related direct costs are recognized.
Fan club membership fees are recognized 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
F-8
credit card transaction and shipment of the merchandise, discharging all
obligations of the Company with respect to the transaction.
The Company provides web hosting services in conjunction with two types of
arrangements - cash and receipt of publicly recognized autographs on
merchandise. Revenue is recognized on a monthly basis as the services are
provided under both arrangements. The amounts of revenues related to
arrangements settled in other than cash are determined based upon management's
estimate of the fair value of the service provided or the fair value of the
autographs received, depending upon which measure is most reliable.
Cost of revenues
Cost of revenues includes event tickets, catering, merchandise, and commissions
paid to celebrities.
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 $115,200 and $188,000 in 2007
and 2006, respectively, are reported as a component of selling, general and
administrative expenses.
Selling and Administrative expenses
Selling, general, and administrative expenses include travel, payroll, credit
card commissions, postage and handling, and other general and administrative
costs.
Advertising costs
Advertising costs totaling approximately $16,500 in 2007 and $42,500 in 2006,
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.
Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses - The carrying amount of these financial instruments approximates fair
value because of the short-term nature of these instruments.
Notes payable - The carrying amount of these financial instruments approximates
fair value as the interest rate approximates market rates.
Convertible debt - The carrying amount of these financial instruments
approximates fair value as the interest rates approximate market rates.
F-9
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 87% of the Company's revenues for 2007 were generated from fan
experiences and sales of merchandise related to one performing artist,
Aerosmith.
Income Taxes
Income taxes are accounted for under the liability method. Under this method,
deferred income taxes are provided for temporary differences between the
financial reporting and the tax bases of assets and liabilities and are measured
using enacted laws and rates that will be in effect when the differences are
expected to reverse. A valuation allowance is provided when management believes
it is more likely than not that some or all of the deferred tax assets will not
be realized.
Use of Estimates
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the balance
sheets and reported amounts of revenue and expenses during the reporting
periods. Material estimates that are particularly susceptible to significant
change in the near term relate to inventories, deferred tax asset valuation, and
revenue recognition with respect to web hosting services. Although these
estimates are based on management's knowledge of current events and actions,
they may ultimately differ from actual results.
Share Based Compensation
The Company accounts for share-based compensation in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) 123(R),
Share-Based Payment. 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).
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 outstanding
stock options and warrants. The
F-10
number of common shares that would be included in the calculation of outstanding
options and warrants is determined using the treasury stock method. The assumed
conversion of outstanding dilutive stock options and warrants would increase the
shares outstanding but would not require an adjustment of income as a result of
the conversion. Stock options and warrants applicable to 26,136,054 shares and
27,136,054 shares at December 31, 2007 and 2006, respectively, have been
excluded from the computation of diluted earnings per share because they were
antidilutive. Diluted earnings per share have not been presented as a result of
the Company's net loss for each year.
Asset Impairment
In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets", long lived assets to be held and used by the Company are
reviewed to determine whether any events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. For long-lived
assets to be held and used, the Company bases its evaluation on such indicators
as the economic benefits of the assets, any historical or future profitability
measurements, a review of estimated useful lives, as well as other external
market conditions or factors that may be present. If such impairment indicators
are present or other factors exist that indicate that the carrying amount of the
asset may not be recoverable, the Company determines whether an impairment has
occurred through the use of an undiscounted cash flow analysis of assets at the
lowest level for which identifiable cash flow exist. If impairment has occurred,
the Company recognizes a loss for the difference between the carrying amount and
the estimated value of the asset. The fair value of the asset is measured using
an estimate of discounted cash flow analysis.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which is effective for calendar year companies on January 1, 2008. The Statement
defines fair value, establishes a framework for measuring fair value in
accordance with Generally Accepted Accounting Principles, and expands
disclosures about fair value measurements. The Statement codifies the definition
of fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The standard clarifies the principle that fair value
should be based on the assumptions market participants would use when pricing
the asset or liability and establishes a fair value hierarchy that prioritizes
the information used to develop those assumptions. The Company is currently
assessing the potential impacts of implementing this standard.
In February, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities," which is effective for calendar
year companies on January 1, 2008. The statement allows an entity the
irrevocable option to elect fair value for the initial and subsequent
measurement for certain financial assets and liabilities on a
contract-by-contract basis. Subsequent changes in fair value of these financial
assets and liabilities would be recognized in earnings when they occur. SFAS 159
further establishes certain additional disclosure requirements. Management is
currently evaluating the impact and timing of the adoption of SFAS 159 on the
Corporation's financial condition and results of operations.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations",
which replaces SFAS No. 141. SFAS No. 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. The
Statement also establishes disclosure requirements which will enable users to
evaluate the nature and financial effects of the business combination. SFAS
141(R) is effective for calendar year companies on January 1, 2009. The adoption
of SFAS 141(R) will have an impact on accounting for business combinations once
adopted, but the effect is dependent upon acquisitions at that time.
F-11
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51", which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent's ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The
Statement also establishes reporting requirements that provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. SFAS 160 is effective
for calendar year companies on January 1, 2009. The Company has not determined
the effect that the application of SFAS 160 will have on its consolidated
financial statements.
In December 2007, the SEC issued Staff Accounting Bulletin 110. SAB 110
expresses the views of the staff regarding the use of a "simplified" method, as
discussed in SAB No. 107 ("SAB 107"), in developing an estimate of expected term
of "plain vanilla" share options in accordance with Statement of Financial
Accounting Standards No. 123 (revised 2004). SAB 110 is not expected to have a
significant impact on the entity consolidated financial statements.
Note 4. Property and Equipment
At December 31, property and equipment consisted of the following:
2007 2006
-------------- -------------
Computer equipment and software $ 175,744 $ 164,790
Office furniture 2,850 2,850
Video and article archives 418,983 418,983
Website development cost 636,390 636,390
-------------- -------------
1,233,967 1,223,013
Accumulated depreciation (1,159,629) (1,031,495)
-------------- -------------
$ 74,338 $ 191,518
============== =============
Depreciation expense of property and equipment for the years ended December 31,
2007 and 2006 amounted to $128,100 and $126,800, respectively.
Note 5. Intangible Assets
At December 31, intangible assets are comprised of the following:
2007 2006
-------------- -------------
Patent pending $ 16,000 $ 16,000
Accumulated amortization (5,172) (4,232)
-------------- -------------
$ 10,828 $ 11,768
============== =============
F-12
Amortization expense for intangible assets for the years ended December 31, 2007
and 2006 amounted to $940 and $21,500, respectively.
Estimated future annual amortization expense is $1,000 for each year through
2019.
Note 6. Accrued Expenses
At December 31, accrued expenses are comprised of the following:
2007 2006
-------------- -------------
Interest $ 3,879 $ 44,201
Payroll and related costs 169,969 268,702
Professional and consulting fees 164,145 115,111
Consignments - related party -- 172,782
Due to K Sports -- 30,500
Commissions 13,965 266,246
Other 28,318 17,634
-------------- -------------
$ 380,276 $ 915,176
============== =============
Note 7. Common Stock
Call Option Agreements
In connection with a May 9, 2005 settlement with Leslie Rotman regarding the
value paid and the value received in a 2001 transaction the Company received a
call option for 2,000,000 shares of the Company's common stock at $.001 per
share. Leslie Rotman is the mother, of Gregory Rotman, President of the Company,
and Richard Rotman, CFO/Vice President/Secretary of the Company. The option is
assignable by the Company and, as most recently amended, expires on May 9, 2008.
During 2007, 2006 and 2005 the Company assigned options to purchase 50,000,
800,000 and 375,000 shares, respectively, of stock from Leslie Rotman to certain
individuals in exchange for $15,537, $331,848 and $96,885. The proceeds from the
assignments of these options were added to the paid in capital of the Company.
At December 31, 2007, 775,000 call options remain outstanding.
Warrants
During the year ended December 31, 2005, the Company entered into an Agreement
and sold a warrant to purchase common stock ("Warrant") to an investor. The
investor paid the Company $50,000 as a deposit ("Deposit") for the right to
acquire up to 2,000,000 shares of unregistered common stock at any time within
one year of the Agreement at $.15 per share. During 2006 the expiration date of
the Warrant was extended pending receipt of an additional $50,000 payment which
was received during 2007. If exercised, $100,000 will be applied as partial
payment of the exercise price. If the Warrants are not exercised by June 1, 2008
the deposits will be forfeited. The deposits have been recorded in Additional
Paid in Capital.
Share-based Incentive Plans
At December 31, 2007, the Company had a number of 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.
F-13
The 1999 Plan ("1999 Plan") provides for the award of non-qualified options for
up to 1,000,000 shares. The maximum number of shares currently reserved for
issuance is 492,000 shares. The options granted have ten-year contractual terms
and vested either immediately or annually over a five-year term. There were no
options granted under this plan during 2007 and 2006 and at both December 31,
2007 and 2006 there were 37,000 options outstanding with a weighted average
exercise price of $1.625.
The 2002 Plan ("2002 Plan") provides for the award of qualified and
non-qualified options for up to 30,000,000 shares. The maximum number of shares
currently reserved for issuance is 5,000,000 shares. The options granted have
ten-year contractual terms and vested either immediately or annually over a
five-year term. Information with respect to stock options granted under the
above plans is as follows:
Weighted
average exercise
Number of shares price per share
---------------- ----------------
Options outstanding at December 31, 2006 25,000,000 $.041
Exercised (1,000,000) .041
----------------
Options outstanding at December 31, 2007 24,000,000 $.041
================
The total intrinsic value of options exercised under the 2002 Plan during the
year ended December 31, 2007 was $314,000.
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
90,000,000 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:
Weighted
average exercise
Number of shares price per share
---------------- ----------------
Options outstanding at December 31, 2006 99,054 $.001
Granted 7,441,523 .001
Exercised (7,441,523) .001
----------------
Options outstanding at December 31, 2007 99,054 $.001
================
F-14
A summary of the awards under this plan during the years ended December 31 is as
follows:
Number of Intrinsic
Shares Value
------------ ----------------
2007
----
Employee payroll 778,044 $ 224,964
Consulting and professional fees 6,663,479 1,510,010
------------ ----------------
Total 7,441,523 $ 1,734,974
============ ================
2006
----
Employee payroll 1,195,799 $ 263,016
Consulting and professional fees 6,769,876 1,019,319
------------ ----------------
Total 7,965,675 $ 1,282,335
============ ================
The maximum number of shares currently reserved for issuance is 7,465,806
shares. The options granted have ten-year contractual terms and vest
immediately.
The fair value of the Company's 2007 and 2006 option grants was estimated at the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:
2007 2006
------- -------
Expected term (based upon historical experience) <1 week <1 week
Expected volatility 114.24% 114.24%
Expected dividends None None
Risk free interest rate 4% 4%
The incremental fair value calculated using the above assumptions over the
intrinsic value was determined to be immaterial and no related additional share
based compensation has been recorded.
During July 1999, the Company's Board of Directors adopted, subject to
stockholders' approval, the 1999 Omnibus Share Plan (the "Omnibus Plan") that
provides for both incentive and non-qualified stock options, stock appreciation
rights and other awards to directors, officers, and employees of the Company to
purchase or receive up to 1,000,000 shares of the Company's stock. A committee
of the Board of Directors ("Committee") establishes the option price at the time
each option is granted, which price may, in the discretion of the Committee, be
less than 100% of the fair market value of the shares on the date of the grant.
Any options granted will have a maximum term of ten years and will be
exercisable during a period as specified by the Committee. No options have ever
been granted under the Omnibus Plan.
All options outstanding at December 31, 2007 are fully vested and exercisable.
Information pertaining to options outstanding at December 31, 2007 is as
follows:
F-15
Options Outstanding
Weighted Average Aggregate
Number of Remaining Intrinsic
Exercise Prices shares Contractual Life Value
--------------- ----------- ---------------- ----------
$ 1.62 37,000 2 --
.001 99,054 8 $ 34,570
.041 24,000,000 6 7,725,000
-----------
24,136,054
===========
The total intrinsic value of options exercised during the year ended December
31, 2007 under all plans was $2,048,196 in exchange for $41,000 of cash.
Note 8. Income Taxes
On January 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board Interpretation No. 48 "Accounting for the Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109 ("FIN No. 48"). FIN No. 48
requires that the impact of tax positions be recognized in the financial
statements if they are more likely than not of being sustained based upon the
technical merits of the position. The Company has a valuation allowance against
the full amount of its net deferred taxes. The Company currently provides a
valuation allowance against deferred taxes when it is more likely than not that
some portion, or all, of its deferred tax assets will not be realized.
The implementation of FIN No. 48 had no impact on the Company's financial
statements due to the valuation allowances that have historically been provided
against all deferred tax assets.
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 various state jurisdictions. The periods from
2004-2007 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 FIN No. 48, 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 year ended December 31, 2007.
There was no provision for income taxes for the years ended December 31, 2007
and 2006 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 significant temporary differences and carry forwards that
give rise to deferred taxes are as follows:
2007 2006
------------ ------------
Federal net operating loss carry $ 8,206,000 $ 7,189,000
forwards
State net operating loss carry 1,273,000 1,615,000
forwards
------------ ------------
9,479,000 8,804,000
Valuation reserve (9,479,000) (8,804,000)
------------ ------------
Net deferred tax asset $ -- $ --
============ ============
F-16
The valuation reserve applicable to net deferred tax asset for the years ended
December 31, 2007 and 2006 is due to the likelihood of the deferred tax not to
be utilized.
At December 31, 2007, the Company has federal and state net operating loss carry
forwards of approximately $24,000,000 and $13,000,000, respectively, available
to offset future taxable income. The state carry-forwards will expire
intermittently through 2012, while the federal carry forwards will expire
intermittently through 2027.
Note 9. Convertible Debt Financing
As of December 31, 2005 the Company had $1,150,000 of convertible debt
outstanding. During the year ended December 31, 2006 the Company received
conversion requests for $1,150,000 into 9,020,230 shares of the Company's common
stock at conversion prices ranging from $.092 to $.139 per share.
Note 10. Notes and Loans Payable
At December 31, 2006, the Company was obligated on short-term demand notes
payable totaling $80,000 to a related party. The notes bear interest at 8%.
Interest expense charged to operations in connection with related party notes
totaled $6,275 and $6,489 in 2007 and 2006, respectively. The related party
notes and related accrued interest were converted into 527,488 restricted common
shares during the fourth quarter of 2007. This conversion resulted in $31,600 of
additional interest representing the discount granted due to the restriction. In
addition, included in notes and loans payable was an $18,000 non interest
bearing loan which was repaid during 2007.
Note 11. Related party transactions
Steven Rotman is the father, and Leslie Rotman is the mother, of Gregory Rotman,
President of the Company, and Richard Rotman, CFO/Vice President/Secretary of
the Company. The Company entered into a number of transactions over the 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.
In December 2001, the Company engaged Steven Rotman to provide consulting
services to the Company. During 2007 and 2006, the Company incurred $144,000 and
$86,154, respectively, of consulting fees paid to Steven Rotman, who elected to
receive this compensation in the form of options under the 2001 Plan.
In 2002, the Company obtained private financing from Mr. Steven Rotman in the
aggregate amount of $115,000 at an 8% interest rate, and borrowed an additional
$15,000 in 2003. In 2005, the Company repaid $50,000, but as of December 31,
2006 continued to owe Steven Rotman $80,000 in principal, and $40,322 in
interest, including $6,489 in interest which accrued in 2006. On December 19,
2007 the Company repaid the $80,000 of principal plus $46,598 of then
outstanding interest through the issuance of 527,488 restricted shares of the
Company's common stock. This conversion resulted in $31,600 of additional
interest representing the discount granted due to the restriction.
During 2003 and 2004 the Company sold a number of items owned by Mr. Steven
Rotman under consignment arrangements resulting in accrued liabilities to Steven
Rotman of $62,776 and $110,006, respectively. During 2007 the Company issued
719,925 restricted shares of its common stock in settlement of this $172,782
accrued liability. This conversion resulted in $43,400 of additional interest
representing the discount granted due to the restriction.
F-17
In August 2006 the Company began paying rent, as a tenant at will, to a company
in which Steven Rotman, the father of Greg and Richard Rotman, is a shareholder.
Monthly payments under this arrangement of $2,600 began on August 1, 2006. The
Company had previously occupied the premises rent-free.
Note 12. Issuance of Common Stock
During 2007 the Company issued 6,517,896 shares of common stock in exchange for
$1,263,400 of cash.
During 2006 the Company issued 838,450 shares of common stock in connection with
the payment of $137,794 of interest due on its convertible debt.
Note 13. Commitments and contingencies
Lease commitment
The Company leases office facilities in Boston Massachusetts under a five year
lease beginning May 2006 requiring monthly payments of approximately $5,800,
plus increases in real estate taxes and operating expenses, through April 2011.
Legal matters
In the normal course of business, the Company periodically becomes involved in
litigation. As of December 31, 2007, 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. In Parshall
v. Paid, Inc., Paul L. Parshall filed a lawsuit against the Company in the Court
of Common Pleas of Franklin County, Ohio on October 3, 2006. Mr. Parshall claims
to be the owner of 423,415 shares represented by Stock Certificate Number 01123.
According to the Company's transfer agent, the Company's stock records show that
Stock Certificate Number 01123 was cancelled on May 15, 1997. Mr. Parshall was
affiliated with a previous transfer agent of the Company. The Company filed a
motion to dismiss based on lack of personal jurisdiction through its Ohio
counsel. The Court of Common Pleas granted the Company's motion to dismiss on
November 7, 2007. The order to dismiss is now on appeal before the Ohio Court of
Appeals, Tenth Appellate District, Franklin County, Ohio. Mr. Parshall requests
damages equal to the market value of the shares and for any loss for not
recognizing the shares. The Company disputes Mr. Parshall's claims.
Note 14. Subsequent event
During 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 online 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.
F-18
EXHIBIT INDEX
Exhibit
No. Description of Exhibits
------- -----------------------
3.1 Certificate of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 to Form 8-K, filed on November 25, 2003)
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2
to Form 8-K, filed on December 8, 2004)
4.1 Specimen of certificate for Common Stock (incorporated by reference to
Exhibit 4.1 to Form SB-2/A filed on December 1, 2000)
4.2 Agreement dated November 21, 2007, by and between the Company and
Lewis Asset Management Equity Fund, LLP with respect to the purchase
of 2,500,000 shares at $.20 per share*
10.1 1999 Stock Option Plan (incorporated by reference to Exhibit 10.2 to
Form SB-2/A filed on December 1, 2000)
10.2 1999 Omnibus Share Plan (incorporated by reference to Exhibit 10.3 to
Form SB-2/A filed on December 1, 2000)
10.3 2001 Non-Qualified Stock Option Plan, as amended (incorporated by
reference from Exhibit 99.1 to Form S-8 filed on September 5, 2003)
10.4 2002 Stock Option Plan (incorporated by reference from Exhibit 10.17
to Form 10-KSB filed on March 31, 2003)
10.5 Settlement Agreement and Mutual Release dated May 9, 2005 between the
Company and Leslie Rotman (incorporated by reference to Exhibit 10.1
to Form 10-QSB filed on May 13, 2005)
10.6 Escrow Agreement dated May 9, 2005 between the Company, Leslie Rotman,
and Escrow Agent (incorporated by reference to Exhibit 10.2 to Form
10-QSB filed on May 13, 2005)
23 Consent of Carlin, Charron & Rosen, LLP*
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*
99 Risk Factors*
----------
* filed herewith