-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AOUKiGEnQqsNA1vQSzvEg+PhsN4sqOv+A8NGy0nOt7/2QAp/Kwa+Cev8WiEHooCC eptA7GcI8U53AJxx2Hx3zQ== 0001169232-05-005384.txt : 20051114 0001169232-05-005384.hdr.sgml : 20051111 20051114171012 ACCESSION NUMBER: 0001169232-05-005384 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051114 DATE AS OF CHANGE: 20051114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAID INC CENTRAL INDEX KEY: 0001017655 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 731479833 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28720 FILM NUMBER: 051202758 BUSINESS ADDRESS: STREET 1: 4 BRUSSELS STREET STREET 2: SUITE 220 CITY: WORCESTER STATE: MA ZIP: 01610 BUSINESS PHONE: 5166254040 MAIL ADDRESS: STREET 1: 7633 EAST 63RD PL STREET 2: SUITE 220 CITY: TULSA STATE: OK ZIP: 74133 FORMER COMPANY: FORMER CONFORMED NAME: SALES ONLINE DIRECT INC DATE OF NAME CHANGE: 19990525 FORMER COMPANY: FORMER CONFORMED NAME: SECURITIES RESOLUTION ADVISORS INC DATE OF NAME CHANGE: 19980814 FORMER COMPANY: FORMER CONFORMED NAME: ROSE INTERNATIONAL LTD DATE OF NAME CHANGE: 19960627 10QSB 1 d65884_10-qsb.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2005 COMMISSION FILE NUMBER 0-28720 PAID, INC. (Exact Name of Small Business Issuer as specified in its Charter) DELAWARE 73-1479833 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4 Brussels Street, Worcester, Massachusetts 01610 (Address of principal executive offices) (508) 791-6710 (Issuer's Telephone Number) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| As of November 7, 2005, the issuer had outstanding 199,242,671 shares of its Common Stock, par value $.001 per share. Transitional Small Business Disclosure Format Yes |_| No |X| Paid, Inc. and Subsidiary Form 10-QSB For the Three and Nine Months ended September 30, 2005 TABLE OF CONTENTS Part I - Financial Information Item 1. Financial Statements Consolidated Balance Sheets September 30, 2005 (unaudited) and December 31, 2004 (audited)..........................................3 Consolidated Statements of Operations Three and Nine months ended September 30, 2005 and 2004 (unaudited).....................................................4 Consolidated Statements of Cash Flows Nine months ended September 30, 2005 and 2004 (unaudited).....................................................5 Consolidated Statement of Changes in Shareholders' Deficit Nine months ended September 30, 2005 (unaudited)..........................................................6 Notes to Consolidated Financial Statements Nine months ended September 30, 2005 and 2004.....................7-13 Item 2. Management's Discussion and Analysis or Plan of Operation.......................................................14 Item 3. Controls and Procedures.................................................19 Part II - Other Information Item 1. Legal Proceedings.........................................................20 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ..............20 Item 3. Defaults Upon Senior Securities...........................................20 Item 4. Submission of Matters to a Vote of Security Holders.......................20 Item 5. Other Information ........................................................20 Item 6. Exhibits .................................................................21 Signatures.........................................................................22
- 2 - PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PAID, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
September 30, December 31, ASSETS 2005 2004 ------------- ------------ (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 661,345 $ 43,558 Accounts receivable 541,372 45,739 Inventories, net 1,327,661 624,082 Investment in call options 390,000 -- Prepaid expenses 70,183 125,180 Due from employees 59,651 55,656 Other current assets 9,073 9,073 ------------ ------------ Total current assets 3,059,285 903,288 Property and equipment, net 223,495 172,706 Other intangible assets, net 103,111 688,872 ------------ ------------ Total assets $ 3,385,891 $ 1,764,866 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Notes payable $ 180,000 $ 290,000 Loan payable 200,000 -- Accounts payable 252,859 164,829 Accrued expenses 855,368 991,196 Deferred revenues 1,152,794 -- ------------ ------------ Total current liabilities 2,641,021 1,446,025 ------------ ------------ Convertible debt 1,137,319 2,398,021 ------------ ------------ Shareholders' deficit: Common stock, $.001 par value, 350,000,000 shares authorized; 198,009,256 and 173,320,731 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively 198,009 173,321 Additional paid-in capital 25,252,647 21,166,334 Accumulated deficit (25,843,105) (23,383,835) Unearned compensation -- (35,000) ------------ ------------ Total shareholders' deficit (392,449) (2,079,180) ------------ ------------ Total liabilities and shareholders' deficit $ 3,385,891 $ 1,764,866 ============ ============
See accompanying notes to consolidated financial statements - 3 - PAID, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months Nine months Three months Nine months ended ended ended ended September September September September 30, 2005 30, 2005 30, 2004 30, 2004 ------------- ------------- ------------- ------------- Revenues $ 492,367 $ 1,985,376 $ 401,753 $ 1,151,039 Cost of revenues 354,594 1,140,715 257,694 624,407 ------------- ------------- ------------- ------------- Gross profit 137,773 844,661 144,059 526,632 ------------- ------------- ------------- ------------- Operating expenses: Selling, general, and administrative expenses 969,282 2,982,120 787,141 2,253,182 Web site development costs 138,774 426,551 227,401 603,733 ------------- ------------- ------------- ------------- Total operating expenses 1,108,056 3,408,671 1,014,542 2,856,915 ------------- ------------- ------------- ------------- Loss from operations (970,283) (2,564,010) (870,483) (2,330,283) ------------- ------------- ------------- ------------- Other income (expense): Interest expense (80,383) (252,695) (129,262) (385,058) Gain (loss) on call options 32,385 (113,115) -- -- Other income 2 470,550 -- 67 ------------- ------------- ------------- ------------- Total other income (expense), net (47,996) 104,740 (129,262) (384,991) ------------- ------------- ------------- ------------- Loss before income taxes (1,018,279) (2,459,270) (999,745) (2,715,274) Provision for income taxes -- -- -- -- ------------- ------------- ------------- ------------- Net loss $ (1,018,279) $ (2,459,270) $ (999,745) $ (2,715,274) ============= ============= ============= ============= Loss per share (basic and diluted) $ (0.01) $ (0.01) $ (0.01) $ (0.02) ============= ============= ============= ============= Weighted average shares 183,403,606 178,878,154 164,952,477 162,424,772 ============= ============= ============= =============
See accompanying notes to consolidated financial statements - 4 - PAID, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (Unaudited)
2005 2004 ---- ---- Operating activities: Net loss $(2,459,270) $(2,715,274) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 704,964 822,376 Bad debt expense 340 -- Settlement Agreement and Mutual Release - call options (470,500) -- Amortization of unearned compensation 35,000 -- Beneficial conversion feature 91,190 240,164 Loss on call options 113,115 -- Common stock issued in payment of professional and consulting fees 1,043,891 730,014 Issuance of common stock pursuant to exercise of stock options granted to employees for services 228,110 76,617 Common stock issued in payment of interest 137,161 82,614 Changes in assets and liabilities: Accounts receivable (495,973) 1,258 Inventories 176,922 7,546 Prepaid expense and other current assets 51,002 (49,785) Accounts payable 88,030 (71,595) Accrued expenses (135,828) 310,782 Deferred revenue 1,152,794 -- ----------- ----------- Net cash provided by (used in) operating activities 260,948 (565,283) ----------- ----------- Investing activities: Proceeds from assignment of call options 96,885 -- Property and equipment additions (169,993) (1,634) ----------- ----------- Net cash used in investing activities (73,108) (1,634) ----------- ----------- Financing activities: Net proceeds (repayment) of notes payable 50,000 (15,000) Proceeds from loan payable 200,000 -- Proceeds from sale of warrants 50,000 -- Proceeds from sale of common stock 30,000 -- Proceeds from convertible debt -- 65,926 Proceeds from assignment of call options 99,611 478,000 Proceeds from exercise of stock options 336 176 ----------- ----------- Net cash provided by financing activities 429,947 529,102 ----------- ----------- Net increase (decrease) in cash and equivalents 617,787 (37,815) Cash and equivalents, beginning 43,558 104,397 ----------- ----------- Cash and equivalents, ending $ 661,345 $ 66,582 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Income taxes $ -- $ -- =========== =========== Interest $ 1,041 $ 1,125 =========== ===========
See accompanying notes to consolidated financial statements - 5 - PAID, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 (Unaudited)
Common stock Additional ----------------------- Paid-in Accumulated Unearned Shares Amount Capital deficit Compensation Total ----------- -------- ----------- ------------ ------------ ----------- Balance, December 31, 2004 173,320,731 $173,321 $21,166,334 $(23,383,835) $(35,000) $(2,079,180) Common stock issued pursuant to exercise of stock options granted to employees for services 1,063,031 1,063 227,047 -- -- 228,110 Common stock issued in payment of professional and consulting fees 5,366,911 5,367 1,038,524 -- -- 1,043,891 Common stock issued in payment of interest 1,057,966 1,058 136,103 -- -- 137,161 Common stock issued in payment of note payable 761,905 761 159,239 -- -- 160,000 Issuance of common stock 200,000 200 29,800 -- -- 30,000 Stock options exercised 336,364 336 -- -- -- 336 Common stock issued for payment of convertible debt 9,469,227 9,470 1,342,422 -- -- 1,351,892 Amortization of unearned compensation -- -- -- -- 35,000 35,000 Common stock issued for inventory 6,433,121 6,433 1,003,567 -- -- 1,010,000 Proceeds from sale of warrants -- -- 50,000 -- -- 50,000 Proceeds from assignment of call options -- -- 99,611 -- -- 99,611 Net loss -- -- -- (2,459,270) -- (2,459,270) ----------- -------- ----------- ------------ -------- ----------- Balance, September 30, 2005 198,009,256 $198,009 $25,252,647 $(25,843,105) $ -- $ (392,449) =========== ======== =========== ============ ======== ===========
See accompanying notes to consolidated financial statements - 6 - PAID, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2005 and 2004 Note 1. Organization and Summary of Significant Accounting Policies Line of business During the fourth quarter of 2004 Paid, Inc. and subsidiary (the "Company") acquired the operating assets of K Sports & Entertainment LLC ("K Sports"), a company that operated as a sports agency business. In addition, Paid's celebrity services operations host a number of celebrity websites and has begun the electronic management of performing artists' fan clubs and related services. The Company also provides other services for celebrities and sports personalities including autograph signings, appearances, marketing opportunities and event ticketing. The Company continues to sell sports collectibles and merchandise through a variety of outlets, including online auctions and wholesale and distribution outlets. General The financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission for interim financial reporting and include all adjustments (consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation). These financial statements have not been audited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report for the year ended December 31, 2004, which are included in the Company's Form 10-KSB. Principles of consolidation The accompanying consolidated financial statements include the accounts of Paid, Inc. and its wholly-owned subsidiary, Rotman Collectibles, Inc. 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 September 30, 2005 and December 31, 2004 the Company has provided for reserves totaling $125,000 and $300,000, respectively. - 7 - Investment in call options The Company accounts for investment in call options in accordance with EITF 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services". Accordingly, call options are recorded at fair value on the date they are received and adjusted to fair value at the balance sheet date. Any realized or unrealized gains or losses are recorded in other income (expense). Revenue Recognition The Company generates revenue from sales of its purchased inventories, from fees and commissions on sales of merchandise under consignment type arrangements, from sales of fan experiences, from web hosting services, from fan club membership fees, from appraisal services and from advertising and promotional services. For sales of merchandise owned and warehoused by the Company, the Company is responsible for conducting the auction, billing the customer, shipping the merchandise to the customer, processing customer returns and collecting accounts receivable. The Company recognizes revenue upon verification of the credit card transaction and shipment of the merchandise, discharging all obligations of the Company with respect to the transaction. For sales of merchandise under consignment-type arrangements, the Company takes physical possession of the merchandise, but is not obligated to, and does not take title or ownership of merchandise. When an auction is completed, consigned merchandise that has been sold is shipped upon receipt of payment. The Company recognizes the net commission and service revenues relating to the consigned merchandise upon receipt of the gross sales proceeds and shipment of the merchandise. The Company then releases the net sales proceeds to the Consignor, discharging all obligations of the Company with respect to the transaction. The Company provides web hosting services under two types of arrangements. Revenue is recognized on a monthly basis as the services are provided for those where payment is to be received in cash. Professional athletes' web sites are hosted under arrangements that are settled by the athlete providing a certain number of autographs on merchandise to be sold by the Company. Revenue related to player websites is recognized upon sale of the autographed merchandise. Appraisal revenues are recognized when the appraisal is delivered to the customer. Advertising revenues are recognized at the time the advertisement is initially displayed on the Company's web site. Sponsorship revenues are recognized at the time that the related event is conducted. Fan club membership fees are recognized when the member joins and all direct costs associated with the membership have been incurred. The Company sells fan experiences which include tickets and related experiences at concerts and other events conducted by performing artists. Revenues associated with these fan experiences are deferred until the related event is concluded, at which time the revenues and related direct costs are recognized. Advertising Costs Advertising costs totaling approximately $84,000 in 2005 and $86,300 in 2004 are charged to expense when incurred. - 8 - Earnings Per Common Share Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to convertible debt and outstanding stock options and warrants. The number of common shares that would be issued upon conversion of the convertible debt would have been 6,571,429 as of September 30, 2005 and 11,204,532 as of September 30, 2004. The number of common shares that would be included in the calculation of outstanding options is determined using the treasury stock method. The assumed conversion of outstanding dilutive stock options and warrants would increase the shares outstanding but would not require an adjustment of income as a result of the conversion. Stock options and warrants applicable to 27,365,054 shares and 25,466,000 shares at September 30, 2005 and 2004, respectively, have been excluded from the computation of diluted earnings per share, as have the common shares that would be issued upon conversion of the convertible debt, because they were antidilutive. Diluted earnings per share have not been presented as a result of the Company's net loss for each period. Website and Software Development Costs The Company accounts for website development costs in accordance with the provisions of EITF 00-2, "Accounting for Web Site Development Costs" ("EITF 00-2"), which requires that costs incurred in planning, maintaining, and operating stages that do not add functionality to the site be charged to operations as incurred. External costs incurred in the site application and infrastructure development stage and graphic development are capitalized. Such capitalized costs are included in "Property and equipment." During the nine months ended September 30, 2005 the Company capitalized approximately $165,000 of website development costs. There was no such capitalization during the nine months ended September 30, 2004. Note 2. Notes and Loan Payable At September 30, 2005 and December 31, 2004 the Company was obligated on short-term demand notes payable to a related party totaling $130,000 bearing interest at 8%. Interest expense charged to operations in connection with these related party notes totaled approximately $7,900 for each of the nine month periods ended September 30, 2005 and 2004. At September 30, 2005 the Company was also obligated on demand notes payable totaling $50,000, bearing interest at 10%. At December 31, 2004 the Company was also obligated on a $160,000 short-term note payable, bearing interest at 18%, and due on March 1, 2005. In addition, the Company issued 125,000 unregistered shares of stock valued at $17,500 as an origination fee which was amortized over the life of the note. This note and all related accrued interest was repaid through the issuance of 800,000 shares of common stock on March 1, 2005. At September 30, 2005 the Company was obligated on a demand loan from Augustine Fund, L.P. in the amount of $200,000, bearing interest at 8%. Note 3. Accrued Expenses Accrued expenses are comprised of the following: - 9 - September 30, December 31, 2005 2004 ------------- ------------ Interest $144,187 $129,635 Payroll and related costs 233,237 172,120 Professional and consulting fees 160,745 378,210 Consignments 172,782 173,626 Due to K Sports 62,500 62,500 Commissions 10,000 40,000 Other 71,917 35,105 -------- -------- $855,368 $991,196 ======== ======== Note 4. Common Stock Call Option Agreements In connection with a settlement agreement with CSEI, the Company was granted call options for 2,283,565 unregistered common shares held by CSEI at an exercise price of $.001 per share. All remaining call options were assigned during January 2005. On May 9, 2005, the Company entered into a Settlement Agreement and Mutual Release with Leslie Rotman ("Seller") to settle all outstanding disputes regarding the value paid and the value received in the 2001 transaction in which Seller, Rotman Collectibles, Inc., and the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Rotman Collectibles, Inc., a Massachusetts corporation, was merged into the Company's Delaware subsidiary, now named Rotman Collectibles, Inc. Seller is the mother of Gregory Rotman, President of the Company, and Richard Rotman, CFO/Vice President/Secretary of the Company. To settle any possible differences or disputes between the value paid and the value received, Seller delivered 2,000,000 shares of the Company's common stock into escrow, with a fair market value of $600,000 based on the closing bid price of $.30 on May 6, 2005 (as set forth in the Settlement Agreement and Mutual Release) and granted the Company an option to purchase the shares for $.001 per share. The option is assignable by the Company and expires one year from the date of grant. The related $600,000 settlement gain has been apportioned between other income in the amount $340,500, representing the amount attributable to goods sold in prior years and $259,500 as reductions of inventory cost at January 1, 2005. Also included in other income is the effect of reducing the $130,000 reserve related to the movie poster inventory at January 1, 2005. During the nine months ended September 30, 2005 and 2004 the Company assigned options to purchase 394,565 and 1,475,000 shares of stock from CSEI to certain individuals in exchange for $99,611 and $478,000, respectively, which was added to the paid in capital of the Company. In addition, during the nine months ended September 30, 2005 the Company assigned options to purchase 375,000 shares of stock from Leslie Rotman to certain individuals in exchange for $96,885. Stock Options and Warrants On February 1, 2001 the Company adopted the 2001 Non-Qualified Stock Option Plan (the "2001 Plan") and has filed Registration Statements on Form S-8 to register 70,000,000 shares of its common stock. Under the 2001 Plan, employees and consultants may elect to receive their gross compensation in the form of options, exercisable at $.001 per share, to acquire the number of shares of the Company's common stock equal to their gross compensation divided by the fair value of the stock on the date of - 10 - grant. During the nine months ended September 30, 2005 the Company granted options for 5,366,911 shares at various dates aggregating $1,043,891 under this plan. During the nine months ended September 30, 2004 the Company granted options for 2,814,464 shares at various dates aggregating $806,631 under this plan. All options granted during these periods were exercised. During the nine months ended September 30, 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. If exercised, the $50,000 will be applied as partial payment of the exercise price. If the Warrants are not exercised within one year the Deposit will be forfeited. The Deposit has been recorded as an addition to Paid in Capital. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, compensation cost has been recognized only to the extent described above. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under the plan consistent with the method prescribed by FASB Statement No. 123, the Company's net income and earnings per share would have been adjusted to the pro forma amounts indicated below: Nine Months Ended September 30, ------------------------------- 2005 2004 ---- ---- Net loss As reported $ (2,459,270) $ (2,715,274) Stock based compensation cost, as reported (net of tax) 35,000 -- Stock based compensation cost that would have been included in the determination of net income had the fair value method been applied (net of tax) (35,000) (202,950) ------------ ------------ Pro forma (2,459,270) $ (2,918,224) ============ ============ Loss per share (basic and diluted) as reported $ (.01) $ (.02) ============ ============ Proforma loss per share (basic and diluted), as adjusted $ (.01) $ (.02) ============ ============ - 11 - Three Months Ended September 30, -------------------------------- 2005 2004 ---- ---- Net loss As reported $ (1,018,279) $ (999,745) Stock based compensation cost, as reported (net of tax) 5,000 -- Stock based compensation cost that would have been included in the determination of net income had the fair value method been applied (net of tax) (5,000) (67,650) ------------ ------------ Pro forma $ (1,018,279) $ (1,067,395) ============ ============ Loss per share (basic and diluted) as reported $ (.01) $ (.01) ============ ============ Proforma loss per share (basic and diluted), as adjusted $ (.01) $ (.01) ============ ============ Note 5. Income Taxes There was no provision for income taxes for the nine months ended September 30, 2005 and 2004 due to the Company's net operating loss and its valuation reserve against deferred income taxes. The difference between the provision for income taxes from amounts computed by applying the statutory federal income tax rate of 34% and the Company's effective tax rate is due primarily to the net operating loss incurred by the Company and the valuation reserve against the Company's deferred tax asset. At September 30, 2005, the Company has federal and state net operating loss carry forwards of approximately $21,000,000 available to offset future taxable income. The state carry-forwards will expire intermittently through 2010, while the federal carry forwards will expire intermittently through 2025. Note 6. Convertible Debt Financing As of September 30, 2005 the Company has outstanding $1,150,000 of convertible debt, which is presented net of unamortized beneficial conversion discounts of $12,681. On March 23, 2000, the Company entered into a Securities Purchase Agreement (the "Agreement"), whereby the Company sold an 8% convertible note in the amount of $3,000,000 (the "Series A Note"), due in shares of common stock on March 31, 2002 to Augustine Fund, L.P. (the "Buyer"). The Series A Note, as most recently modified on May 21, 2002, provided for the extensions of the maturity date until March 31, 2005. As of September 30, 2005 this note has been paid in full through a series of conversions to common stock. During the nine months ended September 30, 2005 the Company received conversion requests for the remaining $251,892 balance into 1,412,942 common shares at prices ranging from $.149 to $.213 per share. During 2004, 2003, and 2002 $2,748,108 had been converted into 25,314,096 shares of the Company's common stock at conversion prices ranging from $.028 to $.375 per share. The Company entered into a second Loan Agreement, most recently modified in October 2005, whereby it issued an 8% convertible note in the amount of $2,250,000, due November 7, 2006 (the "Series B Note") to Buyer. The Series B Note is convertible into common stock at a conversion price equal to the lesser of: (1) $.25 per share, or (2) seventy-three percent (73%) of the average of the closing bid price for the common stock for the five (5) trading days immediately preceding the conversion date. Based upon advances through September 30, 2005 totaling $2,250,000, had the Buyer converted the series B Note at issuance, Buyer would have received $3,082,193 in aggregate value of the company's common stock - 12 - upon conversion of the convertible note. As a result, in accordance with EITF 00-27, the intrinsic value of the beneficial conversion feature of $832,193 is being charged to interest expense over the term of the related note. The beneficial conversion feature that was charged to interest expense totaled $30,733 and $91,190 during the three and nine months ended September 30, 2005, respectively. The beneficial conversion feature that was charged to interest expense totaled $80,605 and $240,164 during the three and nine months ended September 30, 2004, respectively. The total beneficial conversion discount related to this note has been recorded as an increase in additional paid in capital and the unamortized portion as a reduction in the related note. In addition, the Company entered into a Registration Rights Agreement whereby the Company agreed to file a Registration Statement with the Securities and Exchange Commission (SEC) within sixty (60) days of a request from the Buyer (Filing Date), covering the common stock to be issued upon conversion of the Series B Note. If this Registration Statement is not declared effective by the SEC within sixty (60) days of the filing date the conversion percentage shall decrease by two percent (2%) for each month that the Registration Statement is not declared effective. The modified Series B Note requires that principal and interest be payable in shares of common stock, or cash, at the discretion of the Company, and provides that any fees or expenses related to any registration of the common stock will be borne equally by the Company and the Buyer. Note 7. Related party transactions During the nine months ended September 30, 2005 the Company purchased approximately $1,010,000 of memorabilia for sale from Leslie Rotman, the mother of Richard and Greg Rotman in exchange for 6,433,121 shares of restricted stock valued at $.157. During the nine months ended September 30, 2004 the Company purchased approximately $104,000 of memorabilia for sale from Steven Rotman, the father of Richard and Greg Rotman. - 13 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Overview Paid's celebrity services offer famous people official web sites and fan-club services including event ticketing, e-commerce storefronts, articles, polls, message boards, contests, biographies and custom features to attract tens of thousands of visitors daily. Our innovative products and services are utilized in online auction management, e-commerce and web site development. AuctionInc. provides auction management tools and services to sellers and buyers. The technology is based on our patent-pending process that streamlines back-office and shipping processes for online auctions and e-commerce. Our autograph signing events, working in conjunction with our new sports agent marketing services, known as K Sports, have created more services and opportunities for our sports clientele. Rotman Auction leverages the relationships from celebrity services and K Sports to sell products through distribution and retail outlets. We purchase and sell collectibles and memorabilia through our Rotman Auction brand. Rotman Auction continues to sell thousands of items each week and provides other services such as authentication and public and private autograph events. We also build and maintain large database-driven portals across a broad array of industries, including CollectingChannel.com, which is home to our online appraisal service, Ask the Appraiser. Critical Accounting Policies Our significant accounting policies are more fully described in Note 1 to our financial statements. However, certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management; as a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management makes estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. Those estimates and judgments are based upon our historical experience, the terms of existing contracts, our observance of trends in the industry, information that we obtain from our customers and outside sources, and on various other assumptions that we believe to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies include: Inventories: Inventories are stated at the lower of average cost or market on a first-in, first-out method. On a periodic basis we review inventories on hand to ascertain if any is slow moving or obsolete. In connection with this review, we establish reserves based upon management's experience and assessment of current product demand. Property and Equipment and Intangible Assets: Property and equipment and intangible assets are stated at cost. Depreciation and amortization are computed over estimated useful lives that are reviewed periodically. In connection with this review we consider changes in the economic environment, technological advances, and management's assessment of future revenue potential and a review of the estimated useful lives of the various assets. Results of Operations Three Months ended September 30, 2005 and 2004 The following discussion compares the Company's results of operations for the three months ended September 30, 2005 with those for the three months ended September 30, 2004. The Company's financial - 14 - statements and notes thereto included elsewhere in this quarterly report contain detailed information that should be referred to in conjunction with the following discussion. Revenues. For the three months ended September 30, 2005, revenues were $492,400, 60% of which is attributable to sales of the Company's own product, including products obtained through live autograph signings, and fees from buyers and sellers through the Rotman Auction operations. Gross sales of the Company's own product were $289,800. Fan club membership and related merchandise sales revenues were $153,200, 32% of gross revenues, sports marketing revenues were $42,500, 9% of gross revenues, and advertising and web hosting fees were $3,300 or less than 1% of gross revenues during the three months ended September 30, 2005. The Company's 2005 revenues represent an increase of $90,600, or 23%, from the three months ended September 30, 2004, in which revenues were $401,800. For the three months ended September 30, 2004, sales of Company owned product through the Rotman Auction operations were $392,000, or 94% of gross sales, and advertising and web hosting fees were $6,900, or 2% of gross revenues. The reason for the increase in revenues was $195,800 of revenues from our recently established sports marketing and fan club membership services offset by lower sales of Company owned product of approximately $102,200 from the same period in 2004. Gross profit from Company owned product sales for the three months ended September 30, 2005 was approximately $9,300, $126,700 less than in 2004. Since gross margin percentages on Company owned product decreased from 35% to 3%, and sales of Company owned product were $102,200 lower in the three months ended September 30, 2005, the Company produced $126,700 fewer gross margin dollars in 2005. The decrease in sales of Company owned product is attributable to a strategic shift away from eBay to new distribution channels, including the Company's own distribution channels, where higher price point goods can be sold with lower associated selling costs. The decrease in gross profit margin is attributable to the beginning of a bulk sale program of lower price point inventories. In addition, during the fourth quarter of 2004 the Company acquired the operating assets of K Sports & Entertainment LLC ("K Sports"), a sports marketing business and entered into a contract to host and manage the fan club website for a major performing artist. Revenues from these two sources accounted for $195,700 of revenues in 2005. Operating Expenses. Total operating expenses for the three months ended September 30, 2005 were $1,108,100, compared to $1,014,500 for the corresponding period in 2004, an increase of $93,500. Sales, general and administrative ("SG&A") expenses for the three months ended September 30, 2005 were $969,300, compared to $787,100 for the three months ended September 30, 2004. The increase of $182,100 in SG&A costs includes increases in payroll of $96,300, and other costs of $96,000 offset by a decrease in advertising of $22,100. The additional SG&A costs are attributable to additional personnel, travel, and shipping and postage related to the integration and development of K Sports and fan club services. Costs associated with planning, maintaining and operating our web sites for the three months ended September 30, 2005 decreased $88,600 from 2004. This decrease is due primarily to lower consulting associated with maintenance related to AuctionInc. and amortization, as web site development costs become fully amortized in 2005. Other income. For the three months ended September 30, 2005 other income increased by $32,400 from the comparable 2004 period. This increase is attributable to realized and unrealized gains on the fair value of the investment in call options. Interest Expense. For the three months ended September 30, 2005, the Company incurred interest charges of approximately $80,400 principally associated with one convertible note, compared to interest charges of $129,300 for the corresponding period in 2004. The decrease of $48,900 is attributable to lower amortization of beneficial conversion features in 2005, offset by interest on short term debt. - 15 - Net Loss. The Company realized a net loss for the three months ended September 30, 2005 of $1,018,300, or $.01 per share, as compared to a loss of $999,700, or $.01 per share for the three months ended September 30, 2004. Inflation. The Company believes that inflation has not had a material effect on its results of operations. Nine Months ended September 30, 2005 and 2004 The following discussion compares the Company's results of operations for the nine months ended September 30, 2005 with those for the nine months ended September 30, 2004. The Company's financial statements and notes thereto included elsewhere in this quarterly report contain detailed information that should be referred to in conjunction with the following discussion. Revenues. For the nine months ended September 30, 2005, revenues were $1,985,400, 57% of which is attributable to sales of the Company's own product, including products obtained through live autograph signings, and fees from buyers and sellers through the Rotman Auction operations. Gross sales of the Company's own product were $1,122,900. Fan club membership and related merchandise sales revenues were $558,900, 28% of gross revenues, sports marketing revenues were $272,500, 14% of gross revenues, and advertising and web hosting fees were $14,300, 1% of gross revenues, during the nine months ended September 30, 2005. The Company's 2005 revenues represent an increase of $834,300, or 72%, from the nine months ended September 30, 2004, in which revenues were $1,151,000. For the nine months ended September 30, 2004, sales of Company owned product through the Rotman Auction operations were $1,122,600, or 95% of gross sales, and advertising and web hosting fees were $13,100, or 1% of gross revenues. The reason for the increase in revenues was $831,400 from our recently established sports marketing and fan club membership services. Sales of Company owned product were unchanged. Gross profit from Company owned product sales for the nine months ended September 30, 2005 was approximately $326,800, $175,600 less than in 2004. Since gross margin percentages on Company owned product dropped from 45% to 29%, the Company produced $175,600 fewer gross margin dollars in 2005. The drop in gross profit margin is attributable to the beginning of a bulk sale program of lower price point inventories offset by the effect on cost of sales of the settlement with Leslie Rotman with respect to the movie poster inventory. In addition, during the fourth quarter of 2004 the Company acquired the operating assets of K Sports & Entertainment LLC ("K Sports"), a sports marketing business and entered into a contract to host and manage the fan club website for a major performing artist. Revenues from these two sources accounted for $831,400 of revenues in 2005. Operating Expenses. Total operating expenses for the nine months ended September 30, 2005 were $3,408,700, compared to $2,856,900 for the corresponding period in 2004, an increase of $551,800. Sales, general and administrative ("SG&A") expenses for the nine months ended September 30, 2005 were $2,982,100, compared to $2,253,200 for the nine months ended September 30, 2004. The increase of $728,900 in SG&A costs includes increases in payroll of $365,100, professional fees of $183,500, and other costs of $229,000 offset by a decrease in depreciation and amortization of $46,400 as older assets become fully depreciated and amortized. The additional SG&A costs are attributable to additional personnel, professional fees, travel, and shipping and postage related to the integration and development of K Sports and fan club services. Costs associated with planning, maintaining and operating our web sites for the nine months ended September, 30, 2005 decreased $177,200 from 2004. This decrease is due primarily to lower depreciation as certain website development costs became fully amortized in 2005 and lower consulting costs associated with maintenance related to AuctionInc. - 16 - Other income. For the nine months ended September 30, 2005 other income increased by $357,400 from the comparable 2004 period. This increase is attributable to a portion of the settlement with Leslie Rotman offset by realized and unrealized losses on the fair value of the investment in call options. Interest Expense. For the nine months ended September 30, 2005, the Company incurred interest charges of approximately $252,700 principally associated with one convertible note, compared to interest charges of $385,100 for the corresponding period in 2004. The decrease of $132,400 is attributable to lower amortization of beneficial conversion features in 2005 offset by interest on short term debt. Net Loss. The Company realized a net loss for the nine months ended September 30, 2005 of $2,459,300, or $.01 per share, as compared to a loss of $2,715,300, or $.01 per share for the nine months ended September 30, 2004. Inflation. The Company believes that inflation has not had a material effect on its results of operations. Assets At September 30, 2005, total assets of the Company were $3,385,900, compared to $1,764,900 at December 31, 2004. The increase was primarily due to the acquisition of a large collection of movie poster inventories totaling $1,010,000, cash and accounts receivable balances associated with sales of tickets to entertainment events to be held during the fourth quarter of 2005 totaling $1,000,000, offset by depreciation and amortization totaling $704,900. Operating Cash Flows A summarized reconciliation of the Company's net losses to cash used in operating activities for the nine months ended September 30, 2005 compared to September 30, 2004, is as follows: 2005 2004 ---- ---- Net loss $(2,459,300) $(2,715,300) Depreciation and amortization 704,900 822,400 Amortization of beneficial conversion discount and debt discount 91,200 240,200 Common stock issued in payment of services 1,272,000 806,600 Common stock issued in payment of interest 137,200 82,600 Net current assets and liabilities associated with advance ticketing 686,700 -- Changes in other current assets and liabilities (171,800) 198,200 ----------- ----------- Net cash provided by (used in) operating activities $ 260,900 $ (565,300) =========== =========== - 17 - Working Capital and Liquidity The Company had cash and cash equivalents of $661,300 at September 30, 2005, compared to $43,600 at December 31, 2004. The Company had a $418,300 of working capital at September 30, 2005, compared to a working capital deficit of $542,700 at December 31, 2004. At September 30, 2005 current liabilities were $2,641,000 compared to $1,446,000 at December 31, 2004. During the nine months ended September 30, 2005 current liabilities increased primarily due to deferred revenue of $1,152,800 associated with events to be conducted during the fourth quarter of 2005. As discussed in greater detail in Note 6 of the Financial Statements, included in Part I of the this quarterly report and incorporated by reference herein, the Company an outstanding convertible note held by Augustine Fund, L.P. The note has a principal amount outstanding as of September 30, 2005 of $1,150,000. The Company's independent auditors have issued a going concern opinion on the Company's consolidated financial statements for the year ended December 31, 2004. 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 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 enhanced shipping calculator solutions for small ecommerce enterprises, sales of movie posters, both from inventory and on consignment, and web hosting are expected to increase revenues and result in higher total gross profit. Subject to the discussion below, management believes that the Company has sufficient cash commitments to fund operations during the next 12 months. These commitments include call options for approximately 1,625,000 shares of common stock, which, once assigned by the Company, can generate between $73,000 and $527,000 (based solely upon the 52 week high and low closing prices of the Company's common stock) of cash. Management believes that these plans should result in obtaining sufficient operating cash through the next 12 months. However, there can be no assurance assignment of the call options can be concluded on reasonably acceptable terms. If assignments are not made, management may need to seek alternative sources of capital to support operations. Forward Looking Statements This Quarterly Report on Form 10-QSB contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) regarding the Company and its business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements in this report. Additionally, statements concerning future matters such as the development of new services, technology enhancements, purchase of equipment, credit arrangements, possible changes in legislation and other statements regarding matters that are not historical are forward-looking statements. Although forward-looking statements in this quarterly report reflect the good faith judgment of the Company's management, such statements can only be based on facts and factors currently known by the Company. Consequently, forward-looking statements are inherently subject to risks, contingencies and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in this report. Although the Company believes that its plans, intentions and expectations reflected in these forward-looking statements are reasonable, the Company can give no assurance that its plans, intentions or expectations will be achieved. For a more complete discussion of these risk factors, see Exhibit 99, "Risk Factors", in the Company's Form 10-KSB for the fiscal year ended December 31, 2004. - 18 - 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, the collectibles community not accepting the services the Company offers, higher costs than anticipated, the Company's inability to sell its products and services to a sufficient number of customers, the introduction of competing products by others, the Company's failure to attract sufficient interest in and traffic to its sites, the Company's inability to complete development of its sites, the failure of the Company's operating systems, and the Company's inability to increase its revenues as rapidly as anticipated. If the Company is not profitable in the future, it will not be able to continue its business operations. ITEM 3. CONTROLS AND PROCEDURES The Company's management, including the President of the Company and the Chief Financial Officer of the Company, has evaluated the effectiveness of the Company's "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time period specified by the Securities and Exchange Commission's rules and forms, and is accumulated and communicated to the Company's management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. - 19 - PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the third quarter of 2005, the Company received conversion requests from Augustine Fund, L.P. for $1,050,000 of the November 7, 2001 convertible note, into 7,725,400 shares of common stock of the Company. The remaining balance on the November 7, 2001 convertible note as of September 30, 2005 is $1,150,000. 328,731 shares were issued on July 26, 2005 at $.1521 per share, and 7,396,669 shares were issued on September 26, 2005 at $.135196 per share. The shares are freely tradable pursuant to Rule 144 of the Securities Act of 1933. Augustine Fund, L.P. is an accredited investor that represented that it acquired the convertible note for its own account. The issuance of the securities is exempt from registration under Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder. The November 7, 2001 convertible note, as amended on May 21, 2002, which has a remaining balance of $1,150,000, is convertible into common stock at a conversion price equal to the lesser of (1) $.25 per share, or (2) 73% of the average of the closing bid price for the common stock for the five (5) trading days immediately preceding the conversion date. The note bears an 8% interest rate, and its original principal amount was $2,250,000. The Company may elect to pay interest in cash or common stock. Pursuant to the terms of the note, Augustine Fund, L.P. has elected to extend the maturity date to November 7, 2006. Any amount that remains unconverted as of the maturity date automatically converts into shares of Company common stock at the same conversion rate calculation described for conversions, except that the five (5) trading day calculation is a thirty (30) trading day calculation, and Augustine Fund, L.P. may not beneficially own shares in excess of 4.99% of the total issued and outstanding shares of the Company. The note is secured by substantially all of the assets of the Company and its subsidiary. The note may be prepaid in cash at the election of the Company, except within 90 days of a reorganization. Augustine Fund, L.P. has a right to demand prepayment upon a change in control. On September 8, 2005, the Company entered into an Asset Purchase Agreement for the purchase of approximately $1,010,000 of memorabilia for sale from Leslie Rotman, the mother of Richard and Greg Rotman, in exchange for 6,433,121 shares of restricted common stock valued at $.157. The shares are not registered under the Securities Act of 1933. Leslie Rotman is an accredited investor. The issuance of the securities is exempt from registration under Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. - 20 - ITEM 6. EXHIBITS 10 Asset Purchase Agreement dated September 8, 2005, by and between Paid, Inc., and Leslie Rotman 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 - 21 - SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 11, 2005 PAID, INC. Registrant /s/ Gregory Rotman ---------------------------------------- Gregory Rotman, President /s/ Richard Rotman ---------------------------------------- Richard Rotman, Chief Financial Officer, Vice President and Secretary - 22 - LIST OF EXHIBITS Exhibit No. Description - ----------- ----------- 10 Asset Purchase Agreement dated September 8, 2005, by and between Paid, Inc., and Leslie Rotman 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 - 23 - EX-10 2 d65884_ex-10.txt ASSET PURCHASE AGREEMENT EXHIBIT 10 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT ("AGREEMENT") is made and entered into this 8th day of September, 2005, by and among PAID, INC., a Delaware corporation ("Buyer") and LESLIE ROTMAN ("Seller"). RECITALS WHEREAS, Seller owns movie posters listed as Schedule A (the "Posters"); - WHEREAS, Buyer desires to purchase the Posters; and WHEREAS, Buyer and Seller have determined it to be in their respective best interests for Seller to sell the Posters to Buyer in accordance with the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, Buyer and Seller hereby agree as follows: 1. Purchase and Sale 1.01 Assets Purchased. Subject to the terms and conditions of this Agreement and the limitations of Section 1.02, Seller shall sell to Buyer, free and clear of all liens, encumbrances and claims of any nature, and Buyer shall purchase from Seller, all right, title and interest in and to the Posters, and all warranties and guarantees and all other rights relating to the Posters. 1.02 Excluded Assets. Notwithstanding anything listed on Schedule A, the Posters shall not include the posters listed on Schedule B. 1.03 Purchase Price. The purchase price for the Posters shall be One Million Ten Thousand Dollars ($1,010,000) (the "Purchase Price"). 1.04 Payment of Purchase Price. A. Payment. At the Closing, Buyer will deliver to Seller 6,433,121 restricted shares of common stock of Buyer, at a value of $.157 per share (the "Shares") (based on the five day average closing bid price of $.1846 less a discount of 15%). B. Adjustment. On or around September 9, 2007, Buyer shall review the cash received for the Posters listed on Schedule A sold by or on behalf of Buyer as of that date, plus the remaining Posters owned by Buyer that remain unsold. Based on that review, Buyer shall calculate the following: $1,060,500 (an amount equal to the Purchase Price plus a 5% estimated cost per sale) less (i) the amount equal to the cash that Buyer received for the sale of any of the Posters during the two year period from September 8, 2005 through September 8, 2007 and (ii) an amount equal to the value assigned to any unsold Posters, as set forth in Schedule A, divided by one third. In the event that such formula exceeds $0 (the "Net Cost"), upon written demand by Buyer to Seller, Seller shall, within ten (10) business days of receipt of such demand, return such number of Shares (or the cash equivalent, at Seller's option) equal to the Net Cost, based on a per share value equal to the five-day average closing bid price of the Company's shares of common stock for the five days prior to September 9, 2007. In no event shall Seller be obligated to return more Shares than Seller actually received hereunder. During such two year period, - 1 - Seller shall not transfer the Shares received hereunder in any manner without the expressed written consent of Buyer. In the event that Seller determines to return Shares in lieu of the cash equivalent for such Shares, Buyer may elect to receive assignable options to purchase each such Share for a purchase price equal to the par value for each such Share. 1.05 Closing. The closing (the "Closing") of the transactions contemplated hereby shall take place on September 9, 2005 (the "Closing Date"), at the offices of Gould & Ettenberg, P.C., 370 Main Street, Worcester, Massachusetts,, or on such other date and place as the parties may agree. At Closing, Seller shall deliver a bill of sale for the Posters in such form as is attached in Exhibit A, and such other instruments and documents, all in such form, as Buyer may reasonably request. 1.06 Delivery of Consideration. (a) Buyer shall issue and deliver to Seller the Shares immediately upon Closing. (b) Seller acknowledges that the Shares are not registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless registered thereunder or Seller shall have delivered to Buyer an opinion by counsel reasonably satisfactory to Buyer, in form, scope and substance reasonably satisfactory to Buyer, to the effect that the Shares to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration. Seller further acknowledges that any sale of the Shares made in reliance on Rule 144 (or any amendment or applicable rule which operates to replace Rule 144), promulgated under the 1933 Act ("Rule 144") may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Shares under circumstances in which Seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations thereunder and applicable state securities laws. (c) Unless and until the Shares have been registered under the 1933 Act, the stock certificates representing the Shares will bear a restrictive legend (the "Legend") in substantially the following form: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "LAWS"). THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE LAWS. The Legend shall be removed and Buyer shall issue a certificate without such Legend to the holder of any certificate evidencing the Shares upon which it is stamped, and a certificate for the Shares shall be originally issued without the Legend, if, unless otherwise required by state securities laws, (x) the sale of such Shares is registered under the 1933 Act, or (y) such holder provides Buyer with an opinion by counsel reasonably satisfactory to Buyer, that is in form, substance and scope reasonably satisfactory to Buyer, to the effect that a public sale or transfer of such Shares may be made without registration under the 1933 Act. In the event the Legend is removed from any certificate evidencing any the Shares or any certificate evidencing any Securities is issued without the Legend and thereafter the effectiveness of a registration statement covering the sale of such Shares is suspended or Buyer determines that a - 2 - supplement or amendment thereto is required by applicable securities laws, then upon reasonable advance notice to the holder of such Shares, Buyer shall be entitled to require that the Legend be placed upon any certificate evidencing such Shares which cannot then be sold pursuant to an effective registration statement or an available exemption from registration or with respect to which the opinion referred to in clause (y) next above has not been rendered, which Legend shall be removed when such Shares may be sold pursuant to an effective registration statement or an available exemption from registration (or such holder provides the opinion with respect thereto described in clause (y) next above). 2. Representations and Warranties of Seller. Seller hereby represents and warrants to Buyer, as related solely to the Business, as follows: 2.01 Authority. Seller has all requisite power and authority to enter into this Agreement and perform its obligations hereunder. Seller owns the Posters and no other individual or entity has any rights to or title in the Posters. 2.02 Power and Authorization. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action. This Agreement and the other agreements and instruments of transfer to be executed and delivered by Seller in connection herewith constitute the valid and binding agreements of Seller in accordance with their terms. 2.03 Conflict with Other Agreements, Consents and Approvals. With respect to (i) any applicable law, statute, rule or regulation, (ii) any contract to which Seller is a party or may be bound, or (iii) any judgment, order, injunction, decree or ruling of any court or governmental authority to which Seller is a party or subject, the execution and delivery by Seller of this Agreement and any other agreements to be executed and delivered by Seller in connection herewith and consummation of the transactions contemplated hereby will not (a) result (with or without notice or lapse of time or both) in any violation, conflict or default, or give to others any interest or rights, including rights of termination, cancellation or acceleration, (b) require any authorization, consent, approval, exemption or other action by any court or administrative or governmental body which has not been given or done, or (c) require the consent of any third party. 2.04 Compliance with Law. Seller's use of the Posters has been in compliance with all applicable federal, state, local or other governmental laws or ordinances, and Seller has received no claim or notice of violation with respect thereto. 2.05 Tax and Other Returns and Reports. (i) All federal, state, local and foreign tax returns and reports (including without limitation all income tax, social security, sales and use, excise, privilege, property, ad valorem, franchise, license, and school) required to be filed by Seller by the Closing ("Tax Returns") have been filed with the appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed, all such returns and reports properly reflect the taxes of the Seller for the periods covered thereby; (ii) all federal, state, and local taxes, assessments, interest, penalties, deficiencies, fees and other governmental charges or impositions, including those enumerated above with respect to the Tax Returns, which are called for by the Tax Returns, or which are claimed to be due from the Seller by notice from any taxing authority, or upon or measured by its properties, assets or income ("Taxes"), have been paid by or at the Closing if then due and payable, and (iii) all further taxes not yet due will be paid by Seller when due and payable. 2.06 Title to and Condition of Assets. Seller holds good and marketable title to the Posters, free and clear of restriction on or conditions to transfer or assignment, and free and clear of all liens, pledges, charges, or encumbrances. None of the Posters are subject to any lease, license, or consignment. Buyer acknowledges that the Posters are in good to excellent condition and are located in their entirety - 3 - at 725 Southbridge Street, Worcester, Massachusetts 01610. Prior to Closing, Buyer shall have the right to inspect the Posters which shall then still be in such condition. 2.07 Litigation. There is no claim, litigation, proceeding, or investigation pending or threatened against Seller, nor any valid basis for such a dispute. 2.08 Insurance. Seller maintains adequate insurance coverage with respect to the Posters, and will continue to maintain adequate insurance coverage, through the Closing Date. 2.09 Brokerage. Seller has not employed any broker, finder or similar agent in connection with the transactions contemplated by this Agreement, or taken action that would give rise to a valid claim against any party for a brokerage commission, finder's fee, or similar compensation. 2.10 Accuracy of Representations and Warranties. None of the representations or warranties of Seller herein contain or will contain any untrue statement of a material fact or omit or will omit or misstate a material fact with respect to the subject matter hereof. 3. Warranties, Representations and Covenants of Buyer. Buyer hereby represents, warrants and covenants to Seller as follows: 3.01. Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 3.02. Corporate Authority. Buyer has the full power, authority and right to enter into this Agreement and Buyer has the full power and authority to consummate the transactions contemplated hereby. Buyer's Board of Directors has taken all necessary corporate action to duly authorize the execution, delivery and performance of this Agreement. All persons signing or executing this Agreement and the exhibits hereto have been duly authorized by Buyer to take such actions. The Agreement has been duly and validly executed and delivered by Buyer and (assuming the due authorization, execution and delivery thereof by Seller) constitutes the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors rights generally and subject to general principles of equity. 3.03. No Violations. The execution and delivery of this Agreement by Buyer do not, and the consummation of the transactions contemplated hereunder by Buyer will not (i) violate any existing provision of any law, including any securities laws, or violate any existing term or provision of any order, writ, judgment, injunction or decree of any court, governmental department, commission, board, agency or instrumentality applicable to Buyer or their properties or assets; (ii) conflict with or violate any of the terms, conditions or provisions of the Certificate of Incorporation, as amended, Bylaws, as amended, or any other organizational documents of Buyer; (iii) violate, result in any breach of, or constitute a default (or give rise to any right of termination, cancellation or acceleration) under any contract, agreement, indenture, mortgage or deed of trust, security agreement, license, instrument or obligation to which any of Buyer is a party or by which any is bound; or (iv) result in the creation or imposition of any other Lien upon Buyer or any of their properties or assets. 3.04. Validity of Shares. As of the Closing Date, the Shares shall have been duly authorized for issuance and will, when issued and delivered as provided in this Agreement, be duly and validly issued, fully paid and nonassessable. Buyer has only one class of common stock, which is traded on the OTCBB under the symbol "PAYD." - 4 - 3.05. Broker's Fees. No agent, broker, person, or firm acting on behalf of Buyer is, or will be, entitled to any commission or broker's or finder's fees from any of the parties hereto, or from any person controlling, controlled by or under common control with any of the parties hereto, in connection with any of the transactions contemplated herein. 3.06. Buyer's SEC Reports. Buyer's most recent Annual Report on Form 10-KSB for the year ended December 31, 2004 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (the "SEC Reports"), filed by Buyer with the Securities and Exchange Commission did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.07. No Adverse Change. Since June 30, 2005, there has been no material adverse change in the financial condition of Buyer. 3.08. Compliance with Securities Exchange Act. Buyer has complied in all material respects with the provisions of the Securities Exchange Act of 1934, as amended, which are applicable to Buyer. 3.09. Litigation. Except as set described in the SEC Reports there is no litigation, proceeding, investigation, arbitration claim or administrative or regulatory proceeding, complaint or accusation pending in court or before any administrative board, agency or commission, which can have a material adverse effect on the assets, financial condition or business operation of Buyer. 4. General Indemnity. A. Seller shall indemnify and hold harmless Buyer, and its past, present or future employees, directors, officers, agents and any assignee of Buyer from and against any and all claims, demands, suits, actions, judgments, expenses, losses, costs and attorneys' fees, which Buyer may incur or to which it may be subjected, in any way arising or alleged to arise out of or in connection with (i) any breach or failure of any representation or warranty of Seller herein or (ii) failure of Seller to perform any act, covenant or obligation to be performed by Seller hereunder, including, without limitation, loss, damage or expense resulting from unknown or undisclosed liabilities of Seller or failure of Seller to pay any liability not assumed by Buyer. B. Buyer shall indemnify and hold harmless Seller, and her past, present or future employees, agents and any assignee of Seller from and against any and all claims, demands, suits, actions, judgments, expenses, losses, costs and attorneys' fees, which Seller may incur or to which it may be subjected, in any way arising or alleged to arise out of or in connection with (i) any breach or failure of any representation or warranty of Buyer herein or (ii) failure of Buyer to perform any act, covenant or obligation to be performed by Buyer hereunder. 5. Conditions of Obligations of Buyer. The obligations of Buyer to perform under this Agreement are subject to the satisfaction of the following conditions on or prior to the Closing Date, unless waived by Buyer, and Seller shall use its best efforts to cause such conditions to be fulfilled: 5.01 Representations and Warranties. The representations, warranties and covenants of Seller in this Agreement or in any schedule, certificate or document delivered in connection herewith shall be true and correct in all material respects on the Closing Date as though made on and as of the Closing Date. 5.02 Performance of Obligations of Seller. Seller shall have performed in all material respects the execution of all agreements, documents and obligations required to be performed or executed - 5 - by Seller under this Agreement prior to the Closing Date. Seller shall have delivered to Buyer a Bill of Sale for the Posters to be sold hereunder and the Posters. 5.03 Consents. Seller shall have obtained, or to the reasonable satisfaction of Buyer obviate the need to obtain or assign, all consents, waivers or releases from third parties necessary to convey to Buyer the Posters. 5.04 Due Diligence. Buyer shall have fully completed its due diligence and be satisfied with such review. 6. Conditions of Obligations of Seller. The obligations of Seller to perform under this Agreement are subject to the satisfaction of the following conditions on or prior to the Closing Date unless waived by Seller, and Buyer shall use its best efforts to cause such conditions to be fulfilled. 6.01 Representations and Warranties. The representations and warranties of Buyer in this Agreement or in any schedule, certificate or document delivered pursuant hereto shall be true and correct in all material respects on the Closing Date as though made on and as of the Closing Date. 6.02 Performance of Obligations of Buyer. Buyer shall have performed in all material respects all obligations required to be performed by it under this Agreement. 7. Miscellaneous. 7.01 Interpretation and Survival of Covenants and Warranties. The parties to this Agreement represent and warrant to the other party that no representation or warranty made by them in this Agreement or otherwise in connection with the transaction contemplated by this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained in the representation and warranty not misleading. All covenants, representations and warranties of each of the parties herein shall be deemed to have been made at the time of execution of this Agreement at the time of Closing, and shall survive the Closing without limitation as to time. 7.02 Applicable Law. This Agreement was entered into, and shall be controlled by, and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of conflicts of law. 7.03 Entire Agreement; Modifications. This Agreement, and the bill of sale referred to herein, and any other documents executed at Closing in connection herewith, embody the entire agreement and understanding between the parties hereto and supercede all prior agreements and understandings, relating to the subject matter hereof. No change, modification of or addition to this Agreement shall be valid unless in writing and signed by the party to be held responsible thereunder. 7.04 Notices. Any notice, request or instruction to be given hereunder by either party to the other shall be in writing and deemed given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, (i) if to Buyer at 4 Brussels Street, Worcester, Massachusetts 01610, with a copy to Michael A. Refolo, Esq., Bowditch & Dewey, LLP, 311 Main Street, P.O. Box 15156, Worcester, MA 01615-0156; and (ii) if to Seller at c/o David Bunker, Esquire, Gould & Ettenberg, P.C., 370 Main Street, Worcester, MA 01608 or to such other address as any party may specify by written notice to the others. 7.05 Benefit. The rights and obligations created hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. - 6 - 7.06 Public Announcements. Seller shall not issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the other. 7.07 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 7.08 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same Agreement. 7.09 Expenses. Each of the parties will bear his or its own costs and expenses, including legal fees and expenses, incurred in connection with this Agreement and the transactions contemplated hereby. 7.10 Construction; Severability. Any provision of this Agreement susceptible to a construction which would render it invalid or unenforceable shall, if possible, be construed so as to render it valid and enforceable. Any term or provision of this Agreement that is invalid or unenforceable in any situation, in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. BUYER: SELLER: PAID, INC. By: /s/ Greg Rotman /s/ Leslie Rotman ---------------------------- -------------------------------- Greg Rotman Leslie Rotman - 7 - SCHEDULE A POSTERS - 8 - SCHEDULE B EXCLUDED POSTERS - 9 - EXHIBIT A BILL OF SALE KNOW ALL MEN BY THESE PRESENTS, that LESLIE ROTMAN ("Seller"), for and in consideration of the payment of the Purchase Price by PAID, INC., a Massachusetts corporation ("Buyer"), pursuant to the Asset Purchase Agreement dated September 8, 2005, by and between Seller and Buyer (the "Agreement"), receipt of which is hereby acknowledged, hereby sells, conveys, transfers, assigns and delivers to Buyer all of Seller's right, title, and interest in and to Posters listed in Exhibit A, free and clear of all liens, encumbrances, and claims of any nature (the "Posters"). TO HAVE AND TO HOLD the Purchased Assets conveyed, assigned and transferred or intended so to be unto Buyer, its successors and assigns, FOREVER. Seller hereby constitute and appoint Buyer and its successors and assigns as the true and lawful attorney in fact of Seller in connection with the transactions contemplated by this Instrument, with full power of substitution, in the name and stead of Seller but on behalf of and for the benefit of Buyer and its successors and assigns, to demand and receive any and all of the Posters hereby conveyed, assigned and transferred or intended so to be, and to give receipts and releases for and in respect of the same and any part thereof, and from time to time institute and prosecute, in the name of Seller or otherwise, for the benefit of Buyer or its successors and assigns, proceedings at law, in equity or otherwise, which Buyer or its successors or assigns reasonably deem proper in order to collect or reduce to possession or enforce any of the Posters, and to do all acts and things in relation to the Posters which Buyer or its successors or assigns reasonably deem desirable. Terms defined in the Agreement and not otherwise defined herein are used herein with the meanings so defined. This Instrument shall be binding upon and shall inure to the benefit of the respective successors and assigns of Buyer and Seller. IN WITNESS WHEREOF, Seller has caused this instrument to be duly executed under seal as of the 13th day of September, 2005. ---------------------------------- Leslie Rotman - 10 - SCHEDULE A TO BILL OF SALE - 11 - EX-31.1 3 d65884_ex31-1.txt SECTION 302 CERTIFICATION OF CEO EXHIBIT 31.1 CERTIFICATION I, Gregory Rotman, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Paid, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: November 11, 2005 /s/ Gregory Rotman ----------------------------------- Gregory Rotman, President EX-31.2 4 d65884_ex31-2.txt SECTION 302 CERTIFICATION OF CFO EXHIBIT 31.2 CERTIFICATION I, Richard Rotman, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Paid, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: November 11, 2005 /s/ Richard Rotman --------------------------------------- Richard Rotman, Chief Financial Officer EX-32 5 d65884_ex32.txt SECTION 906 CERTIFICATION OF CEO AND CFO EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Paid, Inc. (the "Company") on Form 10-QSB for the period ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, in their respective capacities as capacity as President and CEO of the Company and as CFO of the Company, certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Gregory Rotman - ----------------------------- Gregory Rotman President and CEO November 11, 2005 /s/ Richard Rotman - ----------------------------- Richard Rotman Chief Financial Officer November 11, 2005 -----END PRIVACY-ENHANCED MESSAGE-----