Attached files
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EX-99.2 - ADDITIONAL EXHIBITS - PAID INC | ex99-2.htm |
EX-99.1 - AUDITED FINANCIAL STATEMENTS - PAID INC | ex99-1.htm |
8-K/A - AMENDMENT TO FORM 8-K - PAID INC | payd8ka_dec232016.htm |
EXHIBIT 99.3
UNAUDITED PROFORMA FINANCIAL INFORMATION
The Board of Directors of the Company has effectuated an
Amalgamation Agreement with emergeIT Inc, an Ontario corporation
(“emergeIT”), whereby emergeIT merged with a newly
formed Canadian subsidiary of the Company.
The former owners of emergeIT hold rights to approximately 79% of
all the issued and outstanding shares of capital stock of the
Company.
The
total estimated fair value of consideration transferred for the
merger is $13,200,000 consisting of $12,394,719 in capital stock in
addition to the assumption of $805,281 in shareholder
deficit.
The following unaudited pro forma condensed combined balance sheet
as of September 30, 2016 includes the historical balance sheet of
the Company as of September 30, 2016 and the historical balance
sheet of emergeIT as of September 30, 2016. The following unaudited
pro forma condensed combined statement of operations for the nine
months ended September 30, 2016 and the year ended December 31,
2015 includes the historical statement of operations of the Company
and historical statement of operations of emergeIT for the nine
months ended September 30, 2016 and the historical statement of
operations for the Company and the historical statement of
operations of emergeIT for the year ended December 31, 2015, after
giving effect to the acquisition as if it had been consummated at
the beginning of the period presented.
The pro forma statements of operations do not reflect any future
operating efficiencies and cost savings resulting from the
transaction. Unaudited pro forma condensed combined financial
information is presented for information purposes only and is not
necessarily indicative of the results that actually would have been
realized had the acquisition been completed on the date indicated
or which may be expected to occur in the future.
The unaudited pro forma condensed combined financial
information should be read in conjunction with the audited
historical financial statements and related notes of the Company
which are attached as appendices to this Form 8-K/A.
-1-
PAID INC. AND EMERGEIT INC.
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PRO FORMA CONDENSED COMBINED BALANCE SHEETS
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||||||
AS OF SEPTEMBER 30, 2016
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UNAUDITED
|
|
emerge IT
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PAID
|
Pro Forma Adjustments
|
Combined
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
and cash equivalents
|
$271,818
|
$121,013
|
$-
|
$392,831
|
Accounts
receivable, net
|
41,430
|
22,850
|
-
|
64,280
|
Due
from related party
|
729
|
-
|
-
|
729
|
Prepaid
expenses and other current assets
|
19,630
|
14,192
|
-
|
33,822
|
Funds
held in trust
|
162,207
|
-
|
-
|
162,207
|
Total
current assets
|
495,814
|
158,055
|
-
|
653,869
|
Property
and equipment, net
|
60,206
|
6,735
|
-
|
99,281
|
Intangible
asset, net
|
32,340
|
201,797
|
6,795,978(a)
|
7,030,115
|
Goodwill
|
-
|
-
|
6,404,022(b)
|
6,404,022
|
Total
assets
|
$588,359
|
$366,587
|
$13,200,000
|
$14,154,946
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LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$537,255
|
$1,086,907
|
$-
|
$1,624,702
|
Notes
payable
|
-
|
-
|
-
|
-
|
Due
to related parties
|
198,057
|
-
|
-
|
198,057
|
Promissory
note
|
424,934
|
-
|
-
|
424,934
|
Deferred
revenues - current
|
-
|
7,027
|
-
|
7,027
|
Total current
liabilities
|
1,160,246
|
1,093,934
|
-
|
2,254,720
|
Long-term
liabilities
|
|
|
|
|
Deferred
revenues
|
233,394
|
-
|
-
|
233,394
|
Total
liabilities
|
1,393,640
|
1,093,934
|
-
|
2,488,114
|
Total
shareholders' equity (deficit)
|
(805,281)
|
(727,347)
|
13,200,000(c)
|
11,667,372
|
Total
liabilities and shareholders' equity (deficit)
|
$588,359
|
$366,587
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$13,200,000
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$14,154,946
|
-2-
PAID INC. AND EMERGEIT INC.
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PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
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UNAUDITED
|
|
emerge IT
|
PAID
|
Pro Forma Adjustments
|
Combined
|
Revenues
|
$4,166,649
|
$391,009
|
$-
|
$4,557,658
|
Cost
of sales
|
2,959,818
|
18,231
|
-
|
2,978,049
|
Gross
profit
|
1,206,831
|
372,778
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-
|
1,579,609
|
|
|
|
|
|
Operating
expenses
|
905,385
|
779,174
|
614,155(d)
|
2,298,714
|
Income
(loss) from operations
|
301,446
|
(406,396)
|
614,155
|
(719,105)
|
Other
income (expense)
|
|
|
|
|
Interest
expense
|
(217,060)
|
(679)
|
-
|
(217,739)
|
Other
income
|
-
|
62,333
|
-
|
62,333
|
Unrealized
gain on stock price guarantee
|
-
|
28,541
|
-
|
28,541
|
Total
other income (expense), net
|
(217,060)
|
90,195
|
-
|
(126,865)
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
84,386
|
(316,201)
|
-
|
(845,971)
|
Provision
for income taxes
|
-
|
807
|
-
|
807
|
Net
income (loss)
|
$84,386
|
$(317,008)
|
$(614,155)
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$(846,778)
|
|
|
|
|
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Loss
per share - basic and diluted
|
|
$(0.03)
|
|
|
Weighted
average number of shares - basic and diluted
|
|
10,552,696
|
|
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-3-
PAID INC. & EMERGEIT INC.
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PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS
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FOR THE YEAR ENDED DECEMBER 31, 2015
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UNAUDITED
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||||
|
|
|
|
|
|
Emerge
IT
|
PAID
|
Adjustments
|
Combined
|
Revenues
|
$4,099,768
|
$272,920
|
$-
|
$4,372,688
|
Cost
of sales
|
3,194,077
|
39,504
|
-
|
3,233,581
|
Gross
profit
|
905,691
|
233,416
|
-
|
1,139,107
|
|
|
|
|
|
Operating
expenses
|
893,130
|
1,067,216
|
818,874(e)
|
2,779,220
|
Income
(loss) from operations
|
12,561
|
(833,800)
|
818,874
|
(1,640,122)
|
Other
income (expense)
|
|
|
|
|
Interest
expense
|
(190,637)
|
(946)
|
-
|
(191,583)
|
Other
income
|
-
|
987
|
-
|
987
|
Write
down of other receivables
|
-
|
(115,913)
|
|
(115,913)
|
Unrealized
gain on stock price guarantee
|
-
|
(358,850)
|
-
|
(358,850)
|
Total
other expense, net
|
(190,637)
|
(474,722)
|
-
|
(665,359)
|
|
|
|
|
|
Loss
before provision for income taxes
|
(178,076)
|
(1,308,522)
|
-
|
(2,305,471)
|
Provision
for income taxes
|
-
|
975
|
-
|
975
|
Net
loss
|
$(178,076)
|
$(1,309,497)
|
$(818,874)
|
$(2,306,446)
|
|
|
|
|
|
Loss
per share - basic and diluted
|
|
$(0.18)
|
|
|
Weighted
average number of shares - basic and diluted
|
|
7,192,919
|
|
|
-4-
PAID, INC. AND EMERGEIT, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined balance sheet as of
September 30, 2016 and the unaudited pro forma condensed combined
statements of operations for the nine months ended September 30,
2016 and year ended December 31, 2015, are based on PAID,
Inc.’s (the “Company”) historical financial
statements as of and for the nine months ended September 30, 2016,
and the historical financial statements of emergeIT, Inc.
(“emergeIT”) as of and for the nine months ended
September 30, 2016 and the historical statement of operations of
the Company for the year ended December 31, 2015 and the historical
statement of operations of emergeIT for the year ended December 31,
2015, after giving effect to the merger of its subsidiary with
emergeIT and the assumptions, reclassifications and adjustments
described in the accompanying notes to the unaudited pro forma
condensed combined financial statements.
The Company is required to recognize the assets acquired and,
liabilities assumed, measured at their fair values as of the
acquisition date. Significant assumptions and estimates have been
made in determining the purchase price and the allocation of the
purchase price in the unaudited pro forma condensed combined
financial statements. These preliminary estimates and assumptions
are subject to change as the Company finalizes the valuations of
the net tangible assets and, intangible assets. These changes could
result in material variances between its future financial results
and the amounts presented in these unaudited condensed combined
financial statements, including variances in fair values recorded,
as well as expenses and cash flows associated with these
items.
Accounting Periods Presented
The unaudited pro forma condensed combined balance sheet and
statements of operations as of and for the nine months ended
September 30, 2016, and for the year ended December 31, 2015 is
presented as if the emergeIT merger occurred at the beginning of
the periods presented.
NOTE 2. PURCHASE PRICE ALLOCATION
The
Board of Directors of the Company entered into an Amalgamation
Agreement with emergeIT Inc, an Ontario corporation
(“emergeIT”), whereby emergeIT merged with a newly
formed Canadian subsidiary of the Company.
The
Company engaged an outside independent third party valuation firm
to assist in establishing a value for the emergeIT. The methodology
used for this valuation is consistent with the June 2016 valuation
conducted by the Company.
In preparing its report, the third-party valuation firm used
various financial and other information provided to the valuation
firm by the Company’s and emergeIT’s management or
obtained from other private and public sources including financial
projections prepared by emergeIT management, and relied on the
accuracy and completeness of this information. There is no
assurance that the valuation firm, or any other financial adviser
that the Company might choose, will utilize the same process of
methodologies in connection with future valuations of emergeIT, or
that such advisor(s) will reach conclusions that are consistent
with those presented.
The
estimated fair value of consideration transferred, assets acquired
and liabilities assumed for emergeIT are presented below and
represent the Company’s best estimates.
Preliminary Fair Value of Consideration Transferred
The former owners of emergeIT hold rights to approximately 79% of
all the issued and outstanding shares of capital stock of the
Company.
Preliminary Allocation of Consideration Transferred
The identifiable assets acquired and liabilities assumed were
recognized and measured as of September 30, 2016. The excess of the
fair value of consideration transferred over estimated fair value
of the net tangible assets and intangible assets acquired was
recorded as goodwill.
-5-
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at September 30,
2016.
Cash
and cash equivalents
|
$271,818
|
Accounts
receivable
|
41,430
|
Prepaid
expenses and other assets
|
182,566
|
Property
and equipment
|
92,546
|
Intangible
assets
|
6,795,978
|
|
7,448,395
|
Accounts
payable and accrued liabilities
|
1,160,246
|
Other
liabilities
|
233,394
|
Total
liabilities assumed
|
1,393,640
|
Goodwill
|
6,404,022
|
Net
assets acquired
|
$12,394,719
|
Intangible Assets
In determining the estimated fair value of the intangible assets,
the Company considered, among other factors, the best use of the
acquired assets, analyses of historical financial performance and
estimates of future performance of emergeIT sales. The fair values
of the identified intangible assets related to the customer
relationships, trade name, and technology. Customer relationships
were calculated using the income approach. Trade name and
technology were calculated using the cost approach. The following
table sets forth the components of identified intangible assets
associated with the proposed merger and their estimated useful
lives.
|
Fair
Value
|
Useful
Life
|
Customer
relationships
|
$5,173,135
|
15 years
|
Trade
Name
|
1,124,745
|
5 years
|
Technology
|
498,098
|
2 years
|
|
$6,795,978
|
|
The Company determined the useful lives of intangible assets based
on the expected future cash flows associated with the respective
asset. Trade names represent the fair value of the brand and name
recognition associated with the marketing of emergeIT's services.
Customer relationships represent the expected benefit from future
revenues which were reasonably anticipated to continue given the
history and performance of emergeIT. Technology acquired would
complement the current offering by the Company and the future
development of products as a result of the proposed merger may
result in significant growth.
Goodwill
Of the
total estimated purchase price, approximately $6,404,022 was
allocated to goodwill. Goodwill represents the excess of the
purchase price of the proposed merger over the fair value of the
underlying net tangible and intangible assets. Goodwill resulting
from the proposed merger will be tested for impairment at least
annually and more frequently if certain indicators are present. In
the event the Company determines that the value of goodwill has
become impaired, it will incur an accounting charge for the amount
of the impairment during the fiscal quarter in which the
determination is made. None of the goodwill is expected to be
deductible for income tax purposes.
-6-
NOTE 3. PRO FORMA BOOK VALUE PER-SHARE DATA
Equivalent Pro Forma Book Value
The following table represents the pro forma calculations of the
historical, pro forma and equivalent pro forma book value per share
as of September 30, 2016 and December 31, 2015. The Company issued
449 shares of its common stock for one outstanding emergeIT common
share. The adjustments reflected below represent the issuance of
5,500,000 common and 38,500,000 preferred shares of the
Company’s stock.
The historical and pro forma balance sheets as of September 30,
2016 and December 31, 2015 of the Company and emergeIT are as
follows:
|
As of
September 30,
2016
|
As of
September 30, 2016
|
|
As of S
eptember 30, 2016
|
|
PAID
|
Emerge
IT
|
Adjustments
|
Combined
|
Shareholders’
equity (deficit)
|
$(727,347)
|
$(805,281)
|
$13,200,000
|
$11,667,372
|
Common
shares outstanding
|
10,989,608
|
12,252
|
5,500,000
|
16,489,608
|
Net
book value per common share
|
|
|
|
|
Historical
|
$(0.07)
|
$(65.73)
|
|
|
Pro
forma
|
0.71
|
|
|
|
Equivalent
pro forma
|
|
317.63
|
|
|
|
As of
December 31, 2015
|
As of
December 31, 2015
|
|
As of
December 31, 2015
|
|
PAID
|
Emerge IT
|
Adjustments
|
Combined
|
Shareholders’
equity (deficit)
|
$(632,153)
|
$(844,167)
|
$13,200,000
|
$11,723,680
|
Common
shares outstanding
|
8,932,466
|
12,252
|
5,500,000
|
14,432,466
|
Net
book value per common share
|
|
|
|
|
Historical
|
$(0.07)
|
$(68.60)
|
|
|
Pro
forma
|
0.81
|
|
|
|
Equivalent
pro forma
|
|
364.66
|
|
|
NOTE 4. PRO FORMA AND RECLASSIFICATION ADJUSTMENTS
Pro forma adjustments are made to reflect the estimated purchase
price, to adjust amounts related to emergeIT’s net tangible
assets and intangible assets to a preliminary estimate of the fair
values of those assets and to reflect the amortization expense
related to the estimated amortizable intangible assets.
Additionally, the Company reclassified certain of emergeIT’s
balances to conform to the Company’s financial statement
presentation.
-7-
The following describes the pro forma adjustments related to the
emergeIT made in the accompanying unaudited pro forma condensed
combined balance sheet as of September 30, 2016, and the unaudited
pro forma condensed combined statements of operations for the nine
months ended September 30, 2016 and the year ended December 31,
2015, giving effect to the merger as if it had been consummated at
the beginning of the periods presented.
|
(a)
|
To
reflect the fair value of identifiable intangible assets
acquired.
|
|
|
|
|
(b)
|
To
reflect the fair value of the goodwill based on the net assets
acquired.
|
|
|
|
|
(c)
|
To reflect the estimated fair value of the issuance of the
Company's common and preferred stock (combined value
of $12,394,719) less the elimination of emergeIT's shareholders'
deficit ($805,281).
|
|
|
|
|
(d)
|
To
reflect estimated amortization expense of identifiable intangible
assets of $614,155, for the nine months ended September 30,
2016, as if the proposed merger had occurred at the beginning of
the period presented.
|
|
(e)
|
To
reflect estimated amortization expense of identifiable intangible
assets of $818,874, for the year ended December 31, 2015, as if the
acquisition had occurred at the beginning of the period
presented.
|
-8-