Forward Looking Statements

This Annual Report on Form 10-K contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) regarding the Company and its business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates", "could", "may", "should", "will", "would", and similar expressions or variations of such words are intended to identify forward-looking statements in this report. Additionally, statements concerning future matters such as the development of new services, technology enhancements, purchase of equipment, credit arrangements, possible changes in legislation and other statements regarding matters that are not historical are forward-looking statements.

Although forward-looking statements in this Annual Report reflect the good faith judgment of the Company's management, such statements can only be based on facts and factors currently known by the Company. Further, whether actual results will conform to our expectations and predictions is subject to a number of known and unknown risks and uncertainties, including the risks and uncertainties discussed in this Annual Report; general economic, market, or business conditions; the opportunities that may be presented to and pursued by us; competitive actions by other companies; changes in laws or regulations; and other circumstances, many of which are beyond our control. Thus, actual results and outcomes may differ materially from results and outcomes discussed in this report. Although the Company believes that its plans, intentions and expectations reflected in these forward-looking statements are reasonable; the Company can give no assurance that its plans, intentions or expectations will be achieved. For a more complete discussion of these risk factors, see Item 1A, "Risk Factors".

For example, the Company's ability to achieve positive cash flow and to become profitable may be adversely affected as a result of a number of factors that could thwart its efforts. These factors include the Company's inability to successfully implement the Company's business and revenue model, tour or event cancellations, higher costs than anticipated, the Company's inability to sell its products and services to a sufficient number of customers, the introduction of competing products by others, the Company's failure to attract sufficient interest in and traffic to its sites, the Company's inability to complete development of its sites, the failure of the Company's operating systems, and the Company's inability to increase its revenues as rapidly as anticipated. If the Company is not profitable in the future, it will not be able to continue its business operations.

Except as required by applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise. Readers are urged to review carefully and to consider the various disclosures made by Paid, Inc. in this Annual Report, which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Overview

Our primary focus is to provide businesses and clients with marketing, management, merchandising, auction management, website hosting, and authentication services for the entertainment, sports and collectible industries. We offer entertainers and athletes official web sites and fan club services including e-commerce, VIP ticketing, fan club management, fan experiences, storefronts, articles, polls, message boards, contests, biographies and custom features. We also sell merchandise for celebrities, through official fan websites, on tour or at retail. Our celebrity services proprietary content management system provides an opportunity for our clients to offer more information, merchandise and experiences to their customers and communities. We provide business management tools for online retailers, through AuctionInc, which utilizes our patented shipping calculator and automated auction checkout and order processing system.

Critical Accounting Policies

Our significant accounting policies are more fully described in Note 3 to our consolidated financial statements. However, certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management; as a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management makes estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. Those estimates and judgments are based upon our historical experience, the terms of existing contracts, our observance of trends in the industry, information that we obtain from our customers and outside sources, and on various other assumptions that we believe to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies include:

Inventories: Inventories are stated at the lower of average cost or market on a first-in, first-out method. On a periodic basis we review inventories on hand to ascertain if any is slow moving or obsolete. In connection with this review, we establish reserves based upon management's experience and assessment of current product demand. The Company's inventories are comprised of merchandise and collectibles that relates to performing artists and athletes and valuation of it is more subjective than with more standard inventories. General economic conditions, tour schedules of performing artists, and the reputation of the performing artists/athletes, might make sale or disposition of these inventories more or less difficult. Any increases in the reserves would cause a decline in profitability, since such increases are recorded as charges against operations.

Revenue recognition: Certain components of revenues are recognized based upon estimates of value, since they are received in non-monetary transactions. Management estimates the amount of revenue based upon its historical experience in comparable cash transactions or its estimation of the value received, whichever is more reliable in the circumstances. Variations in the reliability of these judgments may result in enhancement or impairment of gross margins and results of operations in future periods.

Results of Operations

Year ended December 31, 2008 to year ended December 31, 2007

The following discussion compares the Company's results of operations for the year ended December 31, 2008 with those for the year ended December 31, 2007. The Company's financial statements and notes thereto included elsewhere in this annual report contain detailed information that should be referred to in conjunction with the following discussion.

Revenues. For the year ended December 31, 2008, revenues were $2,181,000, 91% of which was attributable to sales of fan club memberships, merchandise, and fan experiences related to tours of performing artists. Sales of the Company's own product and fees from buyers and sellers represented 8% of revenues. Gross sales of the Company's own product were $164,000. Fan experience, fan club membership and related merchandise sales revenues were $1,979,000. Other revenues were $38,000, less than 2% of gross revenues, during the year ended December 31, 2008. Management anticipates increases from fan club memberships, merchandise, and fan experiences from tours, products and services related to several other performing artists during 2009. Performing artists typically do not announce tour plans until two to four months in advance of the first show. Several performing artists represented by the Company have announced tours that are scheduled to begin during the second and/or third quarters of 2009.

The Company's 2008 revenues represent a decrease of approximately $1,202,000 or 36%, from 2007, when revenues were $3,383,000. For the year ended December 31, 2007, sales of the Company's product were $175,000 or 5% of gross sales, fan club membership and related merchandise sales revenues were $3,145,000, 93% of gross revenues, sports marketing revenues were $36,000, or 1% of gross revenues, and other revenues were $27,000, or less than 1% of gross revenues.

The main reasons for the decrease in revenues was a $1,167,000 decrease related to the tours of performing artists, lower revenues related to sports marketing services of $36,000 and lower sales of Company owned product of $10,000 from the same period in 2007. Revenues related tours of performing artists are dependent upon tour schedules, the popularity of the artist(s) on tour, and whether the tour(s) are domestic or international. During 2008, while there was an increase in the number of artists represented by the Company, the concerts held were at smaller venues, resulting lower attendance. Gross Profit from celebrity services for the years ended December 31, 2008 and 2007 was approximately $1,122,000 and $1,484,000 respectively. Gross profit (loss) from Company owned product sales for the year ended December 31, 2008 was approximately ($98,000), $192,000 less than in 2007. This decrease in gross profit is attributable to an addition to the inventory reserve of $150,000 during 2008.

Operating Expenses. Total operating expenses for the year ended December 31, 2008 were $5,022,000 compared to $4,074,000 in 2007, an increase of $948,000.

Sales, general and administrative ("SG&A") expenses for the year ended December 31, 2008 were $4,556,000, compared to $3,651,000 for the year ended December 31, 2007. The increase of $905,000 in SG&A costs includes increases in payroll and related costs of $89,000, option compensation of $453,000, professional fees of $394,000, and other expenses of $131,000, offset by decreases in travel of $57,000, shipping and postage of $14,000, and credit card commissions of $58,000. The credit card commissions and postage and shipping decreases are principally attributable to lower levels of tours of performing artists. The increase in professional fees is attributable to new business development costs and those associated with Sarbanes-Oxley compliance testing.

Costs associated with planning, maintaining and operating our web sites for the year ended December 31, 2008 increased by $43,000 from 2007. This increase is due primarily to an increase in payroll and related costs of $91,000 offset by a decrease in depreciation of $58,000.

Interest Expense. For the year ended December 31, 2008, the Company incurred approximately $484,000 of interest charges compared to interest charges of $83,000 in 2007, an increase of $401,000. This increase is attributable to the discount related to restricted stock granted in settlement of notes payable and amortization of the fair value of warrants issued in connection with short term debt.

Net Loss. The Company realized a net loss for the year ended December 31, 2008 of $4,734,000 compared to a net loss of $2,724,000 for the year ended December 31, 2007. The 2008 loss represents $.02 per share while the loss for 2007 represents $.01 per share.

Inflation. The Company believes that inflation has not had a material effect on its results of operations.

Year ended December 31, 2007 to year ended December 31, 2006

The following discussion compares the Company's results of operations for the year ended December 31, 2007 with those for the year ended December 31, 2006. The Company's financial statements and notes thereto included elsewhere in this annual report contain detailed information that should be referred to in conjunction with the following discussion.

Revenues. For the year ended December 31, 2007, revenues were $3,383,000, 93% of which was attributable to sales of fan club memberships, merchandise, and fan experiences related to tours of performing artists. Sales of the Company's own product and fees from buyers and sellers represented 5% of revenues, and sports marketing revenues represented 1% of revenues. Gross sales of the Company's own product were $175,000. Fan experience, fan club membership and related merchandise sales revenues were $3,144,000, and sports marketing revenues were $36,000. Other revenues were $28,000, less than 1% of gross revenues, during the year ended December 31, 2007.

The Company's 2007 revenues represent a decrease of approximately $4,666,000 or 58%, from 2006, when revenues were $8,049,000. For the year ended December 31, 2006, sales of the Company's product were $491,000 or 6% of gross sales, fan club membership and related merchandise sales revenues were $7,278,000, 90% of gross revenues, sports marketing revenues were $247,000, or 3% of gross revenues, and other revenues were $33,000, or less than 1% of gross revenues.

The main reasons for the decrease in revenues was a $4,133,000 decrease related to the tours of performing artists, lower revenues related to sports marketing services of $212,000 and lower sales of Company owned product of approximately $316,000 from the same period in 2006. Revenues related tours of performing artists are dependent upon tour schedules, the popularity of the artist(s) on tour, and whether the tour(s) are domestic or international. During 2006 a major artist was touring domestically while in 2007 this artist was touring internationally. Gross Profit from celebrity services for the years ended December 31, 2007 and 2006 was approximately $1,209,000 and $2,273,000 respectively. Gross profit from Company owned product sales for the year ended December 31, 2007 was approximately $94,000, $68,000 more than in 2006.

Operating Expenses. Total operating expenses for the year ended December 31, 2007 were $4,074,000 compared to $4,185,000 in 2006, a decrease of $111,000.

Sales, general and administrative ("SG&A") expenses for the year ended December 31, 2007 were $3,651,000, compared to $3,666,000 for the year ended December 31, 2006. The decrease of $15,000 in SG&A costs includes decreases in payroll and related costs of $225,000, depreciation and amortization of $21,000 as certain assets became fully depreciated during 2007, credit card commissions of $59,000, tour expenses of $82,000 and shipping and postage of $105,000, offset by increases in professional fees of $452,000, travel of $33,000, and rents of $34,000. The credit card commissions and postage and shipping decreases are principally attributable to lower levels of tours of performing artists. The increase in professional fees is attributable to new business development costs, which are expected to generate additional revenues in future periods.

Costs associated with planning, maintaining and operating our web sites for the year ended December 31, 2007 decreased by $96,000 from 2006. This decrease is due primarily to a decrease in consulting costs of $127,000, and computer costs of $48,000, offset by $49,500 less website development costs being capitalize in 2007 than in 2006.

Interest Expense. For the year ended December 31, 2007, the Company incurred approximately $83,000 of interest charges compared to interest charges of $18,000 in 2006, an increase of $65,000. This increase is attributable to the discount related to restricted stock granted in settlement of notes payable, interest and accrued expenses offset by lower average balances of short term interest bearing debt.

Net Loss. The Company realized a net loss for the year ended December 31, 2007 of $2,724,000 compared to a net loss of $1,704,000 for the year ended December 31, 2006. Losses for both years represent $.01 per share.

Inflation. The Company believes that inflation has not had a material effect on its results of operations.

Assets

At December 31, 2008, total assets of the Company were $1,614,000 compared to $1,771,000 at December 31, 2007.

Operating Cash Flows

A summarized reconciliation of the Company's net losses to cash used in operating activities for the years ended December 31, 2008, 2007 and 2006, is as follows:

                                                    2008            2007            2006
                                                ------------    ------------    ------------
Net loss                                        $ (4,734,400 )  $ (2,724,100 )  $ (1,704,100 )
Depreciation and amortization                         71,000         129,100         148,400
Inventory reserve                                    150,000               -         150,000
Share based compensation                             453,000               -               -
Amortization of debt discount                         61,100               -               -
Intrinsic value of stock options awarded in
payment of outside services and compensation       2,159,800       1,735,000       1,282,300
Interest charge on discounted stock issuance         371,800          75,000               -
Common stock issued in payment of interest                 -               -         137,800
Net current assets and liabilities
associated with advance ticketing                          -               -      (1,749,000 )
Changes in current assets and liabilities             72,300        (379,500 )       232,200
                                                - ----------    - ----------    - ----------

Net cash used in operating activities           $ (1,395,400 )  $ (1,164,500 )  $ (1,652,400 )
                                                - ----------    - ----------    - ----------

Working Capital and Liquidity

The Company had cash and cash equivalents of $107,000 at December 31, 2008, compared to $265,000 at December 31, 2007 and $138,000 at December 31, 2006. The Company had $558,000 of working capital at December 31, 2008 compared to $923,000 at December 31, 2007 and $68,000 at December 31, 2006. At December 31, 2008 current liabilities were $1,014,000 compared to $762,000 at December 31, 2007 and $1,409,000 at December 31, 2006. Current liabilities increased at December 31, 2008 compared to December 31, 2007 primarily due to higher levels of accounts payable and accrued expenses. Current liabilities decreased at December 31, 2007 compared to December 31, 2006 primarily due to lower levels of short term debt, accounts payable, and accrued expenses, offset by an increase in deferred revenues.

The Company's independent registered public accounting firm has issued a going concern opinion on the Company's consolidated financial statements for the year ended December 31, 2008. The Company may need an infusion of additional capital to fund anticipated operating costs over the next 12 months. Management anticipates growth in revenues and gross profits in 2009 from its celebrity services products and websites, and similar services to other entities; including memberships, fan experiences and ticketing, appearances, website development and hosting, and merchandise sales from both existing and new clients. Subject to the discussion below, management believes that the Company has sufficient cash resources to fund operations during the next 12 months. These resources include call options, expiring on May 9, 2009, for approximately 435,000 shares of common stock, which, once assigned by the Company, can generate between $39,000 and $125,000 (based solely upon the 52 week high and low closing prices of the Company's common stock) of cash. In addition, management continues to explore opportunities to monetize its patent. However, there can be no assurance that anticipated touring activity will occur, that assignment of the call options can be concluded on reasonably acceptable terms, and that the Company will be successful in monetizing its patent. Management continues to seek alternative sources of capital to support operations. Finally, world economic conditions, in particular those in the United States, are likely to impact sales of fan experiences and the availability of financing

Contractual Obligations and Other Commercial Commitments

The table below summarizes our gross contractual obligations and other commercial commitments as of December 31, 2008. As of December 31, 2008, we did not have any contractual obligations (long term debt obligations, capital lease obligations, purchase obligations, or other long-term liabilities) other than our operating lease.

                                                    Payments Due by Period
                                   --------------------------------------------------------
                                                                     2012 and
   Contractual Obligations           2009       2010       2011     Thereafter      Total
   -----------------------------   --------   ---------- ---------- ------------- ---------

   Operating lease                   69,600     69,600     23,200             0     162,400
                                   - ------   - ------   - ------   ----- -----   - -------
   Total contractual obligations   $ 69,600   $ 69,600   $ 23,200   $         0   $ 162,400
                                   - ------   - ------   - ------   ----- -----   - -------