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.
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PAID INC. AND EMERGEIT INC. | ||||||
PRO FORMA CONDENSED COMBINED BALANCE SHEETS | ||||||
AS OF SEPTEMBER 30, 2016 | ||||||
UNAUDITED |
emerge IT | 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 |
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 | $13,200,000 | $14,154,946 |
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PAID INC. AND EMERGEIT INC. | |||||
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS | |||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 | |||||
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 | - | 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) | $(846,778) |
Loss per share - basic and diluted | $(0.03) | |||
Weighted average number of shares - basic and diluted | 10,552,696 |
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PAID INC. & EMERGEIT INC. | ||||
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS | ||||
FOR THE YEAR ENDED DECEMBER 31, 2015 | ||||
UNAUDITED | ||||
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 |
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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.
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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.
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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.
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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. |
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