# FYI
From Chardan Capital Markets today. I’m sure it’s just the beginning but it’s a start.
Company Update
March 25, 2014
IP Monetization
PAID, Inc. (PAYD - $0.17) COMPANY NOTE
JAMES McILREE, CFA, Senior Analyst, 646-465-9034
Stock Data 03/25/14
Price $0.17
52 Week Range ($0.06 - $0.26)
Market Cap (mil) $57.06
Shares out (mil) 328.87
3-Mo Avg Vol 518,747
Monetizing patents on real-time rate engine used in
online auctions.
PAID Patent Portfolio
PAID, Inc. owns five patents and a sixth pending, that cover systems
and methods to improve online auctions primarily with a real-time rate
engine that calculates shipping costs for items purchased online, including using a zip code as an indicator for the destination’s location. The company’s first patent #7,324,968 was granted on
January 29, 2008 and four subsequent patents have been granted that deepen the original patent’s claims.
From the original patent, “Methods and systems include an application for facilitating seller estimation of shipping costs, including various components of shipping costs, and for providing to the buyer a shipping estimate based on the circumstances of the buyer and the auction.” The patents apply to “auction-based online commerce,” but also the term auction “should not be understood to be limiting except where context requires it.” The subsequent patents included
calculating shipping rates across multiple carriers, multiple buyer and seller locations, enhancements for shipping preferences, calculating taxes, calculating shipping rates on the seller’s preferences, third-party fulfillment options and rates charged by common carriers.
IP Monetization Status
On December 20, 2013 PAID filed suit against eBay in the US District Court for the District of Massachusetts. (Case number 4:2013-cv-40151). In its suit, PAID asserts, “Through the late 1990s, Paid conducted a variety of online auctions, including specialty auctions for sports memorabilia. From 1999 through 2000, Paid expanded its operations to include online auctions using eBay’s online platform.” PAID claims it demonstrated the online shipping calculator to eBay in December 2001. eBay declined to license but started using an online calculator “that bore striking similarities” in June 2003. PayPal filed application for online calculator in 2003 but
its patent application was rejected “as unpatentable in view of Paid’s earlier patent application.” eBay responded to Paid’s claims on February 26, 2014 asking the court to dismiss PAID’s claims for indirect and willful infringement claiming PAID’s suit does not provide information on the identity of the direct infringer, nor any actions eBay has taken to induce infringement, nor was it aware of PAID's patents.
On March 12th the company responded to eBay’s motion to dismiss and filed an amended complaint to include the ‘150 patent (which was issued on January 21, 2014) against eBay. The following day Judge Hillman denied eBay’s original motion to dismiss but eBay can now file a motion to dismiss against. PAID’s amended complaint. If this is dismissed the judge will agree to hear the case and then set a schedule. A Markman hearing is possible by the end of this year or early next year. PAID retained Hunton & Williams, on a contingency basis, to represent it in its litigation against eBay. The company has struck an arrangement to limit its out-of-pocket expenses. According to company filings with the SEC, Hunton (and possible financiers of expenses) will receive no more than 35% of any proceeds after an agreed upon, and undisclosed, amount of expenses are recovered.
This arrangement allows PAID to pursue its suit without incurring potentially large upfront costs. The damages could be significant particularly relative to PAID’s market cap of $59 million. The number of transactions on eBay has risen from 805 million in 2008 to 988 million in 2009 and 1.3 billion in 2010 eBay Marketplaces had over 550 million listings globally in in 2012 sold over 2 billion items. Annual sales for eBay exceeds $12 billion.
If PAID is successful there are other online operations that it could pursue for damages including
Amazon, with over $75 billion in sales, (but probably fewer transactions than eBay), Home Depot, Loews, Best Buy and Target. This suggests a very large potential for PAID even at quite low fees per transaction or listing.
Company Background
PAID began in 1999 as a sports memorabilia auction site and developed a suite of tools, including systems to calculate shipping and taxes, to increase the sites functionality. While the tools were developed for internal purposes, PAID recognized the shipping calculation engine had broader applicability and launched it to the public in 2001. Over time the company entered other lines of business including web-presence and other services for entertainers and businesses, brand support and selling merchandise for celebrities. We believe going forward, the company will focus on Auction Inc, selective profitable existing services, and monetization of its intellectual property. We believe the cash burn will be reduced to about $250,000 per year while the suit against eBay proceeds, which is probably about two years of runway.
Austin Lewis was appointed Chairman and CEO on June 10, 2013, Lewis is the CEO of Lewis Asset Management Corp., Lewis and his investment firm own about 10% of PAID. Previously Mr. Lewis was employed at Puglisi & Company, Thompson Davis & Company, Inc., Branch Cabell and Company, Inc.
Valuation
Valuation for company’s whose business plan includes a significant focus on IP monetization of course varies widely based on how close the company is to generating revenue from this activity as well as the strength of its patent portfolio, the addressable market, the value of any operating businesses and the capital resources available to pursue its plans. The following table presents market capitalization, net debt, total enterprise value, cash, operating cash flow for the prior twelve months and how many quarters of cash is available assuming the most recent operating cash flow is indicative of future operating cash flow.
