UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                     ANNUAL REPORT UNDER SECTION 13 OR 15(d)

                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 2005

                           Commission File No. 0-28720

                                   PAID, INC.
                 (Name of Small Business Issuer in its Charter)

   Delaware                                 73-1479833
   (State or Other Jurisdiction             (I.R.S. Employer Identification No.)
   of Incorporation or Organization)

                4 Brussels Street, Worcester, Massachusetts 01610
               (Address of Principal Executive Offices)(Zip Code)

                                 (508) 791-6710
                (Issuer's Telephone Number, Including Area Code)

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                         Common Stock, $0.001 Par Value
                                (Title of Class)

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. |_|

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 |_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                            Yes |_|       No |X|

State Issuer's revenues for its most recent fiscal year: $4,920,123.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates on March 17, 2006 was approximately $32,976,172 based upon the
average bid and ask over the counter price of $.18 per share on such date.
However, the aggregate market value of the voting and non-voting common equity
held by non-affiliates on December 1, 2005, a date which is 60 days prior to the
end of the issuer's most recent fiscal year end, was $22,442,117, based upon the
average bid and ask over the counter price of $.1225 per share on such date.

<PAGE>

As of March 17, 2006, the issuer had outstanding 201,575,111 shares of its
Common Stock, par value of $0.001, its only class of voting securities.

                       DOCUMENTS INCORPORATED BY REFERENCE

No documents are incorporated by reference into this Annual Report except those
Exhibits so incorporated as set forth in the Exhibit Index.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
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                                               PART I
Item 1.    Description of Business.........................................................      2
Item 2.    Description of Property.........................................................      9
Item 3.    Legal Proceedings...............................................................      9
Item 4.    Submission of Matters to a Vote of Security Holders.............................      9

                                               PART II

Item 5.    Market for Common Equity, Related Stockholder Matters and Small Business
           Issuer Purchases of Equity Securities...........................................      9
Item 6.    Management's Discussion and Analysis or Plan of Operation.......................     11
Item 7.    Financial Statements............................................................     15
Item 8.    Changes In and Disagreements With Accountants on
           Accounting and Financial Disclosure.............................................     15
Item 8A.   Controls and Procedures.........................................................     16
Item 8B.   Other Information...............................................................     16

                                              PART III

Item 9.    Directors and Executive Officers of the Registrant .............................     16
Item 10.   Executive Compensation..........................................................     17
Item 11.   Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters.................................................     19
Item 12.   Certain Relationships and Related Transactions..................................     20
Item 13.   Exhibits, List and Reports on Form 8-K..........................................     21
Item 14.   Principal Accountant Fees and Services..........................................     22

Signatures ................................................................................     23
</TABLE>


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<PAGE>

                           FORWARD LOOKING STATEMENTS

      This Annual Report on Form 10-KSB (including without limitation the Risk
Factors included as Exhibit 99) may contain forward looking statements. We
caution you to be aware of the speculative nature of "forward-looking
statements". Statements that are not historical in nature, including the words
"anticipate," "estimate," "should," "expect," "believe," "intend," and similar
expressions, are intended to identify forward-looking statements. Although these
statements reflect our good faith belief based on current expectations,
estimates and projections about (among other things) the industry and the
markets in which we operate, they are not guarantees of future performance.

      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.
Consequently, all of the forward-looking statements made in this Annual Report
are qualified by these cautionary statements and there can be no assurance that
the actual results anticipated by us will be realized or, even if substantially
realized, that they will have the expected consequences to, or effects on, us or
our business or 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
carefully review and 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.

                                     PART I.

      Item 1. Description of Business.

      Paid, Inc. (the "Company") was incorporated in Delaware as Rose
International Ltd. on August 9, 1995. The Company's main web address is located
at www.paid.com, which offers updated information on various aspects of our
operations, as well as access to www.ksportsent.com and
www.paidcelebrityservices.com. The Company has one subsidiary, Rotman
Collectibles, Inc. Information contained in the Company's websites shall not be
deemed to be a part of this Annual Report. The Company's principal executive
offices are located at 4 Brussels Street, Worcester, Massachusetts 01610, and
the Company's telephone number is (508) 791-6710.

                                    BUSINESS

Our Business

      The Company's primary focus is to provide businesses and clients with
marketing, management, merchandising, auction management, website hosting, and
authentication and consignment services for the entertainment, sports and
collectible industries. We provide business management tools for online
retailers, through AuctionInc, which is home to our patent pending shipping
calculator and automated auction checkout and order processing system. This
system provides the fundamental structure for our celebrity web hosting and
development services, and for individuals seeking a professional and interactive
presence on the Internet. We also provide the merchandise and fulfillment
services for these websites, using 20 years of experience from Rotman Auction,
to maintain the best customer service and integrity for these celebrities. We
continue to provide live and private autograph signings and support professional
athletes' careers through the Rotman Auction brand and K Sports initiative.


                                        2
<PAGE>

      In 2004 we added the services of the newly acquired K Sports brand which
specializes in athlete agent services and marketing and promoting these
celebrities. K Sports delivers personalized attention to each client for
services that include contract negotiations, endorsements, public relations, or
charitable organizations. The merger of K Sports' experience and clientele with
Paid's expertise in merchandising, website hosting, and auction management
developed services for fan clubs and tour and travel packages was intended to
create a business that is unrivaled in the sports and entertainment industry.
During 2005 this acquisition proved to be a success as the Company's revenues
increased substantially due to the focus on developing celebrity services.

      For the year ended December 31, 2005 there was a large shift in our
revenues being derived from Rotman Auction and the sale of collectibles to
merchandising, memberships, V.I.P. fan experiences, and ticketing. For 2005, a
substantial portion of our revenue was generated from celebrity services because
of the development of one particular artist's fan club. Throughout the year
memberships and merchandising grew, while the artist planned a tour, creating an
opportunity to capitalize on fan experiences and ticketing programs. All the
sales for our celebrity and entertainment services are made through the artist's
personal website and Paid's proprietary content managed system. A customer
interested in a membership, merchandise, fan experience or ticketing would use
our system to make purchases, and then depending on the sale, the Company either
ships the merchandise, or delivers the fan experience at an event. The services
offered by a client depend upon the client's desire and willingness to offer
different initiatives. Not all artists and fan bases are the same and the
Company works closely with its different clients to cater to their needs.

      The remainder of our revenue in 2005 was primarily derived from public and
private autograph signings, the sale of collectibles and movie posters, and
commissions relating to agent fees and marketing opportunities for our clients.
The sale of collectibles and movie posters occurs in various different sales
channels; retail, online auction, charity auction, direct sale, and wholesale
distribution. Most of the online auctions take place through a person-to-person
auction service. Our auctions consist of sports and non-sports cards,
collectibles, Americana, autographed items, and movie memorabilia, among other
types of collectibles from the 1800s to the present day. Rotman Auction also
maintains a substantial inventory of memorabilia with popular and historical
significance which allows customers to directly purchase the memorabilia without
the competition from bidders in an auction format. Most of these sales are
consummated through our website located at www.rotmanauction.com. We acquire
inventory in the ordinary course of our business from a number of companies and
individuals. We also may acquire inventory through acquisition of companies that
own collectibles, or through the acquisition of substantially all the assets of
a company that holds collectibles.

      We engage in autograph signing activities under the "Rotman Auction" name,
at public and private autograph signing events. We contract and pay the
celebrities for their services and for supplying products for the event. We
hosted celebrities such as Adam Viniateri, Bronson Arroyo, Troy Brown, Johnny
Damon, Jim Rice, Ty Law, Terry O'Reilly, Pete Rose, Ray Bourque, Paul Pierce,
Trot Nixon, Corey Dillon, Derek Lowe, Carlton Fisk, Tedy Bruschi, and Alfonso
Soriano. Our autograph signing events include the creation, development and
maintenance of celebrity websites. We provide comprehensive content managed
websites that include message boards, shopping, articles, statistics,
biographical information and event schedules. We currently host such
celebrities' websites as Jerry Rice, Tim Wakefield, Deuce McAllister, Roy
Williams, and Chris Chambers. Revenues are generated from sales of product
produced by the celebrity. Full and part-time employees, as well as interns
update the news and information on these sites. We receive payment in the form
of autographs for maintaining and hosting the website. We also provide
management services for order fulfillment and product distribution for the
celebrities.

      To assist with the inventory management and order processing Rotman
Auction uses the AuctionInc platform for reducing order processing, increasing
sales and improving customer service. The AuctionInc system was originally
designed to just assist and improve Rotman Auction's business,


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but management realized that there was a need for an order management system for
individuals and businesses that sell on the Internet, specifically at auction.
In 2000 the technology team focused its attention on the core fundamental piece
of the system called the Shipping Calculator. The Company realized the potential
importance of the calculator and filed for a patent before launching it to the
public in April of 2001. The product is modular based and continues to develop
new tools and products for its customers.

      AuctionInc Software. AuctionInc is a suite of online management tools
assisting businesses with e-commerce storefronts, order processing, customer
service, shipping solutions, inventory management, and auction processing. The
application was designed originally to reduce overhead costs for Rotman Auction,
but based on its marketability the Company began to offer the application to
other sellers in 2003. A seller's use of the application reduces overhead and
labor costs, and through its customer-friendly setup improves customer relations
and increases sales.

      AIship is a shipping calculator that automatically estimates the shipping,
sales tax, and insurance on auction listings. This module automatically
calculates shipping costs, carrier insurance fees, optional shipping services,
and offers an adjustable shipping fee markup, and co-branded shipping calculator
page. It pre-configures shipping rates with handling costs, and provides a
multiple auctions tab to calculate shipping on numerous auctions. The Company
receives a transaction fee for each auction listing that uses AIship.

      AIseller is an auction management tool used to streamline a seller's order
processing for improved customer service and higher sales. This module is
designed for sellers who are selling more than 50 items per month at online
auctions. It offers summary and detail order and sales reporting, auction/sales
tracking, automated personalized e-mail notifications, auction re-listing
reports, a complete integrated order management system, a customer checkout
system, as well as automatic shipping rates and sales tax calculations for
consolidating multiple auctions. The Company does not actively market this
product, but would receive a transaction fee for each listing at auction that
uses AIseller.

      During 2005 we enhanced our new products that we launched the end of 2004
to provide more features and options for the new online user. These enhanced
tools were focused on ecommerce and were therefore branded under the Paid name.
These products ranged from a simple shipping calculator to be used anywhere on
the internet to a complex integration into our software application.

      PaidShipCalc is a shipping calculator that provides the most comprehensive
shipping calculations available today. A customer can use this tool anywhere on
the Internet, including its website, web store, or even classified listing.
Shoppers can then choose from the shipping methods that the customer offers
along with the ability to combine shipping, include your flexible handling
charges, and calculate insurance and taxes if necessary.

      PaidShopCart provides website and ecommerce store owners a fully
functional shopping cart with shipping calculations from all the major carriers.
We have designed the Paid ShopCart with your needs in mind; an affordable,
simple, easy to use cart that is feature heavy and an enhanced replacement for
the carts being utilized today. This Paypal integrated shopping cart can be
inserted into any web page by just pasting in just a few lines of HTML. It
provides accurate rates for 25 domestic shipping services from USPS, UPS, FedEx,
and DHL, and is configurable to match with a customer's web site design.

      Paid Inc's Global Module is a direct plug into the PaidShopCart and
PaidShipCalc. This module is used to add comparative international rate
calculations to your PaidShopCart or PaidShipCalc products.

      Interested clients may purchase any and all of our tools or applications
for a flat quarterly fee and/or per-transaction fee depending on the module
chosen. The Company may add more features and


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modules to the suite to enable it to grow with sellers and continue to provide
them superior online selling tools.

      Web Hosting and Development. The Company provides web hosting and
development for various clients that pay monthly hosting fees and maintenance
fees for updates. This service also uses the core AuctionInc platform for
maintaining web portals and storefronts systems. The Company also maintains
several corporate websites which it hopes to continue to expand and grow.
Through improved customer awareness and a larger customer base we hope these
websites will continue to grow and offer a revenue source to the Company. These
websites provide minimal revenue to the Company, but offer awareness and
advertising opportunities for the Company's other products.

      The Collecting Channel features extensive coverage of all aspects of
collecting from its twelve micro-channels devoted to Antiques, Automotive,
Books/Movies/Music, Jewelry/Gems, Stamps/Coins, Collectibles, Glass/Pottery,
Dolls/Figures, Photo/Electronics, Toys/Beanie Babies, Sports and Miscellaneous.
By combining information from the Collecting Exchange with the Collecting
Channel portal, we have created a comprehensive collectibles site, offering
services such as web searching, broadcast services, appraisal and valuation
information, auction site sign-ins, price guides, shopping and classified ads.
The CollectingChannel has approximately 15,000 articles, 6,000 minutes of video,
and 150,000 items in the realized pricing database archived in various
collecting databases.

      Appraisal Services. As part of the services we make available on our site,
we also offer a completely interactive and dynamic appraisal service called Ask
the AppraiserTM. The appraisal area permits visitors to send us an image in
order to obtain an online appraisal of their item for a fee of $19.95 per
appraisal. This service enables visitors to make informed decisions regarding
their purchases, and helps sellers define the prices for their goods.

      Other Amenities. The CollectingChannel.com website also includes other
amenities such as chat rooms, message boards, a classified posting area, and an
information area regarding auctions. The My Collecting(TM) area of the website
enables users to create and customize their own collecting pages, with
personalized news, video, chat capability, wish lists and access to an extensive
database of reference materials. The website also includes MaloneysOnline, a
clearinghouse for hard to find information that contains the searchable Internet
version of the book Maloney's Antiques & Collectibles Resource Directory. In
2003 the Company for the first time offered advertising in Maloney's Antiques &
Collectibles Resource Directory.

Industry Background

Growth of the Internet and the Web

      The Internet enables millions of people worldwide to share information,
communicate and conduct business electronically. The growth in the number of Web
users is being driven by the increasing importance of the Internet as a
communications medium, an information resource, and a sales and distribution
channel. The Internet has also evolved into a unique marketing channel. Unlike
the traditional marketing channels, Internet retailers do not have many of the
overhead costs borne by traditional retailers. The Internet offers the
opportunity to create a large, geographically dispersed customer base more
quickly than traditional retailers. The Internet also offers customers a broader
selection of goods to purchase, provides sellers the opportunity to sell their
goods more efficiently to a broader base of buyers and allows business
transactions to occur at all hours.

State of Viral Communities on the Internet

      The massive growth of online communities over the past decade has reached
viral proportions. Internet communities are built revolving around ideas, music,
individuals, artists, writers, or any tangible or intangible entity, and new
content can be distributed within minutes of exposure. Viral communities and


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viral marketing are the next phenomenon that web users are embracing with vigor.
As traffic and communities continue to grow, more services will be required to
sustain the appetite of these users.

State of the Collectibles and Online Auction Industries

      The online auction industry continues to be a strong and permanent player
in e-commerce. Online auctions resolve the weaknesses of traditional auctions
(i.e. limited geographical coverage, a dearth of product variety, high
transaction costs and information inefficiency). The Internet overcomes these
issues because it can handle large quantities of data and support an infinite
number of products and services. It also allows buyers and sellers to trade on a
global basis.

Business Strategy

      During 2005 we experienced growth with our celebrity web-hosting and fan
club and membership programs. We believe there will be an increase in online
communities that will create an opportunity for more celebrity web-hosting and
fan club services. It is our view that our services and programs will become
more desirable as these communities grow. Our proprietary system was built to
handle news, events, ticketing, fan experiences, ecommerce, authentication,
charity auctions, chat, video editing, music streaming, mobile services,
downloads and forums.

      Our goal for our celebrity services is to build the best communication and
quality services that provide unparalleled opportunities for viral communities,
celebrities and their fans. This goal can be accomplished by implementing the
following strategy:

      o     Increase the number of celebrity service clients and programs we
            offer to capitalize on internet communities. Provide high quality
            services and continued impeccable customer and fulfillment services
            building on our solid reputation.

      o     Expand into new services being offered that will generate larger
            partnerships and marketing opportunities for our clients.

      o     Shift to a quarterly billing system on AuctionInc, reducing the
            initial fee but increasing the number of renewal receivables.

      o     Increase the general awareness of our Shipping Calculators and
            continuing to offer cutting edge technology and services in the
            industry.

      o     Provide and offer more athletes and other artists marketing and
            promotional opportunities through K Sports & Entertainment brand.

      o     Offer more private autograph signing and authentication services
            increasing our distribution and partnerships and limited costs and
            overhead associated with larger events.

      o     Increase our web hosting services, charging a one time set up fee
            plus monthly maintenance fees, and an hourly fee for any design or
            feature enhancements we make;

      o     As the number of visitors to our site increases, impose
            monthly/annual membership fees.

      We expect the above plan will enable us to increase our celebrity services
and offer a wider variety of management services providing more resources for a
sales and a marketing campaign to promote the Company.

      The business strategy described above is intended to enhance our
opportunities in the online ecommerce market. However, there are a number of
factors that may impact our plans and inhibit our success. See "Risk Factors"
included as Exhibit 99. Therefore, we have no guarantees and can provide no
assurances, that our plans will be successful.


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<PAGE>

Marketing and Sales

      Successful branding of our corporate identity and services is the key to
our success. We changed our name to Paid, Inc. at the end of 2003 and have
consolidated our websites and brands under one internet presence.

      In the past our marketing had been designed to position the Company as the
premier collectibles site on the Internet, targeting both traditional collectors
as well as the new online generation of collectors. We are continuing to market
to collectors, but we have been shifting our focus to dealers, distributors and
retail outlets to reduce the number of vendors and costs and increase sales.

      Promoting and marketing Paid's celebrity services will be undertaken using
various mediums of marketing; "adword" campaigns, traditional print methods, and
industry trade shows. As our celebrity services continue to gain exposure, we
will have substantial opportunity to grow our business through referrals.
Networking and referral business is a large portion of sales and marketing for
these types of services. As we market and promote our celebrity services, we
also will be supporting our proprietary content management system and our
shipping calculator products.

      The Company will continue to market AuctionInc throughout 2006. In the
past years, representatives of the Company attended trade shows, events and
conferences to analyze the potential for AuctionInc and to narrow the Company's
marketing base. Based on experience with existing partnerships that promote
AuctionInc, the Company believes that creating partnerships is an effective
marketing tool to promote and encourage new registrations. The Company will
continue to seek new partnerships. The Company also intends to promote the
AuctionInc product line in trade publications to reach small and midsize
companies.

      Although we believe that this marketing strategy, if successful, will lead
to increased revenues, and attract more users to our site, we have no
commitments that our marketing will be successful or our sales will increase.
There are a number of factors that may impact our plans and inhibit our success.
See "Risk Factors" described in Exhibit 99. Therefore, we have no guarantees and
can provide no assurances that our plans will be successful.

Revenue Sources

      In 2005, 66% of our revenues were derived from our celebrity services, fan
club management, and ticketing and fan experiences. We also generated retail
revenues from the sale of autographed merchandise, collectibles and movie
posters. Adding to these revenues were agent commissions, marketing
opportunities for athletes and celebrity clients of K Sports.

      As additional services, we currently provide web hosting and online
appraisal services. To date, we have generated minimal revenues from these
services, but we hope that as the awareness of the AuctionInc product line
increases, we will be able to increase our advertising and marketing efforts,
which we expect will generate revenue and may attract more visitors that will
utilize these services on our site. In addition to web hosting, we expect to
increase revenues through the development and design of third party websites. We
also have an agreement with Krause Publications, pursuant to which Krause
Publications prints Maloney's Antiques & Collectibles Resource Directory and we
receive a percentage of the sales revenues from the book sales. We own
"www.MaloneysOnline.com," a clearinghouse for hard to find information that
contains the searchable Internet version of the resource directory.

      Although we expect that this revenue model will generate increased
revenue, if we are not successful in implementing this model, if the
collectibles community is not accepting of the services we provide, if costs are
higher than anticipated, or if revenues do not increase as rapidly as
anticipated, we may not be able to continue positive cash flow. There are a
number of factors that may impact our plans


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and inhibit our success. See "Risk Factors" included as Exhibit 99. Therefore,
we have no guarantees and can provide no assurances, that our plans will be
successful.

Competition

      Electronic content management, fan club membership and fan experiences and
ticketing services, are relatively new and growing industries. This industry has
several hurdles for new companies; building a strong reputation, proficient
operational skills in customer service and fulfillment, and gaining a client
base. While these are big hurdles and present a strong barrier to entry, they
are not insurmountable. There are several competitors in this industry like
Music Today, UltraStar, and FanAsylum, each of whom offer unique solutions and
services. There are other indirect competitors who deal in just merchandising or
electronic memberships, but these companies serve a different customer base.

      The electronic commerce market is relatively new, rapidly evolving and
intensely competitive. Furthermore, we expect competition to intensify in the
future. Barriers to entry are relatively low, and current and new competitors
can launch new sites at relatively low cost using commercially available
software. Our Rotman Auction operation competes with a variety of other
companies depending on the type of merchandise and sales format offered to
customers. These competitors include: (i) various Internet collectible
companies, Collectors Universe, Shop at Home and Tri-Star Productions; (ii) a
number of indirect competitors that specialize in electronic commerce or derive
a substantial portion of their revenue from electronic commerce, including
Internet Shopping Network and AOL, Shopping.com; and (iii) a variety of other
companies that offer merchandise similar to that of our Company but through
physical auctions.

      In addition, several large companies sell specialty consumer products,
including collectibles through interactive electronic media, including
broadcast, cable and satellite television and, increasingly, the Internet. These
companies include QVC, Home Shopping Network and Shop At Home. They generally
have substantial financial resources and, while their current collectible
offerings tend to be less focused than our collectible offerings, there can be
no guarantee that they will not become significant competitors in the future.

      There can be no assurance that we can maintain our competitive position
against potential competitors, especially those with greater financial,
marketing, customer support, technical and other resources than us. Increased
competition is likely to result in reduced operating margins, loss of market
share and a diminished brand franchise, any one of which could materially
adversely affect the our business, results of operations and financial
condition.

Intellectual Property

      Our web hosting software program, AuctionInc software suite, is
proprietary. We have filed one application for a patent related to AIShip. We do
not have any patents for our designs or innovations and we may not be able to
obtain copyright, patent or other protection for our proprietary technologies or
for the processes developed by our employees. Legal standards relating to
intellectual property rights in computer software are still developing and this
area of the law is evolving with new technologies. Our intellectual property
rights do not guarantee any competitive advantage and may not sufficiently
protect us against competitors with similar technology. To protect our interest
in our intellectual property, we restrict access by others to our proprietary
software. In addition, we own the "Collecting Channel" mark and for the mark
"Paid".

      We believe that our products and other proprietary rights do not infringe
on the proprietary rights of third parties. However, there can be no assurance
that third parties will not assert infringement claims against us in the future
with respect to current or future products or other works of ours. This
assertion may require us to enter into royalty arrangements or result in costly
litigation.


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      We also utilize free open-source technology in certain areas. Unlike
proprietary software, open-source software has publicly available source code
and can be copied, modified and distributed with minimal restrictions. Our
principal web servers' software is Apache, a free web server software. We are
using PHPShop for our e-commerce to provide highly customizable storefronts. In
addition to PHPShop we develop a substantial portion of our websites with the
language PHP.

Research and Development

      Over the past 2 years the Company has not made additional investments in
research and development.

Employees

      We currently employ 21 personnel, 19 of whom are employed full time. We
believe that our future success will depend in part on our continued ability to
attract, hire and retain qualified personnel.

Government Regulation

      We are not currently subject to direct federal, state or local regulation,
and laws or regulations applicable to access or commerce on the Internet, other
than regulations applicable to businesses generally. However, due to the
increasing popularity and use of the Internet and other online services, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet or other online services covering issues such as user privacy,
freedom of expression, pricing, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.

      Item 2. Description of Property.

      Our corporate headquarters are located at 4 Brussels Street, Worcester,
Massachusetts 01610. Currently, we are tenants-at-will, but we are not required
to pay rent on the Brussels Street, Worcester location. The condition of our
corporate headquarters is excellent. We do not invest in real estate or
interests in real estate, real estate mortgages, or securities of or interests
in persons primarily engaged in real estate activities, and we have no policies
related to such investments.

      Item 3. Legal Proceedings.

      None.

      Item 4. Submission of Matters to a Vote of Security Holders.

      None.

      Item 5. Market for Common Equity, Related Stockholder Matters and Small
              Business Issuer Purchases of Equity Securities.

      Our common stock, par value $.001 per share, is presently traded on the
Over-the-Counter Bulletin Board ("OTCBB") under the symbol, "PAYD".

      The following table sets forth the high and low bid prices for our common
stock as reported by OTCBB for the eight quarters ended December 31, 2005. The
quotations from the OTCBB reflect inter-dealer prices without retail mark-up,
mark-down, or commission and may not represent actual transactions.


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      2004                                                  High       Low
                                                            -----      ---
      Quarter ended March 31, 2004                          $ .80     $ .175
      Quarter ended June 30, 2004                           $ .47     $ .275
      Quarter ended September 30, 2004                      $ .39     $ .221
      Quarter ended December 31, 2004                       $ .34     $ .05

      2005                                                   High      Low
                                                            -----      ---
      Quarter ended March 31, 2005                          $ .35     $ .15
      Quarter ended June 30, 2005                           $ .36     $ .17
      Quarter ended September 30, 2005                      $ .29     $ .165
      Quarter ended December 31, 2005                       $ .235    $ .115

      As of March 17, 2006, there were approximately 2,345 holders of record of
our common stock.

      We have not previously paid cash dividends on our common stock, and intend
to utilize current resources to operate the business; thus, it is not
anticipated that cash dividends will be paid on our common stock in the
foreseeable future.

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                                             Number of Securities
                                                                                             Remaining Available For
                                             Number of Securities                            Future Issuance Under
                                             To be Issued Upon      Weighted-Average         Equity Compensation
                                             Exercise of            Exercise Price of        Plans (Excluding
                                             Outstanding Options,   Outstanding Options,     Securities Reflected in
                                             Warrants and Rights    Warrants and Rights      Column (a))
                                             (a)                    (b)                      (c)
----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                    <C>                      <C>
Equity Compensation Plans Approved
by Security Holders                          25,000,000             $.041                    5,000,000
----------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans Not
Approved by Security Holders                 165,054                $.6126                   2,913,365
----------------------------------------------------------------------------------------------------------------------
Total                                        25,165,054             $.045                    7,913,365
----------------------------------------------------------------------------------------------------------------------
</TABLE>

Refer to Note 7, Notes to Consolidated Financial Statements for the Years ended
December 31, 2005 and 2004, incorporated by reference in Part II, Item 7, of
this Annual Report, for a detailed discussion of the stock options and warrants
that are outstanding.


                                       10
<PAGE>

      During the fourth quarter of 2005, the Company did not receive any
conversion requests from Augustine Fund, L.P. with respect to the Company's
November 7, 2001 convertible note. The remaining balance on the November 7, 2001
convertible note as of December 31, 2005 is $1,150,000. Augustine Fund, L.P. is
an accredited investor that represented that it acquired the convertible note
for its own account. The issuance of the convertible note and securities
pursuant to the convertible note is exempt from registration under Section 4(2)
of the Securities Act of 1933 and Regulation D promulgated thereunder. The terms
of the Note are described further in Note 9, Notes to Consolidated Financial
Statements for the Years ended December 31, 2005 and 2004, incorporated by
reference in Part II, Item 7, of this Annual Report.

      The Company borrowed $160,000 from an unaffiliated individual in October
2004, which amount, including all principal and 12% interest, was paid off in
full through two issuances of common stock of the Company: 125,000 shares on
October 29, 2004, and 800,000 shares on March 7, 2005. The shares were not
registered under the Securities Act of 1933. 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 Company paid an unaffiliated consultant 250,000 shares of common stock
of the Company in lieu of fees. The shares were issued on December 31, 2004 and
delivered in certificate form in January 2005. The shares were not registered
under the Securities Act of 1933. 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 6. Management's Discussion and Analysis or Plan of Operation.

Overview

      Our innovative products and services are utilized in celebrity services,
ticketing, fan experiences, merchandising, online auctions and management, and
web site development. 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. This proprietary
system uses the AuctionInc. shipping calculator tools to provide improved
customer service and fulfillment services. The technology is based on our
patent-pending process that streamlines back-office and shipping processes for
online auctions and e-commerce. Our new celebrity services offer famous people
official web sites and fan-club services including e-commerce storefronts,
articles, polls, message boards, contests, biographies and custom features to
attract tens of thousands of visitors daily. Our autograph signing events,
working in conjunction with our new sports agent marketing services, have
created more services and opportunities for our sports clientele.

Critical Accounting Policies

      Our significant accounting policies are more fully described in Note 3 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


                                       11
<PAGE>

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

      The following discussion compares the Company's results of operations for
the year ended December 31, 2005 with those for the year ended December 31,
2004. 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.

      Revenue. For the year ended December 31, 2005, revenues were $4,920,100,
66% of which was attributable to sales of fan club memberships, merchandise, and
fan experiences related to the tour of a major performing artist which ended in
March 2006. Sales of the Company's own product and fees from buyers and sellers
through the Rotman Auction operations represented 26% of revenues, and Sports
marketing revenues represented 7% of revenues. Gross sales of the Company's own
product were $1,299,800. Fan experience, Fan club membership and related
merchandise sales revenues were $3,228,400, and sports marketing revenues were
$357,200. Advertising and web hosting fees were $33,900, less than 1% of gross
revenues, during the year ended December 31, 2005. Substantially all of the fan
club membership and fan experience revenues were generated during the fourth
quarter of 2005. Management anticipates continued increases in revenues from
these sources and from tours, products and services related to several other
performing artists for the year ending December 31, 2006.

      The Company's 2005 revenues represent an increase of approximately
$3,067,600, or 165%, from the year ended December 31, 2004, in which revenue was
$1,853,000. For the year ended December 31, 2004, sales of the Company's product
were $1,613,500, or 87% of gross sales, fan club membership and related
merchandise sales revenues were $126,500, 7% of gross revenues, sports marketing
revenues were $90,200, or 5% of gross revenues, and advertising and web hosting
fees were $17,500, or 1% of gross revenues.

      The reason for the increase in revenues was a $3,101,900 increase related
to the beginning of a tour by a major performing artist in late October 2005
which continued through most of the first quarter of 2006, higher revenues
related to sports marketing services of $267,000 which was acquired in the K
Sports transaction during the fourth quarter of 2004, offset by lower sales of
Company owned product of approximately $313,700 from the same period in 2004.
Gross profit from Company owned product sales for the year ended December 31,
2005 was approximately $433,600, $177,300 less than in 2004. Since gross margin
percentages on Company owned product were 5% less in 2005 and sales of Company
owned product were $313,700 lower in the year ended December 31, 2005, the
Company produced


                                       12
<PAGE>

$177,300 lower gross margin dollars in 2005. The decrease in sales and gross
profit margin is attributable to a management decision to streamline sales
channels for company owned product and, in turn, terminating sales on eBAY, in
an effort to reduce related overhead.

      Operating Expenses. Total operating expenses for the year ended December
31, 2005 were $4,561,400, compared to $4,272,100 for the corresponding period in
2004, an increase of $289,300. Sales, general and administrative ("SG&A")
expenses for the year ended December 31, 2005 were $4,016,200, compared to
$3,492,300 for the year ended December 31, 2004. The increase of $524,000 in
SG&A costs includes increases in payroll and related costs of $139,900, travel
of $148,000, credit card commissions of $150,800, postage and shipping costs of
$79,600, and professional fees of $105,200, offset by decreases in depreciation
and amortization of $187,800 as certain assets became fully depreciated during
2005 and 2004. The payroll, travel, credit card commissions and postage and
shipping increases are all principally attributable to the tour of a major
performing artist. Costs associated with planning, maintaining and operating our
web sites for the year ended December 31, 2005 decreased $234,600 from 2004.
This decrease is due primarily to decreases in personnel costs of $11,500, and
depreciation and amortization of $84,300, as certain website development costs
became fully depreciated. In addition, during 2005 the Company capitalized
approximately $200,000 of website development costs, while in 2004 the Company
capitalized $64,700.

      Interest Expense. For the year ended December 31, 2005, the Company
incurred interest charges of approximately $294,800 principally associated with
one convertible note, compared to interest charges of $497,300 for the
corresponding period in 2004, a decrease of $202,500. $14,900 of the decrease is
attributable to lower balances of interest-bearing debt in 2005 and $187,600 of
the decrease is attributable to lower amortization of beneficial conversion
features.

      Net Loss. The Company realized a net loss for the year ended December 31,
2005 of $3,100,700 compared to a loss of $4,079,700 for the year ended December
31, 2004. Losses in both years represented $.02 per share.

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

Assets

      At December 31, 2005, total assets of the Company were $4,229,600 compared
to $1,764,900 at December 31, 2004. The increase was primarily due the $999,800
remaining balance of the acquisition of a large collection of movie poster
inventory and cash and deferred expenses totaling $1,880,000 associated with
sales of tickets to entertainment events to be held during the first quarter of
2006, offset by depreciation and amortization totaling $805,800. The Company
also reports a related liability to customers, in the form of deferred revenues,
at December 31, 2005 of $2,305,300.


                                       13
<PAGE>

Operating Cash Flows

      A summarized reconciliation of the Company's net losses to cash provided
by (used in) operating activities for the years ended December 31, 2005 compared
to December 31, 2004, is as follows:

                                                   2005              2004
                                                   ----              ----

Net loss                                       $ 3,100,700)      $(4,079,700)
Depreciation and amortization                      805,800         1,077,900
Amortization of beneficial conversion
Discount and debt discount                         103,900           291,500
Common stock issued in payment
        of services                              1,632,500         1,401,500
Common stock issued in payment  of
        interest                                   137,200           315,200
Net current assets and liabilities
  associated with advance ticketing              1,749,000                --
Call Options                                      (268,000)               --
Changes in current assets and liabilities          356,400           264,900
                                               -----------       -----------
Net cash provided by (used in)
 operating activities                          $ 1,416,100       $  (728,700)
                                               ===========       ===========

Working Capital and Liquidity

      The Company had cash and cash equivalents of $1,503,000 at December 31,
2005, compared to $43,500 at December 31, 2004. The Company had $152,300 of
working capital at December 31, 2005 compared to a deficit in working capital of
$542,800 at December 31, 2004. At December 31, 2005 current liabilities were
$3,787,700 compared to $1,446,000 at December 31, 2004. Current liabilities
increased at December 31, 2005 compared to December 31, 2004 primarily due to
deferred revenues of $2,305,300 associated with events scheduled during the
first quarter of 2006. As discussed in greater detail in Note 9 to the Financial
Statements, included in Part I of this annual report and incorporated by
reference herein, the Company has outstanding a convertible notes held by
Augustine Fund, L.P. The Series B Note has a principal amount outstanding as of
December 31, 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,
2005. 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 2006 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. 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 $195,000 and $585,000 (based solely upon the 52
week high and low closing prices of the Company's common stock) of cash.
However, there can be no assurance that 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 Annual Report on Form 10-KSB 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


                                       14
<PAGE>

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 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. 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, 2005.

      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.

      Item 7. Financial Statements.

      The consolidated financial statements and supplementary data required by
this item appear on Page F-1 immediately following the signature page, and are
incorporated by reference herein.

      Item 8. Changes In and Disagreements with Accountants on Accounting and
              Financial Disclosure.

         None.


                                       15
<PAGE>

      Item 8A. 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 this 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.

      Item 8B. Other Information.

      None.

                                    Part III.

      Item 9. Directors and Executive Officers of the Registrant.

Directors and Executive Officers

      The following table sets forth certain information regarding the directors
and executive officers of Paid, Inc.:

      Name                  Age    Position
      ----                  ---    --------
      Gregory Rotman*       40     Director, Chief Executive Officer & President

      Richard Rotman*       35     Director, Chief Financial Officer, Vice
                                   President, Treasurer & Secretary

      Andrew Pilaro         36     Director

      ----------
      *Gregory Rotman and Richard Rotman are brothers.

      Each of the directors was elected as of September 19, 2000, for a term
expiring at the 2001 Annual Meeting of Stockholders and until their successors
are elected and qualified. The Company has not held an annual meeting or elected
directors since September 19, 2000. Under the Delaware General Corporation Law,
each director holds office until such director's successor is elected and
qualified or until such director's earlier resignation or removal. The following
is a description of the current occupation and business experience for at least
five years for each director and executive officer.

      Gregory Rotman has served as a Director and the Chief Executive Officer
and President of Paid, Inc. since February 1999. From 1995 to 1998, he served as
a Partner of Teamworks, LLC, which was responsible for the design, financing and
build-out of MCI National Sports Gallery.

      Richard Rotman has served as a Director and the Chief Financial Officer,
Vice President, Treasurer and Secretary of Paid, Inc. since February 1999. Prior
to joining Paid, Inc., he was involved in the management and day-to-day
operations of Rotman Auction, which he formed in February 1997. From 1995


                                       16
<PAGE>

until February 1997, Mr. Rotman worked for the family business, Rotman
Collectibles, where he focused on sale and distribution of collectibles,
including through auctions and on the Internet.

      Andrew Pilaro has served as a Director of Paid, Inc. since September 2000.
Since August, 1996, he has served as the Assistant to the Chairman of CAP
Advisors Limited, an investment management company, with responsibility for
asset management.

      The Securities and Exchange Commission has adopted rules to implement
certain requirements of the Sarbanes-Oxley Act of 2002 pertaining to public
company audit committees. One of the rules requires a company to disclose
whether it has an "audit committee financial expert" serving on its audit
committee. Based on its review of the criteria of an audit committee financial
expert under the rule adopted by the SEC, the Board of Directors does not
believe that any member of the Board of Directors' Audit Committee would be
described as an audit committee financial expert. At this time, the Board of
Directors believes it would be desirable for the Audit Committee to have an
audit committee financial expert serving on the committee. While from time to
time informal discussions as to potential candidates have occurred, no formal
search process has commenced.

      The Company has adopted a Code of Ethics that applies to all of its
directors, officers, and employees, including its principal executive officer,
principal financial officer, principal accounting officer, or controller, or
persons performing similar functions. A written copy of the Company's Code of
Ethics will be provided to anyone, free of charge, upon request to: Richard
Rotman, CFO, Paid, Inc., 4 Brussels Street, Worcester, Massachusetts 01610 or
(508) 791-6710.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's outstanding Common Stock to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock. These persons are required by SEC regulation to furnish the
Company with copies of all such reports they file. To the Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company
and representations that no other reports were required, all Section 16(a)
filing requirements applicable to its officers and directors and beneficial
owners of more than 10% of the Company's stock, have been complied with for the
period which this Form 10-KSB relates.

      Item 10. Executive Compensation.

      The following table sets forth the compensation of the Company's chief
executive officer, the chief financial officer, and each officer whose total
cash compensation exceeded $100,000, for the last three fiscal years ended
December 31, 2005, 2004, and 2003.


                                       17
<PAGE>

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
    ----------------------------------------------------------------------------------------------
                                                                                  Long-Term
                                                    Annual Compensation         Compensation
                                                                          ------------------------
                                                                                  Awards(2)
    ----------------------------------------------------------------------------------------------
    Name and                             Fiscal                            Securities Underlying
    Principal Position                    Year           Salary (1)                Options (#)
    ----------------------------------------------------------------------------------------------
<S>                                       <C>             <C>                         <C>
    Gregory Rotman                        2005            $84,871                     0

    President and Chief Executive
    Officer                               2004            $ 92,154                    0

                                          2003            $ 72,000                    0

    ----------------------------------------------------------------------------------------------

    Richard Rotman                        2005            $86,794                     0

    Chief Financial Officer and Vice
    President and Secretary               2004            $ 93,491                    0

                                          2003            $ 90,532                    0

    ----------------------------------------------------------------------------------------------
</TABLE>

      (1) For each of 2005, 2004, and 2003, the Company paid the amount shown as
      compensation , but has accrued the difference between these amounts per
      annum for both Gregory Rotman and Richard Rotman and $100,000.

      (2) On October 11, 2002, both Gregory Rotman and Richard Rotman were
      granted options to purchase 10,000,000 shares of common stock at an
      exercise price of $.041, under the Company's 2002 Stock Option Plan,
      pursuant to the following vesting schedule: options to purchase 4,000,000
      shares of common stock vested on April 11, 2003; options to purchase
      3,000,000 shares of common stock vested on October 11, 2003, and options
      to purchase 3,000,000 shares vested on October 11, 2004.

      No options were granted to the named executive officers during the last
fiscal year.

      The following table sets forth certain information related to the number
of options exercised and the number and value of exercisable and unexercisable
options of the named executive officers as of December 31, 2005:


                                       18
<PAGE>

             AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
                            FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
    ----------------------------------------------------------------------------------------------------------------
                                                                                 Number of
                                                                                Securities            Value of
                                                                                Underlying           Unexercised
                                                                                Unexercised         In-The-Money
                                                                              Options/SARs at      Options/SARs at
                                                   Shares        Value          FY-End (#)           FY-End ($)
                                                Acquired on    Realized        Exercisable/         Exercisable/
                       Name                     Exercise (#)      ($)         Unexercisable        Unexercisable
    ----------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>         <C>                  <C>
    Gregory Rotman, President and CEO                0            $0          10,000,000/0         $1,440,000/$0
    ----------------------------------------------------------------------------------------------------------------
    Richard Rotman, CFO, Vice President
    and Secretary                                    0            $0          10,000,000/0         $1,440,000/$0
    ----------------------------------------------------------------------------------------------------------------
</TABLE>

      (1)   Based on closing price of $.185 on December 31, 2005 as reported by
            the OTC Bulletin Board.

      None of the Company's directors receives any compensation from the Company
for serving as directors. However, on October 11, 2002, Andrew Pilaro received
options to purchase 2,000,000 shares of common stock at an exercise price of
$.041, pursuant to the 2002 Stock Option Plan, subject to the following vesting
schedule: options to purchase 800,000 shares of common stock vested immediately;
options to purchase an additional 600,000 shares of common stock vested on
October 11, 2003, and options to purchase 600,000 shares of common stock vested
on October 11, 2004. Based on a closing price of the Company's common stock as
report on the OTC Bulletin Board of $.185 as of December 31, 2005, Mr. Pilaro's
exercisable options have a value of $288,000.

      Item 11. Security Ownership of Certain Beneficial Owners and Management
               and Related Stockholder Matters.

      To the knowledge of the management of the Company the following table sets
forth the beneficial ownership of our common stock as of March 17, 2005 of each
of our directors and executives officers, and all of our directors and executive
officers as a group.

Name and Address of                    Number of Shares             % of
Beneficial Owner (1)                  Beneficially Owned           Class
--------------------                  ------------------           -----
Gregory Rotman                          18,309,005 (2)             8.19%
Richard Rotman                          19,996,451 (2)             8.94%
Andrew Pilaro                            2,068,700 (3)              .93%

All directors and                       40,374,156                18.06%
officers as a group
(3 individuals)

(1) The address of each person named is the address of the Company.

(2) Includes options to purchase 10,000,000 shares of the Company's common stock
at an exercise price of $.041, 4,000,000 of which vested on April 1, 2003,
3,000,000 of which vested on October 11, 2003, and 3,000,000 of which vested on
October 11, 2004.

(3) Includes 17,200 shares held indirectly as custodian for Mr. Pilaro's minor
sons and options to purchase 2,000,000 shares of the Company's common stock at
an exercise price of $.041, 800,000 of which vested on October 11, 2002, 600,000
of which vested on October 11, 2003, and 600,000 of which vested on October 11,
2004.

      To the knowledge of the Company's management, as of March 17, 2006, there
are no persons and/or companies who or which beneficially own, directly or
indirectly, shares carrying more than 5% of the


                                       19
<PAGE>

voting rights attached to all outstanding shares of the Company, other than
Gregory Rotman and Richard Rotman, as set forth above.

      The information regarding the Company's Equity Compensation Plan
Information is incorporated herein by reference in Part II, Item 5 of this
Annual Report on Form 10-KSB.

      Item 12. Certain Relationships and Related Transactions.

      Steven Rotman is the father, and Leslie Rotman is the mother, of Gregory
Rotman, President of the Company, and Richard Rotman, CFO/Vice
President/Secretary of the Company. The Company entered into a number of
transactions over the past two years with both Steven Rotman and Leslie Rotman.
Management believes that these transactions are fair and reasonable to the
Company and no less favorable than could have been obtained by an unaffiliated
third party.

      In December 2001, the Company engaged Steven Rotman to provide consulting
services to the Company. Steven Rotman did not provide any consulting services
in 2005. However, during 2005, for consulting fees owed and for consulting
services provided prior to 2005, including $160,000 in fees and services
provided in 2004, the Company paid Steven Rotman $251,659 in the form of options
to purchase 1,264,630 shares of common stock of the Company pursuant to the
Company's 2001 Non-Qualified Stock Option Plan. Under the 2001 Non-Qualified
Stock Option Plan employees and consultants may elect to receive their gross
compensation in the form of options 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 grant.

      In 2002, the Company obtained private financing from Mr. Steven Rotman in
the aggregate amount of $115,000 at an 8% interest rate, and borrowed an
additional $15,000 in 2003, all of which was outstanding in 2004. In 2005, the
Company repaid $50,000, but continues to owe Steven Rotman $80,000 in principal,
and $33,833 in interest, including $10,267 in interest which accrued in 2005.

      In 2004, the Company acquired approximately $110,000 of memorabilia for
sale from Mr. Steven Rotman.

      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, pursuant to which Rotman Collectibles, Inc., a Massachusetts
corporation, was merged into the Company's Delaware subsidiary, now named Rotman
Collectibles, Inc. 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 2005 the Company assigned options to purchase 375,000
shares of stock from Leslie Rotman to certain individuals in exchange for
$96,885.

      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.


                                       20
<PAGE>

      Item 13. Exhibits, List and Reports on Form 8-K.

(a)   Exhibits.

Exhibits are numbered in accordance with Item 601 of Regulation S-B.

        Exhibit
          No.                            Description of Exhibits
        ------                           -----------------------

          3.1         Certificate of Incorporation, as amended (incorporated by
                      reference to Exhibit 3.1 to Form 8-K, filed on November
                      25, 2003)

          3.2         Amended and Restated Bylaws (incorporated by reference to
                      Exhibit 3.2 to Form 8-K, filed on December 8, 2004)

          4.1         Specimen of certificate for Common Stock (incorporated by
                      reference to Exhibit 4.1 to Form SB-2/A filed on December
                      1, 2000)

          4.2         Convertible Promissory Note dated March 23, 2000 issued to
                      Augustine Fund, LP pursuant to Securities Purchase
                      Agreement (incorporated by reference to Exhibit 10.3 to
                      Form 10-KSB filed on April 14, 2000)

          4.3         Convertible Promissory Note, dated November 7, 2001,
                      issued to Augustine Fund, L.P., pursuant to Loan Agreement
                      (incorporated by reference from Exhibit 4.2 to Form 8-K
                      filed on November 21, 2001)

          4.4         Modification Agreement dated September 19, 2000 between
                      the Company and Augustine Fund, L.P. (incorporated by
                      reference to Exhibit 4.7 to Form S-3 filed on October 25,
                      2000).

          4.5         Amended Modification Agreement dated July 15, 2001,
                      between the Company and Augustine Fund, L.P. (incorporated
                      by reference from Exhibit 4.10 to Form SB-2/A filed on
                      August 8, 2001)

          4.6         Second Amended Modification Agreement dated August 30,
                      2001 between the Company and Augustine Fund, L.P.
                      (incorporated by reference from Exhibit 4.11 to Form SB-2
                      filed on August 31, 2001)

          4.7         Third Amended Modification Agreement dated May 21, 2002
                      between the Company and Augustine Fund, L.P. (incorporated
                      by reference from Exhibit 4.1 to Form 10-QSB/A filed on
                      August 14, 2002)

          4.8         Modification Agreement dated May 21, 2002 between the
                      Company and Augustine Fund, L.P. (incorporated by
                      reference from Exhibit 4.2 to Form 10-QSB/A filed on
                      August 14, 2002)

          4.9         Second Modification Agreement dated October 31, 2003
                      between the Company and Augustine Fund, L.P. (incorporated
                      by reference from Exhibit 4.10 to Form 10-KSB filed on
                      March 30, 2004)

          4.10        Third Modification Agreement dated October 15, 2005
                      between the Company and Augustine Fund, L.P.*

          4.11        Warrant issued by the Registrant to Delano Group
                      Securities, LLC (expired March 2005) (incorporated by
                      reference to Exhibit 10.7 to Form 10-KSB filed on April
                      14, 2000).

          4.12        Warrant dated March 23, 2000 issued to Augustine Fund, LP
                      pursuant to Securities Purchase Agreement (expired March
                      2005) (incorporated by reference to Exhibit 10.4 to Form
                      10-KSB filed on April 14, 2000)

          10.1        1999 Stock Option Plan (incorporated by reference to
                      Exhibit 10.2 to Form SB-2/A filed on December 1, 2000)

          10.2        1999 Omnibus Share Plan (incorporated by reference to
                      Exhibit 10.3 to Form SB-2/A filed on December 1, 2000)

          10.3        2001 Non-Qualified Stock Option Plan, as amended
                      (incorporated by reference from Exhibit 99.1 to Form S-8
                      filed on September 5, 2003)

          10.4        2002 Stock Option Plan (incorporated by reference from
                      Exhibit 10.17 to Form 10-KSB filed on March 31, 2003)

          10.5        Securities Purchase Agreement dated March 23, 2000 between
                      the Company and Augustine Fund, LP. (incorporated by
                      reference to Exhibit 10.2 to Form 10-KSB filed on April
                      14, 2000)

          10.6        Loan Agreement, dated November 7, 2001, by and between
                      Augustine Fund, L.P. and the Company (incorporated by
                      reference from Exhibit 10.1 to Form 8-K filed on November
                      21, 2001)


                                       21
<PAGE>

          10.7        Loan Agreement dated May 21, 2002 between the Company and
                      Augustine Fund, L.P. (incorporated by reference from
                      Exhibit 10.1 to Form 10-QSB/A filed on August 14, 2002)

          10.8        Agreement and Plan of Merger between the Company, Rotman
                      Collectibles, Inc. and Leslie Rotman dated October 23,
                      2001 (incorporated by reference from Exhibit 2.1 to Form
                      8-K filed on November 21, 2001)

          10.9        Asset Purchase Agreement dated September 8, 2005 between
                      the Company and Leslie Rotman (incorporated by reference
                      from Exhibit 10 to Form 10-QSB filed on November 14, 2005)

          10.10       Settlement Agreement and Mutual Release dated May 9, 2005
                      between the Company and Leslie Rotman (incorporated by
                      reference to Exhibit 10.1 to Form 10-QSB filed on May 13,
                      2005)

          10.11       Escrow Agreement dated May 9, 2005 between the Company,
                      Leslie Rotman, and Escrow Agent (incorporated by reference
                      to Exhibit 10.2 to Form 10-QSB filed on May 13, 2005)

          21          Subsidiaries of the Registrant (included in Item I)*

          23          Consent of Carlin, Charron & Rosen, LLP*

          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*

          99          Risk Factors*

----------
* filed herewith

(b)   Reports on Form 8-K.

      The Company did not file any reports on Form 8-K during the last quarter
of 2005.

      Item 14. Principal Accountant Fees and Services.

      Audit Fees. The aggregate fees billed by Carlin, Charron & Rosen, LLP for
the audit of the Company's annual consolidated financial statements for the
fiscal year ended December 31, 2005 and 2004, and the reviews of the
consolidated financial statements included in the Corporation's Forms 10-QSB for
fiscal years 2005 and 2004, were $52,500 and $50,000, respectively.

      Audit Related Fees. There were no fees billed to the Company by Carlin,
Charron & Rosen, LLP in either of the past two fiscal years for assurance and
related services that are reasonably related to the performance of the audit or
review of the Company's financial statements.

      Tax Fees. There were no fees billed to the Company by Carlin, Charron &
Rosen, LLP in either of the past two fiscal years for professional services for
tax compliance, tax advice, and tax planning.

      All Other Fees. There were no fees billed to the Company by Carlin,
Charron & Rosen, LLP for any other services for the past two fiscal years.

      The Audit Committee approves all audit and audit-related fees. The Audit
Committee is required to pre-approve all non-audit services to be performed by
the auditor. The percentage of hours expended on the principal accountant's
engagement to audit the Company's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was 0%.


                                       22
<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                      PAID, INC.


                                      By:   /s/ Gregory Rotman
                                         ----------------------------
                                      Gregory Rotman, President
                                      Date:    March 31, 2006

      In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.


                                      /s/ Gregory Rotman
                                      ------------------------------------------
                                      Gregory Rotman, President and Director
                                      Date: March 31, 2005


                                      /s/ Richard Rotman
                                      ------------------------------------------
                                      Richard Rotman, Vice President, Treasurer,
                                      Secretary and Director
                                      Date: March 31, 2006


                                      /s/ Andrew Pilaro
                                      ------------------------------------------
                                      Andrew Pilaro, Director
                                      Date: March 31, 2006


                                       23
<PAGE>

                            PAID, INC. AND SUBSIDIARY
                           DECEMBER 31, 2005 AND 2004
                    AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting

      Firm (Carlin, Charron & Rosen LLP)..............................F-2

Consolidated Balance Sheets at December 31, 2005  and 2004 ...........F-3

Consolidated Statements of Operations

      Years ended December 31, 2005  and 2004.........................F-4

Consolidated Statement of Changes in Shareholders' Deficit

      Years ended December 31, 2005  and 2004.........................F-5

Consolidated Statements of Cash Flows

      Years ended December 31, 2005  and 2004.........................F-6

Notes to Consolidated Financial Statements

      Years ended December 31, 2005  and 2004.........................F-7 - F-16


                                      F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of Paid, Inc.

We have audited the accompanying  consolidated  balance sheets of Paid, Inc. and
subsidiary  (the  Company)  as of December  31,  2005 and 2004,  and the related
consolidated statements of operations,  shareholders' deficit and cash flows for
the  years  then  ended.  These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial  reporting.  An audit includes  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion of the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Paid,  Inc. and
subsidiary as of December 31, 2005 and 2004, and the results of their operations
and their  cash flows for the years then  ended in  conformity  with  accounting
principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred recurring losses and
has a  shareholders'  deficit at  December  31,  2005.  These  conditions  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans  regarding  those matters are also  described in Note 2. The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.


Westborough, Massachusetts
March 17, 2006


                                      F-2
<PAGE>

                            PAID, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                  DECEMBER 31,

<TABLE>
<CAPTION>
                          ASSETS                                         2005              2004
                                                                         ----              ----
<S>                                                                  <C>                <C>
Current assets:
    Cash and cash equivalents                                        $  1,502,987       $     43,558
    Accounts receivable                                                    72,317             45,739
    Inventories, net                                                    1,364,248            624,082
    Investment in call options                                            300,625                 --
    Deferred expenses                                                     556,250                 --
    Prepaid expenses                                                       67,981            125,180
    Due from employees                                                     66,558             55,656
    Other current assets                                                    9,073              9,073
                                                                     ------------       ------------

       Total current assets                                             3,940,039            903,288

Property and equipment, net                                               256,244            172,706
Other intangible assets, net                                               33,290            688,872
                                                                     ------------       ------------

Total assets                                                         $  4,229,573       $  1,764,866
                                                                     ============       ============

          LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
    Notes payable                                                    $    130,000       $    290,000
    Accounts payable                                                      275,336            164,829
    Accrued expenses                                                    1,077,081            991,196
    Deferred revenues                                                   2,305,278                 --
                                                                     ------------       ------------

       Total current liabilities                                        3,787,695          1,446,025
                                                                     ------------       ------------

Long term liabilities:
    Convertible debt                                                    1,150,000          2,398,021
                                                                     ------------       ------------

Shareholders' deficit:
    Common stock, $.001 par value, 350,000,000 shares
     authorized; 200,405,555 and 173,320,731 shares issued
     and outstanding at December 31,
     2005 and 2004, respectively                                          200,406            173,321
    Additional paid-in capital                                         25,575,959         21,166,334
    Accumulated deficit                                               (26,484,487)       (23,383,835)
    Unearned compensation                                                      --            (35,000)
                                                                     ------------       ------------

       Total shareholders' deficit                                       (708,122)        (2,079,180)
                                                                     ------------       ------------

Total liabilities and shareholders' deficit                          $  4,229,573       $  1,764,866
                                                                     ============       ============
</TABLE>

           See accompanying notes to consolidated financial statements


                                      F-3
<PAGE>

                            PAID, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                             2005                2004
                                                             ----                ----
<S>                                                     <C>                 <C>
Revenues                                                $   4,920,123       $   1,852,545

Cost of revenues                                            3,432,623           1,162,953
                                                        -------------       -------------

Gross profit                                                1,487,500             689,592
                                                        -------------       -------------

Operating expenses:
     Selling, general, and administrative expenses          4,016,219           3,492,264
     Website development costs                                545,171             779,811
                                                        -------------       -------------

         Total operating expenses                           4,561,390           4,272,075
                                                        -------------       -------------

Loss from operations                                       (3,073,890)         (3,582,483)
                                                        -------------       -------------

Other income (expense):
     Interest expense                                        (294,822)           (497,320)
     Loss on call options                                    (202,490)                 --
     Other income                                             470,550                  69
                                                        -------------       -------------

         Total other expense, net                             (26,762)           (497,251)
                                                        -------------       -------------

Loss before income taxes                                   (3,100,652)         (4,079,734)

Provision for income taxes                                         --                  --
                                                        -------------       -------------

Net loss                                                $  (3,100,652)      $  (4,079,734)
                                                        =============       =============

Loss per share (basic and diluted)                      $       (0.02)      $       (0.02)
                                                        =============       =============

     Weighted average shares                              184,008,727         163,762,845
                                                        =============       =============
</TABLE>

           See accompanying notes to consolidated financial statements


                                      F-4
<PAGE>

                            PAID, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
                                                    Common stock          Additional
                                              -----------------------       Paid-in      Accumulated     Unearned
                                                Shares        Amount        Capital        deficit     Compensation      Total
                                              -----------    --------    -----------    ------------   ------------   -----------
<S>                                           <C>            <C>         <C>            <C>              <C>          <C>
Balance, December 31, 2003                    159,100,228    $159,100    $17,832,123    $(19,304,101)    $     --     $(1,312,878)

Compensatory stock options granted                     --          --        195,000              --      (45,000)        150,000

Amortization of stock-based
      compensation                                     --          --             --              --       10,000          10,000

Issuance of common stock pursuant to
      exercise of stock options
      granted to employees for services           800,679         801        192,714              --           --         193,515

Common stock issued in payment of
      professional and consulting fees          4,240,573       4,241      1,043,743              --           --       1,047,984

Common stock issued in payment of interest
      on convertible debt                       3,924,905       3,925        311,300              --           --         315,225

Common stock issued in connection with
      acquisition of assets of K-sports
      & Entertainment, LLC                        195,313         195         62,305                                       62,500

Conversions of notes payable                    4,882,783       4,883        931,705              --           --         936,588

Proceeds from assignment of call options               --          --        573,060                                      573,060

Exercise of stock options                         176,250         176             --              --           --             176

Beneficial conversion discount                         --          --         24,384              --           --          24,384

Net loss                                               --          --             --      (4,079,734)          --      (4,079,734)
                                              -----------    --------    -----------    ------------     --------     -----------

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                    1,561,315       1,561        310,119              --           --         311,680

Common stock issued in payment of
      professional and consulting fees          7,064,926       7,065      1,278,765              --           --       1,285,830

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         762        159,238              --           --         160,000

Stock options exercised                           536,364         536             --              --           --             536

Common stock issued for payment
      of convertible debt                       9,469,227       9,470      1,342,422              --           --       1,351,892

Issuance of common stock                          200,000         200         29,800              --           --          30,000

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                                               --          --             --      (3,100,652)          --      (3,100,652)
                                              -----------    --------    -----------    ------------     --------     -----------

Balance, December 31, 2005                    200,405,555    $200,406    $25,575,959    $(26,484,487)    $     --     $  (708,122)
                                              ===========    ========    ===========    ============     ========     ===========
</TABLE>

           See accompanying notes to consolidated financial statements


                                      F-5
<PAGE>

                            PAID, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                                        2005            2004
                                                                                        ----            ----
<S>                                                                                  <C>             <C>
Operating activities:
     Net loss                                                                        $(3,100,652)    $(4,079,734)
     Adjustments to reconcile net loss to net
      cash provided by (used in) operating activities:
         Depreciation and amortization                                                   805,752       1,077,889
         Settlement Agreement and Mutual Release - call options                         (470,500)             --
         Amortization of unearned compensation                                            35,000          10,000
         Beneficial conversion feature                                                   103,871         291,494
         Loss on call options                                                            202,490              --
         Common stock issued in payment of professional
                  and consulting fees                                                  1,285,830       1,047,984
         Issuance of common stock pursuant to exercise of
           stock options granted to employees for services                               311,680         193,515
         Common stock issued in payment of interest                                      137,161         315,225
         Compensatory stock options granted                                                   --         150,000
         Changes in assets and liabilities:
             Accounts receivable                                                         (26,578)         72,340
             Inventories                                                                 140,334          77,996
             Deferred expenses                                                          (556,250)             --
             Prepaid expense and other current assets                                     46,297        (110,214)
             Accounts payable                                                            110,507         (39,869)
             Accrued expenses                                                             85,885         264,703
             Deferred revenue                                                          2,305,278              --
                                                                                     -----------     -----------

                Net cash provided by (used in) operating activities                    1,416,105        (728,671)
                                                                                     -----------     -----------

Investing activities:
     Proceeds from assignment of call options                                             96,885              --
     Property and equipment additions                                                   (233,708)        (66,330)
     Cash paid for assets of K Sports & Entertainment, LLC                                    --         (50,000)
                                                                                     -----------     -----------

                Net cash used in investing activities                                   (136,823)       (116,330)
                                                                                     -----------     -----------

Financing activities:
     Net proceeds from notes payable                                                     250,000         145,000
     Payments of notes payable                                                          (250,000)
     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         573,060
     Proceeds from exercise of stock options                                                 536             176
                                                                                     -----------     -----------

                Net cash provided by financing activities                                180,147         784,162
                                                                                     -----------     -----------

Net increase (decrease) in cash and cash equivalents                                   1,459,429         (60,839)

Cash and cash equivalents, beginning                                                      43,558         104,397
                                                                                     -----------     -----------

Cash and cash equivalents, ending                                                    $ 1,502,987     $    43,558
                                                                                     ===========     ===========

                                SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for:

     Income taxes                                                                    $        --     $        --
                                                                                     ===========     ===========

     Interest                                                                        $     2,184     $     6,750
                                                                                     ===========     ===========
</TABLE>

           See accompanying notes to consolidated financial statements


                                      F-6
<PAGE>

                            PAID, INC. AND SUBSIDIARY
                           DECEMBER 31, 2005 AND 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization

Paid, Inc. and subsidiary (the "Company") provides businesses and clients with
marketing, management, merchandising, auction management, website hosting, and
authentication and consignment services for the entertainment, sports and
collectibles industries.

On October 7, 2004 the Company acquired operating assets of K Sports &
Entertainment LLC ("K Sports") comprised of accounts receivable totaling
$114,550, property and equipment valued at $5,550 and intangible assets
comprised of contract rights, valued at $54,900. The purchase price, totaling
$175,000, was paid with 195,313 unregistered shares of Company stock, valued at
$62,500, $50,000 in cash, and a commitment to issue an additional 195,312
unregistered shares of company stock, valued at $62,500 on October 7, 2005. Such
shares remain unissued at December 31, 2005. K Sports operated as a sports
agency business and is expected to supplement and enhance the Company's
celebrity services offerings.

Note 2. Management's Plans

The Company has continued to incur significant losses. For the years ended
December 31, 2005 and 2004 the Company reported losses of approximately
$3,100,000 and $4,100,000, respectively.

To date the Company has met its cash needs from the proceeds of convertible debt
and the assignment of call options discussed in Note 7.

Management anticipates growth in revenues and gross profits in 2006 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.

A 2005 Settlement Agreement provided the Company with call options for
approximately 2 million shares of the Company's common stock. As of December 31,
2005 the Company still held call options for 1,625,000 shares of common stock,
which expire on May 9, 2006. Assignment of these call options is expected to
produce between $195,000 and $585,000 based solely upon 52 week high and low
closing prices of the Company's common stock.

Although there can be no assurances, the Company believes that the above
anticipated additional revenues, and additional financing will be sufficient to
meet the Company's working capital requirements through the end of 2006.

Note 3. Summary Of Significant Accounting Policies

Principles of consolidation

The accompanying consolidated financial statements include the accounts of Paid,
Inc. and its wholly-owned subsidiary, Rotman Collectibles, Inc. All
inter-company balances and transactions have been eliminated.


                                      F-7
<PAGE>

Cash and cash equivalents

The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

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 December 31, 2005
and 2004 the Company has provided for reserves totaling $50,000 and $300,000,
respectively.

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, determined by the closing
price of the Company's common stock, 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).

Website 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 year
ended December 31, 2005 the Company capitalized approximately $200,000 of
website development costs. During the year ended December 31, 2004 the Company
capitalized approximately $65,000 of website development costs.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the
straight line and double declining balance method over the estimated useful
lives of 3 to 5 years.

Intangible Assets

Intangible assets are being amortized on a straight-line basis over estimated
useful lives of two to seventeen years.

The Company accounts for intangible assets in accordance with Financial
Accounting Standards Board Statement No. 142 "Goodwill and Other Intangible
Assets" (SFAS No. 142). SFAS No. 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to
acquisition. SFAS No. 142 provides that intangible assets with finite lives be
amortized and that goodwill and intangible assets with indefinite lives not be
amortized, but rather be tested at least annually for impairment.


                                      F-8
<PAGE>

Revenue Recognition

The Company generates revenue on sales of its purchased inventories, from fees
and commissions on sales of merchandise under consignment type arrangements,
from web hosting services, from fan club membership fees, from sales of fan
experiences, from appraisal services and from advertising and promotional
services.

Fan experiences sales include tickets and related experiences at concerts and
other events conducted by performing artists. Revenues associated with these fan
experiences are reported gross, rather than net, following the criteria of EITF
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent", and are
deferred until the related event has been concluded, at which time the revenues
and related direct costs are recognized.

Fan club membership fees are recognized when the member joins and all direct
costs associated with the membership have been incurred.

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.

Shipping and Handling Fees and Costs

All amounts billed to customers in sales transactions related to shipping and
handling represent revenues earned and are reported as revenues. Costs incurred
by the Company for shipping and handling are reported as an expense.

Advertising Costs

Advertising costs totaling approximately $85,700 in 2005 and $99,500 in 2004,
are charged to expense when incurred.


                                      F-9
<PAGE>

Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses - The carrying amount of these financial instruments approximates fair
value because of the short-term nature of these instruments.

Notes payable - The carrying amount of these financial instruments approximates
fair value as the interest rate approximates market rates.

Convertible debt - The carrying amount of these financial instruments
approximates fair value as the interest rates approximate market rates.

Concentrations of Credit Risk

The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and accounts receivable.

Cash and cash equivalents - The Company places its cash and cash equivalents
with high credit quality institutions.

Accounts receivable - The Company maintains receivable balances with certain of
its customers and typically does not require collateral. The Company reviews a
customer's credit history before extending credit and establishes an allowance
for doubtful accounts based upon periodic reviews of the credit risk of specific
customers and other information, if necessary. Based on experience to date,
potential credit losses are considered minimal.

Income Taxes

Income taxes are accounted for under the liability method. Under this method,
deferred income taxes are provided for temporary differences between the
financial reporting and the tax bases of assets and liabilities and are measured
using enacted laws and rates that will be in effect when the differences are
expected to reverse. A valuation allowance is provided when management believes
it is more likely that not that some or all of the deferred tax assets will not
be realized.

Use of Estimates

In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheets and reported amounts of revenue and expenses during
the reporting periods. Material estimates that are particularly susceptible to
significant change in the near term relate to inventories, intangible assets and
deferred tax asset valuation. Although these estimates are based on management's
knowledge of current events and actions, they may ultimately differ from actual
results.

Stock Compensation Plans

The Company accounts for stock based employee compensation in accordance with
Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for
Stock Based Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation" to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and requires prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results.


                                      F-10
<PAGE>

Although SFAS Nos. 123 and 148 encourage all entities to adopt a fair value
based method of accounting for employee stock compensation plans, they also
allow an entity to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
whereby compensation cost is the excess, if any, of the quoted market price of
the stock at the grant date (or other measurement date) over the amount an
employee must pay to acquire the stock. Stock options issued under the Company's
stock option plans typically have no intrinsic value at the date of grant, and
under Opinion No. 25 no compensation cost is recognized for them. The Company
has elected to continue with the accounting methodology in Opinion No. 25 and
has provided proforma disclosures, in accordance with SFAS No 148, of net income
and earnings per share as if the fair value based method of accounting had been
applied (refer to note 7).

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
8,518,519 as of December 31, 2005 and 12,447,224 as of December 31, 2004. The
number of common shares that would be included in the calculation of outstanding
options and warrants 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 27,165,054 shares and
26,101,418 shares at December 31, 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 year.

Asset Impairment

In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets", long lived assets to be held and used by the Company are
reviewed to determine whether any events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. For long-lived
assets to be held and used, the Company bases its evaluation on such indicators
as the economic benefits of the assets, any historical or future profitability
measurements, a review of estimated useful lives, as well as other external
market conditions or factors that may be present. If such impairment indicators
are present or other factors exist that indicate that the carrying amount of the
asset may not be recoverable, the Company determines whether an impairment has
occurred through the use of an undiscounted cash flow analysis of assets at the
lowest level for which identifiable cash flow exist. If impairment has occurred,
the Company recognizes a loss for the difference between the carrying amount and
the estimated value of the asset. The fair value of the asset is measured using
an estimate of discounted cash flow analysis.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," a
revision of SFAS No. 123, "Accounting for Stock-Based Compensation" and
superseding APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS
No. 123R requires the Company to expense grants made under stock option and
employee stock purchase plans. The cost will be recognized over the vesting
period of the plans. SFAS No. 123R is effective for the first interim or annual
period beginning after June 15, 2005. SFAS 123R is effective for the Company
beginning January 1, 2006 at which time the Company will adopt the modified
prospective transition method. SFAS 123R is not expected to have a material
impact on the financial statements at the time of adoption.


                                      F-11
<PAGE>

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs," an amendment
of ARB No. 43, Chapter 4, "Inventory Pricing". This statement clarifies that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and requires
the allocation of fixed production overheads to the costs of conversion be based
on the normal capacity of the production facilities. The provisions of SFAS No.
151 are effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The Company does not produce products and therefore, does
not expect adoption of this standard to have a material impact on its financial
position, results of operations and cash flow.

In May 2005, the Financial Accounting Standards Board issued SFAS No. 154,
"Accounting Changes and Error Corrections" (SFAS No. 154), which replaces APB
Opinion No. 20, "Accounting Changes and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements - An Amendment of APB Opinion No. 28".
SFAS No. 154 provides guidance on the accounting for and reporting of accounting
changes and error corrections. It establishes retrospective application, to
prior years' financial statements, as the required method for reporting a change
in accounting principle and the reporting of an error unless it is not practical
to do so. SFAS No. 154 is effective for accounting changes and a correction of
errors made in fiscal years beginning after December 15, 2005 and is required to
be adopted by the Company in the first quarter of 2006.

Note 4. Property and Equipment

At December 31, property and equipment consisted of the following:

                                                        2005               2004
                                                        ----               ----
Computer equipment and software                  $   905,179        $   871,467
Office furniture                                      61,927             61,927
Video and article archives                           418,983            418,983
Video equipment                                      158,513            158,513
Website development cost                             908,996            709,000
Purchased software                                    70,000             70,000
                                                 -----------        -----------
                                                   2,523,598          2,289,890
Accumulated depreciation                          (2,267,354)        (2,117,184)
                                                 -----------        -----------
                                                 $   256,244        $   172,706
                                                 ===========        ===========

Depreciation expense of property and equipment for the years ended December 31,
2005 and 2004 amounted to $150,200 and $297,100, respectively.

The Company uses office and warehouse facilities as a tenant at will in a
building leased by a related party. No rent has been charged during the years
ended December 31, 2005 and 2004.

Note 5. Intangible Assets

At December 31, intangible assets are comprised of the following:

                                                      2005                 2004
                                                      ----                 ----
Software licenses                              $ 2,882,660          $ 2,882,660
Patent pending                                      16,000               16,000
Domain names                                        77,025               77,025
Acquired Websites                                  762,301              762,301
Customer and user lists                            327,157              327,157
Assigned contracts                                  54,900               54,900
Other                                               30,763               30,763
                                               -----------          -----------
                                                 4,150,806            4,150,806
Accumulated amortization                        (4,117,516)          (3,461,934)
                                               -----------          -----------
                                               $    33,290          $   688,872
                                               ===========          ===========


                                      F-12
<PAGE>

Amortization expense for intangible assets for the years ended December 31, 2005
and 2004 amounted to $655,600 and $780,800, respectively.

Estimated amortization expense for each of the next five years is $21,000 in
2006 and $1,000 in each year 2007 to 2010.

Note 6. Accrued Expenses

At December 31, accrued expense are comprised of the following:

                                                             2005           2004
                                                             ----           ----
Interest                                               $  172,490     $  129,635
Payroll and related costs                                 204,280        167,322
Professional and Consulting fees                          134,411        378,210
Consignments                                              172,782        173,626
Due to K Sports                                            62,500         62,500
Commissions                                               300,000         40,000
                                                           30,618         39,903
                                                       ----------     ----------
Other                                                  $1,077,081     $  991,196
                                                       ==========     ==========

Note 7. 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.

During 2004 the Company assigned options to purchase 1,889,000 shares of stock
from CSEI to certain individuals in exchange for $573,000. During January 2005
the remaining 394,565 options were assigned in exchange for approximately
$100,000. The proceeds from the assignment of these options were added to the
paid in capital of the Company.

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


                                      F-13
<PAGE>

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 2005 the Company
assigned options to purchase 375,000 shares of stock from Leslie Rotman to
certain individuals in exchange for $96,885. At December 31, 2005, 1,625,000
call options remain outstanding.

Stock Options

In June 1999, the Company's Board of Directors adopted the 1999 Stock Option
Plan (the "1999 Plan") that provides for the issuance of options to directors,
officers, employees and consultants of the Company to purchase up to 1,000,000
shares of the Company's common stock. Options granted under the plan may be
either incentive stock options or nonqualified stock options. The 1999 Plan
provides that each option be granted at a price determined by the Board of
Directors on the date such option is granted and have a maximum option term of
ten years. The options granted become exercisable during a period of time as
specified by the Board of Directors at the date such option is granted.

In 1999, the Company also granted options to purchase 126,000 shares of
unrestricted common stock at the stock's fair value on the dates of grant
(between $.8125 and $1.625 per share).

In October 2002, the Company's Board of Directors adopted the 2002 Stock Option
Plan (the "2002 Plan") that provides for the issuance of options to directors,
officers, employees and consultants of the Company to purchase up to 30,000,000
shares of the Company's common stock. Options granted under the plan may be
either incentive stock options or nonqualified stock options. The 2002 Plan
provides that each option be granted at a price determined by the Board of
Directors on the date such option is granted and have a maximum option term of
ten years. The options granted become exercisable during a period of time as
specified by the Board of Directors at the date such option is granted. In 2002
the Company granted options to purchase a total of 25,000,000 restricted shares
of common stock to its President, Chief Financial Officer, Chief Technology
Officer and a Director at the stock's fair value on the date of grant, $0.041.

In October 2004, the Company granted options to an employee and a consultant to
purchase 635,418 shares of unrestricted common stock at $.001 per share. 468,750
of these options, valued at $150,000, were immediately vested while 166,668
vested over a nine-month period. The Company recorded unearned compensation of
$45,000, based on the difference between the fair value of the common stock at
the grant date and the exercise price of the options that did not immediately
vest. The unearned compensation was amortized over the option's vesting period
with $35,000 and $10,000 being charged to expense during 2005 and 2004,
respectively.

There were no other options granted or cancelled/expired under any plans during
2004 or 2005.

Information pertaining to options outstanding at December 31, 2005 is as
follows:


<TABLE>
<CAPTION>
                                                     Weighted
                                                     Average             Weighted                           Weighted
    Range of                                         Remaining           Average                            Average
    Exercise                      Number             Contractual         Exercise      Number               Exercise
    Prices                        Outstanding        Life                Price         Exercisable          Price
<S> <C>                                <C>           <C>                 <C>                 <C>            <C>
    .81                                9,000         3                   $.81                9,000          $ .81
    1.62                              57,000         3                   1.62               57,000           1.62
    .001                              99,054         9                   .001               99,054           .001
    .041                          25,000,000         7                   .041           25,000,000           .041
                                  ----------                                            ----------

    Outstanding at end of year    25,165,054                             $.045          25,165,054          $ .045
                                  ==========                                            ==========
</TABLE>


                                      F-14
<PAGE>

During July 1999, the Company's Board of Directors adopted, subject to
stockholders' approval, the 1999 Omnibus Share Plan (the "Omnibus Plan") that
provides for both incentive and non-qualified stock options, stock appreciation
rights and other awards to directors, officers, and employees of the Company to
purchase or receive up to 1,000,000 shares of the Company's stock. A committee
of the Board of Directors ("Committee") establishes the option price at the time
each option is granted, which price may, in the discretion of the Committee, be
less than 100% of the fair market value of the shares on the date of the grant.
Any options granted will have a maximum term of ten years and will be
exercisable during a period as specified by the Committee. No options have ever
been granted under the Omnibus Plan.

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 grant.

During the year ended December 31, 2005 the Company granted options for
8,302,602 shares at various dates aggregating $1,580,216 under this plan. During
the year ended December 31, 2004 the Company granted options for 5,676,670
shares at various dates aggregating $1,436,499 under this plan. All options
except 99,054 shares granted during the 2005 and 2004 were exercised.

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:

                                                           Years Ended
                                                           December 31,
                                                           ------------
                                                       2005             2004
                                                       ----             ----
Net loss
As reported                                        $(3,100,652)     $(4,079,734)
Stock based compensation cost, as
reported (net of tax)                                   35,000          160,000
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)        (424,450)
                                                   -----------      -----------
Pro forma                                          $(3,100,652)     $(4,344,184)
                                                   ===========      ===========

Basic loss per share as reported                   $      (.02)     $      (.02)

Stock based compensation cost, as
reported (net of tax)                                       --               --
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)                                 (.00)            (.01)
                                                   -----------      -----------
Pro forma                                          $      (.02)     $      (.03)
                                                   ===========      ===========


                                      F-15
<PAGE>

Note 8. Income Taxes

There was no provision for income taxes for the years ended December 31, 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 using 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.

The tax effects of temporary differences and carry forwards that give rise to
deferred taxes are as follows:

                                                     2005              2004
                                                     ----              ----

Federal net operating loss carry
   forwards                                      $ 6,758,000        $ 6,357,000
State net operating loss carry
   forwards                                        1,492,000          1,776,000
                                                 -----------        -----------
                                                   8,250,000          8,133,000
Valuation reserve                                 (8,250,000)        (8,133,000)
                                                 -----------        -----------

Net deferred tax asset                           $        --        $        --
                                                 ===========        ===========

The valuation reserve applicable to net deferred tax asset for the years ended
December 31, 2005 and 2004 is due to the likelihood of the deferred tax not to
be utilized.

At December 31, 2005, the Company has federal and state net operating loss carry
forwards of approximately $20,000,000 and $16,000,000, respectively, 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 9. Convertible Debt Financing

As of December 31, 2005 the Company has outstanding $1,150,000 of convertible
debt.

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


                                      F-16
<PAGE>

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 December 31, 2005 this note has
been paid in full through a series of conversions to common stock. During 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 December 31, 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 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
was charged to interest expense over the original two year term of the related
note. The beneficial conversion feature that was charged to interest expense
totaled $103,871 and $291,494 in 2005 and 2004, respectively. The total
beneficial conversion discount related to this note was recorded as an increase
in additional paid in capital and the unamortized portion as a reduction in the
related note.

Note 10. Notes Payable

At December 31, 2005 the Company was obligated on short-term notes payable
totaling $130,000, of which $80,000 was to a related party. The related party
notes bear interest at 8%, while the remainder bear interest at 10%. The related
party debt is due on demand while the remainder is due on May 31, 2006. Interest
expense charged to operations in connection with the related party notes totaled
$10,266 in 2005.

At December 31, 2004, the Company was obligated on short-term notes payable
totaling $290,000, of which $130,000 was to a related party. The related party
notes bear interest at 8%, while the remainder bore interest at 12% to 18%. In
addition, with respect to the third party debt, the Company issued 125,000
unregistered shares of stock valued at $17,500 as an origination fee. All of
this short-term debt was due on demand. Interest expense charged to operations
in connection with the related party notes totaled $10,967 in 2004.

Note 11. Related party transactions

During the year ended December 31, 2004 the Company acquired approximately
$110,000 of memorabilia for sale from Steven Rotman, the father of Richard and
Greg Rotman.

Note 12. Issuance of Common Stock

During 2005 the Company purchased $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 2005 and 2004 the Company issued 1,019,871 and 3,924,905 shares of common
stock, respectively, in connection with the payment of $129,161 and $315,225,
respectively, of interest due on its convertible debt.


                                      F-17
<PAGE>

                                  EXHIBIT INDEX

        Exhibit
          No.                           Description of Exhibits
        -------                         -----------------------

         3.1          Certificate of Incorporation, as amended (incorporated by
                      reference to Exhibit 3.1 to Form 8-K, filed on November
                      25, 2003)

         3.2          Amended and Restated Bylaws (incorporated by reference to
                      Exhibit 3.2 to Form 8-K, filed on December 8, 2004)

         4.1          Specimen of certificate for Common Stock (incorporated by
                      reference to Exhibit 4.1 to Form SB-2/A filed on December
                      1, 2000)

         4.2          Convertible Promissory Note dated March 23, 2000 issued to
                      Augustine Fund, LP pursuant to Securities Purchase
                      Agreement (incorporated by reference to Exhibit 10.3 to
                      Form 10-KSB filed on April 14, 2000)

         4.3          Convertible Promissory Note, dated November 7, 2001,
                      issued to Augustine Fund, L.P., pursuant to Loan Agreement
                      (incorporated by reference from Exhibit 4.2 to Form 8-K
                      filed on November 21, 2001)

         4.4          Modification Agreement dated September 19, 2000 between
                      the Company and Augustine Fund, L.P. (incorporated by
                      reference to Exhibit 4.7 to Form S-3 filed on October 25,
                      2000).

         4.5          Amended Modification Agreement dated July 15, 2001,
                      between the Company and Augustine Fund, L.P. (incorporated
                      by reference from Exhibit 4.10 to Form SB-2/A filed on
                      August 8, 2001)

         4.6          Second Amended Modification Agreement dated August 30,
                      2001 between the Company and Augustine Fund, L.P.
                      (incorporated by reference from Exhibit 4.11 to Form SB-2
                      filed on August 31, 2001)

         4.7          Third Amended Modification Agreement dated May 21, 2002
                      between the Company and Augustine Fund, L.P. (incorporated
                      by reference from Exhibit 4.1 to Form 10-QSB/A filed on
                      August 14, 2002)

         4.8          Modification Agreement dated May 21, 2002 between the
                      Company and Augustine Fund, L.P. (incorporated by
                      reference from Exhibit 4.2 to Form 10-QSB/A filed on
                      August 14, 2002)

         4.9          Second Modification Agreement dated October 31, 2003
                      between the Company and Augustine Fund, L.P. (incorporated
                      by reference from Exhibit 4.10 to Form 10-KSB filed on
                      March 30, 2004)

         4.10         Third Modification Agreement dated October 15, 2005
                      between the Company and Augustine Fund, L.P.*

         4.11         Warrant issued by the Registrant to Delano Group
                      Securities, LLC (expired March 2005) (incorporated by
                      reference to Exhibit 10.7 to Form 10-KSB filed on April
                      14, 2000).

         4.12         Warrant dated March 23, 2000 issued to Augustine Fund, LP
                      pursuant to Securities Purchase Agreement (expired March
                      2005) (incorporated by reference to Exhibit 10.4 to Form
                      10-KSB filed on April 14, 2000)

         10.1         1999 Stock Option Plan (incorporated by reference to
                      Exhibit 10.2 to Form SB-2/A filed on December 1, 2000)

         10.2         1999 Omnibus Share Plan (incorporated by reference to
                      Exhibit 10.3 to Form SB-2/A filed on December 1, 2000)

         10.3         2001 Non-Qualified Stock Option Plan, as amended
                      (incorporated by reference from Exhibit 99.1 to Form S-8
                      filed on September 5, 2003)

         10.4         2002 Stock Option Plan (incorporated by reference from
                      Exhibit 10.17 to Form 10-KSB filed on March 31, 2003)

         10.5         Securities Purchase Agreement dated March 23, 2000 between
                      the Company and Augustine Fund, LP. (incorporated by
                      reference to Exhibit 10.2 to Form 10-KSB filed on April
                      14, 2000)

         10.6         Loan Agreement, dated November 7, 2001, by and between
                      Augustine Fund, L.P. and the Company (incorporated by
                      reference from Exhibit 10.1 to Form 8-K filed on November
                      21, 2001)

         10.7         Loan Agreement dated May 21, 2002 between the Company and
                      Augustine Fund, L.P. (incorporated by reference from
                      Exhibit 10.1 to Form 10-QSB/A filed on August 14, 2002)

         10.8         Agreement and Plan of Merger between the Company, Rotman
                      Collectibles, Inc. and Leslie Rotman dated October 23,
                      2001 (incorporated by reference from Exhibit 2.1 to Form
                      8-K filed on November 21, 2001)

         10.9         Asset Purchase Agreement dated September 8, 2005 between
                      the Company and Leslie Rotman (incorporated by reference
                      from Exhibit 10 to Form 10-QSB filed on November 14, 2005)

         10.10        Settlement Agreement and Mutual Release dated May 9, 2005
                      between the Company and Leslie Rotman (incorporated by
                      reference to Exhibit 10.1 to Form 10-QSB filed on May 13,
                      2005)

         10.11        Escrow Agreement dated May 9, 2005 between the Company,
                      Leslie Rotman, and Escrow Agent (incorporated by reference
                      to Exhibit 10.2 to Form 10-QSB filed on May 13, 2005)

         21           Subsidiaries of the Registrant (included in Item I)*

         23           Consent of Carlin, Charron & Rosen, LLP*

         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*

         99           Risk Factors*

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* filed herewith