PAID INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
COMMISSION FILE NUMBER 0-28720
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE
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73-1479833
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S.
Employer Identification No.)
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225 Cedar Hill Street, Marlborough, Massachusetts
01752
(Address
of Principal Executive Offices) (Zip Code)
(617) 861-6050
(Registrant’s
Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each
class
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Trading
Symbol
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Name of each
exchange on which registered
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None
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None
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None
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Indicate by check
mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
☒ No ☐
Indicate by check
mark whether the registrant has submitted every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes
☒ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company or an emerging growth company. See the
definitions of “large accelerated filer”,
“accelerated filer”, “smaller reporting
company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated
Filer
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☐
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Non-accelerated
filer
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☒
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Smaller reporting company
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☒
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Emerging Growth
Company
☐
If an emerging growth company, indicate by check mark if the
Registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
☐ No ☒
As of
November 14, 2019, the issuer had outstanding 1,614,817 shares of
its Common Stock.
PAID, INC.
FORM 10-Q
TA
B
LE OF CONTENTS
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4-5
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6-15
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16
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20
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PA
R
T I – FINANCIAL
INFORMATION
PAID, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30,
2019
(Unaudited)
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December
31,
2018
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ASSETS
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Current
assets:
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Cash and
cash equivalents
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$
525,201
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$
632,331
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Accounts
receivable, net
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133,938
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87,718
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Prepaid
expenses and other current assets
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88,593
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110,028
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Total
current assets
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747,732
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830,077
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Property and
equipment, net
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93,371
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90,843
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Other intangible
assets, net
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4,079,558
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4,290,773
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Operating lease
right-of-use assets
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125,702
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-
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Total
assets
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$
5,046,363
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$
5,211,693
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LIABILITIES AND
SHAREHOLDERS' EQUITY
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Current
liabilities:
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Accounts
payable
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$
841,926
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$
758,365
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Notes
payable
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-
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14,954
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Finance
leases - current portion
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9,511
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8,580
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Accrued
expenses
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195,119
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1,268,633
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Contract
liabilities
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101,872
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144,221
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Operating
lease obligations – current portion
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28,816
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-
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Total current
liabilities
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1,177,244
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2,194,753
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Long term
liabilities:
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Finance
leases - net of current portion
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5,261
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12,116
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Operating
lease obligations – net of current portion
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99,651
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-
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Deferred tax
liability, net
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1,121,152
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1,088,306
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Total
liabilities
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2,403,308
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3,295,175
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Commitments and
contingencies
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Shareholders'
equity:
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Series A
Preferred stock, $0.001 par value, 5,000,000 shares authorized;
4,438,578 and 3,784,712 shares issued and outstanding at September
30, 2019 and December 31, 2018, respectively; liquidation value of
$13,758,085 and $11,800,316 at September 30, 2019 and December 31,
2018, respectively
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4,439
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3,785
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Common
stock, $0.001 par value, 25,000,000 shares authorized; 1,648,657
shares issued and 1,614,817 shares outstanding at September 30,
2019 and December 31, 2018
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1,649
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1,649
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Additional
paid-in capital
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69,196,136
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68,751,871
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Accumulated
other comprehensive income
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442,635
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344,182
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Accumulated
deficit
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(66,943,957
)
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(67,127,122
)
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Common stock in
treasury, at cost; 33,840 shares at September 30, 2019 and December
31, 2018
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(57,847
)
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(57,847
)
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Total shareholders'
equity
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2,643,055
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1,916,518
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Total liabilities
and shareholders' equity
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$
5,046,363
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$
5,211,693
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See
accompanying notes to condensed consolidated financial
statements
PA
I
D, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)
(Unaudited)
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Three Months
Ended
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Nine
Months Ended
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September
30,
2019
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September
30,
2018
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September
30,
2019
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September
30,
2018
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Revenues,
net
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2,726,433
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2,238,445
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7,730,950
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6,572,841
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Cost of
revenues:
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Cost
of revenues
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1,973,499
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1,653,382
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5,649,535
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4,787,214
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Amortization
of acquired technology
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-
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72,351
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-
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220,181
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Total
cost of revenues
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1,973,499
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1,725,733
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5,649,535
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5,007,395
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Gross
profit
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752,934
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512,712
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2,081,415
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1,565,446
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Operating
expenses
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Salaries and
related
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381,585
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193,036
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1,042,459
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589,217
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General and
administrative
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261,993
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373,999
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879,291
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1,040,554
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Stock-based
compensation
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303,958
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297,384
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361,698
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716,833
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Amortization of
other intangible assets
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116,401
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135,605
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346,946
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412,449
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Total operating
expenses
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1,063,937
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1,000,024
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2,630,394
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2,759,053
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Loss from
operations
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(311,003
)
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(487,312
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(548,979
)
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(1,193,607
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Other income
(expense):
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Interest income
(expense)
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-
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13
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-
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(1,685
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Other
income
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884,620
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44,280
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892,652
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42,329
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Unrealized gain
(loss) on stock price guarantee
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8,017
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(12,025
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3,688
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(3,527
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Total other income,
net
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892,637
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32,268
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896,340
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37,117
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Income (loss)
before provision for income taxes
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581,634
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(455,044
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347,361
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(1,156,490
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Provision for
income taxes
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-
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-
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960
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1,260
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Net income
(loss)
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581,634
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(455,044
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346,401
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(1,157,750
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Preferred share
redemption discount
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-
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116,017
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-
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250,170
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Preferred
dividends
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(50,395
)
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(45,955
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(141,287
)
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(128,914
)
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Net income (loss)
available to common shareholders
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$
531,239
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$
(384,982
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$
205,114
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$
(1,036,494
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Net income (loss)
per share – basic
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$
0.33
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$
(0.24
)
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$
0.13
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$
(0.64
)
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Net income (loss)
per share - diluted
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$
0.32
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$
(0.24
)
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$
0.12
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$
(0.64
)
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Weighted average
number of common shares outstanding - basic
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1,614,817
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1,620,589
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1,614,817
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1,625,318
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Weighted average
number of common shares outstanding - diluted
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1,671,693
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1,620,589
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1,667,566
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1,625,318
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Condensed
consolidated statements of comprehensive income (loss)
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Net income
(loss)
|
$
581,634
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$
(455,044
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$
346,401
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$
(1,157,750
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Other comprehensive
income (loss):
|
|
|
|
|
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Foreign currency
translation adjustments
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(24,925
)
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229,484
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98,453
|
(393,304
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|
Comprehensive
income (loss)
|
$
556,709
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$
(225,560
|
$
444,854
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$
(1,551,054
|
See
accompanying notes to condensed consolidated financial
statements
P
A
ID, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
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2019
|
2018
|
|
Cash flows from
operating activities:
|
|
|
|
Net income
(loss)
|
$
346,401
|
$
(1,157,750
)
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
368,183
|
649,537
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Amortization
of operating lease right-of-use assets
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16,020
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-
|
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Share-based
compensation
|
361,698
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716,833
|
|
Unrealized
loss (gain) on stock price guarantee
|
(3,688
)
|
3,527
|
|
Other
income from stock price guarantee
|
(880,553
)
|
-
|
|
Loss
on disposal of property and equipment
|
-
|
1,944
|
|
Changes in
assets and liabilities:
|
|
|
|
Accounts
receivable
|
(44,051
)
|
(71,625
)
|
|
Prepaid
expenses and other current assets
|
24,381
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(43,103
)
|
|
Accounts
payable
|
146,778
|
81,532
|
|
Accrued
expenses
|
(192,901
)
|
33,709
|
|
Contract
liabilities
|
(46,382
)
|
(64,643
)
|
|
Operating
lease obligations
|
(13,266
)
|
-
|
|
Net cash
provided by operating activities
|
82,620
|
149,961
|
|
Cash flows from
investing activities:
|
|
|
|
Proceeds
from sale of property and equipment
|
-
|
1,182
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|
Purchase of
property and equipment
|
(16,077
)
|
(31,226
)
|
|
Net cash
used in investing activities
|
(16,077
)
|
(30,044
)
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Payments on
finance leases
|
(6,523
)
|
(6,110
)
|
|
Payments on
notes payable
|
(15,346
)
|
(250,049
)
|
|
Payments
of preferred dividends
|
(163,236
)
|
-
|
|
Payments on
related party note payable
|
-
|
(29,422
)
|
|
Net cash
used in financing activities
|
(185,105
)
|
(285,581
)
|
|
Effect of exchange
rate changes on cash, cash equivalents and funds in
trust
|
11,432
|
(22,463
)
|
|
|
|
|
|
Net change in cash,
cash equivalents and funds in trust
|
(107,130
)
|
(188,127
)
|
|
|
|
|
|
Cash, cash
equivalents and funds in trust, beginning of period
|
632,331
|
738,690
|
|
|
|
|
|
Cash, cash
equivalents and funds in trust, end of period
|
$
525,201
|
$
550,563
|
|
Reconciliation of
cash, cash equivalents and funds held in trust at end of
period:
|
|
|
|
Cash
and cash equivalents
|
$
525,201
|
$
550,563
|
|
Funds
held in trust
|
-
|
-
|
|
Cash, cash
equivalents and funds held in trust at end of period
|
$
525,201
|
$
550,563
|
|
|
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SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
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|
Cash paid during
the period for:
|
|
|
|
Income
taxes
|
$
500
|
$
1,260
|
|
Interest
|
$
932
|
$
1,658
|
|
SUPPLEMENTAL
DISCLOSURES OF NON-CASH ITEMS
|
|
|
|
Repurchase
of preferred and common stock with note payable
|
$
-
|
$
202,656
|
|
Issuance of
preferred shares in settlement of accrued expenses
|
$
83,221
|
$
-
|
|
Operating
lease liabilities from obtaining operating lease right-of-use
assets
|
$
55,600
|
$
-
|
See
accompanying notes to condensed consolidated financial
statements
PA
I
D, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018
(Unaudited)
|
|
Preferred
stock
|
Common
stock
|
Paid-in
|
Treasury
Stock
|
Other
Comprehensive
|
Accumulated
|
Total
Stockholders'
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Shares
|
Amount
|
income
|
Deficit
|
Equity
|
|
Balance,
December 31, 2017
|
3,724,547.00
|
$
3,725.00
|
1,648,657
|
$
1,649
|
$
68,574,974
|
(14,535
)
|
$
(26,529
)
|
$
975,877
|
$
(55,845,766
)
|
$
13,683,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-purchase
of Common and Preferred shares
|
(33,899
)
|
(34
)
|
-
|
-
|
(107,184
)
|
(4,905
)
|
(7,986
)
|
-
|
63,244
|
(51,960
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(372,157
)
|
-
|
(372,157
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
356,354
|
-
|
-
|
-
|
-
|
356,354
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(509,370
)
|
(509,370
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2018
|
3,690,648.00
|
3,691.00
|
1,648,657
|
1,649
|
68,824,144
|
(19,440
)
|
(34,515
)
|
603,720
|
(56,291,892
)
|
13,106,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-purchase
of Common and Preferred shares
|
(37,320
)
|
(38
)
|
-
|
-
|
(120,409
)
|
(5,400
)
|
(8,679
)
|
-
|
70,909
|
(58,217
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(250,631
)
|
-
|
(250,631
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
63,095
|
-
|
-
|
-
|
-
|
63,095
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(193,336
)
|
(193,336
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2018
|
3,653,328.00
|
3,653.00
|
1,648,657
|
1,649
|
68,766,830
|
(24,840
)
|
(43,194
)
|
353,089
|
(56,414,319
)
|
12,667,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-purchase
of Common and Preferred shares
|
(62,200
)
|
(62
)
|
-
|
-
|
(194,984
)
|
(9,000
)
|
(14,653
)
|
-
|
116,017
|
(93,682
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
229,484
|
-
|
229,484
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Share-based
compensation expense
|
193,584
|
194
|
-
|
-
|
297,190
|
-
|
-
|
-
|
-
|
297,384
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(455,044
)
|
(455,044
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2018
|
3,784,712.00
|
$
3,785.00
|
1,648,657
|
$
1,649
|
$
68,869,036
|
(33,840
)
|
$
(57,847
)
|
$
582,573
|
$
(56,753,346
)
|
$
12,645,850
|
|
|
|
|
|
Other
|
|
|
|
|||
|
|
Preferred
stock
|
Common
stock
|
Paid-in
|
Comprehensive
|
Accumulated
|
Treasury
Stock
|
Total
Stockholders'
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
income
|
Deficit
|
Shares
|
Amount
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
3,784,712.00
|
3,785
|
1,648,657
|
$
1,649
|
$
68,751,871
|
$
344,182
|
$
(67,127,122
)
|
(33,840
)
|
$
(57,847
)
|
$
1,916,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
73,145.00
|
-
|
-
|
-
|
73,145
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
58,840.00
|
-
|
-
|
-
|
-
|
58,840
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(211,986.00
)
|
-
|
-
|
(211,986
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Balance,
March 31, 2019
|
3,784,712
|
3,785
|
1,648,657
|
1,649
|
68,810,711
|
417,327
|
(67,339,108
)
|
(33,840
)
|
(57,847
)
|
1,836,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
50,233.00
|
-
|
-
|
-
|
50,233
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
(1,100.00
)
|
-
|
-
|
-
|
-
|
(1,100
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Share-based
compensation expense
|
653,866
|
654
|
-
|
-
|
82,567.00
|
-
|
-
|
-
|
-
|
83,221
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Dividend
paid
|
-
|
-
|
-
|
-
|
-
|
-
|
(163,236.00
)
|
-
|
-
|
(163,236
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(23,247.00
)
|
-
|
-
|
(23,247
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Balance,
June 30, 2019
|
4,438,578
|
4,439
|
1,648,657
|
1,649
|
8,892,178
|
467,560
|
(67,525,591
)
|
(33,840
)
|
(57,847
)
|
1,782,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
(24,925.00
)
|
-
|
-
|
-
|
(24,925
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
303,958.00
|
-
|
-
|
-
|
-
|
303,958
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
581,633.00
|
-
|
-
|
581,633
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Balance,
September 30, 2019
|
4,438,578
|
$
4,439
|
$
1,648,657
|
$
1,649
|
$
69,196,136
|
$
442,635
|
$
(66,943,958
)
|
(33,840
)
|
$
(57,847
)
|
$
2,643,054
|
See
accompanying notes to consolidated financial
statements
P
A
ID, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2019
Note 1. Organization and Significant Accounting
Policies
PAID,
Inc. (“PAID”, the “Company”,
“we”, “us”, or “our”) has
developed AuctionInc, which is a suite of online shipping and tax
management tools assisting businesses with e-commerce storefronts,
shipping solutions, tax calculation, inventory management, and
auction processing. The product has tools to assist with other
aspects of the fulfillment process, but the main purpose of the
product is to provide accurate shipping and tax calculations and
packaging algorithms that provide customers with the best possible
shipping and tax solutions.
BeerRun
Software is a brewery management and Alcohol and Tobacco Tax and
Trade Bureau tax reporting software. Small craft brewers can
utilize the product to manage brewery schedules, inventory,
packaging, sales and purchasing. Tax reporting can be processed
with a single click and is fully customizable by state or province.
The software is designed to integrate with QuickBooks accounting
platforms by using our powerful sync engine. We currently offer two
versions of the software: BeerRun and BeerRun Light. The light
version excludes some of the enhanced features of BeerRun without
disrupting the core functionality of the software. Additional
features include Brewpad and Kegmaster and can be added on to the
base product. During 2018, the software was upgraded to create a
better user experience.
ShipTime Canada
Inc. has developed a SaaS-based application, which focuses on the
small and medium business segments. This offering allows members to
quote, process, generate labels, dispatch and track courier and LTL
shipments all from a single interface. The application provides
customers with a choice of today’s leading couriers and
freight carriers all with discounted pricing allowing members to
save on every shipment. ShipTime can also be integrated into
on-line shopping carts to facilitate sales via e-commerce. We
actively sell directly to small and medium businesses and through
long standing partnerships with selected associations throughout
Canada.
General Presentation and Basis of Consolidated Financial
Statements
The
accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”), and with the rules and regulations of the
Securities and Exchange Commission ("SEC") regarding interim
financial reporting. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial
statements and should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto
included in the Annual Report on Form 10-K for the year ended
December 31, 2018 that was filed on April 1, 2019.
In the
opinion of management, the Company has prepared the accompanying
unaudited condensed consolidated financial statements on the same
basis as its audited consolidated financial statements, and these
unaudited condensed consolidated financial statements include all
adjustments, consisting of normal recurring adjustments necessary
for a fair presentation of the results of the interim periods
presented. The operating results for the interim periods presented
are not necessarily indicative of the results expected for the full
year 2019.
Going Concern and Management's Plan
The
accompanying unaudited condensed consolidated financial statements
have been prepared on a going concern basis which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company has continued to incur
operating losses, although it has taken significant steps to reduce
them. For the nine months ended September 30, 2019, the Company
reported a loss from operations of $548,979. The Company has an
accumulated deficit of $66,943,957 and has a working capital
deficit of $429,512 as of September 30, 2019. These factors raise
substantial doubt about the Company’s ability to continue as
a going concern.
Management feels
that the addition of the new PAID platform of services in addition
to the continued growth of ShipTime’s services will return a
valuable impact on the Company’s success in the near future.
The ongoing positive cash flow from operations is a significant
indicator of our successful transition to the new shipping
services. In addition to the existing services provided, ShipTime
will launch products in the United States that are complementary to
the current offerings.
Although there can
be no assurances, the Company believes that the above management
plan will be sufficient to meet the Company's working capital
requirements and will have a positive impact on the Company for the
remainder of 2019 and future years.
Principles of Consolidation
The
condensed consolidated financial statements include the accounts of
PAID, Inc. and its wholly owned subsidiaries, PAID Run, LLC and
ShipTime Canada, Inc. All intercompany accounts and transactions
have been eliminated.
Foreign Currency
The
currency of ShipTime, the Company’s international subsidiary,
is in Canadian dollars. Foreign currency denominated assets and
liabilities are translated into U.S. dollars using the exchange
rates in effect at September 30, 2019 and December 31, 2018.
Results of operations and cash flows are translated using the
average exchange rates throughout the period. The effect of
exchange rate fluctuations on translation of assets and liabilities
is included as a separate component of shareholders’ equity
in accumulated other comprehensive income.
Geographic Concentrations
The
Company conducts business in the U.S. and Canada. For customers
headquartered in their respective countries, the Company derived
approximately 97% of its revenues from Canada and 3% from the U.S.
during the three months ended September 30, 2019, compared to 95%
from Canada and 5% from the U.S. during the three months ended
September 30, 2018. For the nine months ended September 30, 2019,
the Company derived 96% of its revenues from Canada and 4% from the
U.S. compared to 95% from Canada and 5% from the U.S. during the
same period in 2018.
At
September 30, 2019, the Company maintained 100% of its property and
equipment net of accumulated depreciation in Canada.
Right of Use Assets
A
right-of-use asset represents a lessee’s right to use a
leased asset for the term of the lease. Our right-of-use assets
generally consist of an operating lease for a
building.
Right-of-use assets
are measured initially at the present value of the lease payments,
plus any lease payments made before a lease began and any initial
direct costs, such as commissions paid to obtain a
lease.
Right-of-use assets
are subsequently measured at the present value of the remaining
lease payments, adjusted for incentives, prepaid or accrued rent,
and any initial direct costs not yet expensed.
Long-Lived Assets
The
Company reviews the carrying values of its long-lived assets for
possible impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the
expected future cash flow from the use of the asset and its
eventual disposition is less than the carrying amount of the asset,
an impairment loss is recognized and measured using the fair value
of the related asset. No impairment charges were recognized during
the three and nine months ended September 30, 2019 and 2018. There
can be no assurance, however, that market conditions will not
change or demand for the Company’s services will continue,
which could result in impairment of long-lived assets in the
future.
Revenue Recognition
The
Company generates revenue principally from fees for coordinating
shipping services, sales of shipping calculator subscriptions,
brewery management software subscriptions, and client
services.
Nature of Goods and Services
For
label generation service revenues the Company recognizes revenue
when a customer has successfully prepared a shipping label and
scheduled a pickup. Customers with pickups after the end of the
reporting period are recorded as contract liabilities on the
condensed consolidated balance sheets. The service is offered to
consumers via an online registration and allows users to create a
shipping label using a credit card on their account (all customers
must have a valid credit card on file to process shipments on the
ShipTime platform). ShipTime, in partnership with the Canadian
Federation of Independent Businesses (“CFIB”), offered
a cash rebate to its customers. Revenues were recognized net of the
cash rebates, which were held in “funds held in trust”
account in the accompanying condensed consolidated balance sheets.
The cash rebates were available for twelve months for future use.
Rebate revenue was recognized when the rebate was
used.
Beginning in 2018,
customers were offered airline miles as a reward in lieu of a cash
rebate. As a result, the CFIB allowed the Company to release the
funds held in trust for unused customer rebates back to cash and
cash equivalents. As the Company transitioned from cash rebates to
airline mile rewards, customers were allowed to convert their
existing cash rebate balances to airline miles at the rate of 10
miles per $1 of rebates. For the three and nine months ended
September 30, 2019, the Company recognized $0 and $8,066,
respectively, of other income related to these conversions as the
cost of the exchanged airline miles was less than the value of the
cash rebates exchanged. Unused airline miles are recorded in
prepaid expenses and other current assets in the accompanying
condensed consolidated balance sheets. During the second quarter of
2019 the prepaid miles purchased to be awarded to customers were
scheduled to expire. Aeroplan granted permission for a one-time
transfer of the balance of the prepaid miles to the Company’s
Aeroplan account. As a result, the Company recorded an expense in
the amount of $32,102.
For
shipping calculator revenues and brewery management software
revenues, the Company recognizes subscription revenue on a monthly
basis. Shipping calculator customers’ renewal dates are
based on their date of installation and registration of the
shipping calculator line of products. The timing of the revenue
recognition and cash collection may vary within a given quarter and
the deposits for future services are recorded as contract
liabilities on the condensed consolidated balance sheets. Brewery
management software subscribers are billed monthly at the first of
the month. All payments are made via credit card for the month
following.
Revenue Disaggregation
The
Company operates in four reportable segments (see
below).
Performance Obligations
At
contract inception, an assessment of the goods and services
promised in the contracts with customers is performed and a
performance obligation is identified for each distinct promise to
transfer to the customer a good or service (or bundle of goods or
services). To identify the performance obligations, the Company
considers all of the goods or services promised in the contract
regardless of whether they are explicitly stated or are implied by
customary business practices. Revenue is recognized when the
performance obligation has been met, which is when the customer has
successfully prepared a shipping label and scheduled a pickup for
shipping coordination and label generation services. The Company
considers control to have transferred at that time because the
Company has a present right to payment at that time, the Company
has provided the shipping label, and the customer is able to direct
the use of, and obtain substantially all of the remaining benefits
from the shipping label.
For
arrangements under which the Company provides a subscription for
shipping calculator services and brewery management software, the
Company satisfies its performance obligations over the life of the
subscription, typically twelve months or less.
The
Company has no shipping and handling activities related to
contracts with customers.
Significant Payment Terms
Pursuant to the
Company’s contracts with its customers, amounts are collected
up front primarily through credit/debit card transactions.
Accordingly, the Company determined that its contracts with
customers do not include extended payment terms or a significant
financing component.
Variable Consideration
In some
cases, the nature of the Company’s contracts may give rise to
variable consideration, including rebates and cancellations or
other similar items that generally decrease the transaction
price.
Variable
consideration is estimated at the most likely amount that is
expected to be earned. Estimated amounts are included in the
transaction price to the extent it is probable that a significant
reversal of cumulative revenue recognized will not occur when the
uncertainty associated with the variable consideration is resolved.
Estimates of variable consideration and determination of whether to
include estimated amounts in the transaction price are based
largely on an assessment of the anticipated performance and all
information (historical, current and forecasted) that is reasonably
available.
Revenues are
recorded net of variable consideration, such as rebates and
cancellations.
Warranties
The
Company’s products and services are provided on an “as
is” basis and no warranties are included in the contracts
with customers. Also, the Company does not offer separately priced
extended warranty or product maintenance contracts.
Contract Assets
Typically, the
Company has already collected revenue from the customer at the time
it has satisfied its performance obligation. Accordingly, the
Company has only a small balance of accounts receivable, totaling
$133,938 and $87,718 as of September 30, 2019 and December 31,
2018, respectively. Generally, the Company does not have material
amounts of contract assets since revenue is recognized as control
of goods is transferred or as services are performed.
Contract Liabilities (Deferred Revenue)
Contract
liabilities are recorded when cash payments are received in advance
of the Company’s performance (including rebates). Contract
liabilities were $101,872 and $144,221 at September 30, 2019
and December 31, 2018, respectively. During the three months and
nine months ended September 30, 2019, the Company incurred
liabilities of $4,133, for the nine months ended September 30, 2019
the Company recognized revenues of $1,301 and $48,516,
respectively, related to contract liabilities outstanding at the
beginning of the year.
Earnings (Loss) Per Common Share
Basic
earnings (loss) per share represent income (loss) available to
common shareholders divided by the weighted-average number of
common shares outstanding during the period. Diluted earnings
(loss) 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 (loss) that would
result from the assumed issuance. The potential common shares that
may be issued by the Company relate to outstanding stock
options.
For the
three months and nine months ended September 30, 2019, there were
approximately 59,000, and 55,000, respectively, of dilutive shares
included in the diluted earnings per share.
For the three and
nine months ended September 30, 2018 there were approximately
60,000 and 61,000, respectively, of dilutive shares that were
excluded from the diluted earnings (loss) per share as their effect
would have been antidilutive for the period.
The
Company computes its income (loss) applicable to common
shareholders by adding/subtracting dividends on preferred stock,
including undeclared or unpaid dividends if cumulative, and any
deemed dividends or discounts on redeemed preferred stock from its
reported net income (loss) and reports the same on the face of the
condensed consolidated statements of operations and comprehensive
income (loss).
Segment Reporting
The
Company reports information about segments of its business in its
annual consolidated financial statements and reports selected
segment information in its quarterly reports issued to
shareholders. The Company also reports on its entity-wide
disclosures about the products and services it provides and reports
revenues and its major customers. The Company’s four
reportable segments are managed separately based on fundamental
differences in their operations. At September 30, 2019, the Company
operated in the following four reportable segments:
|
a.
|
Client
services
|
|
b.
|
Shipping
calculator services
|
|
c.
|
Brewery
management software
|
|
d.
|
Shipping
coordination and label generation services
|
The
Company evaluates performance and allocates resources based upon
operating income. The accounting policies of the reportable
segments are the same as those described in this summary of
significant accounting policies. The Company’s chief
operating decision makers are the Chief Executive Officer and Chief
Financial Officer.
The
following table compares total revenue for the periods
indicated.
|
|
Three Months
Ended
|
Nine
Months Ended
|
||
|
|
September
30,
2019
|
September
30,
2018
|
September
30,
2019
|
September
30,
2018
|
|
Client
services
|
$
1,073
|
$
2,890
|
$
17,191
|
$
13,455
|
|
Shipping calculator
services
|
41,923
|
40,699
|
117,887
|
134,394
|
|
Brewery management
software
|
49,107
|
68,101
|
156,394
|
211,124
|
|
Shipping
coordination and label generation services
|
2,634,330
|
2,126,755
|
7,439,478
|
6,213,868
|
|
Total
revenues
|
$
2,726,433
|
$
2,238,445
|
$
7,730,950
|
$
6,572,841
|
The
following table compares total loss from operations for the periods
indicated.
|
|
Three Months
Ended
|
Nine
Months Ended
|
||
|
|
September
30,
2019
|
September
30,
2018
|
September
30,
2019
|
September
30,
2018
|
|
Client
services
|
$
844
|
$
2,234
|
$
13,034
|
$
10,366
|
|
Shipping calculator
services
|
(359,647
)
|
(95,941
)
|
(561,515
)
|
(644,377
)
|
|
Brewery management
software
|
19,231
|
2,461
|
53,029
|
(8,376
)
|
|
Shipping
coordination and label generation services
|
28,569
|
(396,066
)
|
(53,527
)
|
(551,220
)
|
|
Total loss from
operations
|
$
(311,003
)
|
$
(487,312
)
|
$
(548,979
)
|
$
(1,193,607
)
|
Reclassifications
Certain
amounts were reclassified in the accompanying condensed
consolidated statements of operations and comprehensive income
(loss) for the three and nine months ended September 30, 2018 in
order to conform to the current period presentation.
Recent Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) 2016-02, “Leases”, which requires
the lease rights and obligations arising from lease contracts,
including existing and new arrangements, to be recognized as assets
and liabilities on the balance sheet. ASU 2016-02 is effective for
reporting periods beginning after December 15, 2018 with early
adoption permitted.
The
Company adopted the new lease standard (ASC 842) on January 1,
2019. We used the modified retrospective approach, which allowed us
to make our transition adjustments at January 1, 2019.
We
currently have two finance leases for office furniture and
equipment. We maintain a lease inventory for those leased assets,
which are currently reported on our consolidated balance sheets and
we continue to report them on our consolidated balance sheet under
the new standard. We have reported one material operating lease on
our consolidated balance sheet beginning January 1, 2019. This
lease resulted in recording operating lease right-of-use assets and
operating lease obligations of approximately $84,000. We determined
that no adjustment to equity was necessary related to
implementation of the new lease standard.
The
Company elected certain practical expedients and as permitted did
not reassess whether existing contracts are or contain leases, the
lease classification and initial direct costs for any existing
leases. As part of practical expedients selected the Company also
used hindsight in determining lease terms. The Company has lease
agreements with lease and non-lease components, which are accounted
for as a single lease component. Leases with an initial term of
twelve months or less are not recorded on the balance sheet as we
recognize lease expense for these leases on a straight-line basis
over the lease term.
Note 2. Accrued Expenses
Accrued
expenses are comprised of the following:
|
|
September 30,
2019
(unaudited)
|
December 31,
2018
|
|
Payroll and related
costs
|
$
9,477
|
$
169,691
|
|
Professional and
consulting fees
|
410
|
2,100
|
|
Royalties
|
47,803
|
51,838
|
|
Stock price
guarantee
|
-
|
884,241
|
|
Sales
tax
|
31,902
|
31,902
|
|
Accrued cost of
revenues
|
93,507
|
115,133
|
|
Other
|
12,020
|
13,728
|
|
Total
|
$
195,119
|
$
1,268,633
|
Note 3. Acquisitions and Intangible Assets
The
Company holds several patents for the real-time calculation of
shipping costs for items purchased through online auctions using a
zip code as a destination location indicator. It includes shipping
charge calculations across multiple carriers and accounts for
additional characteristics of the item being shipped, such as
weight, special packaging or handling, and insurance costs. These
patents help facilitate rapid and accurate estimation of shipping
costs across multiple shipping carriers and also include real-time
calculation of shipping.
In
addition, the Company has various other intangibles from past
business combinations.
At
September 30, 2019 and December 31, 2018, intangible assets
consisted of the following:
|
|
September
30,
2019
|
December
31,
2018
|
|
Patents
|
$
16,000
|
$
16,000
|
|
Software
|
83,750
|
83,750
|
|
Trade
name
|
808,717
|
785,038
|
|
Technology
|
516,491
|
501,360
|
|
Client list /
relationship
|
4,753,601
|
4,620,599
|
|
Accumulated
amortization
|
(2,099,001
)
|
(1,715,974
)
|
|
|
$
4,079,558
|
$
4,290,773
|
Amortization
expense of intangible assets for the nine months ended September
30, 2019 and 2018 was $351,531 and $632,630,
respectively.
Goodwill
Goodwill represents
the excess of the purchase price of the acquired business over the
estimated fair value of the underlying net tangible and intangible
assets acquired. During the year ended 2018, the Company determined
that the value of goodwill was impaired and recorded a full loss on
the impairment of $10,354,172.
Note 4. Commitments and Contingencies
Notes Payable
In
2017, the Company entered into two notes payable with a shareholder
to repurchase common and preferred shares. The first note was for a
period of one year for CAD $120,000 with payment terms of twelve
equal installments of CAD $10,328 at an interest rate of 6%. The
second note was an interest-free seven-month note for CAD $70,992
with payment terms of one payment of CAD $10,000 followed by six
equal installments of CAD $10,165. Both of these notes were paid in
full in 2018.
In
January 2018, the Company entered into a note payable with a
shareholder to repurchase common and preferred shares. The note was
an interest-free, eight-month note for CAD $66,708 with payment
terms of one payment of CAD $10,000 followed by eight equal
installments of CAD $8,101. This note was paid in full in the third
quarter of 2018. In April 2018, the Company entered into a note
payable with a shareholder to repurchase common and preferred
shares. The note was an interest-free, fifteen-month note for CAD
$72,500. The Company made payments on this note in the amount of
CAD $31,726. The balance of CAD $40,774 on this note was offset in
the third quarter of 2018 against a note receivable to the same
party (see below). In August 2018, the Company entered into a note
payable with a shareholder to repurchase common and preferred
shares. The note was an interest-free, six-month note for CAD
$122,400 with payment terms of six equal installments of CAD
$20,400. This note was paid in full in the first quarter of
2019.
Related Party Note Payable
In June
2017, the Company agreed to make monthly payments of CAD $5,000 to
related parties for seven months followed by monthly payments of
CAD $15,000 with one final payment in March 2018 at which point the
note was paid in full.
Notes Receivable
In
April 2018, the Company entered into an agreement with a third
party to develop software to assist with the growth of the
e-commerce platform. The agreement contained a loan to a third
party in the amount of $144,000 to be loaned by the Company in
eighteen installments of which CAD $40,744 was actually loaned
during 2018.
During
the third quarter of 2018, the Company cancelled the agreement and
called the CAD $40,774 note with the third party developer. As a
result, the balance of the note receivable was offset against the
CAD $72,500 note payable for the repurchase of common and preferred
shares issued to the same party (see above), and no balance on the
note receivable was due.
Stock Price Guarantee
In
connection with the Company’s advance royalties with a
client, the Company guaranteed that shares of common stock
would sell for at least $60.00 per share as adjusted for the
reverse stock split. If the shares are not at the required
$60.00 per share when they are sold, the Company has the option of
issuing additional shares at their fair value or making cash
payments for the difference between the guaranteed price per share
and the fair value of the stock. For the nine months ended
September 30, 2019 and 2018, the Company recorded an unrealized
gain (loss) of $3,688 and ($3,527), respectively. As of December
31, 2018, the maximum value of the stock price guarantee was
$884,241, as the Company’s stock price was below $60.00 per
share at December 31, 2018. The Company would have disputed this
obligation if demanded by the client; further, pursuing any action
by the client was required to be initiated within six years of the
time of the original issuance and the Company believes that the
time for pursuing an action has expired. As a result of the
expiration, the Company has eliminated this obligation from its
condensed consolidated balance sheet and recorded $880,553 of other
income during the third quarter of 2019.
Legal Matters
In the
normal course of business, the Company periodically becomes
involved in litigation. As of September 30, 2019, in the opinion of
management, the Company had no pending litigation that would have a
material adverse effect on the Company's consolidated financial
position, results of operations, or cash flows.
Indemnities and Guarantees
The
Company has made certain indemnities and guarantees, under which it
may be required to make payments to a guaranteed or indemnified
party, in relation to certain actions or transactions. The Company
indemnifies its directors, officers, employees and agents, as
permitted under the laws of the State of Delaware. In connection
with its facility leases, the Company has agreed to indemnify its
lessors for certain claims arising from the use of the facilities.
The duration of the guarantees and indemnities varies, and is
generally tied to the life of the agreements. These guarantees and
indemnities do not provide for any limitation of the maximum
potential future payments the Company could be obligated to make.
Historically, the Company has not been obligated nor incurred any
payments for these obligations and, therefore, no liabilities have
been recorded for these indemnities and guarantees in the
accompanying condensed consolidated balance sheets.
Note 5. Shareholders’ Equity
Preferred Stock
On
December 19, 2016, the Company filed an amendment to its
Certificate of Incorporation to authorize the issuance of
20,000,000 shares of blank-check preferred stock at $0.001 par
value, of which 3,825,000 shares have been reserved for future
issuance. The Board of Directors will be authorized to fix the
designations, rights, preferences, powers and limitations of each
series of the preferred stock.
The
Company filed a Certificate of Designations effective on December
30, 2016 which sets aside 5,000,000 shares of Preferred Stock as
Series A Preferred Stock. The Series A Preferred Stock holders have
no voting rights and have an aggregate liquidation value of
$11,778,367 at September 30, 2019. The Series A Preferred Stock
also carries a coupon payment obligation of 1.5% of the liquidation
value per share ($3.03) per year in cash or additional Series A
preferred Stock, calculated by taking the 30-day average closing
price for an equal number of shares of common stock for the month
immediately preceding the coupon payment date, which is made
annually. The Company paid the 2017 coupon payment due to
shareholders in the second quarter of 2019 in the amount of
$163,236. For the nine month periods ended September 30, 2019 and
2018, the estimated portion of the annual coupon is $141,287 and
$128,914, respectively, which has been added to the liquidation
value of the preferred stock. The Series A Preferred Stock has no
voting or conversion rights. If purchased, redeemed, or otherwise
acquired (other than conversion), the preferred stock may be
reissued.
During
the second quarter of 2019, the Company issued 653,866 preferred
shares in the form of compensation to employees. The value of the
share issuance is $83,221.
Common Stock
The
Company has authorized and reserved for future issuance 512,380
shares of common stock and 3,565,004 shares of preferred stock with
respect to the remaining exchangeable shares to be issued as a
result of the ShipTime acquisition by the Company in
2016.
Share Repurchase
In
January 2018, the Company entered into an agreement to repurchase
109 exchangeable shares of ShipTime common stock. The total shares
exchanged in this transaction were 4,905 common shares and 33,899
preferred shares of the Company. The allocated discount on the
repurchase of the preferred stock was $1.87 per share and has been
recorded in accumulated deficit, and was added to the net loss
available to common shareholders. The repurchase of the common
shares was recorded at an allocated cost of $1.59 per share. In
April 2018, the Company entered in a second agreement with a
shareholder to purchase 120 exchangeable shares of ShipTime common
stock. The total shares exchanged in this transaction were 5,400
common shares and 37,320 preferred shares of the Company. The
discount on the repurchase of preferred stock was $1.90 per share
and has been recorded in accumulated deficit, and was added to the
net loss available to common shareholders. The repurchase of the
common shares was recorded at an allocated cost of $1.58 per share.
In August 2018, the Company entered in an additional agreement with
a shareholder to purchase 200 exchangeable shares of ShipTime
common stock. The total shares exchanged in this transaction were
9,000 common shares and 62,200 preferred shares of the Company. The
discount on the repurchase of preferred stock was $1.87 per share
and has been recorded in accumulated deficit, and was added to the
net loss available to common shareholders. The repurchase of the
common shares was recorded at an allocated cost of $1.58 per share.
There were no share repurchases during the nine months ended
September 30, 2019.
Share-based Incentive Plans
The
Company has a 2018 Stock Option Plan which reserves 450,000
non-qualified stock options to be granted to employees. The Company
has three additional stock option plans that include both incentive
and non-qualified stock options to be granted to certain eligible
employees, non-employee directors, or consultants of the Company.
The Company granted 15,000 stock options to one employee during the
quarter ended March 31, 2019. The options have vesting period of
one-third immediately, one-third in 18 months, and one-third in 36
months from the date of the grant, they expire if not exercised
within ten years from grant date, and the exercise price is $2.92
per share. The Company granted 1,245 stock options to one employee
during the quarter ended June 30, 2019. The options have vesting
period of one-third immediately, one-third in 18 months, and
one-third in 36 months from the date of the grant, they expire if
not exercised within ten years from grant date, and the exercise
price is $3.50 per share. During the second quarter of 2019, the
Company recorded a reversal of unvested stock option expense for
the termination of a non-employee consultant’s 25,000 stock
options totaling $44,167 and $43,067 of stock compensation expense
related to the vesting of applicable options granted in 2019 and
prior years. The Company granted 119,775 stock options to three
directors and four employees during the third quarter. There were
77,275 stock options granted to the directors and one employee that
vested immediately, the remaining three employees received 42,500
stock options with a vesting period of one-third immediately,
one-third in 18 months, and one-third in 36 months from the date of
the grant. All stock options granted in the third quarter expire if
not exercised within ten years from grant date, and the exercise
price ranges from $2.96 to $3.00 per share.
For the
three and nine month periods ended September 30, 2019, the Company
recorded $303,958 and $361,698 of stock compensation expense
related to the vesting of applicable options granted in 2019 and
prior years, net of the reversal discussed above.
Note 6. Leases
We have
operating leases for our corporate offices in Canada and finance
leases for furniture and equipment. Our leases have remaining lease
terms of fifteen months to forty nine months, and our primary
operating leases include options to extend the leases for four
years. Future renewal options that are not likely to be executed as
of the balance sheet date are excluded from right-of-use assets and
related lease liabilities.
We
report operating leased assets, as well as operating lease current
and noncurrent obligations on our balance sheets for the right to
use the building in our business. Our finance leases represent
furniture and office equipment; we report the furniture and
equipment, as well as finance lease current and noncurrent
obligations on our balance sheets.
Generally, interest
rates are stated in our leases for equipment. When no interest rate
is stated in a lease, however, we review the interest rates
implicit in our recent finance leases to estimate our incremental
borrowing rate. We determine the rate implicit in a lease by using
the most recent finance lease rate, or other method we think most
closely represents our incremental borrowing rate.
The
components of lease expense were as follows:
|
|
Three Months Ended
September 30, 2019
|
Nine
Months Ended September 30, 2019
|
|
Operating lease
cost
|
$
12,091
|
$
23,397
|
|
|
|
|
|
Finance lease
cost:
|
|
|
|
Amortization of
leased assets
|
$
2,559
|
$
7,812
|
|
Interest on lease
liabilities
|
393
|
1,325
|
|
Total finance lease
cost
|
$
2,952
|
$
9,137
|
Supplemental
cash flow information related to leases was as
follows:
|
|
Nine
Months Ended September 30, 2019
|
|
Cash paid for
amounts included in leases:
|
|
|
Operating cash
flows from operating leases
|
$
20,929
|
|
Operating cash
flows from finance leases
|
$
1,325
|
|
Financing cash
flows from finance leases
|
$
6,523
|
|
|
|
|
Right-of-use assets
obtained in exchange for lease obligations:
|
|
|
Operating
leases
|
$
55,600
|
|
Finance
leases
|
$
-
|
Supplemental
balance sheet information related to leases was as
follows:
|
|
September
30,
2019
|
|
Operating
leases:
|
|
|
Operating lease
right-of-use assets
|
$
125,702
|
|
Current portion of
operating lease obligations
|
$
28,816
|
|
Operating lease
obligations, net of current portion
|
99,651
|
|
Total operating
lease liabilities
|
$
128,467
|
|
|
|
|
Finance
leases:
|
|
|
Property and
equipment, at cost
|
$
52,065
|
|
Accumulated
depreciation
|
(33,842
)
|
|
Property and
equipment, net
|
$
18,223
|
|
|
|
|
Current portion of
finance lease obligations
|
$
9,511
|
|
Finance lease
obligations, net of current portion
|
5,261
|
|
Total finance lease
liabilities
|
$
14,772
|
|
Weighted average
remaining lease term:
|
|
|
Operating
lease
|
3.9 years
|
|
Finance
leases
|
1.6 years
|
|
|
|
|
Weighted average
discount rate:
|
|
|
Operating
lease
|
9.0
%
|
|
Finance
leases
|
9.7
%
|
Upon
adoption of the new lease standard, discount rates used for
existing leases were established at January 1, 2019.
A
summary of future minimum payments under non-cancellable operating
lease commitment as of September 30, 2019 is as
follows:
|
Years ending
December 31,
|
Total
|
|
2019 (remaining
months)
|
$
9,801
|
|
2020
|
39,203
|
|
2021
|
39,203
|
|
2022
|
39,203
|
|
2023
|
26,135
|
|
Total lease
liabilities
|
$
153,545
|
|
Less
amount representing interest
|
(25,078
)
|
|
Total
|
128,467
|
|
Less
current portion
|
(28,816
)
|
|
|
$
99,651
|
The
following is a schedule of minimum future rentals on the
non-cancelable finance leases as of September 30,
2019:
|
Year ending
December 31,
|
Total
|
|
2019 (remaining
months)
|
$
2,622
|
|
2020
|
10,489
|
|
2021
|
2,804
|
|
Total minimum
payments required
|
15,915
|
|
Less amount
representing interest
|
(1,143
)
|
|
Present value of
net minimum lease payments
|
14,772
|
|
Less current
portion
|
(9,511
)
|
|
|
$
5,261
|
Disclosures related to periods prior to adoption of ASC
842
Minimum
future lease payments under lease obligations as of December 31,
2018 are as follows:
|
Year Ended December
31,
|
Capital
|
Operating
|
|
2019
|
$
10,222
|
$
29,779
|
|
2020
|
10,222
|
38,202
|
|
2021
|
2,736
|
38,202
|
|
2022
|
-
|
38,202
|
|
2023
|
-
|
25,477
|
|
Total future
minimum lease payments
|
23,180
|
169,862
|
|
Less amount
representing interest
|
(2,484
)
|
|
|
Present value of
net minimum lease payment
|
20,696
|
|
|
Less current
portion
|
(8,580
)
|
|
|
|
$
12,116
|
|
Note
7. Subsequent Events
The
Company has evaluated subsequent events through the filing date of
this Form 10-Q, and has determined that no subsequent events have
occurred that would require recognition in the condensed
consolidated financial statements or disclosure in the notes
thereto, other than as disclosed herein.
|
ITEM 2.
|
MANAG
E
MENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
Forward Looking Statements
This
Quarterly Report on Form 10-Q contains certain forward-looking
statements (within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934)
regarding PAID, Inc. (the “Company”) and its business,
financial condition, results of operations and prospects. Words
such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates", "could", "may", "should", "will", "would",
and similar expressions or variations of such words are intended to
identify forward-looking statements in this report. Additionally,
statements concerning future matters such as the development of new
services, technology enhancements, purchase of equipment, credit
arrangements, possible changes in legislation and other statements
regarding matters that are not historical are forward-looking
statements.
Although
forward-looking statements in this quarterly 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
Item 1A, "Risk Factors", in the Company's Form 10-K for the fiscal
year ended December 31, 2018 that was filed on April 1,
2019.
For
example, the Company's ability to maintain 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, 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 or services by others, the Company's failure to
attract sufficient interest in, and traffic to, its site, the
Company's inability to complete development of its products, the
failure of the Company's operating systems, and the Company's
inability to increase its revenues as rapidly as anticipated. If
the Company is not profitable in the future, it will not be able to
continue its business operations.
Except
as required by applicable laws, we do not intend to publish updates
or revisions of any forward-looking statements we make to reflect
new information, future events or otherwise. Readers are urged to
review carefully and to consider the various disclosures made by
the Company in this Quarterly Report, which attempts to advise
interested parties of the risks and factors that may affect our
business, financial condition, results of operations and
prospects.
Overview
ShipTime Canada Inc.
ShipTime’s
platform provides its members with the ability to quote, process,
track and dispatch shipments while getting preferred rates on
packages and skidded (LTL) freight shipments throughout North
America and around the world. In addition to these features,
ShipTime also provides what it refers to as “Heroic
Multilingual Customer Support.” In this capacity, ShipTime
acts as an advocate on behalf of its clients in resolving matters
concerning orders and shipping. With an increasing focus and
service offering for e-commerce merchants, which include online
shopping carts, inventory management, payment services, client
prospecting and retention software, ShipTime can help merchants
worldwide grow and scale their businesses. ShipTime generates
monthly recurring revenue through transactions and “software
as a service” (SAAS) offerings. It currently serves in excess
of 50,000 members in North America and has plans to expand its
services into Europe and then worldwide.
AuctionInc Software.
AuctionInc is a
suite of online shipping and tax management tools assisting
businesses with e-commerce storefronts, shipping solutions, tax
calculation, inventory management, and auction processing. The
application was designed to focus on real-time carrier calculated
shipping rates and tax calculations. The product does have tools to
assist with other aspects of the fulfillment process, but the main
purpose of the product is to provide accurate shipping and tax
calculations and packaging algorithms that provide customers with
the best possible shipping and tax solutions.
BeerRun Software.
BeerRun Software is a
brewery management and Alcohol and Tobacco Tax and Trade Bureau tax
reporting software. Small craft brewers can utilize the product to
manage brewery schedules, inventory, packaging, sales and
purchasing. Tax reporting can be processed with a single click and
is fully customizable by state or province. The software is
designed to integrate with QuickBooks accounting platforms by using
our powerful sync engine. We currently offer two versions of the
software BeerRun and BeerRun Light which excludes some of the
enhanced features of BeerRun without disrupting the core
functionality of the software. Additional features include Brewpad
and Kegmaster and can be added on to the base product. Craft
brewing continues to grow in the United States and we feel that
there is considerable potential to grow this portion of our
business.
Paid
products are in development and include PaidCart and PaidPayments.
These additional offerings will provide a full e-commerce solution
for small businesses.
Significant Accounting Policies
Our
significant accounting policies are more fully described in Note 3
to our consolidated financial statements for the years ended
December 31, 2018 and 2017 included in our Form 10-K filed on April
1, 2019, as updated and amended in Note 1 of the Notes to Condensed
Consolidated Financial Statements included herein. In addition, we
adopted the new revenue recognition standard on January 1, 2018
with no effect to current or past amounts recognized as revenue.
Also, we adopted the new lease standard as required by ASU 2016-02
on January 1, 2019. However, certain of our accounting policies,
most notably with respect to revenue recognition, 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 andrelated 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 otherassumptions 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.
Results of Operations
Comparison of the three months ended September 30, 2019 and
2018
.
The
following discussion compares the Company's results of operations
for the three months ended September 30, 2019 with those for the
three months ended September 30, 2018. The Company's condensed
consolidated financial statements and notes thereto included
elsewhere in this quarterly report contain detailed information
that should be referred to in conjunction with the following
discussion.
Revenues
The
following table compares total revenue for the periods
indicated.
|
|
Three months Ended
September 30,
|
|
|
|
|
2019
|
2018
|
%
Change
|
|
Client
services
|
$
1,073
|
$
2,890
|
$
(63
)%
|
|
Brewery management
software
|
49,107
|
68,101
|
(28
)%
|
|
Shipping
coordination and label generation services
|
2,634,330
|
2,126,755
|
24
%
|
|
Shipping calculator
services
|
41,923
|
40,699
|
3
%
|
|
Total
revenues
|
$
2,726,433
|
$
2,238,445
|
22
%
|
|
|
|
||
Revenues increased
22% in the third quarter primarily from the growth of our shipping
coordination and label generation services.
Client
service revenues decreased $1,817 or 63% to $1,073 in the third
quarter of 2019 compared to $2,890 in 2018. This decrease is a
result of the limited number of successful movie posters auctioned
during the third quarter.
Brewery
management software revenues decreased $18,994 to $49,107 in 2019
from $68,101 in 2018. The decrease in revenues is due to
cancellations of several clients and an increase in
competition.
Shipping
coordination and label generation service revenues increased
$507,575 or 24% to $2,634,330 in the third quarter of 2019 compared
to $2,126,755 in 2018. The increase is attributable to the
increased marketing, new corporate partnerships and brand
recognition for this segment of our business.
Shipping calculator
services revenue increased $1,224 or 3% to $41,923 in the third
quarter of 2019 compared to $40,699 in 2018. The increase was
primarily due to the success of our largest e-commerce client and
the increase in billable services.
Gross Profit
Gross
profit increased $240,222 or 47% in the third quarter of 2019 to
$752,934 compared to $512,712 in 2018. Gross margin increased to
28% for the third quarter of 2019 compared to 23% in the third
quarter of 2018. The growth in gross margin is a result of the
reduction in amortization of technology which was fully amortized
in 2018.
Operating Expenses
Total
operating expenses in the third quarter 2019 were $1,063,937
compared to $1,000,024 in the third quarter of 2018, an increase of
$63,913 or 6%. The increase is primarily due to the stock-based
compensation that was recorded for option issuances with immediate
vesting during the third quarter of 2019.
Other Income/Expense, net
Net
other income (expense) in the third quarter of 2019 was $892,637
compared to $32,268 in the same period of 2018, a change of
$860,369. This change is due to a gain recognized related to the
elimination of the stock price guarantee liability of $880,553 in
2019.
Net Income
The
Company realized a net income in the third quarter of 2019 of
$581,634 compared to a net loss of ($455,044) for the same period
in 2018. The basic net income (loss) available to common
shareholders for the third quarter of 2019 and 2018 represent $0.33
and ($0.24) per share, respectively.
Comparison of the nine months ended September 30, 2019 and
2018
.
The
following discussion compares the Company's results of operations
for the nine months ended September 30, 2019 with those for the
nine months ended September 30, 2018. The Company's condensed
consolidated financial statements and notes thereto included
elsewhere in this quarterly report contain detailed information
that should be referred to in conjunction with the following
discussion.
Revenues
The
following table compares total revenue for the periods
indicated.
|
|
Nine
months Ended September 30,
|
|
|
|
|
2019
|
2018
|
%
Change
|
|
Client
services
|
$
17,191
|
$
13,455
|
28
%
|
|
Brewery management
software
|
156,394
|
211,124
|
(26
)%
|
|
Shipping
coordination and label generation services
|
7,439,478
|
6,213,868
|
20
%
|
|
Shipping calculator
services
|
117,887
|
134,394
|
(12
)%
|
|
Total
revenues
|
$
7,730,950
|
$
6,572,841
|
18
%
|
|
|
|
||
Revenues increased
18% in the first three quarters of 2019 primarily from the growth
of our shipping coordination and label generation
services.
Client
service revenues increased $3,736 or 28% to $17,191 in 2019
compared to $13,455 in 2018. This increase is a result of the
number of successful sales of our movie posted inventory at
auction.
Brewery
management software revenues decreased $54,730 to $156,394 in 2019
from $211,124 in 2018. The decrease in revenues is due to a reduced
number of new clients and an increase in competition.
Shipping calculator
services revenue decreased $16,507 or 12% to $117,887 in 2019
compared to $134,394 in 2018. The decrease was primarily due
to a decline in new customers and the focus on transitioning this
segment of the business to a new platform.
Shipping
coordination and label generation service revenues increased
$1,225,610 or 20% to $7,439,478 in 2019 compared to $6,213,868 in
2018. The increase is attributable to the increased marketing and
strengthening of carrier and affiliate relationships for this
segment of our business.
Gross Profit
Gross
profit increased $515,969 or 33% in 2019 to $2,081,415 compared to
$1,565,446 in 2018. Gross margin increased to 27% for 2019 compared
to 24% for 2018. The growth in gross margin is a result of the
reduction in amortization of technology which was fully amortized
in 2018.
Operating Expenses
Total
operating expenses in 2019 were $2,630,394 compared to $2,759,053
in 2018, a decrease of $128,659 or 5%. The decrease is due to the
ongoing expense analysis in addition to a decrease in stock-based
compensation. The Company recorded a $361,698 stock-based
compensation expense in 2019 compared to $716,833 in
2018.
Other Income/Expense, net
Net
other income (expense) in 2019 was $896,340 compared to $37,117 in
the same period of 2018, a change of $859,223. This change is due
to a gain recognized related to the elimination of the stock price
guarantee liability of $880,553 in 2019.
Net income
The
Company realized a net income in 2019 of $346,401 compared to a net
loss of ($1,157,750) for the same period in 2018. The basic net
income (loss) available to common stockholders for the nine months
ended September 30, 2019 and 2018 represent $0.13 and ($0.64) per
share, respectively.
Cash
Flows from Operating Activities
A
summarized reconciliation of the Company's net income (loss) to
cash and cash equivalents provided by operating activities for the
nine months ended September 30, 2019 and 2018 is as
follows:
|
|
2019
|
2018
|
|
Net income
(loss)
|
$
346,401
|
$
(1,157,750
)
|
|
Depreciation and
amortization
|
368,183
|
649,537
|
|
Amortization of
operating lease right-of-use assets
|
16,020
|
-
|
|
Share-based
compensation
|
361,698
|
716,833
|
|
Unrealized loss
(gain) on stock price guarantee
|
(3,688
)
|
3,527
|
|
Other income from
stock price guarantee
|
(880,553
)
|
|
|
Loss on disposal of
property and equipment
|
-
|
1,944
|
|
Changes in assets
and liabilities
|
(125,441
)
|
(64,130
|
|
Net cash provided
by operating activities
|
$
82,620
|
$
149,961
|
Working
Capital and Liquidity
The
Company had cash and cash equivalents of $525,201 at September 30,
2019, compared to $632,331 at December 31, 2018. The Company had a
negative working capital of $429,512 at September 30 2019, a change
of $935,164 compared to $1,364,676 at December 31, 2018. The
decrease in working capital deficit is attributable to the
write-off of the stock price guarantee liability. The decrease in
cash and cash equivalents is due to the additional personnel and
consultants that the Company has hired.
The Company may need an infusion of additional capital to fund
anticipated operating costs over the next twelve months, however,
management believes that the Company has adequate cash resources to
fund operations. There can be no assurance that anticipated growth
will occur, and that the Company will be successful in launching
new products and services. If necessary, management will seek
alternative sources of capital to support operations.
ITEM 3.
Q
U
ANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
As a
smaller reporting company, the Company is not required to provide
the information for this Item 3.
ITEM 4.
C
O
NTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The
Company's management, including the Chief Executive Officer of the
Company and the Chief Financial Officer of the Company, as its
principal financial officers have 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 Chief Executive
Officer, and Chief Financial Officer both have concluded that, as
of September 30, 2019, the Company's disclosure controls and
procedures were not effective, due to material weaknesses in
internal control over financial reporting, 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.
The
Company has identified numerous material weaknesses in internal
control over financial reporting as described in the Company's Form
10-K for the year ended December 31, 2018.
Changes
in Internal Control over Financial Reporting
The
Company continues to evaluate the internal controls over financial
reporting and is working toward implementation of corporate
governance, increased communication and updates to control
documents and documentation of all procedures. During the third
quarter the Company published several policies and procedures to
communicate internal control guidelines. The personnel count
continues to grow allowing us to easily segregate duties and have
proper approval processes.
PA
R
T II - OTHER
INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
In the
normal course of business, the Company periodically becomes
involved in litigation. As of September 30, 2019, in the
opinion of management, the Company had no material pending
litigation other than ordinary litigation incidental to the
business.
ITEM 1A.
RISK FACTORS
There
are no material changes for the risk factors previously disclosed
on Form 10-K for the year ended December 31, 2018.
ITEM 2.
UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
There were no issuances of unregistered securities during the three
months ended September 30, 2019.
ITEM 3.
DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4.
MINE SAFETY
DISCLOSURES
Not
Applicable.
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
|
|
CEO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
|
|
CFO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
|
|
CEO and
CFO Certification required under Section 906 of Sarbanes-Oxley Act
of 2002
|
101.INS
XBRL Instance Document (filed herewith)
101.SCH
XBRL Taxonomy Extension Schema (filed herewith)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase (filed
herewith)
101.DEF
XBRL Taxonomy Extension Definition Linkbase (filed
herewith)
101.LAB
XBRL Taxonomy Extension Label Linkbase (filed
herewith)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase (filed
herewith)
S
I
GNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
|
PAID,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Allan Pratt
|
|
|
|
|
Allan
Pratt, Chief Executive Officer
|
|
|
|
By:
|
/s/ W. Austin
Lewis IV
|
|
|
Date:
November 14, 2019
|
|
W.
Austin Lewis, IV, Chief Financial Officer
|
LIST OF
EXHIBITS
|
Exhibit
No.
|
Description
|
|
CEO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
|
CFO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
|
CEO and
CFO Certification required under Section 906 of Sarbanes-Oxley Act
of 2002
|
101.INS
XBRL Instance Document (filed herewith)
101.SCH
XBRL Taxonomy
Extension Schema (filed herewith)
101.CAL
XBRL Taxonomy
Extension Calculation Linkbase (filed herewith)
101.DEF
XBRL Taxonomy
Extension Definition Linkbase (filed herewith)
101.LAB
XBRL Taxonomy
Extension Label Linkbase (filed herewith)
101.PRE
XBRL Taxonomy
Extension Presentation Linkbase (filed herewith)
|
|
|
-22-
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsNote 1. Organization and Significant Accounting PoliciesNote 2. Accrued ExpensesNote 3. Acquisitions and Intangible AssetsNote 4. Commitments and ContingenciesNote 5. Shareholders EquityNote 6. LeasesNote 7. Subsequent EventsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits