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, 2018
COMMISSION FILE NUMBER 0-28720
(Exact Name of Registrant as Specified in its Charter)
|
DELAWARE
|
73-1479833
|
|
(State
or Other Jurisdiction of Incorporation or
Organization)
|
(I.R.S.
Employer Identification No.)
|
225 Cedar Hill Street, Marlborough, Massachusetts
01752
(Address
of Principal Executive Offices) (Zip Code)
(617) 861-6050
(Registrant’s
Telephone Number, Including Area Code)
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 electronically and posted
on its corporate Web site, if any, 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, or a smaller reporting
company. See the definitions of “large accelerated
filer”, “accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
|
Large accelerated filer
|
☐
|
Accelerated
Filer
|
☐
|
|
Non-accelerated
filer
|
☐
|
Smaller reporting company
|
☒
|
|
(Do not
check if a smaller reporting company)
|
|
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, 2018, the issuer had outstanding 1,614,817 shares of
its Common Stock.
PAID, INC.
FORM 10-Q
TABLE OF CONTENTS
|
|
|||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
4-13
|
|
|
|
|
|
|
|
|
13
|
||
|
|
|
|
|
|
|
17
|
||
|
|
|
|
|
|
|
17
|
||
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
18
|
||
|
|
|
|
|
|
|
18
|
||
|
|
|
|
|
|
|
18
|
||
|
|
|
|
|
|
|
18
|
||
|
|
|
|
|
|
|
18
|
||
|
|
|
|
|
|
|
18
|
||
|
|
|
|
|
|
|
18
|
||
|
|
|
|
|
|
|
|
19
|
|
PART I – FINANCIAL
INFORMATION
PAID, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
September 30,
2018
(Unaudited)
|
December
31,
2017
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and
cash equivalents
|
$550,563
|
$535,520
|
|
Accounts
receivable, net
|
109,183
|
38,287
|
|
Funds held
in trust
|
-
|
203,170
|
|
Prepaid
expenses and other current assets
|
86,815
|
44,088
|
|
Total
current assets
|
746,561
|
821,065
|
|
|
|
|
|
Property and
equipment, net
|
101,167
|
92,486
|
|
Intangible assets,
net
|
4,733,605
|
5,502,322
|
|
Goodwill
|
10,398,229
|
10,695,120
|
|
Total
assets
|
$15,979,562
|
$17,110,993
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$703,503
|
$636,997
|
|
Notes
payable
|
63,212
|
113,033
|
|
Related
party note payable
|
-
|
30,176
|
|
Capital
leases - current portion
|
8,848
|
8,459
|
|
Accrued
expenses
|
1,101,362
|
1,066,994
|
|
Contract
liabilities
|
207,222
|
279,250
|
|
Total current
liabilities
|
2,084,147
|
2,134,909
|
|
Long term
liabilities:
|
|
|
|
Capital
leases - net of current portion
|
15,153
|
22,494
|
|
Deferred tax
liability
|
1,234,412
|
1,269,660
|
|
Total
liabilities
|
3,333,712
|
3,427,063
|
|
Commitments and
contingencies
|
|
|
|
Shareholders'
equity:
|
|
|
|
Series A
preferred stock, $0.001 par value, 5,000,000 shares authorized;
3,784,712 and 3,724,547 shares issued and outstanding at September
30, 2018 and December 31, 2017, respectively;
liquidation
value of $11,503,321 and $11,301,999 at September 30, 2018 and
December 31, 2017, respectively
|
3,785
|
3,725
|
|
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,
2018 and 1,648,657 shares issued and 1,634,122 shares outstanding
at December 31, 2017
|
1,649
|
1,649
|
|
Additional
paid-in capital
|
68,869,036
|
68,574,974
|
|
Accumulated
other comprehensive income
|
582,573
|
975,877
|
|
Accumulated
deficit
|
(56,753,346)
|
(55,845,766)
|
|
Common stock in
treasury, at cost; 33,840 and 14,535 shares at September 30, 2018
and December 31, 2017, respectively
|
(57,847)
|
(26,529)
|
|
Total shareholders'
equity
|
12,645,850
|
13,683,930
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
$15,979,562
|
$17,110,993
|
See
accompanying notes to condensed consolidated financial
statements
PAID, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
|
|
Three Months
Ended
|
Nine
Months Ended
|
||
|
|
September 30,
2018
|
September 30,
2017
|
September
30,
2018
|
September
30,
2017
|
|
Revenues,
net
|
$2,238,445
|
$1,949,815
|
$6,572,841
|
$5,465,807
|
|
Cost of
revenues:
|
|
|
|
|
|
Cost
of revenues
|
1,653,382
|
1,397,048
|
4,787,214
|
3,890,505
|
|
Amortization
of acquired technology
|
72,351
|
70,648
|
220,181
|
216,336
|
|
Total
cost of revenues
|
1,725,733
|
1,467,696
|
5,007,395
|
4,106,841
|
|
Gross
profit
|
512,712
|
482,119
|
1,565,446
|
1,358,966
|
|
|
||||
|
Operating
expenses:
|
|
|
|
|
|
Salaries and
related
|
193,036
|
154,388
|
589,217
|
452,783
|
|
General and
administrative
|
373,999
|
302,747
|
1,040,554
|
967,101
|
|
Stock-based
compensation
|
297,384
|
118,572
|
716,833
|
118,572
|
|
Amortization of
other acquired intangible assets
|
135,605
|
132,803
|
412,449
|
392,870
|
|
Total operating
expenses
|
1,000,024
|
708,510
|
2,759,053
|
1,931,326
|
|
Loss from
operations
|
(487,312)
|
(226,391)
|
(1,193,607)
|
(572,360)
|
|
|
|
|||
|
Other income
(expense):
|
|
|
|
|
|
Interest income
(expense), net
|
13
|
(8,554)
|
(1,685)
|
(12,171)
|
|
Other income,
net
|
44,280
|
555
|
42,329
|
7,759
|
|
Unrealized loss on
stock price guarantee
|
(12,025)
|
(3,329)
|
(3,527)
|
(16,036)
|
|
Total other income
(expense), net
|
32,268
|
(11,328)
|
37,117
|
(20,448)
|
|
|
|
|||
|
Loss before
provision for income taxes
|
(455,044)
|
(237,719)
|
(1,156,490)
|
(592,808)
|
|
Provision for
income taxes
|
-
|
-
|
1,260
|
1,494
|
|
Net
loss
|
(455,044)
|
(237,719)
|
(1,157,750)
|
(594,302)
|
|
Preferred share
redemption discount
|
116,017
|
89,327
|
250,170
|
89,327
|
|
Preferred
dividends
|
(6,830)
|
(5,989)
|
(19,160)
|
(18,898)
|
|
Net loss available
to common shareholders
|
$(345,857)
|
$(154,381)
|
$(926,740)
|
$(523,873)
|
|
|
|
|
|
|
|
Net loss per share
– basic and diluted
|
$(0.21)
|
$(0.09)
|
$(0.57)
|
$(0.32)
|
|
Weighted average
number of common shares outstanding - basic and
diluted
|
1,620,589
|
1,644,045
|
1,625,318
|
1,647,304
|
|
Condensed
consolidated statements of comprehensive loss
|
|
|
|
|
|
Net
loss
|
$(455,044)
|
$(237,719)
|
$(1,157,750)
|
$(594,302)
|
|
Other comprehensive
income (loss):
|
|
|
|
|
|
Foreign currency
translation adjustments
|
229,484
|
535,599
|
(393,304)
|
1,022,771
|
|
Comprehensive
income (loss)
|
$(225,560)
|
$297,880
|
$(1,551,054)
|
$428,469
|
See
accompanying notes to condensed consolidated financial
statements
PAID, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
|
|
2018
|
2017
|
|
Cash flows from
operating activities:
|
|
|
|
Net
loss
|
$(1,157,750)
|
$(594,302)
|
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
649,537
|
638,926
|
|
Share-based
compensation
|
716,833
|
118,572
|
|
Unrealized
loss on stock price guarantee
|
3,527
|
16,036
|
|
Loss on
disposal of property and equipment
|
1,944
|
-
|
|
Write-off of
other receivables
|
-
|
1,026
|
|
Changes in
assets and liabilities:
|
|
|
|
Accounts
receivable
|
(71,625)
|
2,360
|
|
Prepaid
expenses and other current assets
|
(43,103)
|
38,440
|
|
Accounts
payable
|
81,532
|
91,596
|
|
Accrued
expenses
|
33,709
|
98,888
|
|
Contract
liabilities
|
(64,643)
|
(12,564)
|
|
Net cash
provided by operating activities
|
149,961
|
398,978
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
Proceeds
from sale of property and equipment
|
1,182
|
-
|
|
Purchase of
property and equipment
|
(31,226)
|
(17,977)
|
|
Net cash
used in investing activities
|
(30,044)
|
(17,977)
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Payments on
capital leases
|
(6,110)
|
(4,161)
|
|
Payments on
notes payable
|
(250,049)
|
(32,711)
|
|
Payments on
related party note payable
|
(29,422)
|
(111,208)
|
|
Net cash
used in financing activities
|
(285,581)
|
(148,080)
|
|
Effect of exchange
rate changes on cash, cash equivalents and funds held in
trust
|
(22,463)
|
49,710
|
|
|
|
|
|
Net change in cash,
cash equivalents and funds held in trust
|
(188,127)
|
282,631
|
|
|
|
|
|
Cash, cash
equivalents and funds held in trust, beginning of
period
|
738,690
|
508,644
|
|
|
|
|
|
Cash, cash equivalents
and funds held in trust, end of period
|
$550,563
|
$791,275
|
|
Reconciliation of
cash, cash equivalents and funds held in trust at end of
period:
|
|
|
|
Cash and cash equivalents
|
550,563
|
626,160
|
|
Funds held in trust
|
-
|
165,115
|
|
Cash, cash
equivalents and funds held in trust at end of
period
|
550,563
|
791,275
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
Cash paid during
the period for:
|
|
|
|
Income
taxes
|
$1,260
|
$1,494
|
|
Interest
|
$1,658
|
$3,617
|
|
SUPPLEMENTAL
DISCLOSURES OF NON-CASH ITEMS
|
|
|
|
Repurchase
of preferred and common stock with note payable
|
$202,656
|
$95,931
|
See
accompanying notes to condensed consolidated financial
statements
PAID, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
September 30, 2018
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, 2017 that was filed on March 30, 2018.
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 2018.
On
November 9, 2016, the Company’s board of directors agreed to
effectuate a reverse split immediately followed by a forward split.
The process was completed with FINRA on January 23, 2017. As a
result of the split, every ten shares of common stock outstanding
prior to the reverse split were consolidated into one share,
reducing the number of common shares outstanding on the effective
date from 10,989,608 to 1,098,960. All share and per share
information in this Form 10-Q have been retroactively adjusted to
reflect the reverse stock split.
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
losses, although it has taken significant steps to reduce them. For
the nine months ended September 30, 2018, the Company reported a
net loss of $1,157,750. The Company has an accumulated deficit of
$56,753,346 and has a working capital deficit of $(1,337,586) as of
September 30, 2018. 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
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
currencies of ShipTime, the Company’s international
subsidiary, are in Canadian dollars. Foreign currency denominated
assets and liabilities are translated into U.S. dollars using the
exchange rates in effect at September 30, 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 95% of its revenues from Canada and 5% from the U.S.
during the three months ended September 30, 2018, compared to 93%
from Canada and 7% from the U.S. during the three months ended
September 30, 2017. For the nine months ended September 30, 2018
the Company derived 95% of its revenues from Canada and 5% from the
U.S. compared to 93% from Canada and 7% from the U.S. during the
same period in 2017.
At
September 30, 2018, the Company maintained 99% of its property and
equipment net of accumulated depreciation in Canada and the
remaining 1% in the U.S.
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, 2018 and 2017. 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 (See
Note 5).
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
and have been excluded from the computation of diluted earnings
(loss) per share because they would reduce the reported loss per
share and therefore have an anti-dilutive effect.
For the
three months ended September 30, 2018 and 2017 and the nine months
ended September 30, 2018 and 2017, there were approximately 60,000
and 61,000 and 61,000 and 67,000, respectively, dilutive shares
that were excluded from the diluted earnings (loss) per share as
their effect would have been antidilutive for the periods then
ended.
The
Company computes its 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 loss and reports the same on the face of the condensed
consolidated statements of operations and comprehensive
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, 2018, 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 revenues for the periods
indicated.
|
|
Three Months
Ended
|
Nine
Months Ended
|
||
|
|
September
30,
2018
|
September
30,
2017
|
September
30,
2018
|
September
30,
2017
|
|
Client
services
|
$2,890
|
$3,639
|
$13,455
|
$20,192
|
|
Shipping calculator
services
|
40,699
|
46,990
|
134,394
|
153,023
|
|
Brewery management
software
|
68,101
|
78,211
|
211,124
|
235,026
|
|
Shipping
coordination and label generation services
|
2,126,755
|
1,820,975
|
6,213,868
|
5,057,566
|
|
Total
revenues
|
$2,238,445
|
$1,949,815
|
$6,572,841
|
$5,465,807
|
The
following table compares total loss from operations for the periods
indicated.
|
|
Three Months
Ended
|
Nine
Months Ended
|
||
|
|
September
30,
2018
|
September
30,
2017
|
September
30,
2018
|
September
30,
2017
|
|
Client
services
|
$2,234
|
$2,898
|
$10,366
|
$15,499
|
|
Shipping calculator
services
|
(95,941)
|
(356,028)
|
(644,377)
|
(855,778)
|
|
Brewery management
software
|
2,461
|
14,462
|
(8,376)
|
27,028
|
|
Shipping
coordination and label generation services
|
(396,066)
|
112,277
|
(551,220)
|
240,891
|
|
Total loss from
operations
|
$(487,312)
|
$(226,391)
|
$(1,193,607)
|
$(572,360)
|
Reclassifications
Certain
amounts were reclassified in the accompanying condensed
consolidated statements of operations and comprehensive loss for
the three and nine months ended September 30, 2017 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. While the Company is still evaluating ASU
2016-02, the Company expects the adoption of ASU 2016-02 to have a
material effect on the Company’s financial condition due to
the recognition of the lease rights and obligations as assets and
liabilities. The Company does not expect ASU 2016-02 to have a
material effect on the Company’s results of operations and
cash flows.
In
January 2016, the FASB issued ASU 2016-01, “Financial
Instruments: Recognition and Measurement of Financial Assets and
Financial Liabilities”, which addresses certain aspects of
recognition, measurement, presentation and disclosure of financial
statements. This guidance will be effective in the first quarter of
fiscal year 2019 and early adoption is not permitted. The Company
is currently evaluating the impact that this guidance will have on
its consolidated financial statements.
In November 2016,
the FASB issued ASU No. 2016-18, “Statement of Cash Flows
(Topic 230), Restricted Cash”, which enhances and clarifies
the guidance on the classification and presentation of restricted
cash in the statement of cash flows. The Company adopted this
standard in 2018 by using the retrospective transition method,
which required the following disclosures and changes to the
presentation of its condensed consolidated financial statements:
cash, cash equivalents, and funds held in trust reported on the
condensed consolidated statement of cash flows now includes funds
held in trust of $203,170, $165,115, and $169,082 as of December
31, 2017, September 30, 2017 and December 31, 2016, respectively,
as well as previously reported cash and cash
equivalents.
In May
2014, the FASB issued ASU 2014-09, “Revenue from Contracts
with Customers (Topic 606)”. This updated guidance supersedes
the current revenue recognition guidance, including
industry-specific guidance. The updated guidance introduces a
five-step model to achieve its core principal of the entity
recognizing revenue to depict the transfer of goods or services to
customers at an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or
services. On January 1, 2018, the Company elected to adopt the
Modified Retrospective Transition method and has determined there
is no impact on its consolidated financial statements (see Note 5
for additional details on this implementation and the required
disclosures).
In
January 2017, the FASB issued ASU 2017-01, “Business
Combinations (Topic 805): Clarifying the Definition of a
Business”. The
amendments in this updated guidance clarify the definition of a
business with the objective of adding guidance to assist entities
with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of businesses. The guidance in this
update is effective for fiscal years beginning after December 15,
2017, and interim periods within those years. The Company adopted
ASU 2017-01 as of January 1, 2018, which had no impact on the
Company’s financial statements as of and for the three and
nine months ended September 30, 2018.
In
January 2017, the FASB also issued ASU 2017-04, “Intangibles
- Goodwill and other (Topic 350): Simplifying the Test for Goodwill
Impairment”. The amendments in this Update remove the second
step of the current goodwill impairment test. An entity will apply
a one-step quantitative test and record the amount of goodwill
impairment as the excess of a reporting unit's carrying amount over
its fair value, not to exceed the total amount of goodwill
allocated to the reporting unit. The new guidance does not amend
the optional qualitative assessment of goodwill impairment. This
guidance is effective for impairment tests in fiscal years
beginning after December 15, 2019.
In June
2018, the FASB issued ASU 2018-07, “Compensation –
Stock Compensation (Topic 718): Improvements to Non-Employee Share
Based Payment Accounting”. The amendments in this update
expand the scope of the employee based share payments to
non-employees and are intended to reduce cost and complexity for
share based payments to non-employees. ASU 2018-07 will take effect
for public companies for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018. Early
adoption is permitted. The Company has elected to early adopt ASU
2018-07 as of June 30, 2018, which required the Company to measure
the fair value of the awards for one non-employee as of the
adoption date. The new measurement did not have a material effect
on the Company’s condensed consolidated financial
statements.
Note 2. Accrued Expenses
Accrued
expenses are comprised of the following:
|
|
September
30,
2018
(unaudited)
|
December
31,
2017
|
|
Payroll and related
costs
|
$2,796
|
$3,448
|
|
Royalties
|
51,838
|
51,838
|
|
Stock price
guarantee
|
884,241
|
880,713
|
|
Other
|
162,487
|
130,995
|
|
Total
|
$1,101,362
|
$1,066,994
|
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.
On
October 7, 2015, the Company, through a newly formed limited
liability company named PAID Run, LLC, entered into an asset
purchase agreement to purchase assets related to BeerRun Software
and SpiritRun Software and related intellectual property. The
purchase price and additional development for these assets was
$297,500, which include all of the client lists, along with all
rights, benefits and privileges associated with the software and
intellectual property, associated contracts, and books and
records.
On
December 30, 2016, the Company completed a merger with ShipTime
Canada Inc. and its subsidiary (“ShipTime”) to acquire
assets related to the technology, client base and other
intellectual property. The Company engaged an outside independent
third party valuation firm to assist in establishing a value for
the ShipTime acquisition.
At
September 30, 2018 and December 31, 2017, intangible assets
consisted of the following:
|
|
September
30,
2018
|
December
31,
2017
|
|
Patents
|
$16,000
|
$16,000
|
|
Software
|
83,750
|
83,750
|
|
Trade
Name
|
829,594
|
850,311
|
|
Technology
|
529,816
|
540,201
|
|
Client list /
relationship
|
4,870,721
|
4,998,130
|
|
Accumulated
amortization
|
(1,596,276)
|
(986,070)
|
|
|
$4,733,605
|
$5,502,322
|
Amortization
expense of intangible assets for all subsidiaries for the nine
months ended September 30, 2018 and 2017 was $632,630 and $609,206,
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. In the event the Company determines that the value
of goodwill has become impaired, it will incur an accounting charge
for the amount of the impairment during the fiscal quarter in which
the determination is made. None of the goodwill is expected to be
deductible for income tax purposes.
For the
nine months ended September 30, 2018, goodwill activity was as
follows:
|
|
For
the Nine Months Ended September 30,
|
|
|
2018
|
|
Beginning
Balance
|
$10,695,120
|
|
Effect of exchange
rate changes
|
(296,891)
|
|
Ending
Balance
|
$10,398,229
|
|
|
|
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 is
an interest-free, six-month note for CAD $122,400 with payment
terms of six equal installments of CAD
$20,400.
The
balance of the note payable on September 30, 2018 is USD $63,212.
The note payable is scheduled to be paid in full in the first
quarter of 2019.
Related Party Note Payable
In June
2017, the Company agreed to make monthly payments of $5,000 CAD to
related parties for seven months followed by monthly payments of
$15,000 CAD with one final payment in March 2018. As of March 31,
2018, 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 the nine month period ended September 30, 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 is 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. As of September 30, 2018 and
December 31, 2017, the maximum value of the stock price guarantee
was $884,241 and $880,713, respectively, as the Company’s
stock price was below $60.00 per share at September 30, 2018 and
December 31, 2017, although some or all of the stock may already be
sold and no longer subject to a guaranty and any required payment
would be disputed by the Company. For the nine months ended
September 30, 2018 and 2017, the Company recorded an unrealized
loss on stock price guarantee of ($3,527) and ($16,036),
respectively.
Legal Matters
In the
normal course of business, the Company periodically becomes
involved in litigation. As of September 30, 2018, 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. Revenue from Contracts with Customers
Revenue Recognition
In May
2014, the FASB issued Accounting Standards Update ASU 2014-09,
“Revenue from Contracts with Customers (Topic 606),”
which modifies how all entities recognize revenue. Topic 606
introduces a five-step model to achieve its core principle of the
entity recognizing revenue to depict the transfer of goods or
services to customers at an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those
goods or services. We adopted Topic 606 on January 1, 2018
and have evaluated the Company’s current revenue recognition
process in comparison to the adoption of Topic 606. The
Company reviewed the principles of Topic 606 by taking into
consideration the following five steps: (1) identify the
contract(s) with a customer; (2) identify the performance
obligations in the contract; (3) determine the transaction price;
(4) allocate the transaction price to the performance obligations
in the contract; and (5) recognize revenue when (or as) the entity
satisfies a performance obligation. Due to the nature of the
Company’s product offerings and contracts associated with
those products, the Company’s deliverables do not fluctuate
and its revenue recognition is consistent.
The
Company adopted Topic 606 on January 1, 2018 using the modified
retrospective transition method. The adoption of Topic 606 did not
have a material effect on the Company’s financial statements
or results of operations, and no cumulative catch-up adjustment to
the opening balance of retained earnings was required. The Company
used the related practical expedients to not disclose the
transaction price allocated to remaining unsatisfied obligations
and when the Company expects to recognize the related
revenue.
Nature of Goods and Services
For
label generation service revenues the Company recognizes revenue
when a customer has successfully prepared a shipping label and had
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. 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 are
available for twelve months for future use. Rebate revenue is
recognized when the rebate is used.
Beginning in 2018,
customers are 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 quarter ended September 30, 2018,
the Company recognized $44,280 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.
All
clients must have a valid credit card on file to process shipments
on the ShipTime platform.
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 Note
2).
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 had 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, contract
assets consist of only a small balance of accounts receivable,
totaling $109,183 and $38,287 as of September 30, 2018 and December
31, 2017, respectively. Generally, the Company does not have
material amounts of other 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 $207,222 and $279,250 at September 30, 2018
and December 31, 2017, respectively.
Practical Expedients and Exemptions
The
Company has elected the following practical expedients allowed
under Topic 606:
o
Payment terms with
the Company’s customers, which are one year or less, are not
considered a significant financing component.
o
The Company’s
performance obligations on its orders are generally satisfied
within one year from a given reporting date and, therefore, the
Company has omitted disclosure of the transaction price allocated
to remaining performance obligations on open orders.
Note 6. 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
$11,503,321 at September 30, 2018. The Series A Preferred Stock
also carries a coupon payment obligation of 1.5% per year
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. Payout
of the coupon may be made out of existing cash or in shares of
Series A Preferred Stock of the Company. For the three and nine
month periods ended September 30, 2018 and 2017, the estimated
portion of the annual coupon is $6,830 and $5,989 and $19,160 and
$18,898, respectively, which has been added to the liquidation
value of the preferred stock as the Company does not anticipate
paying the coupon in cash. The Series A Preferred Stock have no
voting or conversion rights. If purchased, redeemed, or otherwise
acquired (other than conversion), the preferred stock may be
reissued.
Common Stock
In
November 2016, the majority shareholders approved an amendment to
the Company’s Certificate of Incorporation to increase the
Company’s authorized shares of common stock from 1,100,000 to
25,000,000, to issue up to 2,000,000 shares of blank check
preferred stock and to make effective, a reverse stock split at a
range of 1 for 500 through 1 for 3,000 immediately followed by a
forward split of the outstanding common stock at an exchange rate
of 50 for 1 through 300 for 1 to reduce the number of authorized
shares of the Company’s common stock, subject to the Board of
Directors’ discretion.
In
January 2017, the Company completed a reverse split of 1-for-3,000
immediately followed by a forward split of 300-for-1. As a result
of the split every ten shares of common stock outstanding were
consolidated into one share, reducing the number of common shares
outstanding on the effective date from 10,989,608 to 1,098,960. All
share and per share information on this Form 10-Q have been
retroactively adjusted to reflect the reverse stock
split.
The
Company has authorized and reserved for future issuance 480,880
shares of common stock and 3,347,304 shares of preferred stock with
respect to the remaining exchangeable shares to be issued as a
result of the ShipTime acquisition.
Share Repurchase
During
2017, the Company entered into three agreements to repurchase
exchangeable shares of ShipTime common stock. Each ShipTime
exchangeable share exchanges into 311 preferred shares and 45
common shares of the Company. The total shares exchanged in these
transactions were 14,535 common shares and 100,453 preferred
shares. The allocated discount on the repurchase of the preferred
stock was $1.77 per share of preferred stock and has been recorded
in accumulated deficit, and was added to the net loss available to
common shareholders in accordance with ASC 260-10-S99-2. The
repurchase of the common shares was recorded at an allocated cost
of $1.83 per share.
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.
Share-based Incentive Plans
During
the period ended March 31, 2018, the Board of Directors voted to
approve the 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 183,700 stock options to employees and
consultants during the quarter ended March 31, 2018. The options
have vesting periods of immediately and over a two-year period,
they expire if not exercised within ten years from grant date, and
the exercise price is $4.10 per share. During the third quarter of
2018, the Board of Directors voted to approve Executive
Compensation by means of issuance of 193,584 preferred shares
valued at $257,468. As a result of the issuance, during the three
and nine month periods ended September 30, 2018 the Company
recorded share-based compensation expense of $297,384 and $716,833,
respectively. During the third quarter of 2018 there were 23,325
options that expired.
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.
|
MANAGEMENT'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, 2017 that was filed on March 30,
2018.
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, 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 30,000 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, 2017 and 2016 included in our Form 10-K filed on March
30, 2018, 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 as discussed in Note 5 of the Notes to Condensed
Consolidated Financial Statements with no effect to current or past
amounts recognized as revenue. 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
and related disclosures. Those estimates and judgments are based
upon our historical experience, the terms of existing contracts,
our observance of trends in the industry, information that we
obtain from our customers and outside sources, and on various other
assumptions that we believe to be reasonable and appropriate under
the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
Results of Operations
Comparison of the three months ended September 30, 2018 and
2017.
The
following discussion compares the Company's results of operations
for the three months ended September 30, 2018 with those for the
three months ended September 30, 2017. 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,
|
||
|
|
2018
|
2017
|
%
Change
|
|
Client
services
|
$2,890
|
$3,639
|
(21)%
|
|
Brewery management
software
|
68,101
|
78,211
|
(13)%
|
|
Shipping
coordination and label generation services
|
2,126,755
|
1,820,975
|
17%
|
|
Shipping calculator
services
|
40,699
|
46,990
|
(13)%
|
|
Total
revenues
|
$2,238,445
|
$1,949,815
|
15%
|
Revenues increased
15% in the third quarter primarily from the growth of our shipping
coordination and label generation services.
Client
service revenues decreased $749 or 21% to $2,890 in the third
quarter of 2018 compared to $3,639 in 2017. This decrease is a
result of the depleted inventory of our movie posters resulting in
fewer auctions.
Brewery
management software revenues decreased $10,110 to $68,101 in 2018
from $78,211 in 2017. The decrease in revenues is due to a reduced
number of new clients and an increase in competition.
Shipping calculator
services revenue decreased $6,291 or 13% to $40,699 in the third
quarter of 2018 compared to $46,990 in 2017. The decrease was
primarily due to a decline in new customers and the projected
transition to the new e-commerce shopping cart offering. During
2018 the Company discontinued offering several e-commerce shipping
calculator plugins with the anticipation of a new
offering.
Shipping
coordination and label generation service revenues increased
$305,780 or 17% to $2,126,755 in the third quarter of 2018 compared
to $1,820,975 in 2017. The increase is attributable to the
increased marketing, new corporate partnerships and brand
recognition for this segment of our business.
Gross Profit
Gross
profit increased $30,593 or 6% in the third quarter of 2018 to
$512,712 compared to $482,119 in 2017. Gross margin decreased to
23% for the third quarter of 2018 from 25% in 2017. The decrease in
gross margin is a result of a minor change in carrier rates for the
shipping coordination and label generation services that the
Company offers.
Operating Expenses
Total
operating expenses in the third quarter 2018 were $1,000,024
compared to $708,510 in the third quarter of 2017, an increase of
$291,514 or 41%. The increase is primarily due to the one time
executive compensation of $257,468 and the addition of new
personnel in the third quarter of 2018.
Other Income/Expense, net
Net
other income (expense) in the third quarter of 2018 was $32,268
compared to ($11,328) in the same period of 2017, a change of
$43,596. This is primarily attributable to new program in place to
award airline miles in lieu of rebates on certain transactions. The
existing rebate credits have a higher value than the airline miles.
As customers elect to convert credits to miles the Company records
difference in other income.
Net Loss
The
Company realized a net loss in the third quarter of 2018 of
($455,044) compared to a net loss of ($237,719) for the same period
in 2017. The net loss available to common stockholders for the
third quarter of 2018 and 2017 represent ($0.21) and ($0.09) per
share, respectively.
Comparison of the nine months ended September 30, 2018 and
2017.
The
following discussion compares the Company's results of operations
for the nine months ended September 30, 2018 with those for the
nine months ended September 30, 2017. 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,
|
||
|
|
2018
|
2017
|
%
Change
|
|
Client
services
|
$13,455
|
$20,192
|
(33)%
|
|
Brewery management
software
|
211,124
|
235,026
|
(10)%
|
|
Shipping
coordination and label generation services
|
6,213,868
|
5,057,566
|
23%
|
|
Shipping calculator
services
|
134,394
|
153,023
|
(12)%
|
|
Total
revenues
|
$6,572,841
|
$5,465,807
|
20%
|
Revenues increased
20% in 2018 primarily from the growth of our shipping coordination
and label generation services.
Client
service revenues decreased $6,737 or 33% to $13,455 compared to
$20,192 in 2017. This decrease is a result of the number of movie
posters available for auction in 2018 compared to those held in
same period for 2017.
Brewery
management software revenues decreased $23,902 to $211,124 in 2018
from $235,026 in 2017. The decrease in revenues is due to a reduced
number of new clients and an increase in competition.
Shipping calculator
services revenue decreased $18,629 or 12% to $134,394 in 2018
compared to $153,023 in 2017. 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
$1,156,302 or 23% to $6,213,868 in 2018 compared to $5,057,566 in
2017. 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 $206,480 or 15% in 2018 to $1,565,446 compared to
$1,358,966 in 2017. Gross margin decreased to 24% compared to 25%
for 2017. The gross margin decreased as a result of the minor
adjustments with the carrier rates and for shipping coordination
and label generation services.
Operating Expenses
Total
operating expenses in 2018 were $2,759,053 compared to $1,931,326
in 2017, an increase of $827,727 or 43%. The increase is due to the
increase in marketing efforts and growth in personnel for the new
product offerings in addition to the executive and option
compensation of $716,833 in 2018.
Other Income/Expense, net
Net
other income (expense) in 2018 was $37,117 compared to ($20,448) in
the same period of 2017, a change of $57,565. This is primarily
attributable to the additional customer reward program that was
implemented in the third quarter of 2018.
Net Loss
The
Company realized a net loss in 2018 of ($1,157,750) compared to a
net loss of ($594,302) for the same period in 2017. The net loss
available to common stockholders for the third quarter of 2018 and
2017 represent ($0.57) and ($0.32) per share,
respectively.
Cash
Flows from Operating Activities
A
summarized reconciliation of the Company's net loss to cash and
cash equivalents provided by operating activities for the nine
months ended September 30, 2018 and 2017 is as
follows:
|
|
2018
|
2017
|
|
Net
loss
|
$(1,157,750)
|
$(594,302)
|
|
Depreciation and
amortization
|
649,537
|
638,926
|
|
Share-based
compensation
|
716,833
|
118,572
|
|
Unrealized loss on
stock price guarantee
|
3,527
|
16,036
|
|
Loss on disposal of
property and equipment
|
1,944
|
-
|
|
Write-off of other
receivable
|
-
|
1,026
|
|
Changes in current
assets and liabilities
|
(64,130)
|
218,720
|
|
Net cash provided
by operating activities
|
$149,961
|
$398,978
|
Working
Capital and Liquidity
The Company had
cash, cash equivalents and funds held in trust of $550,563 at
September 30, 2018, compared to $738,690 at December 31, 2017. The
Company had a negative working capital of $1,337,586 at September
30, 2018, a change of ($23,742) compared to $1,313,844 at December
31, 2017. The increase in working capital deficit is attributable
to the additional programs launched in the third quarter of 2018 in
addition to the ongoing share repurchase agreements the Company has
engaged in. The decrease to the cash, cash equivalents and funds
held in trust is due to the full refund received of our funds held
in trust as of the third quarter 2018.
The Company may need an infusion of additional capital to fund
anticipated operating costs over the next 12 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. QUANTITATIVE 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. CONTROLS 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, 2018, 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 six material weaknesses in internal control
over financial reporting as described in the Company's Form 10-K
for the year ended December 31, 2017.
Changes
in Internal Control over Financial Reporting
There
were several changes in our internal control over financial
reporting during the quarter ended September 30, 2018. The Company
has implemented policies and procedures to assure that there is a
segregation of duties, evaluation of financial reporting and
ongoing monitoring of activities. 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.
PART II - OTHER
INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the
normal course of business, the Company periodically becomes
involved in litigation. As of September 30, 2018, 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, 2017.
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, 2018.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE
SAFETY DISCLOSURES
Not
Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. 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)
|
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) 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, 2018
|
|
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)
|
-20-