PAID INC - Annual Report: 2016 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑
Annual Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act of
1934
For
the fiscal year ended December 31, 2016 or
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the
transition period
from
to
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.)
|
200 Friberg Parkway, Westborough, Massachusetts 01581
(Address
of Principal Executive Offices) (Zip Code)
(617) 861-6050
(Registrant’s
Telephone Number, Including Area Code)
Securities
registered under Section 12(b) of the Act:
None
Securities
registered under Section 12(g) of the Act:
Common Stock, $0.001 Par Value
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes
☐ No ☑
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
☐ No ☑
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 Website, 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
☐
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
|
☑
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
☐ No ☑
The
aggregate market value of the common stock held by non-affiliates
of the registrant based on the last sale price of such stock as
reported by the Over-the-Counter Bulletin Board on June 30, 2016
(the last business day of the Registrant's most recently completed
second fiscal quarter) was approximately $3,475,093
As of
March 28, 2017, the registrant had 1,648,657 shares of Common Stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
No
documents are incorporated by reference into this Annual Report
except those Exhibits so incorporated as set forth in the Exhibit
Index
PAID, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2016
TABLE OF CONTENTS
|
PART I
|
|
||
|
|
|
|
|
|
|
Item
1.
|
Business
|
1
|
|
|
Item
1A.
|
Risk
Factors
|
4
|
|
|
Item
1B.
|
Unresolved Staff
Comments
|
11
|
|
|
Item
2.
|
Properties
|
11
|
|
|
Item
3.
|
Legal
Proceedings
|
11
|
|
|
Item
4.
|
Mine
Safety Disclosure
|
11
|
|
|
|
|
|
|
PART II
|
|
||
|
|
|
|
|
|
|
Item
5.
|
Market
for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
|
11
|
|
|
Item
6.
|
Selected Financial
Data
|
12
|
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
12
|
|
|
Item
7A.
|
Quantitative and
Qualitative Disclosure about Market Risk
|
17
|
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
17
|
|
|
Item
9.
|
Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
|
17
|
|
|
Item
9A.
|
Controls and
Procedures
|
17
|
|
|
Item
9B.
|
Other
Information
|
21
|
|
|
|
|
|
|
PART III
|
|
||
|
|
|
|
|
|
|
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
22
|
|
|
Item
11.
|
Executive
Compensation
|
24
|
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
26
|
|
|
Item
13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
26
|
|
|
Item
14.
|
Principal
Accountant Fees and Services
|
27
|
|
|
|
|
|
|
PART IV
|
|
||
|
|
|
|
|
|
|
Item
15.
|
Exhibits and
Financial Statement Schedules
|
28
|
|
|
Item
16.
|
Form
10-K Summary
|
28
|
|
|
Signatures
|
29
|
|
|
|
Exhibit
Index
|
|
|
-i-
PART I
Forward Looking Statements
This
Annual Report on Form 10-K 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 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, purchases of equipment, credit
arrangements, possible changes in legislation and other statements
regarding matters that are not historical are forward-looking
statements.
Although
forward-looking statements in this Annual Report reflect the good
faith judgment of the Company's management, such statements can
only be based on facts and factors currently known by the Company.
Consequently, forward-looking statements are inherently subject to
risks, contingencies and uncertainties, and actual results and
outcomes may differ materially from results and outcomes discussed
in this Annual 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".
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 by others, the Company's inability to complete development
of its core 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 Annual Report, which attempts to advise
interested parties of the risks and factors that may affect our
business, financial condition, results of operations and
prospects.
Item 1. Business
Overview
PAID,
Inc. (the “Company” or “PAID”) was
incorporated in Delaware on August 9, 1995. The Company's main
web address is located at www.paid-corp.com, which offers updated information
on various aspects of our operations. Information contained in the
Company's website shall not be deemed to be a part of this Annual
Report. The Company's principal executive offices are located at
200 Friberg Parkway, Westborough, Massachusetts 01581with offices
also located at 700 Dorval Drive Oakville Ontario, Canada. The
Company's telephone number is (617) 861-6050.
We file
annual reports on Form 10-K, quarterly reports on Form 10-Q, and
current reports on Form 8-K with the Securities and Exchange
Commission (the “SEC”). These reports, any amendments
to these reports, proxy and information statements and certain
other documents we file with the SEC are available through the
SEC's website at www.sec.gov or free of charge on our website
as soon as reasonably practicable after we file the documents with
the SEC. The public may also read and copy these reports and any
other materials we file with the SEC at the SEC's Public Reference
Room at 100 F Street, NE, Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.
Our Business
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 originally to reduce overhead costs for
auction sales, but over time the functionality and core business is
strictly focused 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.
-1-
The
AuctionInc system was originally designed to assist and improve
just the Company's sales, but management realized that there was a
need for an order management system for individuals and businesses
that sell on the internet, specifically at auctions and sites with
multiple sellers. In 2000 the Company's technology team focused its
attention on the core fundamental piece of the system called the
Shipping Calculator. The Company recognized the potential
importance of the calculator and filed for a patent before
launching it to the public in April 2002. The product is modular
based and we continue to develop new tools and products for our
customers.
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 providence. 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.
SpiritRun is a
product of BeerRun and is designed specifically for distilleries.
This product was recently released and we feel that there with
additional marketing and visibility in the distillery industry.
SpiritRun has the right core resources to be a valuable tool in
distilleries around the United States.
ShipTime 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.
Business Strategy
Our
mission is to grow our product lines and services related to our
eCommerce platforms, shipping and tax calculators as well as our
brewery management products.
Our
strategy during 2016 was to maintain our shipping calculator line
of products by providing accurate real-time shipping rates for
multiple shopping cart platforms available on the internet. These
products are built on our web service API (Application Program
Interface) and are available as a stand-alone product for single
sellers or integrators. Our development of new integrations with
third party shopping carts such as Open Cart, WooCommerce and
Magento has contributed to the growth of AuctionInc in 2016.
Additionally we feel that there are a large number of cart
platforms offered via the Word Press channel that are in need of
our shipping calculator technologies.
Our
business plan during 2016 took into consideration the growth of
online shopping cart platforms available on the internet and the
weakness of their native functionality with regard to the shipping
calculators. AuctionInc’s complex packaging algorithms and
ability to calculate comparative rates is a beneficial partner to
any one of the new and legacy carts available. Development of an
enhanced e-commerce shopping cart with innovative technology
continued to be our primary focus in 2016. The addition of ShipTime
will allow us to offer advanced features to our clients both old
and new.
With
the number of small craft breweries in excess of 4,000 in the
United States we recognize there needs to be a product that allows
brewers to manage their operations and integrate the results into
QuickBooks and other ERP or accounting systems. BeerRun Light was
launched in November 2015 to further assist smaller and start-up
breweries with the management of their operations. The new product
provides all of the core functionality without many of the advanced
features of the parent product. The success of BeerRun Light
continues to grow and is becoming a significant part of the BeerRun
line of products.
-2-
The
business strategy described above is intended to enhance our
opportunities in the online e-commerce market. However, there are a
number of factors that may impact our plans and inhibit our
success. See “Risk Factors” included in Item 1A.
Therefore, we have no guarantees and can provide no assurances,
that our plans will be successful.
Marketing and Sales
Successful branding
of our corporate identity and services is the key to our success.
We changed our name to PAID, Inc. at the end of 2003 and continue
to use AuctionInc.com as its primary identifier. Our future efforts
will continue to evolve the PAID brand with shopping cart
applications that include the ShipTime line of products. We feel
that the strategic branding of PAID has the potential to be a
significant opportunity for growth. BeerRun as a brand was in
existence prior to our purchase and we have continued to market and
recognize the value of the product.
The
Company will continue to market PAID, ShipTime and BeerRun
throughout 2017 and beyond. Based on experience with existing
partnerships that promote our product lines, the Company believes
that creating partnerships is an effective marketing tool to
promote and encourage new registrations. The new products are
mostly offered in the Word Press repository. As we grow the product
line the visibility of our offerings increases and our download
rates and success of conversions increases. The Company will
continue to seek new partnerships to help grow this line of
products. ShipTime will begin to be a part of our offerings in
early 2017 and we expect to grow our e-commerce revenues with the
roll out of a new line of shopping cart and shipping calculator
technologies. The Company may promote the ShipTime and BeerRun
product lines in trade publications to reach small and midsize
companies. Representatives of the Company will attend trade shows,
events and conferences to promote BeerRun Software and ShipTime and
expand the Company's marketing base.
Although we believe
that this marketing strategy, if successful, will lead to increased
revenues, and attract more users to our site, we have no
commitments that our marketing will be successful or our sales will
increase. There are a number of factors that may impact our plans
and inhibit our success. See “Risk Factors” included in
Item 1A. Therefore, we have no guarantees and can provide no
assurances that our plans will be successful.
Revenue Sources
In
2016, our revenues were primarily derived from our shipping
calculator services and brewery management software services. We
expect that the revenues from these services will continue to grow
as we focus on the e-commerce product lines and brewery management
software. See “Risk Factors” included in Item 1A. We
have no guarantees and can provide no assurances, that our plans
will be successful.
Competition
Our
line of AuctionInc shipping calculator software is proprietary. Our
intellectual property rights do not guarantee any competitive
advantage and may not sufficiently protect us against competitors
with similar technology. We believe that our products and other
proprietary rights do not infringe on the proprietary rights of
third parties. However, there can be no assurance that third
parties will not assert infringement claims against us in the
future with respect to current or future products or other works of
ours. This assertion may require us to enter into royalty
arrangements or result in costly litigation.
We also
utilize free open-source technology in certain areas. Unlike
proprietary software, open-source software has publicly available
source code and can be copied, modified and distributed with
minimal restrictions. We use open source software and technology as
well to support the growing social and viral opportunities on the
internet. By using 'best-of-breed' products and tools we can
maximize our clients’ opportunities while minimizing our
costs, which we are able to pass on to our customers.
As with
any software product BeerRun is not excluded from the competitive
market. There are three or four competitors in the industry all
with a unique perspective. The launch of our new offering has
helped us maintain a presence in the brewery management industry.
Our sales team stays informed with the competition and we have the
ability to modify our product as the industry changes.
-3-
Research and Development
Over
the past years the Company has made significant progress developing
new integrations with e-commerce shopping cart platforms. The
Company now employs several developers who are focused on the
growth of the PAID brand and ShipTime products and their
technologies.
We
currently have a development team enhancing and maintaining the
BeerRun platform and we recently opened the door to a new group of
developers who will continue to assist in the ongoing upgrades and
increased user experience with our brewery management software. Our
strategy includes a product redesign and the implementation of many
additional features to comply with the standards set forth by the
regulatory agencies.
Employees
As of
March 31, 2017, the Company currently has one part time and seven
full time equivalent employees. We have no collective bargaining
agreements and consider the relationship with our employees to be
good.
Government Regulation
We are
not currently subject to direct federal, state or local regulation,
and laws or regulations applicable to access or commerce on the
Internet, other than regulations applicable to businesses
generally. However, due to the increasing popularity and use of the
Internet and other online services, it is possible that a number of
laws and regulations may be adopted with respect to the internet or
other online services covering issues such as user privacy, freedom
of expression, pricing, content and quality of products and
services, taxation, advertising, intellectual property rights and
information security.
Item 1A. Risk Factors
You should carefully consider the risks
and uncertainties described below
before deciding to invest in shares of our common stock. If
any of the following risks or
uncertainties actually occurs, our business, prospects,
financial condition and operating
results would likely suffer, possibly materially.
In that event, the market price of
our common stock could decline and you could lose
all or part of your
investment.
Risks
Relating to the Company
We have experienced significant operating losses.
Our
business and prospects must be considered in light of the risks,
expenses and difficulties that are inherent in our business. The
risks include:
●
our ability to
anticipate and adapt to a developing market;
●
our ability to
market, license and enforce our shipping calculator and shopping
cart; and
●
development of
equal or superior internet portals, shipping calculators and
related services by competitors.
To
address these risks, we must, among other things, successfully
market our e-commerce and brewery management solutions, continue to
develop new relationships with e-commerce service providers and
craft brewers, maintain our customer base, attract significant
numbers of new customers, respond to competitive developments, and
continue to develop and upgrade our technologies. We cannot offer
any assurances that we will be successful in addressing these
risks.
We
incurred substantial losses each year since 1999. There can be no
assurance that we will be profitable in the future.
Our capital is limited and we may need additional financing to
continue operations.
We
require substantial working capital to fund our business. If we are
unable to obtain additional financing in the amounts desired and on
acceptable terms, or at all, or issue stock, we could be required
to reduce significantly the scope of our expenditures, which would
have a material adverse effect on our business potential and the
market price of our common stock. By raising additional funds by
issuing equity securities, our shareholders will be further
diluted. Based on our cash position as of December 31, 2016 we
may need additional capital to fund our anticipated operating
expenses over the next 12 months. If we require additional funding,
there can be no assurances that the financing will be obtained, or
if obtained, that funding will be obtained on reasonably acceptable
terms.
-4-
We are unable to guarantee that the marketplace will accept our
software products.
The
software markets are characterized by rapid technological change,
frequent new product enhancements, uncertain product life cycles,
changes in customer demands and evolving industry standards. Our
software products could be rendered obsolete if products based on
new technologies are introduced or new industry standards emerge,
or if we do not obtain adequate intellectual property protection.
We are unable to provide any assurances that the marketplace will
accept our software products and services, or that we will be able
to provide these products and services at a profit.
Our operating results are unpredictable and are expected to
fluctuate in the future.
You
should not rely on the results for any period as an indication of
future performance. Our operating results are unpredictable and are
expected to fluctuate in the future primarily due to the recent
acquisition and also due to a number of additional factors, many of
which are outside our control. These factors beyond our control
include:
●
our ability to
significantly increase our customer base and traffic to our
websites, maintain gross margins, and maintain customer
satisfaction;
●
our ability to
market and sell our software products;
●
consumer confidence
in encrypted transactions in the internet environment;
●
the announcement or
introduction of new types of services or products by our
competitors;
●
technical
difficulties with respect to customer use of our
technologies;
●
governmental
regulation by federal or local governments; and
●
general economic
conditions and economic conditions specific to the internet and
e-commerce.
As a
strategic response to changes in the competitive environment, we
may from time to time make certain service, marketing or supply
decisions or acquisitions that could have a material adverse effect
on our results of operations and financial condition. In 2016, our
revenues were derived from our shipping calculator services,
fulfillment services, and brewery management software
solutions.
The successful operation of our business depends upon the supply of
critical technology elements from other third parties, including
our internet service provider and technology
licensors.
Our
operations depend on a number of third parties for internet/telecom
access, delivery services, and software services. We have limited
control over these third parties and no long-term relationships
with many of them. We rely on an internet service provider to
connect our websites to the internet. From time to time, we have
experienced temporary interruptions in our websites connection and
also our telecommunications access. We license technology and
related databases from third parties for certain elements of our
properties. Furthermore, we are dependent on hardware suppliers for
prompt delivery, installation, and service of servers and other
equipment to deliver our products and services. Our internally
developed software depends on operating system, database and server
software that was developed and produced by and licensed from third
parties. We have from time to time discovered errors and defects in
the software from these third parties and, in part, rely on these
third parties to correct these errors and defects in a timely
manner. Any errors, failures, interruptions, or delays experienced
in connection with these third-party technologies and information
services could negatively impact our relationship with users and
adversely affect our brand and our business, and could expose us to
liabilities to third parties.
Our failure to manage growth could place a significant strain on
our management, operational and financial resources.
Growth
places a significant strain on our management, operational and
financial resources, and has placed significant demands on our
management, which currently include two executive officers. In
order to manage growth, we will be required to expand existing
operations, particularly with respect to customer service and
development, to improve existing and implement new operational,
financial systems, procedures and controls.
We have
experienced some strain on our resources because of:
●
the need to manage
relationships with various technology licensors, advertisers, other
websites and services, internet service providers and other third
parties; and
●
pressures for the
continued development of our core of software
products.
Difficulties we may
encounter in dealing successfully with the above risks could
seriously harm our operations. We cannot offer any assurance that
our current personnel, systems, procedures and controls will be
adequate to support our future operations or that management will
be able to identify, hire, train, retain, motivate and manage
required personnel.
-5-
Our Company's success still depends upon the continued services of
its current management and other relationships.
We are
substantially dependent on the continued services of our key
executive officers, Allan Pratt as Chief Executive Officer and W.
Austin Lewis, IV, as Chief Financial Officer. Mr. Pratt brings
valuable relationships with carriers and their affiliates in both
Canada and the Unites States and, Mr. Lewis has specialized
knowledge and skills with respect to our Company and our operations
and relationships with our clients. As a result, if Mr. Lewis or
Mr. Pratt were to leave our Company, we could face substantial
difficulty in hiring qualified successors. We do not maintain any
key person life insurance.
Our Company's success will depend on our ability to attract and
retain qualified personnel.
We
believe that our future success will depend upon our ability to
identify, attract, hire, train, motivate and retain other highly
skilled managerial, accounting, technical consulting, marketing and
customer service personnel. We cannot offer assurances that we will
be successful in attracting, assimilating or retaining the
necessary personnel, and the failure to do so could have a material
adverse effect on our business.
Our success depends upon market awareness of our
brand.
Development and
awareness of our Company will depend largely on our success in
increasing our customer base. To attract and retain customers and
to promote and maintain our Company in response to competitive
pressures, we may find it necessary to increase our marketing and
advertising budgets and otherwise to increase substantially our
financial commitment to creating and maintaining brand loyalty
among consumers. We will need to continue to devote substantial
financial and other resources to increase and maintain the
awareness of our online brands among website users, advertisers and
e-commerce entities that we have advertising relationships with
through:
●
web advertising,
marketing, and social media;
●
traditional media
advertising campaigns; and
●
Canadian seller
resources
Our
results of operations could be seriously harmed if our investment
of financial and other resources, in an attempt to achieve or
maintain a leading position in internet commerce or to promote and
maintain our brand, does not generate a corresponding increase in
net revenue, or if the expense of developing and promoting our
online brands becomes excessive.
System failures could result in interruptions in our service, which
could harm our business.
A key
element of our strategy is to generate a high volume of traffic to,
and use of, our products. Accordingly, the satisfactory
performance, reliability and availability of the shipping
calculations, transaction processing systems and network
infrastructure are critical to our operating results, as well as
our reputation and our ability to attract and retain customers and
maintain adequate customer service levels.
We
periodically have experienced minor systems interruptions,
including internet disruptions. Some of the interruptions are due
to upgrading our equipment to increase speed and reliability.
During these upgrades the outages have generally lasted less than
an hour. Any systems interruptions, including internet disruptions,
which result in the unavailability of our services, could harm our
business. In addition to placing increased burdens on our
engineering staff, these outages create a large number of user
questions and complaints that need to be responded to by our
personnel. We cannot offer assurances that:
●
we will be able to
accurately project the rate or timing of increases if any, in the
use of our services;
●
we will be able to
expand and upgrade on a timely basis our systems and infrastructure
to accommodate increases in the use of these services;
●
we will have
uninterrupted access to the internet;
●
we or our
suppliers' network will be able to timely achieve or maintain a
sufficiently high capacity of data transmission, especially if the
customer usage of the services increases.
Any
disruption in the internet access to our websites and services or
any systems failures could significantly reduce consumer demand for
our services, diminish the level of traffic to our products, impair
our reputation and reduce our commerce and advertising
revenues.
-6-
We currently identify vulnerabilities with our communications
hardware and computer hardware.
Our
main servers are cloud based and are located within two separate
third party hosting facilities. One is located in Michigan with a
fail over facility located in Ohio and our ShipTime servers are
located in Virginia with daily operations conducted in Oakville,
Ontario. Neither our Massachusetts facilities nor our Canadian
facilities are protected from flood, power loss, telecommunication
failure, break-in and similar events however the equipment located
at these offices is not considered critical to our service
offerings.
As with
all servers, our cloud based servers are also vulnerable to
computer viruses, physical or electronic break-ins, attempts by
third parties to deliberately exceed the capacity of our systems
and similar disruptive problems. Computer viruses, break-ins or
other problems caused by third parties could lead to interruptions,
delays, loss of data or cessation in service to users of our
services and products and could seriously harm our business. Our
implementation of redundancies minimizes the risk of loss though
there are no guarantees.
There are certain provisions of Delaware law that could have
anti-takeover effects.
Certain
provisions of Delaware law and our Certificate of Incorporation,
and Bylaws could make an acquisition of our Company by means of a
tender offer, a proxy contest or otherwise, and the removal of our
incumbent officers and directors more difficult. Our Certificate of
Incorporation and Bylaws do not provide for cumulative voting in
the election of directors. Our Bylaws include advance notice
requirements for the submission by stockholders of nominations for
election to the Board of Directors and for proposing matters that
can be acted upon by stockholders at a meeting.
We are
subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law (the “DGCL”), which
will prohibit us from engaging in a “business
combination” with an “interested stockholder” for
three years after the date of the transaction in which the person
became an interested stockholder unless the business combination is
approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three
years prior to the determination of interested stockholder status,
did own) 15% or more of a corporation's voting stock. The existence
of this provision would be expected to have an anti-takeover effect
with respect to transactions not approved in advance by the Board
of Directors, including discouraging attempts that might result in
a premium over the market price for the shares of common stock held
by stockholders. Section 203 could adversely affect the ability of
stockholders to benefit from certain transactions, which are
opposed by the Board or by stockholders owning 15% of our common
stock, even though such a transaction may offer our stockholders
the opportunity to sell their stock at a price above the prevailing
market price.
Our success is dependent in part on our ability to obtain and
maintain proprietary protection for our technologies and
processes.
Our
most important intellectual property relates to the software for
our shipping calculator, label generation and brewery management
products. We do not have any patents or patent applications for our
designs or innovations. We may not be able to obtain copyright,
patent or other protection for our proprietary technologies or for
the processes developed by our employees. Legal standards relating
to intellectual property rights in computer software are still
developing and this area of the law is evolving with new
technologies. Our intellectual property rights do not guarantee any
competitive advantage and may not sufficiently protect us against
competitors with similar technology.
As part
of our confidentiality procedures, we generally enter into
agreements with our employees and consultants and limit access to
and distribution of our software, documentation and other
proprietary information. We cannot offer assurances that the steps
we have taken will prevent misappropriation of our technology or
that agreements entered into for that purpose will be enforceable.
Notwithstanding the precautions we have taken, it might be possible
for a third party to copy or otherwise obtain and use our software
or other proprietary information without authorization or to
develop similar software independently. Policing unauthorized use
of our technology is difficult, particularly because the global
nature of the internet makes it difficult to control the ultimate
destination or security of software or other data transmitted. The
laws of other countries may afford our Company little or no
effective protection of its intellectual property. Because our
success in part relies upon our technologies, if proper protection
is not available or can be circumvented, our business may
suffer.
-7-
Intellectual property infringement claims would harm our
business.
We may
in the future receive notices from third parties claiming
infringement by our software or other aspects of our business. Any
future claim, with or without merit, could result in significant
litigation costs and diversion of resources, including the
attention of management, and require us to enter into royalty and
licensing agreements, which could have a material adverse effect on
our business, results of operations and financial condition.
Royalty and licensing agreements, if required, may not be available
on terms acceptable to the Company or at all. In the future, we may
also need to file lawsuits to enforce our intellectual property
rights, to protect our trade secrets, or to determine the validity
and scope of the proprietary rights of others. This litigation,
whether successful or unsuccessful, could result in substantial
costs and diversion of resources, which could have a material
adverse effect on our business, results of operations and financial
condition.
Our success is dependent on licensed technologies.
We rely
on a variety of technologies that we license from third parties. We
also rely on encryption and authentication technology licensed from
a third party through an online user agreement to provide the
security and authentication necessary to effect secure transmission
of confidential information.
We
cannot make any assurances that these third-party technology
licenses will continue to be available to us on commercially
reasonable terms. Although no single software vendor licensor
provides us with irreplaceable software, the termination of a
license and the need to obtain and install new software on our
systems would interrupt our operations. Our inability to maintain
or obtain upgrades to any of these technology licenses could result
in delays in completing our proprietary software enhancements and
new developments until equivalent technology could be identified,
licensed or developed and integrated. These delays would materially
and adversely affect our business, results of operations and
financial condition.
We may be exposed to liability for content retrieved from our
websites.
Our
exposure to liability from providing content on the internet is
currently uncertain. Due to third party use of information and
content downloaded from our websites, we may be subject to claims
relating to:
●
the content and
publication of various materials based on defamation, libel,
negligence, personal injury and other legal theories;
●
copyright,
trademark or patent infringement and wrongful action due to the
actions of third parties; and
●
other theories
based on the nature and content of online materials made available
through our websites.
Our
exposure to any related liability could result in us incurring
significant costs and could drain our financial and other
resources. We do not maintain insurance specifically covering these
claims. Liability or alleged liability could further harm our
business by diverting the attention and resources of our management
and by damaging our reputation in our industry and with our
customers.
The Company may be exposed to potential risks relating to our
significant deficiencies and material weaknesses in our internal
controls over financial reporting.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002
(“SOX 404”), the Securities and Exchange Commission
adopted rules requiring public companies to include a report of
management on the Company's internal control over financial
reporting in their annual reports, including Form 10-K. We have
identified significant deficiencies and material weaknesses in our
internal controls and have taken steps to remediate them as
cost-effectively as possible. Based on these significant
deficiencies and material weaknesses, investors and others may lose
confidence in the reliability of our financial statements and our
ability to obtain equity or debt financing could
suffer.
Risks
Associated With Our Industry
The market for online services is intensely competitive with low
barriers to entry.
The
market for internet products and services is very competitive.
Barriers to entry are relatively low, and current and new
competitors can launch new sites at relatively low costs using
commercially available software. We currently or potentially
compete with a variety of other companies depending on the type of
services offered to customers. These competitors include a number
of indirect competitors that specialize in e-commerce shipping
calculator solutions or derive a substantial portion of their
revenue from e-commerce products and those that specialize in
brewery management solutions.
-8-
It is
possible that new competitors or alliances may emerge and rapidly
acquire market share. Increased competition is likely to result in
reduced operating margins, loss of market share and a diminished
brand franchise, any one of which could materially adversely affect
our business, results of operations and financial condition. Many
of our current and potential competitors have greater financial,
marketing, customer support, technical and other resources than the
Company. As a result, these competitors may be able to provide
services on more favorable terms than we can, and they may be able
to respond more quickly to changes in customer preferences or to
devote greater resources to the development of their products than
the Company.
We may be adversely affected by the deterioration in economic
conditions, which could affect consumer and corporate spending and
our ability to raise capital, and, therefore, significantly
adversely impact our operating results.
The
impact of slowdowns on our business is difficult to predict, but
they may result in reductions in new client registrations and our
ability to generate revenue. The risks associated with our
businesses may become more acute in periods of a slowing economy or
a recession, which may be accompanied by a decrease in e-commerce
business. Instability in the financial markets as a result of
recession or otherwise, as well as insufficient financial sector
liquidity, also could affect the cost of capital and energy
suppliers and our ability to raise capital.
Our
business depends on discretionary consumer and corporate spending.
Many factors related to corporate spending and discretionary
consumer spending, including economic conditions affecting
disposable consumer income such as employment, fuel prices,
interest and tax rates and inflation can significantly impact our
operating results. Business conditions, as well as various industry
conditions, including corporate marketing and promotional spending
and interest levels, can also significantly impact our operating
results. Negative factors such as challenging economic conditions,
public concerns over terrorism and security incidents, particularly
when combined, can impact corporate and consumer spending and one
negative factor can impact our results more than another. There can
be no assurance that consumer and corporate spending will not be
adversely impacted by economic conditions, thereby possibly
impacting our operating results and growth.
Security breaches and credit card fraud could harm our
business.
We rely
on encryption and authentication technology licensed from a third
party through an online user agreement to provide the security and
authentication necessary to effect secure transmission of
confidential information. We believe that a significant barrier to
e-commerce and communications is the secure transmission of
confidential information over public networks. We cannot give an
assurance that advances in computer capabilities, new discoveries
in the field of cryptography or other events or developments will
not result in a compromise or breach of the algorithms we use to
protect customer transaction data. If this compromise of our
security were to occur, it could have a material adverse effect on
our business, results of operations and financial condition. A
party who is able to circumvent our security measures and those of
our third party providers could misappropriate proprietary
information or cause interruptions in our operations. To the extent
that activities of our Company or third-party contractors involve
the storage and transmission of proprietary information. Security
breaches could expose us to a risk of loss or litigation and
possible liability. We may be required to expend significant
capital and other resources to protect against the threat of
security breaches or to alleviate problems caused by these
breaches. We cannot offer assurances that our security measures
will prevent security breaches or that failure to prevent these
security breaches will not have a material adverse effect on our
business.
Our industry may be exposed to increased government
regulation.
Our
Company is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to access
to, or commerce on, the internet. Today there are relatively few
laws specifically directed towards online services, other than to
protect user privacy or children. However, due to the increasing
popularity and use of the internet, it is possible that a number of
laws and regulations may be adopted with respect to the internet,
covering issues such as user privacy, freedom of expression,
pricing, content and quality of products and services, fraud,
taxation, advertising, intellectual property rights and information
security. Compliance with additional regulation could hinder our
growth or prove to be prohibitively expensive.
The
applicability to the internet of existing laws in various
jurisdictions governing issues such as property ownership, sales
tax, libel and personal privacy is uncertain and may take time to
resolve. In addition, because our service is available over the
internet in multiple states, and we sell to numerous consumers
resident in these states, these jurisdictions may claim that we are
required to qualify to do business as a foreign corporation in each
state. Our failure to qualify as a foreign corporation in a
jurisdiction where it is required to do so could subject our
Company to taxes and penalties for the failure to qualify. Any new
legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to
our business, could have a material adverse effect our business,
results of operations and financial condition.
-9-
Risks
Associated with our Common Stock
Our stock price has been and may continue to be very
volatile.
The
market price of the shares of our common stock has been, and is
likely to be, highly volatile. During the year ended
December 31, 2016 our stock price as quoted on the OTC Link
operated by the OTC Markets Group, Inc., on the OTCPINK has ranged
from a high of $9.00 per share to a low of $1.42 per share. The
variance in our share price makes it difficult to forecast with any
certainty the stock price at which you may be able to buy or sell
your shares of our common stock. The market price for our stock
could be subject to wide fluctuations in response to factors that
are out of our control such as:
●
actual or
anticipated variations in our results of operations;
●
announcements of
new products, services or technological innovations by our
competitors;
●
developments with
respect to patents, copyrights or proprietary rights;
●
short selling our
common stock and stock price manipulation;
●
merger, split or
issuance;
●
developments in
internet regulation; and
●
general conditions
and trends in the internet and e-commerce industries.
The
trading prices of many technology companies' stock have experienced
extreme price and volume fluctuations. These fluctuations often
have been unrelated or disproportionate to the operating
performance of these companies. These broad market factors may
adversely affect the market price of our common stock. These market
fluctuations, as well as general economic, political and market
conditions such as recessions or interest rate fluctuations, may
adversely affect the market price of our common stock. Any negative
change in the public's perception of the prospects of Internet or
e-commerce companies could depress our stock price regardless of
our results.
Reverse Stock Split
On
November 9, 2016, the 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.
On
October 7, 2015, we filed an amendment to our Certificate of
Incorporation to affect a reverse split of our common stock with a
ratio of one post-split share for every fifty shares issued and
outstanding. As a result of the reverse stock split, the number of
authorized shares of our common stock decreased to 11 million
shares, without any change in the par value of such
shares.
All
references in the financial statements and notes to the number of
shares, price per share and weighted average number of shares
outstanding of our common stock prior to the reverse stock split
have been adjusted to reflect the reverse stock split on a
retroactive basis unless otherwise noted.
“Penny stock” regulations may impose certain
restrictions on marketability of securities.
The SEC
adopted regulations which generally define "penny stock" to be an
equity security that has a market price of less than $5.00 per
share. Our common stock may be subject to rules that impose
additional sales practice requirements on broker-dealers who sell
these securities to persons other than established customers and
accredited investors (generally those with assets in excess of
$1,000,000, or annual incomes exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these
rules, the broker-dealer must make a special suitability
determination for the purchase of these securities and have
received the purchaser's prior written consent to the
transaction.
Additionally, for
any transaction, other than exempt transactions, involving a penny
stock, the rules require the delivery, prior to the transaction, of
a risk disclosure document mandated by the SEC relating to the
penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over
the market. Finally, monthly statements must be sent disclosing
recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of
broker-dealers to sell our common stock and may affect the ability
to sell our common stock in the secondary market.
-10-
The market for our Company's securities is limited and may not
provide adequate liquidity.
Our
common stock is currently quoted on the OTCPINK, a regulated
quotation service that displays real-time quotes, last-sale prices,
and volume information in over-the-counter equity securities. As a
result, an investor may find it more difficult to dispose of, or
obtain accurate quotations as to the price of, our securities than
if the securities were traded on the Nasdaq Stock market, or
another national exchange. There are a limited number of active
market makers of our common stock. In order to trade shares of our
common stock you must use one of these market makers unless you
trade your shares in a private transaction. In the year ended
December 31, 2016 the actual daily trading volume ranged from
a low of 10 shares of common stock to a high of over 11,700 shares
of common stock. Selling our shares can be more difficult because
smaller quantities of shares are bought and sold and news media
coverage about us is limited. These factors result in a limited
trading market for our common stock and therefore holders of our
Company's stock may be unable to sell shares purchased should they
desire to do so.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The
Company’s offices are located at 200 Friberg Parkway,
Westborough, Massachusetts and 700 Dorval Drive, Oakville, Ontario,
pursuant to lease agreements which expire in April 2018 and June
2019, respectively.
Item 3. Legal Proceedings
From
time to time we may be a party to various legal proceedings arising
in the ordinary course of our business. Our management is not aware
of any litigation outstanding, threatened or pending as of the date
hereof by or against us or our properties which we believe would be
material to our financial condition or results of
operations.
Item 4. Mine Safety Disclosure
Not
applicable.
PART II
Item
5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
Our
common stock, par value $0.001 per share, is presently quoted on
the OTC Link operated by the OTC Markets Group Inc., on the OTCPINK
under the symbol "PAYD".
The
following table sets forth the high and low bid information for our
common stock as reported by OTCPINK for the eight quarters ended
December 31, 2016 (retroactively to reflect the reverse stock
split). The quotations from the OTCPINK reflect inter-dealer prices
without retail mark-up, mark-down, or commission and may not
represent actual transactions.
|
2015
|
High
|
Low
|
|
Quarter ended March
31, 2015
|
$41.50
|
$25.00
|
|
Quarter ended June
30, 2015
|
$30.50
|
$24.00
|
|
Quarter ended
September 30, 2015
|
$26.00
|
$2.00
|
|
Quarter ended
December 31, 2015
|
$2.80
|
$1.20
|
|
2016
|
High
|
Low
|
|
Quarter ended March
31, 2016
|
$9.00
|
$1.42
|
|
Quarter ended June
30, 2016
|
$6.10
|
$3.40
|
|
Quarter ended
September 30, 2016
|
$4.00
|
$2.55
|
|
Quarter ended
December 31, 2016
|
$5.20
|
$2.50
|
-11-
As of
March 28, 2017, there were approximately 867 holders of record of
our common stock. Because many of the shares are held by brokers
and other institutions on behalf of stockholders, the Company is
unable to estimate the total number of individual stockholders
represented by these holders of record.
We have
not previously paid cash dividends on our common stock, and intend
to utilize current resources to operate the business; thus, it is
not anticipated that cash dividends will be paid on our common
stock in the foreseeable future.
Exchangeable
Shares
Holders of our subsidiary’s exchangeable shares have the same
dividend and distribution rights as holders of Company shares, and
if Company shares are subdivided or in the event of a Company stock
dividend, the exchangeable shares will be equally subdivided, as
exchangeable shares are intended to be economically the same as
shares of common or preferred stock of the Company. The Company
will have a “liquidation call right” in the event of
proposed liquidation, dissolution or winding up of ShipTime Canada
Inc. Absent prior events, the Company will redeem the
exchangeable shares on the fifth anniversary whereby the Company
will redeem the exchangeable shares for shares of the
Company’s preferred stock and common stock. By
agreement, exchangeable shares also may be purchased by ShipTime
Canada Inc. for cancellation. The Company also has a right to
call the shares in the event of a change in the applicable
laws.
The holders of exchangeable shares have an “automatic
exchange right” in the event any bankruptcy or insolvency or
in general, related proceedings, of ShipTime Canada Inc. or the
Company. The exchangeable shares would at such time be
converted automatically into that number of shares of common stock
and preferred stock of the Company at the agreed upon conversion
ratio. Moreover, Callco will have an overriding call right to
purchase some or all of the exchangeable shares. This mechanism
will be triggered with the automatic exchange right and is
necessary to comply with Canadian tax laws. The exercise of this
call right does not alter the outcome of the exchangeable share
transaction.
Under
a Support Agreement, the Company is required to treat holders of
Exchangeable Shares substantially similar, or economically
equivalent, to holders of Company stock. As such, under the
Support Agreement, the Company cannot declare or pay any dividend
or other distribution on Company stock unless ShipTime Inc.
simultaneously declares or pays the dividend or distribution on the
Exchangeable Shares and has sufficient money or other assets to
meet these requirements. In turn, the ShipTime Inc. would effect a
corresponding dividend or distribution of its securities related to
the Exchangeable Shares. The Company also undertakes to
advise ShipTime Inc. of the declaration of dividend or
distribution, among other similar events, and to cooperate with it
to effect the dividend or distribution as of the same record and
effective date. The Company is also required in this
case to segregate funds to pay for the dividend, and to reserve
sufficient number of shares to permit the exchange of the
Exchangeable Shares into the required number of Company shares of
common stock and preferred stock. The Support Agreement is
also binding on any successor to the Company and with respect to
any successor transaction.
Equity Compensation Plan Information
|
|
Number of Securities To be Issued Upon Exercise of Outstanding
Options, Warrants and Rights
|
Weighted-Average Exercise Price of Outstanding Options, Warrants
and Rights
|
Number of Securities Remaining Available For Future Issuance Under
Equity Compensation Plans (Excluding Securities
Reflected
in Column (a)
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity
Compensation Plans Approved by Security Holders
|
16,000
|
$23.33
|
-
|
|
Equity
Compensation Plans Not Approved by Security Holders
|
41,500
|
$0.98
|
-
|
|
Total
|
57,500
|
$7.19
|
-
|
See
Note 11, Notes to Financial Statements for the years ended December
31, 2016 and 2015 included in Part IV, Item 15, of this Annual
Report, for a discussion of the material features of the stock
options, warrants and related stock plans.
Recent Sales of Unregistered Securities
During
the year ended December 31, 2016, 205,714 shares of common stock
were issued from the exercise of warrants for proceeds of $180,000.
The issuance was exempt under Rule 506 of Regulation D of the
Securities Act of 1933, as amended.
Repurchase of Equity Securities
None.
Item 6. Selected Financial Data
As a
smaller reporting company, the Company is not required to provide
the information for this Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward
Looking Statements
This
Annual Report on Form 10-K 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 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 Annual Report reflect the good
faith judgment of the Company's management, such statements can
only be based on facts and factors currently known by the Company.
Consequently, forward-looking statements are inherently subject to
risks, contingencies and uncertainties, and actual results and
outcomes may differ materially from results and outcomes discussed
in this report. Although the Company believes that its plans,
intentions and expectations reflected in these forward-looking
statements are reasonable, the Company can give no assurance that
its plans, intentions or expectations will be achieved. For a more
complete discussion of these risk factors, see Item 1A, "Risk
Factors.”
-12-
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 sites, 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.
Overview
PAID,
Inc. (the “Company”) 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 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 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
providence. 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 is on the rise in the United
States and we feel that there is a large potential to grow this
portion of our business.
ShipTime Inc. has
developed a SaaS based application, which focuses on the small
business to medium business segment. 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 ecommerce. We
actively sell directly to small businesses and through long
standing partnerships with selected associations throughout
Canada. Our focus in 2017 will be to significantly grow this
portion of our business.
Critical
Accounting Policies
Our
significant accounting policies are more fully described in Note 3
to our consolidated financial statements. However, certain of our
accounting policies are particularly important to the portrayal of
our financial position and results of operations and require the
application of significant judgment by our management; as a result,
they are subject to an inherent degree of uncertainty. In applying
these policies, our management makes estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosures. Those estimates and judgments are
based upon our historical experience, the terms of existing
contracts, our observance of trends in the industry, information
that we obtain from our customers and outside sources, and on
various other assumptions that we believe to be reasonable and
appropriate under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions. Our critical accounting policies
include:
Revenue Recognition
The
Company generates revenue principally from sales of shipping and
shipping calculator services, brewery management software
subscriptions, and client services.
The
Company recognizes revenues in accordance with the FASB ASC Topic
605. Accordingly, the Company recognizes revenues when there is
persuasive evidence that an arrangement exists, product delivery
and acceptance have occurred, the sales price is fixed or
determinable, and collectability of the resulting receivable is
reasonably assured.
-13-
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. Brewery management software
subscribers are billed on a calendar month at the first of the
month. All payments are made via credit card for the month
following.
Client
services revenues include general business consulting services. For
contracts that are of a short duration and fixed price, revenue is
recognized when there are no significant obligations and upon
acceptance by the customer of the completed project. Revenues on
longer-term fixed price contracts are recognized using the
percentage-of-completion method. Services that are performed on a
time and material basis are recognized as the related services are
performed.
Share- Based Compensation
The
Board of Directors has on occasion voted to award stock options to
employees or directors. The price at which the option shares may be
purchased is based on the fair market value of the shares on the
date of the agreement. Each recipient’s option agreement may
differ; the vesting terms may vary from fully vested immediately to
one third immediately, one third vesting in 18 months and the final
on third vesting in 36 months from the date of the grant.
Historically the options granted have had a 10 year term. If the
recipient’s employment or relationship with the Company is
terminated the options recipient may be allowed up to three months
to exercise their options. Option compensation is calculated by
using the
Black-Scholes-Merton option pricing model to estimate the fair
value of these share-based awards.
Results of Operations
Comparison of the years ended December 31, 2016 and
2015
The
following discussion compares the Company's results of operations
for the year ended December 31, 2016 with those for the year
ended December 31, 2015. The Company's financial statements
and notes thereto included elsewhere in this Annual Report contain
detailed information that should be referred to in conjunction with
the following discussion.
Revenues
The
following table compares total revenue for the periods
indicated.
|
|
Years ended December
31,
|
||
|
|
2016
|
2015
|
%
Change
|
|
Client
services
|
$18,556
|
$28,392
|
(35)%
|
|
Shipping calculator
services
|
184,976
|
163,690
|
13%
|
|
Brewery management
software
|
320,215
|
80,838
|
296%
|
|
Total
revenues
|
$523,747
|
$272,920
|
92%
|
Revenues increased
92% in 2016 primarily from a 296% increase in our brewery
management software revenue. This increase was a result of the
purchase of BeerRun Software in 2015 and the reporting of only one
quarter of revenue compared to a full year in 2016.
Client
services revenues decreased $9,836 or 354% to $18,556 compared to
$28,392 in 2015. The decrease was attributable to decrease in
auction related items for 2016.
Shipping calculator
service revenues increased $21,286 or 13% to $184,976 compared to
$163,690 in 2015. The increase was attributed to the continued
success of our newer products and an increase in per call related
overage fees for some of our larger clients.
-14-
Brewery
management software revenues were a new addition to our revenue
sources in 2015 resulting in a 296% or $239,377 increase of
revenues in 2016. During the year ended 2015 only one quarter of
revenue was reported due to the purchase date.
Gross Profit
Gross profit increased $265,974 or
114% to $499,390 compared to $233,416 in 2015. Gross margin
increased 9 percentage points to 95% from 86% in 2016. The
increase was mainly due to the focus on our shipping calculator
line of products which provide a higher gross profit and the
acquisition of BeerRun Software which also has an elevated gross
profit margin. Our continued efforts to reduce costs are also
reflected in the gross profit margins.
Operating Expenses
Total
operating expenses in 2016 were $954,100 compared to $1,067,216 in
2015, a decrease of $113,116 or 11%. The decrease is largely due to
the continued efforts to streamline operations and recognize
opportunities to reduce public company expenses.
Net Loss
The
Company incurred a net loss in 2016 $347,581 compared to a net loss
of $1,309,497 for the same period in 2015. The losses for 2016 and
2015 represent $(0.33) and $(1.82) per share,
respectively.
Inflation
The
Company believes that inflation has not had a material effect on
its results of operations.
Comparison of the years ended December 31, 2015 and
2014
The
following discussion compares the Company's results of operations
for the year ended December 31, 2015 with those for the year
ended December 31, 2014. The Company's financial statements
and notes thereto included elsewhere in this Annual Report contain
detailed information that should be referred to in conjunction with
the following discussion.
Revenues
The
following table compares total revenue for the periods
indicated.
|
|
Years ended December
31,
|
||
|
|
2015
|
2014
|
%
Change
|
|
Merchandise and
fulfillment
|
$27,875
|
$118,631
|
(77)%
|
|
Client
services
|
517
|
6,674
|
(92)%
|
|
Shipping calculator
services
|
163,690
|
149,246
|
10%
|
|
Brewery management
software
|
80,838
|
-
|
100%
|
|
Touring
revenue
|
-
|
522,205
|
(100)%
|
|
Total
revenues
|
$272,920
|
$796,756
|
(66)%
|
Revenues decreased
66% in 2015 primarily from a 100% decrease in touring revenue. This
decrease was a result of the Company’s withdrawal from the
celebrity services industry.
Merchandising and fulfillment
revenues decreased $90,756 or 77% to $27,875 compared to $118,631
in 2014. The decrease was attributable to the change in our
business plan as it relates to the services we have provided within
the celebrity services industry.
Client services revenues decreased
$6,157 or 92% to $517 compared to $6,674 in 2014. The
decrease was attributable to transition from the services we have
provided within the music industry.
Shipping calculator
service revenues increased $14,444 or 10% to $163,690 compared to
$149,246 in 2014. The increase was attributed to the launch of new
products and a minor price increase announced in the fourth
quarter.
-15-
Brewery
management software revenues are a new addition to our revenue
sources in 2015 resulting in an increase of revenues by
$80,838.
Touring
revenue has discontinued and has decreased $522,205 or 100%. During
2015 the Company has continued to take steps to transition out of
the celebrity service industry.
Gross Profit
Gross profit decreased $60,102 or
20% to $233,416 compared to $293,518 in 2014. Gross margin
increased 49 percentage points to 86% from 37% in 2015. The
increase was mainly due to the focus on our shipping calculator
line of products which provide a much higher gross profit in
comparison to the tour revenue generated by our touring clients in
2014 and the acquisition of BeerRun Software which also has an
elevated gross profit margin.
Operating Expenses
Total operating expenses in 2015
were $1,067,216 compared to $1,431,829 in 2014, a decrease of
$364,613 or 25%. The decrease is largely due to the
continued transition from the celebrity service and the expenses
associated with this portion of the Company’s previous
business line.
Net Loss
The
Company incurred a net loss in 2015 $1,309,497 compared to a net
loss of $1,665,770 for the same period in 2014. The losses for 2015
and 2014 represent $(1.82) and $(2.50) per share,
respectively.
Inflation
The
Company believes that inflation has not had a material effect on
its results of operations.
Operating
Cash Flows
A
summarized reconciliation of the Company's net loss to cash used in
operating activities for the years ended December 31, 2016 and
2015, is as follows:
|
|
2016
|
2015
|
|
Net
loss
|
$(347,581)
|
$(1,309,497)
|
|
Depreciation and
amortization
|
102,905
|
34,520
|
|
Gain on sale of
equipment
|
(2,179)
|
-
|
|
Write down of other
receivables
|
-
|
115,913
|
|
Provision for bad
debt
|
-
|
2,137
|
|
Write down of
advanced royalties
|
-
|
77,905
|
|
Share-based
compensation
|
41,814
|
181,365
|
|
Unrealized loss on
stock price guarantee
|
(46,179)
|
358,850
|
|
Changes in current
assets and liabilities
|
45,430
|
(39,402)
|
|
Net cash provided
by (used in) operating activities
|
$(205,790)
|
$(578,209)
|
Working Capital and Liquidity
The
Company had cash and cash equivalents of $339,562 at December 31,
2016, compared to $123,913 at December 31, 2015. The Company
had negative working capital of $1,368,976 at December 31, 2016, a
decrease of $480,046 compared to working capital of $917,864 at
December 31, 2015. The decrease in working capital is
attributed to the decrease in the value of the stock price and its
effect on the stock price guarantee liability in addition to the
liabilities assumed with the emergeIT acquisition.
The
Company may need an infusion of additional capital to fund
anticipated operating costs over the next 12 months. Management
believes that the Company may have adequate cash resources to fund
operations during the next 12 months. In addition, management
continues to explore opportunities and has organized additional
resources to monetize its patents. However, there can be no
assurance that anticipated growth in new business will occur, and
that the Company will be successful in monetizing its patents.
Management continues to seek alternative sources of capital to
support operations.
-16-
Item 7A. Quantitative and Qualitative Disclosure about Market
Risk
As a
smaller reporting company, the Company is not required to provide
the information for this Item 7A.
Item 8. Financial Statements and Supplementary Data
The
financial statements listed in Item 15(a) are incorporated herein
by reference and are filed as a part of this report and follow the
signature pages to this Annual Report on Form 10-K on page
31.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Item 9A. 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 December 31, 2016, 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.
As
described in our accompanying Management's Report on Internal Control over
Financial Reporting, we have identified six remaining
material weaknesses in internal control over financial reporting.
Because of these remaining material weaknesses, we concluded that,
as of December 31, 2016, our internal control over financial
reporting was not effective based on the criteria outlined in
Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Accordingly, we have also
concluded that our disclosure controls and procedures were not
effective as of December 31, 2016.
We have
implemented new procedures and controls in 2016 and expect to take
further steps to remediate the material weaknesses at the entity
and activity levels, and to review further our procedures and
controls in 2017. In addition, we expect to make additional changes
to our infrastructure, personnel and related processes that we
believe are also reasonably likely to strengthen and materially
affect our internal control over financial reporting.
Prior
to the complete remediation of these material weaknesses, there
remains risk that the processes and procedures on which we
currently rely will fail to be sufficiently effective, which could
result in material misstatement of our financial position or
results of operations and require a restatement. Moreover, because
of the inherent limitations in all control systems, no evaluation
of controls-even where we conclude the controls are operating
effectively-can provide absolute assurance that all control issues,
including instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty, and breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of
any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, our control
systems, as we develop them, may become inadequate because of
changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected and could be
material to our financial statements.
-17-
The
certifications of our principal executive officer and principal
financial officer required in accordance with Rule 13a-14(a) under
the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002
are attached as exhibits to this Annual Report on Form 10-K. The
disclosures set forth in this Item 9A contain information
concerning (i) the evaluation of our disclosure controls and
procedures, and changes in internal control over financial
reporting, referred to in paragraph 4 of the certifications, and
(ii) material weaknesses in the design or operation of our internal
control over financial reporting, referred to in paragraph 5 of the
certifications. Those certifications should be read in conjunction
with this Item 9A for a more complete understanding of the matters
covered by the certifications.
Management's Annual Report on Internal Control over Financial
Reporting
Management is
responsible for establishing and maintaining effective internal
control over financial reporting of the Company. Internal control
over financial reporting is a process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial
Officer and effected by our Board of Directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles.
Our
internal control over financial reporting includes those policies
and procedures that: (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect our
transactions and dispositions of our assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations
of our management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a
material effect on the financial statements.
A
material weakness is a deficiency, or combination of deficiencies,
in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual
or interim financial statements will not be prevented or detected
on a timely basis.
Management, with
the participation of our principal executive officer and principal
financial officer, is required to evaluate the effectiveness of our
internal controls over financial reporting as of December 31, 2016
based on criteria established under the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”)
integrated framework of internal controls. The COSO framework
identifies five components of internal control and provides a basis
for evaluating the effectiveness of internal controls. Management
has concluded that our internal controls over financial reporting
were not effective as of December 31, 2016 due to the
following:
1.
Entity Level
Controls
-
Ineffective control
environment, including lack of corporate governance
-
Ineffective
communication of information
-
Ineffective
monitoring of activities
2.
Activity Level
Controls
-
Lack of procedures
and control documentation
-
Lack of segregation
of duties
-
Lack of information
technology controls and documentation.
1.
Inadequate Entity Level Controls
Ineffective Control Environment, Including Lack of Corporate
Governance
The
Control Environment is the tone of an organization and how the tone
influences the control consciousness of its people. Control
Environment factors include, the integrity, ethical values, and
competence of the entity’s people; management’s
philosophy and operating style; the way management assigns
authority and responsibility; the way management organizes and
develops its people; and the attention and direction provided by
the audit committee and board of directors. The Control Environment
includes the Company’s Corporate Governance which is made up
of a set of practices, policies, laws, and principals, designed to
provide guidance and structure to directors, managers, and
employees with a clear view of corporate goals and business
objectives. These processes and procedures need to be clearly
defined, presented and administered to each participant in the
organization, and should document the distribution of rights and
responsibilities among employees, management, clients and
customers.
-18-
Steps taken towards Remediation for an Ineffective Control
Environment:
●
The Company has
strengthened its hiring and employment practices by completing
in-depth screenings of new personnel, and has initiated formal
employee review procedures.
●
Management has
direct oversight and responsibility for independent contractors and
consultants. All independent contractors and consultants are
required to follow strict corporate policies relating to
confidential information, and non-disclosure of corporate and
client data. Management sets project goals and objectives for each
independent contractor and consultant and measures the performance
of each on a regular basis.
●
Management and the
Board formally meet to discuss our filings and the discussions are
being documented for future reference. During these discussions,
our auditors, and legal counsel may present to the Company various
information which may be of material importance to our financial
reporting and internal controls.
●
The Company has
made improvements by designing and drafting a corporate governance
policy which has been approved by the Board of Directors, which
documents the role of the Board and management, functions of the
Board, role of the Audit Committee, agenda items for Board
meetings, recoupment of unearned compensation, indemnification,
reporting of concerns and complaints, and director access to
management.
●
The Board of
Directors has been increased from 3 to 5 members to create
awareness and assist with decisions presented to the
Board.
Ineffective Communication of Information
Information and
communication systems support the identification, capture, and,
exchange of information in a form and time frame that enable people
to carry out their responsibilities. This component includes
information technology controls which are specific activities
performed by persons of systems designed to ensure that the
business objective can be met, protect the business from fraud and
collusion, and keep the corporate assets protected and
safe.
Steps taken towards Remediation of Ineffective Communication of
Information:
●
Enhanced the
documentation and procedures of our information technology to
control assurance that changes to financial applications are
properly authorized and tested and that access to our information
systems and financial applications are appropriately
restricted.
●
Updated our
information systems user profiles to improve access
controls.
●
Implemented
improvements to our information systems to further address control
deficiencies.
●
Updated secure
backup procedures with best practice methodologies for protecting
our financial data and, in case of a problem.
●
Enhanced the
documentation of certain core proprietary technologies so that
there is more redundancy and protection of corporate
assets.
Ineffective Monitoring of Activities
Monitoring is a
process that assesses the quality of internal control performance
over time.
Steps taken towards Remediation of Ineffective Monitoring of
Activities:
●
The Company has
reorganized the organizational reporting structure to enable
greater oversight and control of operations which has increased the
level of awareness and accountability.
●
The Company meets
regularly throughout the year to review operating results, policies
and procedures, and employee reviews and practices.
●
New management
personnel are required to review their procedures and policies to
make sure they are effective. The Company is evaluating the
procedure and polices that have material weakness and developing
corrective action plans to strengthen our internal
controls.
●
The Company has
made changes to its policies and procedures with regard to its
financial reporting systems. Upgrades to software systems have been
made which has resulted in the automation of accounting
transactions and has enhanced our financial reporting and
timeliness of operating results. Management and staff are more
integrated into the review process.
●
Finance staff is
required to review expenses for proper approval and accounting
treatment. Managers and staff are required to have expenditures
pre-approved by their supervisor. All significant expenditures
require multiple approvals including Company officers.
-19-
The
Company believes significant improvements have been made to
remediate its material weakness in the internal controls over
financial reporting at the entity level, but does not have the
appropriate documentation to support its efforts. The Company also
believes that further work is still required to develop appropriate
controls in some aspects of entity level control to provide
reasonable assurance that controls are designed in the most
effective and efficient manner possible. While we believe these
changes will be effective at mitigating risk of material error,
there continues to be additional work required for us to conclude
that all three of these control areas are operating effectively. As
noted in the Management's Report on Internal Control over Financial
Reporting, we consider each of these control areas within the
entity level control to constitute a material
weakness.
2.
Inadequate Activity Level Controls
Lack of Procedures and Control Documentation
The
Company lacks sufficient documentation relating to certain
accounts, revenue recognition, accounts payable, and financial
closing, which in effect make these internal controls ineffective.
The lack of documentation in internal controls relating to these
accounts may affect the financial statements and will directly
affect the nature and timing of other auditing procedures for
certain activities.
Steps taken towards Remediation of Revenue
Recognition:
●
The Company
upgraded its transactional processing systems which resulted in the
automation of several manual accounting tasks. This automation
eliminated the risk of human error for these manual tasks and
created a more concise audit trail in the revenue recognition
process.
●
All sales are
reconciled across the Company's multiple revenue and accounting
systems comparing for any discrepancies.
Steps taken towards Remediation of Expenditures and Accounts
Payable:
●
Expenses are
reviewed as incurred for proper accounting treatment and
approval.
●
The Vendor Master
File is reviewed for updates and changes and any changes are
analyzed and monitored for their activity and
frequency.
●
Management
evaluates all new client relationships for savings opportunities
and value.
Steps taken towards Remediation of Financial Closing:
●
The Company closes
its books and reconciles all accounts monthly, and provides
management with a quarterly comprehensive set of financial and
operating reports and analysis of results.
Lack of Segregation of Duties
A clear
and concise segregation of duties is important to maximize checks
and balances so that no single individual has control over two or
more phases of a transaction or operation. A strong segregation of
duty also is critical to reduce effectively the risk of mistakes
and inappropriate actions preventing fraud and discourages
collusion. It can be difficult for small businesses to always have
a clear separation of duties because there simply are not enough
personnel to cover each and every process and procedure.
Ultimately, checks and balances need to be in place as a supportive
measure to the business operations, but also as a fraud prevention
measure as well.
Steps taken towards Remediation for Lack of Segregation of
Duties:
●
The Company has
changed processes and procedures, and has made upgrades to its
management system to better align duties and responsibilities so
that there is a greater segregation of duties.
●
Transactional
processing requires review and approval from an independent staff
member or manager. Manual tasks are required to follow written or
verbal procedures that have been approved by the
Company.
●
The Company has
added additional staff to the finance team in addition to including
the CEO in the quarterly review process.
●
The roles of CEO
and CFO have been divided between two personnel to assist with
financial review and assists with areas of weakness.
-20-
Lack of Information Technology Controls and
Documentation
Information
technology controls are specific activities performed by persons or
systems designed to ensure that the business objectives can be met,
protect the business from fraud and collusion, and keep the
corporate assets protected and safe.
Steps taken towards Remediation of Information Technology Controls
and Documentation:
●
Enhanced the
documentation and procedures of our information technology to
control assurance that changes to financial applications are
properly authorized and tested and that access to our information
systems and financial applications are appropriately
restricted.
●
Updated our
information systems user profiles to improve access
controls.
●
Implemented
improvements to our information systems to further address control
deficiencies.
●
Updated secure
backup procedures with best practice methodologies for protecting
our financial data and, in case of a problem, continuously testing
restoration from backups.
●
Enhanced the
documentation of certain core proprietary technologies so that
there is more redundancy and protection of corporate
assets.
The
Company has made significant improvements to the activity level
controls specifically with regard to the deficiencies with the
financial close. In addition, further work is required to develop
appropriate controls in the other aspects of activity level control
to provide reasonable assurance that controls are designed in the
most effective and efficient manner possible. Therefore, while we
believe these changes are effective at mitigating risk of material
error, there continues to be additional work required for us to
conclude that both of these control areas are operating
effectively. Therefore, as noted in the Management's Report on
Internal Control over Financial Reporting, we consider each of
these control areas within the activity level control to constitute
a material weakness.
A
factor for our internal control deficiencies is the small size of
the Company and the lack of a financial expert on the Audit
Committee of the Board of Directors and other corporate governance
controls. As defined by the Public Company Accounting
Oversight Board Auditing Standard No. 5, a material weakness is a
significant control deficiency or a combination of significant
control deficiencies that results in there being more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected.
Management continues to monitor and assess the controls to ensure
compliance.
As a
smaller reporting company, our independent registered public
accounting firm is not required to issue a report on the Company's
internal control over financial reporting as of December 31,
2016.
Changes in Internal Control Over Financial Reporting
As
discussed in the Managements' Annual Report on Internal Control
over Financial Reporting, the Company made continuous improvements
to the entity and activity controls and expects to take further
steps in 2017 to remediate the outlined deficiencies. However,
while we believe they are effective at mitigating risk of material
error, we have not yet concluded that they are operating
effectively. There was no change in our internal control over
financial reporting during the fourth fiscal quarter of 2016 that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other Information
Not
applicable.
-21-
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
Directors and Executive Officers
The
following table sets forth certain information regarding the
directors and executive officers of PAID:
|
Name
|
|
Age
|
|
Position
|
| Allan Pratt |
|
59
|
|
CEO |
|
W. Austin
Lewis, IV
|
|
41
|
|
CFO
|
|
Andrew Pilaro
|
|
47
|
|
Director
|
|
Laurie Bradley
|
|
62
|
|
Director
|
|
David Odgen
|
|
53
|
|
Director
|
Andrew
Pilaro was elected as of September 19, 2000, for a term expiring at
the 2001 Annual Meeting of Stockholders and until their successors
are elected and qualified. W. Austin Lewis was appointed on July
31, 2012. In December 2016, Terry Fokas resigned from the Board of
Directors to be replaced by Allan Pratt. On December 30, 2016 the
Company amended its Bylaws to expand the existing Board of
Directors from three positions to five positions. Two additional
members were added to the board, David Ogden and Laurie Bradley.
Under Delaware law, unless otherwise provided in the certificate of
incorporation or bylaws, directors are elected for one year terms
at the annual meeting of shareholders. The Amended Bylaws would
provide for the Board to be divided into three classes of directors
serving staggered three-year terms. As a result,
approximately one-third of the Board will be elected each year.
Initially, five directors will serve between one to three
year terms. The directors placed in a Class I position will
serve for approximately one year. The directors placed in a
Class II position will serve for approximately two years. The
directors placed in a Class III position will serve approximately
three years. After this transitional arrangement, the Directors
will serve for three year terms, with one class being elected each
year.
Andrew Pilaro has served as a Director
of PAID since September 2000. Since 2005, he has served as
Chairman of CAP Advisors Limited, an investment management company,
with responsibility for asset management. Mr. Pilaro was asked to
serve as a director because he provides investment management
skills and general business background.
W. Austin Lewis, IV currently serves
CEO, CFO, and Director of PAID as well as serving as a member of
the Audit Committees and Compensation Committees for MAM Software,
Inc. (MAMS), Quest Solution, Inc. (QUES), Medite (MDIT), and
FlouroPharma Medical, Inc. (FPMI). Since 2004, Mr.
Lewis has served as Chief Executive Officer of Lewis Asset
Management Corporation, an investment management company he
founded, where he is also the Portfolio and Chief Investment
Officer of the Lewis Opportunity Fund. Prior to founding Lewis
Asset Management, Mr. Lewis held a variety of positions with
investment firms, including Puglisi & Co., Thompson Davis &
Co., and Branch Cabell & Company. Mr. Lewis holds a Bachelor of
Science in Finance and a Bachelor of Science in Financial Economics
from James Madison University. Mr. Lewis was asked to serve
as a director because he had a thorough knowledge, through his
prior investment in the Company, of the Company’s strengths
and weaknesses and has a strong background in being able to make
companies run efficiently and successfully.
Allan Pratt is named CEO and President and Director of the
Company. Mr. Pratt, 59, formed emergeIT in 2008 and is its
co-founder, CEO and President. emergeIT, also known as ShipTime, is
a world leader in web delivered solutions in the transportation
industry representing major channel partners such as Costco with
over 35,000 members and growing. In 1985, Pratt began the creation
of an operational and sales network in the US to provide a next day
service to Canada from 50 US cities into a Canadian regional
carrier’s primary footprint. The business continued to grow
and evolve until the acquisition by FedEx in 1988. As a Global
Sales Manager at FedEx and Vice President of Canada’s largest
freight forwarder and LTL provider, Mr. Pratt developed teams of
vertical market specialists providing cycle time reduction and
information technology solutions. In the automotive and
telecommunications industry, Mr. Pratt was instrumental in
developing and implementing new supply chain models which led to an
overall decrease in North American distribution centers, improved
order fulfillment, cycle times and overall cost reductions, while
increasing customer satisfaction levels. Mr. Pratt has been
selected for his strong management and leadership
skills.
-22-
David Ogden Mr. David Ogden, 53, is President of Soho
Management Consulting since November 2013. He was also Senior Vice
President of International Operations of Delhivery.com from October 2015 to October 2016. Further, he was
Senior Vice President for Operations & Logistics to Global
Access from March 2015 to August 2015, and owners of Soho Print, a
digital print and promotions firm, from 2003 through 2013. Mr.
Ogden also held positions with Helios-SinoGulf Property
Development, Egypt Express, and FedEx Logistics. Mr. Ogden has been
selected as Director for his expertise in shipping and delivery in
commerce.
Laurie Bradley is the President of ASG
Renaissance and is responsible for corporate strategy and business
development including the delivery of human capital solutions and
development of partnership relationship. In 2009 Ms. Bradley
launched Blue Force Services a subsidiary of ASG focusing the
Company’s defense and security services, training programs,
technical documentation services and program management to both
commercial and defense clients. In 2007 Ms. Bradley launched the
Mosaic Advantage, a network of minority, women, and veteran owned
businesses providing them with access to larger business
opportunities, coaching, mentoring and financial services.
Ms. Bradley has worked in both the public and private sectors
specializing in talent management, executive leadership and
advisory services. Ms. Bradley holds a Bachelor of Arts degree from
McMaster University and a certificate in Business Strategy from
Cornell University.
The
Company has not made any material changes to the procedures by
which security holders may recommend nominees to the Board of
Directors. The Board does not have a separate nominating committee
or compensation committee.
Audit Committee
The
Securities and Exchange Commission has adopted rules to implement
certain requirements of the Sarbanes-Oxley Act of 2002 pertaining
to public company audit committees. One of the rules requires a
company to disclose whether it has an “audit committee
financial expert” serving on its audit committee. Based on
its review of the criteria of an audit committee financial expert
under the rule adopted by the SEC, the Board of Directors does not
believe that any member of the Board of Directors' Audit Committee
would be described as an audit committee financial expert. At this
time, the Board of Directors believes it would be desirable for the
Audit Committee to have an audit committee financial expert serving
on the committee. While from time to time informal discussions as
to potential candidates have occurred, no formal search process has
commenced. Andrew Pilaro, one of the Company’s independent
directors, is the sole member of the audit committee. The audit
committee does not have a charter.
Audit Committee Report
The
Audit Committee reviewed and discussed our audited consolidated
financial statements for the year ended December 31, 2016 with
our management. The Audit Committee also reviewed and
discussed our audited consolidated financial statements and the
matters required to be discussed, by the Public Company Accounting
Oversight Board (“PCAOB”), including material
weaknesses and other internal control deficiencies with KMJ Corbin
& Company LLP, our independent registered public accounting
firm. The Audit Committee received from KMJ Corbin & Company
LLP the written disclosures and letter required by applicable
requirements of the PCAOB regarding the independent accountant's
communications with the audit committee concerning independence,
and has discussed with the independent accountant the independent
accountant's independence.
Based
on the reviews and discussions referred to above, the Audit
Committee recommended to our Board of Directors that our audited
consolidated financial statements be included in our Annual Report
on Form 10-K for the year ended December 31,
2016.
|
The Audit
Committee
|
|
Andrew
Pilaro
|
-23-
Code of Ethics
The
Company has adopted a Code of Ethics that applies to all of its
directors, officers, and employees, including its principal
executive officer, principal financial officer, principal
accounting officer, or controller, or persons performing similar
functions. A written copy of the Company's Code of Ethics will be
provided to anyone, free of charge, upon request to: W. Austin
Lewis, CFO, PAID, Inc., 200 Friberg Parkway, Westborough,
Massachusetts 01581.
Any
waiver of the code of business conduct and ethics for directors or
executive officers, or any amendment to the code that applies to
directors or executive officers, may only be made by the board of
directors. We intend to satisfy the disclosure requirement under
Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a
provision of this code of ethics by posting such information on our
website, at the address and location specified above. To date, no
such waivers have been requested or granted.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10%
of the Company's outstanding Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of Common Stock. These persons are
required by SEC regulation to furnish the Company with copies of
all such reports they file. To the Company's knowledge, based
solely on a review of the copies of such reports furnished to the
Company and representations that no other reports were required,
all Section 16(a) filing requirements applicable to its officers
and directors and beneficial owners of more than 10% of the
Company's stock, have been complied with for the period which this
Form 10-K relates, except Laurie Bradley, a new director filed her
Form 3 report 28 days late.
Item 11. Executive Compensation
Our
five member board of directors serves in lieu of a compensation
committee. The Board does not have a separate compensation
committee. The Board is responsible for establishing policies and
otherwise discharging the responsibilities of a compensation
committee with respect to the compensation of our executive
officers.
Compensation to the Named Executive Officers
The
following table sets forth the compensation of the Company's
president, chief executive officer, the chief financial officer,
and each officer whose total cash compensation exceeded $100,000,
for the last two fiscal years ended December 31, 2016 and
2015.
|
Summary Compensation Table
|
|||||
|
|
|
|
|
||
|
Name and
Principal Position
|
Year
|
Salary
|
Bonus
|
Option
Awards ($)
|
Total
|
|
W. Austin Lewis, IV (1),(2) (CFO)
|
2016
|
$180,000
|
$50,962
|
$6,640
|
$237,602
|
|
|
2015
|
$181,152
|
$0
|
$0
|
$181,152
|
|
Allan Pratt (CEO)
|
2016
|
$0
|
$0
|
$0
|
$0
|
1.
Mr. Lewis’s
start date was July 31, 2012.
2.
Mr. Lewis’s
salary was approved by the Board of Directors at
$180,000.
3.
Mr. Pratt’s
start date was December 31, 2016
-24-
The
following tables set forth certain information related to
outstanding equity awards as of December 31, 2016 for our
executive officers.
|
|
Option Awards
|
||||
|
Name
|
Number of Securities Underlying Unexercised Options (#)
Exercisable
|
Number of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity Incentive Plan Awards: Number of Securities Underlying
Unexercised Unearned Options (#)
|
Option Exercise Price ($)
|
Option
Expiration Date
|
|
W.
Austin Lewis, IV President and CEO (PEO)(PFO)
|
10,000
|
-
|
-
|
$0.975
|
8/8/2022
|
|
|
10,000
|
-
|
-
|
$0.975
|
10/15/2022
|
|
|
2,000
|
-
|
-
|
$0.975
|
12/6/2022
|
|
|
2,000
|
-
|
-
|
$0.975
|
5/16/2023
|
|
|
4,000
|
|
|
$0.975
|
11/18/2024
|
|
|
2,000
|
-
|
-
|
$0.975
|
4/1/2026
|
None of
the Company's executive officers who serve as directors receive
separate compensation from the Company for serving as
directors.
On
August 26, 2016 the Board of Directors approved to vote to reprice
53,500 stock options and fully vest any unvested options for two
employees and three board members. The grant price was lowered to
$0.975 which reflects the market value of the stock.
The
following table provides compensation information for the one-year
period ended December 31, 2016 for the only non-employee
members of our Board of Directors.
|
|
Director Compensation in 2016
|
||
|
Name and
|
Fees earned or paid in cash
|
Option Awards ($)
|
Total
|
|
Andrew
Pilaro
|
$-
|
$6,683
|
$6,683
|
|
Terry
Fokas
|
$-
|
$6,683
|
$6,683
|
In
2016, we compensated a number of non-executive employees through
stock option grants under the Company's 2011 and 2012 Non-Qualified
Stock Option Plan. In 2016, one employee received options for 3,000
shares equal to $10,025 in compensation.
Employment Agreement
Throughout the
merger discussions the Board has recognized the opportunity for a
Change in Control. As a result, Mr. Allan Pratt was unanimously
appointed the Company’s President and Chief Executive
Officer. Effective December 30, 2016, Mr. Pratt entered into a 3
year employment agreement. The Employee shall have such
duties and authority as are normally associated with the senior
officer of a corporation and any other duties reasonably assigned
to the Employee by the Board of Directors of the Company.
Compensation was set at $185,000 US with options for bonus and
equity awards. In the event that the Mr. Pratt’s employment
is terminated by the Company during the initial term without cause
or terminated by Mr. Pratt “for good reason”, the
Company is required to pay a lump sum severance payment equal to
three times his compensation set forth as base salary and bonus
until Employee’s second anniversary, and thereafter during
the Initial Term for a lump sum severance payment equal to three
times his base salary only.
-25-
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
To the
knowledge of the management of the Company the following table sets
forth the beneficial ownership of our common stock as of March 15,
2017 of each of our directors and executive officers, and all of
our directors and executive officers as a group, and other
beneficial owners holding more than five percent of the
Company’s issued and outstanding shares.
|
|
Amount and Nature of
Beneficial Ownership
|
|
Percent of Class
(3)
|
|
W. Austin Lewis,
IV
|
403,605
|
(1)
|
24%
|
|
Allan
Pratt
|
217,823
|
(4)
|
13%
|
|
John
Smith
|
111,770
|
(4)
|
7%
|
|
Christopher
Coghlin
|
96,184
|
|
6%
|
|
Andrew
Pilaro
|
13,337
|
(2)
|
1%
|
|
|
|
|
|
|
All directors
beneficial owners
|
842,719
|
|
50%
|
(1)
Included are
options to purchase 30,000 shares of the Company’s common
stock, 34,425 warrants and 47,100 shares held for which W. Austin
Lewis, IV is the General Partner.
(2)
Includes options to
purchase 11,000 shares of the Company's common stock.
(3)
Percentages are
calculated on the basis of the amount of outstanding securities
plus for such person or group, any securities that person or group
has the right to acquire within 60 days.
(4)
Included in this
amount are shares authorized and reserved for future issuance from
exchangeable shares.
To the
knowledge of the management of the Company, based solely on our
review of SEC filings, four shareholders are the beneficial owner
of more than five percent of the Company’s common
stock.
The
information regarding the Company's “Equity Compensation Plan
Information” is incorporated herein by reference in Part II,
Item 5 of this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions, and
Director Independence
The
Company did not engage in any transaction in 2015 or 2016, and does
not currently propose any transaction, in which the Company was is
a participant and the amount involved exceeds $120,000, and in
which any related person had or will have a direct or indirect
material interest.
W.
Austin Lewis, IV, as President of the Company, is the owner and
President of Lewis Asset Management. Lewis Asset
Management, Inc. invested approximately $845,000 in the form of
convertible notes, which amount was convertible into 13.6% of the
issued and outstanding shares of emergeIT. In addition,
Lewis Asset Management has warrants to receive an additional
5.5% of shares upon an investment of an additional
$400,000.
Upon
consummation of the amalgamation under the Amalgamation Agreement,
Lewis Asset Management owned approximately 1,725 exchangeable
shares, which will be exchangeable into approximately 77,122 shares
of Company common stock and 536,346 shares of Company Series A
Preferred Stock, and warrants for approximately 770 exchangeable
shares which, if exercised, would be convertible into approximately
34,425 shares of Company common stock and 239,412 shares of Series
A Preferred Stock.
Review, Approval or Ratification of Transactions with Related
Parties
It is
our unwritten policy, which policy is not otherwise evidenced, for
any related party transaction that involves more than a de minimis
obligation, expense or payment or stock option or equity grants, to
obtain approval by our entire board of directors prior to our
entering into any such transaction. In conformity with our various
policies on related party transactions, any transactions discussed
in this Item 13 has been reviewed and approved by our board of
directors.
Director Independence
We are
currently quoted on the OTCPINK. Accordingly, we are not required
to and do not have a majority of independent directors or a
compensation or nominating committee. Andrew Pilaro is the sole
member of the audit committee.
-26-
Our
board of directors currently consists of five members. Our board of
directors determined that the three directors, Andrew Pilaro,
Laurie Bradley and David Ogden, are independent under the standards
of the “Nasdaq Global Market" pursuant to Nasdaq Listing Rule
5605.
Item 14. Principal Accountant Fees and Services
KMJ Corbin &
Company LLP (“KMJ”) is our independent registered
public accounting firm for the years ended December 31, 2016, and
2015.
The
following is a summary of the fees billed to the Company by KMJ for
professional services rendered for the years ended December 31,
2016 and 2015. These fees are for work performed in the years
indicated and, in some instances, we have estimated the fees for
services rendered but not yet billed.
|
|
2016
|
2015
|
|
|
|
|
|
Audit Fees:
|
|
|
|
Consists of fees
billed for professional services rendered for the audit of the
Company’s annual financial statements and the review of the
interim financial statements included in the Company’s
Quarterly Reports (together, the “Financial
Statements” ) and for services normally provided in
connection with statutory and regulatory filings or
engagements
|
$33,000
|
$33,000
|
|
Other Fees:
|
|
|
|
Merger -Related Fees
|
|
|
|
Consists of fees
billed for review of the financial statements and pro forma
financial statements related to the documents required for the
proxy statement and merger.
|
2,500
|
—
|
|
Tax Fees
|
|
|
|
Consists of fees
billed for tax compliance, tax advice and tax planning
|
4,525
|
3,650
|
|
|
|
|
|
Total All Fees
|
$40,025
|
$36,650
|
The
Audit Committee approves all audit and audit-related fees. The
Audit Committee is required to pre-approve all non-audit services
to be performed by the auditor. The percentage of hours expended on
the principal accountant's engagement to audit the Company's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees was 0%. For merger and
tax advice the Company engaged in discussions with BDO for the fee
of $3,000.
-27-
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1)
Financial Statements
For a
list of the financial information included herein, see “Index
to Audited Financial Statements” on page 31 of this Annual
Report on Form 10-K.
(a)(2)
Financial Statements Schedules
All
schedules are omitted because they are not applicable or the
required information is included in the financial statements or
notes thereto.
(a)(3)
Exhibits
The
list of exhibits filed as a part of this Annual Report on Form 10-K
is set forth on the Exhibit Index immediately preceding the
exhibits hereto and is incorporated herein by
reference.
Item 16. Form 10-K Summary
None.
-28-
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, CEO and President, Chief Financial Officer
|
|
|
|
By:
|
/s/ |
|
|
Date:
|
W.
Austin Lewis, IV, Chief Financial Officer
|
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
/s/
|
|
|
|
|
|
|
Andrew
Pilaro
|
|
Director
|
|
March
31, 2017
|
|
|
|
|
|
|
|
|
|
/s/
|
|
|
|
|
|
|
Allan
Pratt
|
|
Director
|
|
March
31, 2017
|
|
|
|
|
|
|
|
|
|
/s/
|
|
|
|
|
|
|
W.
Austin Lewis, IV
|
|
Director
|
|
March
31, 2017
|
|
|
|
|
|
|
|
|
|
/s/
|
|
|
|
|
|
|
Laurie
Bradley
|
|
Director
|
|
March
31, 2017
|
|
|
|
|
|
|
|
|
|
/s/
|
|
|
|
|
|
|
David
Ogden
|
|
Director
|
|
March
31, 2017
|
-29-
PAID, INC.
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
|
Report of Independent Registered Public Accounting
Firm
|
F-2
|
|
Consolidated
Balance Sheets as of December
31, 2016 and 2015
|
F-3
|
|
Consolidated
Statements of
Operations
|
|
|
Years
ended December 31, 2016 and 2015
|
F-4
|
|
Consolidated
Statements of Changes in
Shareholders' Equity (Deficit)
|
|
|
Years
ended December 31, 2016 and 2015
|
F-5
|
|
Consolidated
Statements of Cash
Flows
|
|
|
Years
ended December 31, 2016 and 2015
|
F-6
|
|
Notes to Consolidated Financial Statements
|
F-7
|
|
|
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders of
PAID,
Inc.
We have
audited the accompanying consolidated balance sheets of PAID, Inc.
and subsidiaries (the “Company”) as of
December 31, 2016 and 2015, and the related consolidated
statements of operations, changes in shareholders’ equity
(deficit) and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are
free of material misstatement. The Company is not required to have,
nor were we engaged to perform, an audit on its internal control
over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of PAID, Inc. and subsidiaries as of
December 31, 2016 and 2015, and the results of their
operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America.
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the
Company has had recurring losses from operations, has negative
operating cash flows during the year ended December 31, 2016 and
has an accumulated deficit of $55,407,176 as of December 31, 2016.
These factors raise substantial doubt about the Company’s
ability to continue as a going concern. Management's plans in
regard to these factors are also described in Note 2. The
accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/ KMJ
Corbin & Company LLP
Costa
Mesa, California
March
31, 2017
F-2
PAID, INC.
CONSOLIDATED BALANCE SHEETS
AS
OF DECEMBER 31,
|
|
2016
|
2015
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash equivalents
|
$339,562
|
$123,913
|
|
Accounts receivable, net
|
39,314
|
26,696
|
|
Other receivables
|
1,026
|
-
|
|
Funds held in trust
|
169,082
|
-
|
|
Prepaid expenses and other current assets
|
57,383
|
57,394
|
|
Advanced royalties, net
|
-
|
5,000
|
|
Total current assets
|
606,367
|
213,003
|
|
|
|
|
|
Property
and equipment, net
|
92,552
|
8,833
|
|
Intangible
assets, net
|
5,956,771
|
276,878
|
|
Goodwill
|
9,989,685
|
-
|
|
Total
assets
|
$16,645,375
|
$498,714
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT)
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
|
$563,860
|
$95,441
|
|
Note payable
|
17,850
|
24,202
|
|
Due to related parties
|
169,697
|
-
|
|
Capital leases - current portion
|
7,655
|
3,097
|
|
Accrued expenses
|
977,891
|
1,001,359
|
|
Deferred revenues
|
238,040
|
6,768
|
|
Total current liabilities
|
1,974,993
|
1,130,867
|
|
Long
term liabilities:
|
|
|
|
Capital leases - net of current portion
|
28,933
|
-
|
|
Deferred tax liability
|
1,260,369
|
-
|
|
Total
liabilities
|
3,264,295
|
1,130,867
|
|
Commitments
and contingencies
|
|
|
|
Shareholders'
equity (deficit):
|
|
|
|
Preferred Stock, $0.001 par value, 20,000,000 shares
authorized 3,825,000
shares issues and outstanding at December 31,
2016;
liquidation
value of $11,581,000 as of December 31,
2016
|
3,825
|
-
|
|
Common
stock, $0.001 par value, 25,000,000 shares authorized;
1,648,960
issued and outstanding and 893,246 shares issued and
outstanding
at December 31, 2016 and 2015, respectively
|
1,649
|
893
|
|
Additional paid-in capital
|
68,782,432
|
54,426,199
|
|
Accumulated deficit
|
(55,406,826)
|
(55,059,245)
|
|
Total
shareholders' equity (deficit)
|
13,381,080
|
(632,153)
|
|
|
|
|
|
Total
liabilities and shareholders' equity (deficit)
|
$16,645,375
|
$498,714
|
See
accompanying notes to consolidated financial
statements
F-3
PAID, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
|
|
2016
|
2015
|
|
Revenues,
net
|
$523,747
|
$272,920
|
|
Cost
of revenues
|
24,357
|
39,504
|
|
Gross
profit
|
499,390
|
233,416
|
|
|
|
|
|
Operating
expenses
|
954,100
|
1,067,216
|
|
Loss
from operations
|
(454,710)
|
(833,800)
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
Interest
expense, net
|
(927)
|
(946)
|
|
Other
income, net
|
62,333
|
987
|
|
Write
down of other receivables
|
-
|
(115,913)
|
|
Unrealized
gain (loss) on stock price guarantee
|
46,179
|
(358,850)
|
|
Total
other income (expense), net
|
107,585
|
(474,722)
|
|
|
|
|
|
Loss
before provision for income taxes
|
(347,125)
|
(1,308,522)
|
|
Provision
for income taxes
|
456
|
975
|
|
Net
loss
|
$(347,581)
|
$(1,309,497)
|
|
|
|
|
|
Loss
per share - basic and diluted
|
$(0.33)
|
$(1.82)
|
|
Weighted
average number of common shares outstanding - basic and
diluted
|
1,067,755
|
719,292
|
See
accompanying notes to consolidated financial
statements
F-4
PAID, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DEFICIT)
FOR THE FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
|
Common
stock
|
Preferred
|
Common Stock Subscribed But
|
Additional Paid-in
|
Accumulated
|
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Not
Issued
|
Capital
|
Deficit
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2015
|
678,732
|
$679
|
$-
|
$-
|
$25,000
|
$53,845,048
|
$(53,749,748)
|
$120,979
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock
|
213,514
|
214
|
-
|
-
|
-
|
374,786
|
-
|
375,000
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock subscribed
|
1,000
|
-
|
-
|
-
|
(25,000)
|
25,000
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
181,365
|
-
|
181,365
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,309,497)
|
(1,309,497)
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2015
|
893,246
|
893
|
-
|
-
|
-
|
54,426,199
|
(55,059,245)
|
(632,153)
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for the exercise of warrants
|
205,714
|
206
|
-
|
-
|
-
|
179,794
|
-
|
180,000
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common and preferred stock and warrants to purchase common stock
related to emergeIT merger
|
550,000
|
550
|
3,825,000
|
3,825
|
-
|
14,134,625
|
-
|
14,139,000
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
41,814
|
-
|
41,814
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(347,581)
|
(347,581)
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2016
|
1,648,960
|
$1,649
|
3,825,000
|
$3,825
|
$-
|
$68,782,432
|
$(55,406,826)
|
$13,381,080
|
See accompanying notes to consolidated financial
statements
F-5
PAID,
INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
FOR THE YEARS ENDED DECEMBER 31,
|
|
2016
|
2015
|
|
Cash
flows from operating activities:
|
|
|
|
Net loss
|
$(347,581)
|
$(1,309,497)
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation and amortization
|
102,905
|
34,520
|
|
Gain on sale of equipment
|
(2,179)
|
-
|
|
Provision for bad debt
|
-
|
2,137
|
|
Write down of other receivables
|
-
|
115,913
|
|
Write down of advanced royalties
|
-
|
77,905
|
|
Share-based compensation
|
41,814
|
181,365
|
|
Unrealized (gain) loss on stock price guarantee
|
(46,179)
|
358,850
|
|
Changes in assets and liabilities:
|
|
|
|
Accounts receivable
|
896
|
62,741
|
|
Other receivables
|
-
|
4,425
|
|
Inventories
|
-
|
1,305
|
|
Prepaid expenses and other current assets
|
50,753
|
20,850
|
|
Advanced royalties
|
5,000
|
-
|
|
Deposits and other assets
|
-
|
23,387
|
|
Accounts payable
|
(33,785)
|
(120,266)
|
|
Accrued expenses
|
12,294
|
(31,510)
|
|
Deferred revenues
|
10,272
|
(334)
|
|
Net cash used in operating activities
|
(205,790)
|
(578,209)
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
Purchase of intangible assets
|
-
|
(297,500)
|
|
Cash received in merger with emergeIT
|
278,709
|
-
|
|
Proceeds from the sale of equipment
|
2,179
|
-
|
|
Net cash provided (used in) by investing activities
|
280,888
|
(297,500)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Payments on capital leases
|
(3,097)
|
(15,221)
|
|
Payments on note payable
|
(36,352)
|
(11,475)
|
|
Proceeds from the exercise of common stock warrants
|
180,000
|
375,000
|
|
Net cash provided by financing activities
|
140,551
|
348,304
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
215,649
|
(527,405)
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
123,913
|
651,318
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
$339,562
|
$123,913
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
Cash
paid during the period for:
|
|
|
|
Income
taxes
|
$806
|
$975
|
|
Interest
|
$927
|
$634
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
|
|
|
|
Issuance of previously subscribed common stock
|
$-
|
$25,000
|
|
Debt financing of directors & officers insurance
|
$30,000
|
$35,677
|
|
Preferred and common stock and warrants to purchase stock related
to emergeIT merger
|
$14.139.000
|
$-
|
See
accompanying notes to consolidated financial
statements
F-6
PAID, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
NOTE 1. ORGANIZATION
PAID,
Inc. (“PAID”, the “Company”,
“we”, “us”, “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
providence. 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 is on the rise in the United
States and we feel that there is a large potential to grow this
portion of our business.
SpiritRun is a
product of BeerRun and is designed specifically for distilleries.
This product was recently released and we feel that there with
additional marketing and visibility in the distillery industry
SpiritRun has the right core resources to be a valuable tool in
distilleries around the United States.
On
December 30, 2016, the Company acquired emergeIT Inc., an Ontario
corporation, which does business as “ShipTime”
(“emergeIT” or “ShipTime”). ShipTime is a
leading cloud based shipping platform bringing individuals and
small and medium sized businesses together with many of the
world’s leading carriers to save time and money.
NOTE 2. GOING CONCERN AND MANAGEMENT’S PLANS
The
accompanying 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. For the year
ended December 31, 2016, the Company reported a net loss of
$347,581. The Company has an accumulated deficit of $55,407,176 at
December 31, 2016 and used $205,790 of cash in operations for the
year ended December 31, 2016. These factors raise substantial doubt
about the Company’s ability to continue as a going
concern.
The
addition of BeerRun and SpiritRun has significantly increased our
revenues and gross profit for 2016. Management feels that the
ShipTime acquisition is a pivotal moment for PAID. The technology,
client relationships and increased product offerings brought
forward by the ShipTime opportunity will have a significant impact
on the revenues of the Company in the future. The revenues have
been and will be significantly increased in hopes of eliminating
the net loss and providing positive cash flow from
operations.
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 through the end of 2017 and will have a positive
impact on the Company for 2017 and future years.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation
and Basis of Consolidated Financial Statements
The
accompanying consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the
United States of America (“GAAP”).
Principles
of Consolidation
The
consolidated financial statements include the accounts of PAID,
Inc., its wholly owned subsidiary, PAID Run, LLC and the newly
acquired subsidiary, ShipTime, Inc. All intercompany accounts and
transactions have been eliminated.
F-7
On
November 9, 2016, the 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-K
has been retroactively adjusted to reflect the reverse stock
split.
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 December 31, 2016. 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 component of shareholders’ equity in accumulated other
comprehensive income (loss). Amounts were not significant as of
December 31, 2016.
Business
Combinations
The
Company accounts for business combinations by recognizing the
assets acquired and liabilities assumed at their fair values on the
acquisition date. The purchase price allocation process requires
management to make estimates and assumptions at the acquisition
date, especially with respect to intangible assets and
pre-acquisition contingencies. Examples of critical estimates in
valuing certain of the intangible assets the Company has acquired
or may acquire in the future include but are not limited to:
unanticipated events and circumstances may occur that may affect
the accuracy or validity of such assumptions, and estimates
compared to actual results.
Use
of Estimates
The
preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Significant estimates made by the
Company’s management include, but are not limited to, the
collectability of accounts receivable, the recoverability of
long-lived assets, goodwill, the allocation of purchase price in a
business combination transaction, the valuation of deferred tax
assets and liabilities and the estimated fair value of the royalty
and advance guarantees, and share-based transactions. Actual
results could materially differ from those estimates.
Fair
Value Measurements
The
Company measures the fair value of certain of its financial assets
on a recurring basis. A fair value hierarchy is used to rank the
quality and reliability of the information used to determine fair
values. Financial assets and liabilities carried at fair value will
be classified and disclosed in one of the following three
categories:
Level 1
– Quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level 2
– Inputs other than Level 1 that are observable, either
directly or indirectly, such as unadjusted quoted prices for
similar assets and liabilities, unadjusted quoted prices in the
markets that are not active, or other inputs that are observable or
can be corroborated by observable market data for substantially the
full term of the assets or liabilities; and
Level 3
– Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities.
At
December 31, 2016 and 2015, the Company’s financial
instruments include cash and cash equivalents, accounts receivable,
other receivables, funds held in trust, accounts payable, notes
payable, funds due to and from related parties, and accrued
expenses. The carrying amount of cash and cash equivalents,
accounts receivable, other receivables, accounts payable, capital
leases, note payable and accrued expenses approximates fair value
due to the short-term maturities of these instruments.
Cash
and Cash Equivalents
The
Company considers all highly liquid temporary cash investments with
an initial maturity of three months or less to be cash equivalents.
Management believes that the carrying amounts of cash equivalents
approximate their fair value because of the short maturity
period.
F-8
Concentration
of Credit Risk
The
Company maintains cash balances at financial institutions that are
insured by the Federal Deposit Insurance Corporation
(“FDIC”) up to USD$250,000 and the Canadian Depositors
Insurance Corporation (“CDIC”) up to CAD$100,000. At
December 31, 2016, the Company had amounts that exceeded the CDIC
insurance limits but none that were in excess of the FDIC insurance
limits. The Company has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risk
related to these deposits.
The
Company extends credit based on an evaluation of the customer's
financial condition, generally without requiring collateral.
Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure
for credit losses and maintains allowances for anticipated losses.
Although the Company expects to collect amounts due, actual
collections may differ from the estimated amounts. As of December
31, 2016 and 2015, the Company recorded a provision for doubtful
accounts of $40,609.
For the
year ended December 31, 2016 and 2015 no revenues from any one
individual client accounted for more than 10% of the total
revenues.
Other
Receivables
Other
receivables consisted of funds due from a related party. The funds
are expected to be re-paid or applied to the open payable due to
the related party by the end of 2017.
Funds
Held in Trust
Funds
held in trust consist of rebates earned by ShipTime customers that
have existing relationships with the Canadian Federation of
Independent Business (“CFIB”). The rebate is held in
escrow at CFIB for one year until earned by the customer, they then
have one year to use the rebate after which time the rebate
expires.
Advanced
Royalties
Advanced royalties
represented amounts the Company had advanced to certain clients and
were recoupable against future royalties earned by the clients.
Advances were issued in either cash or shares of the
Company’s common stock and advanced amounts were calculated
based on the clients’ projected earning potential over a
fixed period of time. Advances made by issuing common stock or
common stock options are recorded at their fair value on the date
of issue. If the shares do not reach the required price per share,
the Company has the option of issuing additional shares or making
cash payment of the difference between the sales price and the fair
value of the stock. The Company records a liability for the
difference between the fair value of the stock and the guaranteed
sales price amount. The change in fair value of the stock price
guarantee is recorded in the accompanying consolidated statements
of operations (see Note 10).
Property
and Equipment
Property and
equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of 3 to 8
years. Any leasehold improvements are depreciated at the lesser of
the useful life of the asset or the lease term. Equipment purchased
under capital leases is amortized on a straight-line basis over the
estimated useful life of the asset or the term of the lease,
whichever is shorter.
Intangible
Assets
Intangible assets
consist of patents, client lists, trade names, customer
relationships, brewery and distillery management software and
shipping label generation technology which are being amortized on a
straight-line basis over their estimated useful life. Currently the
intangible assets are being amortized between 2 and 17
years.
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 for long lived assets
were incurred during the years ended December 31, 2016 and 2015.
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.
F-9
Revenue
Recognition
The
Company generates revenue principally from sales of shipping
calculator subscriptions, brewery management software
subscriptions, and client services.
The
Company recognizes revenues in accordance with the FASB ASC Topic
605. Accordingly, the Company recognizes revenues when there is
persuasive evidence that an arrangement exists, product delivery
and acceptance have occurred, the sales price is fixed or
determinable, and collectability of the resulting receivable is
reasonably assured.
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 payments for shipping
calculator services are made via credit card for the month
preceding the service and are recorded as deferred revenues until
the service has been provided. Brewery management software
subscribers are billed on a calendar month at the first of the
month with payments processed via credit card for the month
following.
Client
services revenues include web development and design, creative
services, marketing services and general business consulting
services. For contracts that are of a short duration and fixed
price, revenue is recognized when there are no significant
obligations and upon acceptance by the customer of the completed
project. Services that are performed on a time and material basis
are recognized as the related services are performed.
ShipTime recognizes
revenues primarily from fees for shipping services. Customers use
an online tool to calculate shipping and generate a shipping label.
The majority of the transactions are paid via credit card when the
label is generated. Services performed are recorded when the
customer completes the online transaction.
Cost
of Revenues
Cost of
revenues includes web hosting, data storage, and
commissions.
Operating
Expenses
Operating expenses
include indirect client related expenses, including credit card
processing fees, payroll, travel, facility costs, and other general
and administrative expenses.
Advertising
Advertising costs
are charged to expense as incurred. For the years ended December
31, 2016 and 2015, advertising expense totaled $7,854 and $24,111,
respectively, and are included in operating expenses in the
accompanying consolidated statements of operations.
Share-Based
Compensation
The
Company grants options to purchase the Company’s common stock
to employees, directors and consultants under stock option plans.
The benefits provided under these plans are share-based payments
that the Company accounts for using the fair value
method.
The
fair value of each option award is estimated on the date of grant
using a Black-Scholes-Merton option pricing model
(“Black-Scholes-Merton model”) that uses assumptions
regarding a number of complex and subjective variables. These
variables include, but are not limited to, expected stock price
volatility, actual and projected employee stock option exercise
behaviors, risk-free interest rate and expected dividends. Expected
volatilities are based on the historical volatility of the
Company’s common stock. The expected terms of options granted
are based on analyses of historical employee termination rates and
option exercises. The risk-free interest rate is based on the U.S.
Treasury yield in effect at the time of the grant. Since the
Company does not expect to pay dividends on common stock in the
foreseeable future, it estimated the dividend yield to be
0%.
F-10
Share-based
compensation expense recognized during a period is based on the
value of the portion of share-based payment awards that is
ultimately expected to vest and is amortized under the
straight-line attribution method. On August 26, 2016 the Board
voted to immediately vest any outstanding options. As share-based
compensation expense recognized in the accompanying consolidated
statements of operations for the years ended December 31, 2016 and
2015 is based on awards ultimately expected to vest, it has been
reduced for estimated forfeitures. The fair value method requires
forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from
those estimates. The Company estimates forfeitures based on
historical experience. Changes to the estimated forfeiture rate are
accounted for as a cumulative effect of change in the period the
change occurred.
Since
the Company has a net operating loss carry-forward as of December
31, 2016 and 2015, no excess tax benefits for tax deductions
related to share-based awards were recognized from stock options
exercised in the years ended December 31, 2016 and 2015 that would
have resulted in a reclassification from cash flows from operating
activities to cash flows from financing activities.
Income
Taxes
The
Company accounts for income taxes and the related accounts under
the liability method. Deferred tax assets and liabilities are
determined based on the differences between the financial statement
carrying amounts and the income tax bases of assets and
liabilities. A valuation allowance is applied against any net
deferred tax asset if, based on available evidence, it is more
likely than not that some or all of the deferred tax assets will
not be realized. Therefore, the Company has recorded a full
valuation allowance against the net deferred tax assets. The
Company’s income tax provision consists of state minimum
taxes.
The
Company recognizes any uncertain income tax positions on income tax
returns at the largest amount that is more-likely-than-not to be
sustained upon audit by the relevant taxing authority. An uncertain
income tax position will not be recognized if it has less than a
50% likelihood of being sustained.
The
total unrecognized tax benefit resulting in an increase in deferred
tax assets and corresponding increase in the valuation allowance at
December 31, 2016 is approximately $281,000. There are no
unrecognized tax benefits included in the consolidated balance
sheet that would, if recognized, affect the effective tax
rate.
The
Company’s policy is to recognize interest and/or penalties
related to income tax matters in income tax expense. The Company
had $0 accrued for interest and penalties on each of the
Company’s consolidated balance sheets at December 31, 2016
and 2015.
The
Company is subject to taxation in the U.S. and various state
jurisdictions. The Company’s tax years for 2012 and forward
for federal and 2011 and forward for state purposes are subject to
examination by the U.S., Massachusetts and New Jersey tax
authorities due to the carry-forward of unutilized net operating
losses. The Company does not foresee material changes to its gross
uncertain income tax position liability within the next twelve
months.
Earnings
(Loss) Per Common Share
Basic
earnings (loss) per share represent income (loss) available to
common stockholders 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
year ended December 31, 2016, there were no dilutive shares that
were excluded from the diluted earnings (loss) per share as their
effect would have been antidilutive for the year then
ended.
F-11
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 December 31, 2016, the Company
operated in the following four reportable segments (see Note
13):
a.
Client
services,
b.
Shipping calculator
services
c.
Brewery management
software and
d.
Shipping 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.
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
August 2014, the FASB issued ASU 2014-15, Presentation of Financial
Statements-Going Concern. Previously, there was no guidance in U.S.
GAAP about management’s responsibility to evaluate whether
there is substantial doubt about an entity’s ability to
continue as a going concern or to provide related footnote
disclosures. The amendments require management to assess an
entity’s ability to continue as a going concern by
incorporating and expanding upon certain principles that are
currently in U.S. auditing standards. Specifically, the amendments
(1) provide a definition of the term substantial doubt, (2) require
an evaluation every reporting period including interim periods, (3)
provide principles for considering the mitigating effect of
management’s plans, (4) require certain disclosures when
substantial doubt is alleviated as a result of consideration of
management’s plans, (5) require an express statement and
other disclosures when substantial doubt is not alleviated, and (6)
require an assessment for a period of one year after the date that
the financial statements are issued (or available to be issued).
The amendments in this ASU are effective for the reporting periods
beginning after December 15, 2016 and early application is
permitted. There was no impact from the adoption of the
standard.
F-12
In May
2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers. 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. The updated guidance is
effective for interim and annual periods beginning after December
15, 2016, and early adoption is not permitted. In July 2015, the
FASB decided to delay the effective date of ASU 2014-09 until
December 15, 2017. The FASB also agreed to allow entities to choose
to adopt the standard as of the original effective date. The
Company is currently evaluating which transition method it will
adopt and the expected impact of the updated guidance, but does not
believe the adoption of the updated guidance will have a
significant impact on its consolidated financial
statements.
NOTE 4. ACQUISITION – emergeIT
In
September 2016, the Company announced that it entered into an
Amalgamation Agreement (the “Amalgamation Agreement”)
with emergeIT Inc., an Ontario corporation, which does business as
“ShipTime” (“emergeIT” or
“ShipTime”) to acquire emergeIT and merge it with a
newly formed PAID subsidiary. The closing for the Amalgamation
Agreement occurred on December 19, 2016, and the amalgamation was
effective on December 30, 2016.
The
transaction has been accounted for as a business combination and
the financial results of ShipTime have been included in the
Company’s consolidated financial statements for the period
subsequent to its acquisition. At estimated acquisition date of the
fair value of consideration transferred, assets acquired and
liabilities assumed for ShipTime are presented below and represent
the Company’s best estimates.
Fair Value of Consideration Transferred
Pursuant to the
Amalgamation Agreement the Company formed a new subsidiary under
Canadian law (“Callco”). The new subsidiary formed its
own Canadian subsidiary (“Exchangeco”), and Callco is
the sole shareholder of Exchangeco. Both Callco and Exchangeco are
incorporated in Ontario under the province’s Business Corporations Act. Effective
December 30, 2016 (the “Effective Date”), Exchangeco
merged (amalgamated) with emergeIT so that as of the effective
date, the Company owns, indirectly through Callco, all of the
issued and outstanding shares of common stock of emergeIT. At that
time, the amalgamated entity was renamed “ShipTime Canada
Inc.” and is the operating company with respect to the
emergeIT assets.
emergeIT was
privately held by 13 holders (“emergeIT Sellers”). The
emergeIT Sellers owned “Class A” and “Class
B” common shares, which converted into “exchangeable
shares” of ShipTime Canada Inc. in the merger. Exchangeable
shares are rights to the Company’s common stock and preferred
stock. These rights can be exercised by the conversion of the
exchangeable shares into shares of common and preferred stock of
the Company, in accordance with an Exchange and Call Rights
Agreement, described below.
emergeIT Class A
common shares and Class B common shares were converted into
exchangeable shares with rights to receive 447 shares of the
Company’s common stock and 3,109 shares of preferred stock,
provided that upon the reverse/forward split described below, the
right shall be to receive 45 shares of the Company’s common
stock and 311 shares of the Company’s Preferred Stock. As of
the effective date, outstanding emergeIT options and warrants were
replaced by exchangeable shares in the same manner as
emergeIT’s Class A and Class B common shares. The Company
currently reserves for 550,000 shares of its common stock with
regard to the exchangeable shares. Warrants have been issued it an
entity controlled by the Company’s CFO for exchangeable
shares and are valued at $523,000 on the date of the
acquisition.
Pursuant to the
Amalgamation Agreement, 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 approximately $11,581,000. 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. 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.
F-13
The
total acquisition date fair value of the consideration transferred
is estimated at approximately as follows:
|
Preferred stock
issuance to emergeIT Sellers
|
$11,581,000
|
|
Common stock
issuance to the emergeIT Sellers
|
2,035,000
|
|
Warrant issuance to
an emergeIT warrant holder
|
523,000
|
|
Total acquisition
date fair value
|
$14,139,000
|
Allocation of Consideration Transferred
The
identifiable assets acquired and liabilities assumed were
recognized and measured as of the acquisition date based on their
estimated fair values as of December 30, 2016, the acquisition
date. The excess of the acquisition date fair value of
consideration transferred over the estimated fair value of the net
tangible assets and intangible assets acquired was recorded as
goodwill.
The
following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the acquisition
date.
|
Cash and cash
equivalents
|
$278,709
|
|
Accounts
receivable
|
13,514
|
|
Due from related
party
|
1,026
|
|
Prepaid expenses
and other assets
|
20,742
|
|
Funds held in
trust
|
169,082
|
|
Property and
equipment
|
86,517
|
|
Intangible
assets
|
5,780,000
|
|
|
6,349,590
|
|
Accounts payable
and accrued liabilities
|
538,792
|
|
Other
liabilities
|
401,114
|
|
Deferred tax
liabilities
|
1,260,369
|
|
Total liabilities
assumed
|
2,200,275
|
|
Goodwill
|
9,989,685
|
|
Net assets
acquired
|
$14,139,000
|
Results of Operations
Since
the effective date of the acquisition and merger, revenues and
expenses of ShipTime have been included in the Company’s
consolidated statement of operations for the period ended December
31, 2016 and were insignificant.
Pro Forma Financial Information
The
following table presents the Company’s unaudited pro forma
results (including ShipTime) for the years ended December 31, 2016
and 2015 as though the companies had been combined as of the
beginning of each of the periods presented.
The pro
forma information is presented for informational purposes only and
is not indicative of the results of operations that would have been
achieved if the acquisition had taken place at the beginning of
each period presented, nor is it indicative of results of
operations which may occur in the future. The unaudited pro forma
results presented include amortization charges for intangible
assets and eliminations of intercompany transactions.
|
|
For
the Year Ended December 31, 2016
|
For
the Year Ended December 31, 2015
|
|
Total
Revenues
|
$6,091,401
|
$4,372,688
|
|
Net
loss
|
(1,011,764)
|
(2,199,739)
|
F-14
Management engaged
a third-party valuation firm to assist in the determination of the
fair value of the acquired intangible assets of ShipTime. In
determining the fair value of the intangible assets, the Company
considered, among other factors, the best use of acquired assets,
analyses of historical financial performance of ShipTime and
estimates of future performance of ShipTime. The fair values of the
identified intangible assets related to ShipTime’s customer
relationships, trade name, and technology. The fair value of
customer relationships was calculated using the income approach.
The fair value of the trade name and technology were calculated
using the cost approach. The following table sets forth the
components of identified intangible assets associated with the
ShipTime acquisition and their estimated useful lives.
|
|
Fair
Value
|
Useful
Life
|
|
Customer
relationships
|
$4,474,000
|
15
Years
|
|
Trade
Name
|
797,000
|
5
years
|
|
Technology
|
509,000
|
2
years
|
|
|
$5,780,000
|
|
The
Company determined the useful lives of intangible assets based on
the expected future cash flows and contractual lives associated
with the respective asset. Trade names represent the fair value of
the brand and name recognition associated with the marketing of
ShipTime’s formulations and services. Customer relationships
represent the expected benefit from customer contracts that, at the
date of acquisition, were reasonably anticipated to continue given
the history and operating practices of ShipTime.
In preparing its report, the
third-party valuation firm used various financial and other
information provided to the valuation firm by the Company’s
and emergeIT’s management or obtained from other private and
public sources including financial projections prepared by emergeIT
management, and relied on the accuracy and completeness of this
information. There is no assurance that the valuation firm, or any
other financial adviser that the Company might choose, will utilize
the same process of methodologies in connection with future
valuations of emergeIT, or that such advisor(s) will reach
conclusions that are consistent with those
presented.
NOTE 5. PROPERTY AND EQUIPMENT
At
December 31, property and equipment consisted of the
following:
|
|
2016
|
2015
|
|
Computer equipment
and software
|
$134,657
|
$125,830
|
|
Office furniture
and equipment
|
66,263
|
19,580
|
|
Website development
costs
|
345,197
|
314,190
|
|
|
546,157
|
459,600
|
|
Accumulated
depreciation
|
(453,565)
|
(450,767)
|
|
|
$92,552
|
$8,833
|
Depreciation
expense of property and equipment for the years ended December 31,
2016 and 2015 amounted to $2,798 and $9,656.
NOTE 6. 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.
F-15
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
Inc. and its subsidiary 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
Inc.
At
December 31, intangible assets consisted of the
following:
|
|
2016
|
2015
|
|
Patents
|
$16,000
|
$16,000
|
|
Software
|
83,750
|
83,750
|
|
Trade
Name
|
797,000
|
-
|
|
Technology
|
509,000
|
-
|
|
Client list /
relationship
|
4,687,750
|
213,750
|
|
Accumulated
amortization
|
(136,729)
|
(36,622)
|
|
|
$5,956,771
|
$276,878
|
Amortization
expense of intangible assets for all subsidiaries for the years
ended December 31, 2016, and 2015 was $100,107 and $24,864,
respectively.
Amortization of
intangible assets for future years ending December 31, are as
follows:
|
Year Ended December
31,
|
|
|
2017
|
712,167
|
|
2018
|
712,167
|
|
2019
|
457,667
|
|
2020
|
457,667
|
|
2021
|
457,667
|
|
Total 5 year
amortization
|
$2,797,333
|
Goodwill
Of the
total estimated purchase price, $9,989,685 was allocated to
goodwill and is attributable to expected synergies between the
combined companies, including the ability for the combined
companies to estimate and process shipping calculations and support
eCommerce shopping cart platforms in addition to the acquired
workforce. 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.
NOTE 7. ACCRUED EXPENSES
At
December 31, accrued expenses consist of the
following:
|
|
2016
|
2015
|
|
Payroll and related
costs
|
$3,136
|
$3,686
|
|
Royalties
|
51,838
|
51,838
|
|
Stock price
guarantee (see Note 10)
|
867,403
|
913,582
|
|
Other
|
55,514
|
32,253
|
|
Total
|
$977,891
|
$1,001,359
|
NOTE 8. OTHER LIABILITIES
Note
Payable
In
October 2016, the Company entered into a $30,000 note payable with
a financial institution. The term of the note is for a period of
one year and is payable in 10 monthly installments of $2,632 at an
interest rate of 3%. The balance due on the note payable as of
December 31, 2016 was $17,850.
F-16
Capital
Lease Obligations
The
Company is obligated under capital leases for equipment, which
expire at various dates through 2020 and 2021. The assets
capitalized under these leases and associated accumulated
depreciation at December 31, are as follows:
|
|
2016
|
2015
|
|
Property and
equipment
|
$129,025
|
$83,000
|
|
Accumulated
depreciation
|
(83,000)
|
(83,000)
|
|
|
$46,025
|
$-
|
Depreciation of
equipment under capital leases is included in depreciation
expense.
Minimum
future lease payments under capital lease obligations as of
December 31, 2016 are as follows:
|
Year Ended December
31,
|
|
|
2017
|
$10,868
|
|
2018
|
10,385
|
|
2019
|
10,385
|
|
2020
|
10,385
|
|
2021
|
2,774
|
|
Total future minimum lease payments
|
44,797
|
|
Less amount
representing interest
|
(8,209)
|
|
Present value of
net minimum lease payment
|
36,588
|
|
Less current
portion
|
(7,655)
|
|
|
$28,933
|
NOTE 9. DUE TO RELATED PARTIES
During the growth
and development of ShipTime, two notes were issued. One note issued
was issued at an 8% interest rate and is due to mature in December
2017. A second note was issued in 2014 with an 8% interest rate and
was due to mature in June 2014; the second note outstanding is
currently due for re-negotiation as it is in
default.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Operating
Leases
In
November 2016, the Company renewed its office lease located at 200
Friberg Parkway, Westborough, MA. The terms of the lease are for 18
months at a rate of $500 per month. In July 2016, ShipTime entered
into in an office lease located at 700 Dorval Street, Oakville
Ontario. The terms of this lease are 3 years. The approximate
future minimum rents under the current operating leases
are:
|
2017
|
$25,762
|
|
2018
|
$22,924
|
|
2019
|
$10,849
|
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. 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 December 31, 2016 and 2015, the stock price guarantee was
$867,403 and $913,582, respectively, and included in accrued
expenses in the consolidated balance sheets, although any required
payment would be disputed by the Company.
F-17
Legal
Matters
In the
normal course of business, the Company periodically becomes
involved in litigation. As of December 31, 2016, 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.
The
Company commenced on December 20, 2013 patent infringement
litigation against eBay, Inc. (Paid, Inc. v. eBay, Inc.; CV No.
4:13-cv-40151-TSH) in the United States District Court for the
District of Massachusetts Central Division. This litigation
has been settled pursuant to a Confidential Settlement and License
Agreement dated March 11, 2016. Under the agreement, the
Company received $53,500 after costs as full and final payment for
such settlement of the lawsuit and non-exclusive licensing of the
Company’s patents. The payment was received in full in April 2016
and recorded in other income in the consolidated statements of
operations.
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 agreement. 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 consolidated balance sheets.
NOTE 11. SHAREHOLDERS’ EQUITY (DEFICIT)
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 $.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. See Note 4 for information regarding
the preferred stock.
Common Stock
In October 2015, the board of
directors agreed to effectuate a reverse split of the
Company’s common stock. As a result of the split every fifty
shares of common stock outstanding were consolidated into one
share, reducing the number of common shares outstanding on the
effective date from 44,662,330 to 893,246.
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-K has been
retroactively adjusted to reflect the reverse stock
split.
The
Company has authorized and reserved for future issuance 550,000
shares of common stock and 3,850,000 shares of preferred stock with
respect to the exchangeable shares issued as a result of the
merger.
During
the year ended December 31, 2016, the Company issued a total of
205,714 shares of common stock for gross proceeds of $180,000 from
the exercise of warrants.
In
December 2016, the Company issued 550,000 shares of common stock in
connection with the Amalgamation Agreement (see Note
4).
Share-based
Incentive Plans
During
the years ended December 31, 2016 and 2015, the Company had three
stock option plans that include both incentive and non-qualified
options to be granted to certain eligible employees, non-employee
directors, or consultants of the Company. In 2016 there were 9,000
options granted, 3,500 options cancelled and no options were
exercised.
F-18
Active
Plans:
2012 Plan
On
October 15, 2012, the Company adopted the 2012 Non-Qualified Stock
Option Plan (the "2012 Plan"). The purpose of the 2012 Plan, is to
provide long-term incentives and rewards to those employees of the
Company, and any other individuals, whether directors, consultants
or advisors who are in a position to contribute to the long-term
success and growth of the Company. The options granted have a 10
year contractual term and vest one hundred percent on the date of
grant. There are no shares reserved for future issuance under this
plan. Information with respect to stock options granted under this
plan during the year ended December 31, 2016:
|
|
Number of
shares
|
Weighted average
exercise price per share
|
|
Options outstanding
at January 1, 2016
|
30,000
|
$2.80
|
|
Granted
|
6,000
|
0.98
|
|
Cancelled
|
—
|
—
|
|
Exercised
|
—
|
—
|
|
Options outstanding
at December 31, 2016
|
36,000
|
$0.98
|
2011 Plan
On
February 1, 2011, the Company adopted the 2011 Non-Qualified Stock
Option Plan (the "2011 Plan"). Under the 2011 Plan, employees and
consultants may elect to receive their gross compensation in the
form of options, exercisable at $0.98 per share, to acquire the
number of shares of the Company's common stock equal to their gross
compensation divided by the fair value of the stock on the date of
grant. The options granted have a 10 year contractual term and have
vesting periods that range from one hundred percent on the date of
grant to one third immediately, one third vesting in 18 months and
the final on third vesting in 36 months from the date of the grant.
Information with respect to stock options granted under this plan
during the years ended December 31, 2016 is as
follows:
|
|
Number of
shares
|
Weighted average
exercise price per share
|
|
Options outstanding
at January 1, 2016
|
6,000
|
$35.80
|
|
Granted
|
3,000
|
0.98
|
|
Cancelled
|
(3,500)
|
2.15
|
|
Exercised
|
—
|
—
|
|
Options outstanding
at December 31, 2016
|
5,500
|
$0.98
|
At
December 31, 2016 there are no shares reserved for issuance
under this plan.
2002 Plan
The
2002 Stock Option Plan (“2002 Plan”) provides for the
award of qualified and non-qualified options for up to 60,000
shares. The options granted have a ten-year contractual term and
have a vesting schedule of either immediately, two years, or four
years from the date of grant. Information with respect to stock
options granted under this plan during the year ended December 31,
2016 is as follows:
|
|
Number of
shares
|
Weighted average
exercise price per share
|
|
Options outstanding
at January 1, 2016
|
16,000
|
$23.70
|
|
Granted
|
—
|
—
|
|
Cancelled
|
—
|
—
|
|
Exercised
|
—
|
—
|
|
Options outstanding
at December 31, 2016
|
16,000
|
$23.33
|
F-19
There
are currently no shares reserved for issuance under this
plan.
Fair value of issuances
The
fair value of the Company's option grants under the 2012, 2011, and
2002 Plans was estimated at the date of grant using the
Black-Scholes model with the following weighted average
assumptions:
|
|
2016
|
|
Expected term
(based upon historical experience)
|
5-6
years
|
|
Expected
volatility
|
304.3%
|
|
Expected
dividends
|
None
|
|
Risk free interest
rate
|
1.0%-2.0%
|
For the
years ended December 31, 2016 and 2015, the Company recorded
share-based compensation expense related to stock options of
$41,814 and $181,365 and are included in operating expenses in the
accompanying consolidated statements of operations,
respectively.
On
August 26, 2016, the Board of Directors approved to vote to reprice
and immediately vest 52,500 stock options for two employees and
three board members. The grant price was lowered to $0.975 which
reflects the market value of the stock. The incremental expense for
the repricing of the options was approximately
$17,000.
The
Company has no unrecognized share-based compensation expense for
options outstanding as of December 31, 2016.
Information
pertaining to options outstanding and exercisable at
December 31, 2016 is as follows:
|
Options
Outstanding
|
Options
Exercisable
|
|||
|
Exercise
Prices
|
Number
of shares
|
Weighted
Average Remaining contractual Life (In Years)
|
Number
of shares
|
Weighted
Average Remaining contractual Life (In Years)
|
|
0.98
|
52,500
|
6.93
|
52,500
|
6.93
|
|
72.50
|
5,000
|
0.42
|
5,000
|
0.42
|
|
|
|
|
|
|
|
|
57,500
|
6.75
|
57,500
|
6.75
|
Summary
of all stock option plans during the year ended December 31, 2016
is as follows:
|
|
Number
of Shares
|
Weighted
Average Price
|
Weighted Average Remaining Contractual Life (In Years)
|
Aggregate Intrinsic Value
|
|
Options
exercisable at January 1, 2016
|
52,000
|
$11.60
|
|
|
|
Granted
|
9,000
|
$0.98
|
|
|
|
Expired
|
(3,500)
|
$2.15
|
|
|
|
Options
outstanding and exercisable at December 31, 2016
|
57,500
|
$7.20
|
6.75
|
$171,938
|
F-20
Warrants
From
time to time, the Company issues warrants to purchase share of the
Company’s common stock to investors, note holders and to
non-employees for service rendered or to be rendered in the
future.
A
summary of the warrant activity during the year ended December 31,
2016 is as follows:
|
|
Number
of Shares Subject to Warrants Outstanding
|
Weighted
Average Exercise Price Price
|
|
Warrants
outstanding - January 1, 2016
|
205,714
|
$0.88
|
|
Granted
|
34,425
|
$0.87
|
|
Exercised
|
(205,714)
|
$0.88
|
|
Warrants
outstanding and exercisable - December 31, 2016
|
34,425
|
$0.87
|
|
Weighted
average remaining contractual life of the outstanding warrants in
years
|
5.00
|
|
NOTE
12. INCOME TAXES
The
Company is subject to taxation in the United States and
Massachusetts. The provision for income taxes for the years ended
December 31, 2016 and 2015 are summarized below:
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
Current:
|
|
|
|
Federal
|
$-
|
$-
|
|
State
|
456
|
975
|
|
Total
current
|
456
|
975
|
|
|
|
|
|
Deferred:
|
|
|
|
Federal
|
-
|
571,125
|
|
State
|
-
|
(372,409)
|
|
Change in valuation
allowance
|
-
|
(198,716)
|
|
Total
deferred
|
-
|
-
|
|
Income tax
provision (benefit)
|
$456
|
$975
|
A
reconciliation of income taxes computed by applying the statutory
U.S. income tax rate to the Company’s loss before income
taxes to the income provision is as follows:
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
U.S. federal
statutory tax rate
|
34.00%
|
34.00%
|
|
State tax benefit,
net
|
5%
|
(0.02)%
|
|
Gain on stock price
guarantee
|
-
|
-
|
|
Other
|
41.65%
|
(0.02)%
|
|
Valuation
allowance
|
(80.94)%
|
(33.99)%
|
|
Effective income
tax rate
|
(0.13)%
|
(0.03)%
|
F-21
Deferred tax assets
and liabilities reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company’s
deferred tax assets are as follows:
|
|
December
31,
|
December
31,
|
|
|
2016
|
2015
|
|
Deferred tax
assets:
|
|
|
|
NOL's
|
$16,478,100
|
$16,018,000
|
|
Inventory and other
reserves
|
40,000
|
40,000
|
|
Depreciation and
amortization
|
(1,438,600)
|
6,000
|
|
Change in value of stock
|
340,700
|
406,900
|
|
NQ stock option
expense
|
705,400
|
689,000
|
|
Other
|
55,000
|
(500)
|
|
Total deferred tax
assets
|
16,180,600
|
17,159,400
|
|
Valuation
allowance
|
(17,441,000)
|
(17,159,400)
|
|
Net deferred tax
liabilities
|
$(1,260,400)
|
$-
|
Realization of
deferred tax assets is dependent upon future earnings, if any, the
timing and amount of which are uncertain. Accordingly, the net
deferred tax assets have been fully offset by a valuation
allowance. The valuation allowance increased by approximately
$(281,600) in 2016.
As of
December 31, 2016, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $46,000,000 which
expire beginning in the year 2019. As of December 31, 2015, the
Company had net operating loss carryforwards for state income tax
purposes of approximately $11,000,000 which expire beginning in the
year 2030.
Utilization of the
net operating losses may be subject to substantial annual
limitation due to federal and state ownership change limitations
provided by the Internal Revenue Code and similar state provisions.
Such annual limitations could result in the expiration of the net
operating losses ad credits before their utilization. The Company
has not performed an analysis to determine the limitation of the
net operating loss carryforwards.
For
income tax purposes, emergeIT has non-capital losses which can be
applied to reduce future years’ taxable income totaling
approximately $607,000. These losses expire between 2030 and 2036.
The Company also has a Scientific Research and Experimental
Development Expenditure pool balance of approximately $55,000 which
may be used to reduce future year’s taxable income. The
expenditure pool can be carried forward indefinitely.
A
valuation allowance of 100% has been established in respect of the
net deferred income tax assets due to the uncertainty of the
Company’s utilization of such deferred tax assets for US
Federal and State.
At
December 31, 2016, both Paid, Inc. and emergeIT, Inc, have no
unrecognized tax benefits as a result of tax positions taken in the
current or prior years, and accordingly there are neither
unrecognized tax that will change benefits or would affect the
effective tax rate, nor there are any situations where it is
reasonably possible that the unrecognized tax benefit significantly
within twelve months of the reporting date. As of December 31,
2016, the Company has no unrecognized tax exposure.
The
Company’s policy is to recognize interest and/or penalties
related to income tax matters in income tax expense. The Company
had $0 accrued for interest and penalties on each of the
Company’s consolidated balance sheets at December 31, 2016
and 2015.
The
income tax provision at December 31, 2016 reflects a full
accounting of tax filings under ASC Subtopic 740-10. Paid, Inc. is
subject to U.S. federal and Massachusetts state tax. With limited
exceptions, we are no longer subject to U.S. federal, state and
local income tax examinations by tax authorities for years before
2012. Generally, the tax years remain open for examination by the
federal authority under three-year statute of limitation; however,
states generally keep their statute open for four years. In
addition, the Company's tax years from inception are subject to
examination by the United States and Massachusetts authorities due
to the carry forward of unutilized net operating losses. emergeIT
is subject to taxation in Canada and Ontario. As of December 31,
2016, the Company’s tax years for 2012 through 2016 are
subject to examination by tax authorities. The Company recognizes
interest and penalties, as estimated or incurred, as general and
administrative expense.
NOTE 13. SEGMENT REPORTING
The
Company reports information about segments of its business in its
annual financial statements and reports selected segment
information in its quarterly reports. 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 three reportable segments, client services, brewery
management software and shipping calculator services, are managed
separately based on fundamental differences in their
operations.
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.
F-22
The
following table compares total revenues for the years
indicated.
|
|
Year
Ended
|
|
|
|
December 31,
2016
|
December 31,
2015
|
|
Client
services
|
$18,556
|
$28,392
|
|
Brewery management
software
|
320,215
|
80,838
|
|
Shipping calculator
services
|
184,976
|
163,690
|
|
Total revenues,
net
|
$523,747
|
$272,920
|
The
following table compares total income (loss) from operations for
the years indicated.
|
|
Year
Ended
|
|
|
|
December 31,
2016
|
December 31,
2015
|
|
Client
services
|
$13,761
|
$20,432
|
|
Brewery management
software
|
40,176
|
13,844
|
|
Shipping calculator
services
|
(508,647)
|
(868,076)
|
|
Total loss from
operations
|
$(454,710)
|
$(833,800)
|
NOTE 14. SUBSEQUENT EVENTS
On
November 9, 2016, the 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.
F-23
EXHIBIT INDEX
|
No.
|
|
Description
of Exhibits
|
|
|
3.1
|
|
Certificate
of Incorporation, as amended (incorporated by reference to Exhibit
3.1 to Form 8-K, filed on November 25, 2003)
|
|
|
3.2
|
|
Amended
and Restated Bylaws (incorporated by reference to Exhibit 3.2 to
Form 8-K, filed on December 8, 2004)
|
|
|
3.3
|
|
Certificates
of Amendment of Certificate of Incorporation of the Company
effective December 30, 2016 (incorporated by reference to Exhibit
3.1 to Form 8-K filed on December 23, 2016)
|
|
|
|
|
Amendment No. 1 to Bylaws effective December 30, 2016 (incorporated
by reference to Exhibit 3.2 to Form 8-K filed on December 23,
2016)
|
|
|
4.1
|
|
Specimen
of certificate for Common Stock (incorporated by reference to
Exhibit 4.1 to Form SB-2/A filed on December 1,
2000)
|
|
|
4.2
|
|
Agreement
dated November 21, 2008, by and between the Company and Lewis Asset
Management Equity Fund, LLP with respect to the purchase of
2,500,000 shares at $.20 per share (incorporated by reference to
Exhibit 4.2 to Form 10-KSB filed on March 31, 2009)
|
|
|
4.3
|
|
Form of
Warrant to Lewis Asset Management with respect to Promissory Note
dated April 29, 2009 (incorporated by reference to Exhibit 4.2 to
Form 10-Q filed on May 12, 2009)
|
|
|
10.1+
|
|
2001
Non-Qualified Stock Option Plan, as amended (incorporated by
reference from Exhibit 99.1 to Form S-8 filed on September 5,
2003)
|
|
|
10.2+
|
|
2002
Non-Qualified Stock Option Plan (incorporated by reference from
Exhibit 10.17 to Form 10-KSB filed on March 31, 2003)
|
|
|
10.3+
|
|
2011
Non-Qualified Stock Option Plan (incorporated by reference from
Exhibit 99.1 to Form S-8 filed on February 2, 2011)
|
|
|
10.4
|
|
Promissory
Note dated April 29, 2009 for up to $2,500,000 to Lewis Asset
Management (incorporated by reference to Exhibit 10.2 to Form 10-Q
filed on May 12, 2009)
|
|
|
10.5
|
|
Lease
agreement, dated December 7, 2011 between Forty Washington, LLC and
the Company
(incorporated
by reference to Exhibit 10.1 to Form 8-K/A filed on December 13,
2011)
|
|
|
10.6+
|
|
PAID, Inc. 2012 Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 10.1 to Form 10-Q filed on
October 18, 2012)
|
|
|
10.7+
|
|
Agreement
for Non-Qualified Stock Option under the PAID, Inc. 2012
Non-Qualified Stock Option Plan awarded to W. Austin Lewis, IV,
dated October 15, 2012 (incorporated by reference to
Exhibit 10.2 to Form 10-Q filed on October 18,
2012)
|
|
|
10.8+
|
|
Agreement
for Non-Qualified Stock Option under the PAID, Inc. 2011
Non-Qualified Stock Option Plan awarded to W. Austin Lewis, IV,
dated August 8, 2012 (incorporated by reference to
Exhibit 10.3 to Form 10-Q filed on October 18,
2012)
|
|
|
10.9
|
|
Agreement
dated January 31, 2013 between Paid, Inc., and MCN Interactive, LLC
d/b/a Music City Networks (incorporated by reference to
Exhibit 10.1 to Form 8-K filed on February 5,
2013)
|
|
|
10.10
|
|
Second
amendment to lease agreement dated November 12, 2013 between Forty
Washington LLC and PAID, Inc. (incorporated by reference to Exhibit
10.1 to Form 10-Q filed on November 14, 2013)
|
|
|
10.11
|
|
Amalgamation
Agreement dated September 1, 2016 by and among PAID, Inc.,
emergeIT, Inc., 2534845 Ontario Inc. and 2534841 Ontario Inc.
(incorporated by reference to Exhibit 10.1 to Form 8-K filed on
December 23, 2016)
|
|
|
10.12
|
|
Exchange and Call
Rights Agreement (incorporated by reference to Exhibit 10.2 to Form
8-K filed on December 23, 2016)
|
|
|
10.14
|
|
Support Agreement
(incorporated by reference to Exhibit 10.4 to Form 8-K filed on
December 23, 2016)
|
|
|
10.15+
|
|
Employment
Agreement for Allan Pratt (incorporated by reference to Exhibit
10.6 to Form 8-K filed on December 23, 2016)
|
|
|
31.1*
|
|
CEO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
|
31.2*
|
|
CFO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
|
32.0*
|
|
CEO and
CFO Certification required under Section 906 of Sarbanes-Oxley Act
of 2002
|
|
|
EX-101.INS
|
XBRL
Instance Document
|
||
|
EX-101.SCH
|
XBRL
Taxonomy Extension Schema
|
||
|
EX-101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase
|
||
|
EX-101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase
|
||
|
EX-101.LAB
|
XBRL
Taxonomy Extension Label Linkbase
|
||
|
EX-101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase
|
||
|
*filed
herewith
|
|
|
+Indicates
a management contract or any compensatory plan, contract or
arrangement
|
|