PAID INC - Quarter Report: 2017 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
COMMISSION FILE NUMBER 0-28720
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE
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73-1479833
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S.
Employer Identification No.)
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200
Friberg Parkway, Westborough, Massachusetts
01581
(Address
of Principal Executive Offices) (Zip Code)
(617)
861-6050
(Registrant’s
Telephone Number, Including Area Code)
Indicate by check
mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes
☒ No ☐
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (Sec.232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes
☒ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the
definitions of “large accelerated filer”,
“accelerated filer”, “smaller reporting
company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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☐
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Accelerated
Filer
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☐
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Non-accelerated
filer
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☐
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Smaller reporting company
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☒
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(Do
not check if a smaller reporting company)
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Emerging
Growth Company
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☐
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If an
emerging growth company, indicate by check mark if the Registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
☐ No ☒
As of
May 12, 2017, the issuer had outstanding 1,098,657 shares of its
Common Stock.
PAID, INC.
FORM 10-Q
TABLE OF CONTENTS
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1
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2
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3
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4-10
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11
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14
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14
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15
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15
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15
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15
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15
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15
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15
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16
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PART I – FINANCIAL
INFORMATION
PAID, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
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March 31,
2017
(Unaudited)
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December 31,
2016
(Audited)
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ASSETS
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Current
assets:
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Cash and cash equivalents
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$344,050
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$339,562
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Accounts receivable, net
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74,786
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39,314
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Other receivables
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-
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1,026
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Funds held in trust
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172,531
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169,082
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Prepaid expenses and other current assets
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67,086
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57,383
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Total current assets
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658,453
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606,367
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Property
and equipment, net
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88,467
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92,552
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Intangible
assets, net
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5,753,701
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5,956,771
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Goodwill
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9,989,685
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9,989,685
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Total
assets
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$16,490,306
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$16,645,375
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
liabilities:
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Accounts payable
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$622,476
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$563,860
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Note payable
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10,200
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17,850
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Due to related parties
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144,911
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169,697
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Capital leases - current portion
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7,633
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7,655
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Accrued expenses
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1,003,236
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977,891
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Deferred revenues
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239,708
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238,040
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Total current liabilities
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2,028,164
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1,974,993
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Long
term liabilities:
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Capital leases - net of current portion
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27,241
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28,933
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Deferred tax liability
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1,260,369
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1,260,369
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Total
liabilities
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3,315,774
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3,264,295
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Commitments
and contingencies
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Shareholders'
equity:
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Preferred Stock, $0.001 par value, 20,000,000
shares authorized 3,825,000
shares issued and outstanding at March 31, 2017 and December 31,
2016; liquidation value
of $11,581,000 as of March 31, 2017 and December 31,
2016
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3,825
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3,825
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Common
stock, $0.001 par value, 25,000,000 shares authorized;
1,648,960 issued and outstanding at
March 31, 2017 and December 31, 2016
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1,649
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1,649
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Additional paid-in capital
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68,782,432
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68,782,432
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Accumulated other comprehensive loss
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(3,175)
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Accumulated deficit
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(55,610,199)
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(55,406,826)
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Total
shareholders' equity
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13,174,532
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13,381,080
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Total
liabilities and shareholders' equity
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$16,490,306
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$16,645,375
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See
accompanying notes to condensed consolidated financial
statements
PAID, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
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Three Months
Ended
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March 31,
2017
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March 31,
2016
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Revenues,
net
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$1,589,682
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$133,779
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Cost
of revenues
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1,099,160
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6,827
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Gross
profit
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490,522
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126,952
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Operating
expenses
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689,740
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266,332
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Loss
from operations
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(199,218
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(139,380
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Other
income (expense):
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Interest
expense
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(2,261
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(257
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Other
income, net
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6,895
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53,500
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Unrealized
gain (loss) on stock price guarantee
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(8,339)
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75,025
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Total
other income (expense), net
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(3,705)
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128,268
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Loss
before provision for income taxes
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(202,923
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(11,112
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Provision
for income taxes
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450
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807
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Net
loss
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$(203,373
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$(11,919
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Loss
per share - basic and diluted
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$(0.12)
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$(0.01)
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Weighted
average number of common shares outstanding - basic and
diluted
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1,648,960
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967,407
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Comprehensive loss:
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Net
loss
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$(203,373
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$(11,919
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Other comprehensive
income (loss):
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Foreign
currency translation adjustments
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(3,175
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-
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Comprehensive
loss
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$(206,548
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$(11,919)
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See
accompanying notes to condensed consolidated financial
statements
PAID, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
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2017
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2016
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Cash
flows from operating activities:
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Net loss
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$(203,373)
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$(11,919)
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Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
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Depreciation and amortization
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212,898
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25,727
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Share-based compensation
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-
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10,720
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Unrealized (gain) loss on stock price guarantee
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8,339
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(75,025)
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Write-off of other receivables:
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1,040
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-
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Changes in assets and liabilities:
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Accounts receivable
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(35,480)
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3,442
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Other receivables
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-
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(53,500)
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Prepaid expenses and other current assets
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(10,711)
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16,959
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Advanced royalties
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-
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5,000
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Accounts payable
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52,972
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9,692
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Accrued expenses
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17,268
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3,544
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Deferred revenues
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(155)
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(825)
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Net cash provided by (used in) operating activities
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42,798
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(66,185)
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Cash
flows from investing activities:
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Purchase of fixed assets
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(5,037)
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-
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Net cash used in investing activities
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(5,037)
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-
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Cash
flows from financing activities:
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Payments on capital leases
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(262)
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(2,964)
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Payments on note payable
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(7,650)
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(9,042)
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Proceeds from the exercise of common stock warrants
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-
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180,000
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Payments on amounts due to related parties
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(26,290)
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-
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Net cash (used in) provided by financing activities
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(34,202)
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167,994
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Effect
of exchange rate changes on cash and cash equivalents
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929
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-
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Net
change in cash and cash equivalents
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4,488
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101,809
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Cash
and cash equivalents, beginning of period
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339,562
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123,913
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Cash
and cash equivalents, end of period
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$344,050
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$225,722
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SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
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Cash
paid during the period for:
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Income taxes
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$450
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$807
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Interest
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$2,261
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$257
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See
accompanying notes to condensed consolidated financial
statements
PAID, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2017
Note 1. Organization and Significant Accounting
Policies
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 province.
The software is designed to integrate with QuickBooks accounting
platforms by using our powerful sync engine. We currently offer two
versions of the software BeerRun and BeerRun Light which excludes
some of the enhanced features of BeerRun without disrupting the
core functionality of the software. Additional features include
Brewpad and Kegmaster and can be added on to the base product.
Craft brewing is on the rise in North America 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.
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.
General Presentation and Basis of Consolidated Financial
Statements
The
accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”), and to the rules and regulations of the
Securities and Exchange Commission ("SEC") regarding interim
financial reporting. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial
statements and should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto
included in the Annual Report on Form 10-K for the year ended
December 31, 2016, that was filed on March 31, 2017.
In the
opinion of management, the Company has prepared the accompanying
unaudited condensed consolidated financial statements on the same
basis as its audited consolidated financial statements, and these
unaudited condensed consolidated financial statements include all
adjustments, consisting of normal recurring adjustments necessary
for a fair presentation of the results of the interim periods
presented. The operating results for the interim periods presented
are not necessarily indicative of the results expected for the full
year 2017.
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-Q
has been retroactively adjusted to reflect the reverse stock
split.
Going Concern and Management's Plan
The
accompanying unaudited condensed consolidated financial statements
have been prepared on a going concern basis which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company has continued to incur
losses, although it has taken significant steps to reduce them. For
the three months ended March 31, 2017, the Company reported a net
loss of $203,373. The Company has an accumulated deficit of
$55,610,199 and has a working capital deficit of $(1,369,711) as of
March 31, 2017. These factors raise substantial doubt about the
Company’s ability to continue as a going
concern.
Management feels
that the addition of ShipTime’s services will return a
valuable impact on the Company’s growth in the near future.
The positive cash flow from operations as a result of the first
quarter’s operations is a significant indicator of our
successful transition to the new shipping services. In addition to
the existing services provided, ShipTime will launch products that
are complementary to the current offering of AuctionInc, BeerRun
and SpiritRun. Combined, the Company believes that all segments of
the operations will benefit from ShipTime.
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.
Principles of Consolidation
The
consolidated financial statements include the accounts of PAID,
Inc. and its wholly owned subsidiaries, PAID Run, LLC and ShipTime,
Inc. All intercompany accounts and transactions have been
eliminated.
Foreign Currency
The currencies of ShipTime, the Company’s international
subsidiary, are in Canadian dollars. Foreign currency denominated
assets and liabilities are translated into U.S. dollars using the
exchange rates in effect at March 31, 2017. 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).
Long-Lived Assets
The
Company reviews the carrying values of its long-lived assets for
possible impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the
expected future cash flow from the use of the asset and its
eventual disposition is less than the carrying amount of the asset,
an impairment loss is recognized and measured using the fair value
of the related asset. No impairment charges were incurred during
the three months ended March 31, 2017 and 2016. There can be no
assurance, however, that market conditions will not change or
demand for the Company’s services will continue, which could
result in impairment of long-lived assets in the
future.
Revenue Recognition
The
Company generates revenue principally from fees for shipping
services, 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.
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. Revenues are recognized when the customer
completes the online transaction.
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.
Earnings (Loss) Per Common Share
Basic
earnings (loss) per share represent income (loss) available to
common shareholders divided by the weighted-average number of
common shares outstanding during the period. Diluted earnings
(loss) per share reflects additional common shares that would have
been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income (loss) that would
result from the assumed issuance. The potential common shares that
may be issued by the Company relate to outstanding stock options
and have been excluded from the computation of diluted earnings
(loss) per share because they would reduce the reported loss per
share and therefore have an anti-dilutive effect.
For the
three months ended March 31, 2017 and 2016, there were
approximately 63,000 and 189,000, respectively, dilutive shares
that were excluded from the diluted earnings (loss) per share as
their effect would have been antidilutive for the period then
ended.
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 March 31, 2017, the Company
operated in the following four reportable segments:
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a.
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Client
services
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b.
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Shipping
calculator services
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c.
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Brewery
management software
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d.
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Shipping
and label generation services
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The
Company evaluates performance and allocates resources based upon
operating income. The accounting policies of the reportable
segments are the same as those described in this summary of
significant accounting policies. The Company’s chief
operating decision makers are the Chief Executive Officer and Chief
Financial Officer.
The
following table compares total revenue for the periods
indicated.
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Three Months Ended
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March 31,
2017
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March 31,
2016
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Clientt
services$
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13,409
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$6,004
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Shipping calculator
services
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56,306
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45,459
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Brewery management
software
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77,841
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82,316
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Shipping
services
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1,442,126
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-
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Total
revenue
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$1,589,682
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$133,779
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The
following table compares total loss from operations for the periods
indicated.
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Three Months Ended
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March 31,
2017
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March 31,
2016
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Client
services$
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10,157
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$4,562
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Shipping calculator
services
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(256,607)
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(152,385)
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Brewery management
software
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12,279
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8,443
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Shipping
services
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34,953
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-
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Total loss from
operations
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$(199,218)
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$(139,380)
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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
March 2016, the FASB issued ASU 2016-09, Compensation-Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting, which the Company elected to adopt in the first
quarter of 2017. The Company has evaluated the impact of this
guidance and has determined that it did not have a material effect
on the financial statements for this quarter.
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.
In
January 2017, the FASB issued ASU 2017-01, Business Combinations
(Topic 805): Clarifying the definition of a business. The amendments in this Update clarify
the definition of a business with the objective of adding guidance
to assist entities with evaluating whether transactions should be
accounted for as acquisitions (or disposals) of businesses. The
guidance in this update is effective for fiscal years beginning
after December 15, 2017, and interim periods within those
years.
In
January 2017, the FASB also issued ASU 2017-04, Intangibles -
Goodwill and other (Topic 350): Simplifying the test for goodwill
impairment. The amendments in this Update remove the second step of
the current goodwill impairment test. An entity will apply a
one-step quantitative test and record the amount of goodwill
impairment as the excess of a reporting unit's carrying amount over
its fair value, not to exceed the total amount of goodwill
allocated to the reporting unit. The new guidance does not amend
the optional qualitative assessment of goodwill impairment. This
guidance is effective for impairment tests in fiscal years
beginning after December 15, 2019.
Note 2. Accrued Expenses
Accrued
expenses are comprised of the following:
|
|
March 31,
2017
(unaudited)
|
December 31,
2016
(audited)
|
|
Payroll and related
costs
|
$3,147
|
$3,136
|
|
Royalties
|
51,838
|
51,838
|
|
Stock price
guarantee
|
875,742
|
867,403
|
|
Other
|
72,509
|
55,514
|
|
Total
|
$1,003,236
|
$977,891
|
Note 3. Acquisitions and Intangible Assets
The
Company holds several patents for the real-time calculation of
shipping costs for items purchased through online auctions using a
zip code as a destination location indicator. It includes shipping
charge calculations across multiple carriers and accounts for
additional characteristics of the item being shipped, such as
weight, special packaging or handling, and insurance costs. These
patents help facilitate rapid and accurate estimation of shipping
costs across multiple shipping carriers and also include real-time
calculation of shipping.
On
October 7, 2015, the Company, through a newly formed limited
liability company named PAID Run, LLC, entered into an asset
purchase agreement to purchase assets related to BeerRun Software
and SpiritRun Software and related intellectual property. The
purchase price and additional development for these assets was
$297,500, which include all of the client lists, along with all
rights, benefits and privileges associated with the software and
intellectual property, associated contracts, and books and
records.
On
December 30, 2016, the Company completed a merger with ShipTime
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
March 31, 2017 and December 31, 2016, intangible assets consisted
of the following:
|
|
March 31,
2017
|
December 31,
2016
|
|
Patents
|
$16,000
|
$16,000
|
|
Software
|
83,750
|
83,750
|
|
Trade
Name
|
797,000
|
797,000
|
|
Technology
|
509,000
|
509,000
|
|
Client list /
relationship
|
4,687,750
|
4,687,750
|
|
Accumulated
amortization
|
(339,799)
|
(136,729)
|
|
|
$5,753,701
|
$5,956,771
|
Amortization
expense of intangible assets for all subsidiaries for the three
months ended March 31, 2017, and 2016 was $203,070 and $100,107,
respectively.
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.
Pro Forma Financial Information
The
following table presents the Company’s unaudited pro forma
results (including ShipTime) for the period ended March 31, 2016 as
though the companies had been combined as of the beginning of the
period 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 Period
Ended March 31,
2016
|
|
Total
Revenues
|
$1,424,934
|
|
Net
loss
|
$(173,666)
|
Note 4. Commitments and Contingencies
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
March 31, 2017 was $10,200.
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 a 6%
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.
Stock Price Guarantee
In
connection with the Company’s advance royalties with a
client, the Company guaranteed that shares of common stock
would sell for at least $60.00 per share as adjusted for the
reverse stock split. If the shares are not at the required
$60.00 per share when they are sold, the Company has the option of
issuing additional shares at their fair value or making cash
payments for the difference between the guaranteed price per share
and the fair value of the stock. As of March 31, 2017 and
December 31, 2016, the stock price guarantee was $875,742 and
$867,403, respectively, as the Company’s stock price was
below $60.00 per share at March 31, 2017 and December 31, 2016,
although some or all of the stock may already be sold and no longer
subject to a guaranty and any required payment would be disputed
by the Company. For the three months ended March 31, 2017 and 2016,
the Company recorded an unrealized (loss)/gain on stock price
guarantee of ($8,339) and $75,025, respectively.
Legal Matters
In the
normal course of business, the Company periodically becomes
involved in litigation. As of March 31, 2017, in the opinion
of management, the Company had no pending litigation that would
have a material adverse effect on the Company's consolidated
financial position, results of operations, or cash
flows.
Indemnities and Guarantees
The
Company has made certain indemnities and guarantees, under which it
may be required to make payments to a guaranteed or indemnified
party, in relation to certain actions or transactions. The Company
indemnifies its directors, officers, employees and agents, as
permitted under the laws of the State of Delaware. In connection
with its facility leases, the Company has agreed to indemnify its
lessors for certain claims arising from the use of the facilities.
The duration of the guarantees and indemnities varies, and is
generally tied to the life of the agreements. These guarantees and
indemnities do not provide for any limitation of the maximum
potential future payments the Company could be obligated to make.
Historically, the Company has not been obligated nor incurred any
payments for these obligations and, therefore, no liabilities have
been recorded for these indemnities and guarantees in the
accompanying consolidated balance sheets.
Note 5. Shareholder’s 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.
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.
Common Stock
In
November 2016, the majority shareholders approved an amendment to
the Company’s Certificate of Incorporation to increase the
Company’s authorized shares of common stock from 1,100,000 to
25,000,000, to issue up to 2,000,000 shares of blank check
preferred stock and to make effective, a reverse stock split at a
range of 1 for 500 through 1 for 3,000 immediately followed by a
forward split of the outstanding common stock at an exchange rate
of 50 for 1 through 300 for 1 to reduce the number of authorized
shares of the Company’s common stock, subject to the Board of
Directors’ discretion.
In
January 2017, the Company completed a reverse split of 1-for 3,000
immediately followed by a forward split of 300 for 1. As a result
of the split every ten shares of common stock outstanding were
consolidated into one share, reducing the number of common shares
outstanding on the effective date from 10,989,608 to 1,098,960. All
share and per share information on this Form 10-Q 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.
Share-based Incentive Plans
During
the period ended March 31, 2017, 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. There were no stock options granted,
exercised, canceled or expired during the three months ended March
31, 2017.
Note 6. Subsequent Events
The
Company has evaluated subsequent events through the filing date of
this Form 10-Q, and have determined that no subsequent events have
occurred that would require recognition in the condensed
consolidated financial statements or disclosure in the notes
thereto, other than as disclosed herein.
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
Forward Looking Statements
This
Quarterly Report on Form 10-Q contains certain forward-looking
statements (within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934)
regarding PAID, Inc. (the “Company”) and its business,
financial condition, results of operations and prospects. Words
such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates", "could", "may", "should", "will", "would",
and similar expressions or variations of such words are intended to
identify forward-looking statements in this report. Additionally,
statements concerning future matters such as the development of new
services, technology enhancements, purchase of equipment, credit
arrangements, possible changes in legislation and other statements
regarding matters that are not historical are forward-looking
statements.
Although
forward-looking statements in this quarterly report reflect the
good faith judgment of the Company's management, such statements
can only be based on facts and factors currently known by the
Company. Consequently, forward-looking statements are inherently
subject to risks, contingencies and uncertainties, and actual
results and outcomes may differ materially from results and
outcomes discussed in this report. Although the Company believes
that its plans, intentions and expectations reflected in these
forward-looking statements are reasonable, the Company can give no
assurance that its plans, intentions or expectations will be
achieved. For a more complete discussion of these risk factors, see
Item 1A, "Risk Factors", in the Company's Form 10-K for the fiscal
year ended December 31, 2016 that was filed on March 31,
2017.
For
example, the Company's ability to achieve positive cash flow and to
become profitable may be adversely affected as a result of a number
of factors that could thwart its efforts. These factors include the
Company's inability to successfully implement the Company's
business and revenue model, higher costs than anticipated, the
Company's inability to sell its products and services to a
sufficient number of customers, the introduction of competing
products or services by others, the Company's failure to attract
sufficient interest in, and traffic to, its site, the Company's
inability to complete development of its products, the failure of
the Company's operating systems, and the Company's inability to
increase its revenues as rapidly as anticipated. If the Company is
not profitable in the future, it will not be able to continue its
business operations
Except
as required by applicable laws, we do not intend to publish updates
or revisions of any forward-looking statements we make to reflect
new information, future events or otherwise. Readers are urged to
review carefully and to consider the various disclosures made by
the Company in this Quarterly Report, which attempts to advise
interested parties of the risks and factors that may affect our
business, financial condition, results of operations and
prospects.
Overview
ShipTime 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.
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 province.
The software is designed to integrate with QuickBooks accounting
platforms by using our powerful sync engine. We currently offer two
versions of the software BeerRun and BeerRun Light which excludes
some of the enhanced features of BeerRun without disrupting the
core functionality of the software. Additional features include
Brewpad and Kegmaster and can be added on to the base product.
Craft brewing is on the rise in North America and we feel that
there is a large potential to grow this portion of our
business.
Significant Accounting Policies
Our
significant accounting policies are more fully described in Note 3
to our consolidated financial statements included in our Form 10-K
filed on March 31, 2017, as updated and amended in Note 1 of the
Notes to Condensed Consolidated Financial Statements included
herein. However, certain of our accounting policies, most notably
with respect to revenue recognition, are particularly important to
the portrayal of our financial position and results of operations
and require the application of significant judgment by our
management; as a result, they are subject to an inherent degree of
uncertainty. In applying these policies, our management makes
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosures. Those
estimates and judgments are based upon our historical experience,
the terms of existing contracts, our observance of trends in the
industry, information that we obtain from our customers and outside
sources, and on various other assumptions that we believe to be
reasonable and appropriate under the circumstances, the results of
which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
Results of Operations
Comparison of the three months ended March 31, 2017 and
2016.
The
following discussion compares the Company's results of operations
for the three months ended March 31, 2017 with those for the three
months ended March 31, 2016. The Company's condensed consolidated
financial statements and notes thereto included elsewhere in this
quarterly report contain detailed information that should be
referred to in conjunction with the following
discussion.
Revenues
The
following table compares total revenue for the periods
indicated.
|
|
Three
months Ended March 31,
|
||
|
|
2017
|
2016
|
% change
|
|
Client
services
|
$13,409
|
$6,004
|
123
% |
|
Brewery management
software
|
77,841
|
82,316
|
(5)%
|
|
Shipping
services
|
1,442,126
|
-
|
100%
|
|
Shipping calculator
services
|
56,306
|
45,459
|
24%
|
|
Total
revenues
|
$1,589,682
|
$133,779
|
108%
|
|
|
|
|
|
Revenues increased
1088% in the first quarter primarily from the acquisition of the
new segment of our business that provides shipping
services.
Entertainment
service revenues increased $7,405 or 123% to $13,409 in the first
quarter of 2017 compared to $6,004 in 2016. This increase is a
result of our higher volume of movie poster auction sales in the
first quarter.
Brewery
management software revenues decreased $4,475 to $77,841 in 2017
from $82,316 in 2016. The decrease in revenues is due to the loss
of a small amount of larger clients offset against new clients that
are signing up on our lower tiered service plan.
Shipping calculator
services revenue increased $10,847 or 24% to $56,306 in the first
quarter of 2017 compared to $45,459. The increase was largely
due to a significant increase in volume and an adjusted price plan
for one of the largest clients.
Gross Profit
Gross
profit increased $363,570 or 286% in the first quarter of 2017 to
$490,522 compared to $126,952 in 2016. Gross margin decreased 64
percentage points to 31% from 95% in the first quarter of 2016. The
decrease in gross margin was mainly due to the cost associated with
the new segment of shipping services that the Company now
offers.
Operating Expenses
Total
operating expenses in the first quarter 2017 were $689,740 compared
to $266,332 in the first quarter 2016, an increase of $423,408 or
159%. The increase is primarily due to the increased personnel
development and advertising expenses associated with the operations
of ShipTime Canada.
Other Income/Expense, net
Net
other income (expense) in the first quarter of 2017 was ($3,705)
compared to $128,268 in the same period of 2016, a change of
$131,793. This is primarily attributable to the unrealized loss on
stock price guarantee of $8,339 in the first quarter of 2017
compared to a gain of $75,025 in the same period of 2016. The
Company also recorded a $53,000 gain on the settlement of
litigation with eBay in the first quarter of 2016.
Net Loss
The
Company realized a net loss in the first quarter of 2017 of
($203,373) compared to a net loss of ($11,919) for the same period
in 2016. The loss for the first quarter of 2017 and 2016 represent
($0.12) and ($0.01) per share, respectively.
Cash
Flows from Operating Activities
A
summarized reconciliation of the Company's net loss to cash and
cash equivalents used in operating activities for the three months
ended March 31, 2017 and 2016 is as follows:
|
|
2017
|
2016
|
|
Net
loss
|
$(203,373
) |
$(11,919)
|
|
Depreciation and
amortization
|
212,898
|
25,727
|
|
Share-based
compensation
|
-
|
10,720
|
|
Unrealized loss
(gain) on stock price guarantee
|
8,339
|
(75,025)
|
|
Write-off of other
receivables
|
1,040
|
-
|
|
Changes in current
assets and liabilities
|
23,894
|
(15,688)
|
|
Net cash provided
by (used in) operating activities
|
$42,798
|
$(66,185)
|
Working
Capital and Liquidity
The
Company had cash and cash equivalents of $344,050 at March 31,
2017, compared to $339,562 at December 31, 2016. The Company had a
negative working capital of $(1,369,711) at March 31, 2017, an
increase of $1,085 compared to $(1,368,626) at December 31, 2016.
The increase in working deficit is attributable to the increase in
accounts payable associated with the services provided to the
ShipTime clients. The increase to the cash and cash equivalents is
due to an increase in revenues associated with the new segment of
our operations.
The Company may need an infusion of additional capital to fund
anticipated operating costs over the next 12 months, however,
management believes that the Company has adequate cash resources to
fund operations. There can be no assurance that anticipated growth
will occur, and that the Company will be successful in launching
new products and services. If necessary, management will seek
alternative sources of capital to support operations.
As a
smaller reporting company, the Company is not required to provide
the information for this Item 3.
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 March 31, 2017, the Company's disclosure controls and procedures
were not effective, due to material weaknesses in internal control
over financial reporting, for the purpose of ensuring that the
information required to be disclosed in the reports that the
Company files or submits under the Exchange Act with the Securities
and Exchange Commission is recorded, processed, summarized and
reported within the time period specified by the Securities and
Exchange Commission's rules and forms, and is accumulated and
communicated to the Company's management, including its principal
executive and financial officers, as appropriate to allow timely
decisions regarding required disclosure.
The
Company has identified six material weaknesses in internal control
over financial reporting as described in the Company's Form 10-K
for the year ended December 31, 2016.
Changes
in Internal Control over Financial Reporting
There
was no change in our internal control over financial reporting
during the quarter ended March 31, 2017 that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II - OTHER INFORMATION
In the
normal course of business, the Company periodically becomes
involved in litigation. As of March 31, 2017, in the
opinion of management, the Company had no material pending
litigation other than ordinary litigation incidental to the
business.
There
are no material changes for the risk factors previously disclosed
on Form 10-K for the year ended December 31, 2016.
There were no issuances of unregistered securities during the three
months ended March 31, 2017.
None.
Not
Applicable.
None.
|
Exhibit Number
|
|
Description
|
|
31.1
|
|
CEO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
31.2
|
|
CFO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
32
|
|
CEO and
CFO Certification required under Section 906 of Sarbanes-Oxley Act
of 2002
|
|
101.INS
XBRL
|
|
Instance Document
(filed herewith)
|
|
101.SCH
XBRL
|
|
Taxonomy Extension
Schema (filed herewith)
|
|
101.CAL
XBRL
|
|
Taxonomy Extension
Calculation Linkbase (filed herewith)
|
|
101.DEF
XBRL
|
|
Taxonomy Extension
Definition Linkbase (filed herewith)
|
|
101.LAB
XBRL
|
|
Taxonomy Extension
Label Linkbase (filed herewith)
|
|
101.PRE
XBRL
|
|
Taxonomy Extension
Presentation Linkbase (filed herewith)
|
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
|
|
PAID,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
|
|
|
|
|
Allan
Pratt, Chief Executive Officer
|
|
|
|
By:
|
/s/
|
|
|
Date:
May 12, 2017
|
|
W.
Austin Lewis, IV, Chief Financial Officer
|
LIST OF
EXHIBITS
|
Exhibit Number
|
|
Description
|
|
31.1
|
|
CEO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
31.2
|
|
CFO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
32
|
|
CEO and
CFO Certification required under Section 906 of Sarbanes-Oxley Act
of 2002
|
|
101.INS
XBRL
|
|
Instance Document
(filed herewith)
|
|
101.SCH
XBRL
|
|
Taxonomy Extension
Schema (filed herewith)
|
|
101.CAL
XBRL
|
|
Taxonomy Extension
Calculation Linkbase (filed herewith)
|
|
101.DEF
XBRL
|
|
Taxonomy Extension
Definition Linkbase (filed herewith)
|
|
101.LAB
XBRL
|
|
Taxonomy Extension
Label Linkbase (filed herewith)
|
|
101.PRE
XBRL
|
|
Taxonomy Extension
Presentation Linkbase (filed herewith)
|
-17-