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PAID INC - Quarter Report: 2019 September (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 September 30, 2019
COMMISSION FILE NUMBER 0-28720
(Exact Name of Registrant as Specified in its Charter)
 
 
 
 
DELAWARE
73-1479833
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
225 Cedar Hill Street, Marlborough, Massachusetts 01752
(Address of Principal Executive Offices) (Zip Code)
 
(617) 861-6050
(Registrant’s Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
 Trading Symbol
 
 Name of each exchange on which registered
None
 
 None
 
 None
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes ☒     No ☐
 
Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
Yes ☒     No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 
 
 
 
 
 
 
Large accelerated filer  
Accelerated Filer
Non-accelerated filer
Smaller reporting company  
Emerging Growth Company
 
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
Yes ☐     No ☒
 
As of November 14, 2019, the issuer had outstanding 1,614,817 shares of its Common Stock.
 
 

 
 
 
PAID, INC.
FORM 10-Q
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1
 
 
 
 
 
 
 
 
 
2
 
 
 
 
 
 
 
 
 
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4-5
 
 
 
 
 
 
6-15
 
 
 
 
 
16
 
 
 
 
 
20
 


 
 
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PART I – FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
PAID, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
September 30, 2019
(Unaudited)
 
 
December 31,
2018
 
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
  Cash and cash equivalents
 $525,201 
 $632,331 
  Accounts receivable, net
  133,938 
  87,718 
  Prepaid expenses and other current assets
  88,593 
  110,028 
  Total current assets
  747,732 
  830,077 
 
    
    
Property and equipment, net
  93,371 
  90,843 
Other intangible assets, net
  4,079,558 
  4,290,773 
Operating lease right-of-use assets
  125,702 
  - 
Total assets
 $5,046,363 
 $5,211,693 
 
    
    
LIABILITIES AND SHAREHOLDERS' EQUITY
    
    
Current liabilities:
    
    
  Accounts payable
 $841,926 
 $758,365 
  Notes payable
  - 
  14,954 
  Finance leases - current portion
  9,511 
  8,580 
  Accrued expenses
  195,119 
  1,268,633 
  Contract liabilities
  101,872 
  144,221 
  Operating lease obligations – current portion
  28,816 
  - 
Total current liabilities
  1,177,244 
  2,194,753 
Long term liabilities:
    
    
  Finance leases - net of current portion
  5,261 
  12,116 
   Operating lease obligations – net of current portion
  99,651 
  - 
  Deferred tax liability, net
  1,121,152 
  1,088,306 
Total liabilities
  2,403,308 
  3,295,175 
Commitments and contingencies
    
    
Shareholders' equity:
    
    
  Series A Preferred stock, $0.001 par value, 5,000,000 shares authorized; 4,438,578 and 3,784,712 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively; liquidation value of $13,758,085 and $11,800,316 at September 30, 2019 and December 31, 2018, respectively
  4,439 
  3,785 
  Common stock, $0.001 par value, 25,000,000 shares authorized; 1,648,657 shares issued and 1,614,817 shares outstanding at September 30, 2019 and December 31, 2018
  1,649 
  1,649 
  Additional paid-in capital
  69,196,136 
  68,751,871 
  Accumulated other comprehensive income
  442,635 
  344,182 
  Accumulated deficit
  (66,943,957)
  (67,127,122)
Common stock in treasury, at cost; 33,840 shares at September 30, 2019 and December 31, 2018
  (57,847)
  (57,847)
Total shareholders' equity
  2,643,055 
  1,916,518 
 
    
    
Total liabilities and shareholders' equity
 $5,046,363 
 $5,211,693 
 
 
See accompanying notes to condensed consolidated financial statements
 
 
 
PAID, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
September 30,
2019
 
 
September 30,
2018
 
 
September 30,
2019
 
 
September 30,
2018
 
Revenues, net
  2,726,433 
  2,238,445 
  7,730,950 
  6,572,841 
Cost of revenues:
    
    
    
    
    Cost of revenues
  1,973,499 
  1,653,382 
  5,649,535 
  4,787,214 
    Amortization of acquired technology
  - 
  72,351 
  - 
  220,181 
    Total cost of revenues
  1,973,499 
  1,725,733 
  5,649,535 
  5,007,395 
Gross profit
  752,934 
  512,712 
  2,081,415 
  1,565,446 
 
 
 
Operating expenses
    
    
    
    
Salaries and related
  381,585 
  193,036 
  1,042,459 
  589,217 
General and administrative
  261,993 
  373,999 
  879,291 
  1,040,554 
Stock-based compensation
  303,958 
  297,384 
  361,698 
  716,833 
Amortization of other intangible assets
  116,401 
  135,605 
  346,946 
  412,449 
Total operating expenses
  1,063,937
 
  1,000,024 
  2,630,394 
  2,759,053 
Loss from operations
  (311,003)
  (487,312)
  (548,979)
  (1,193,607 
 
 
 
    
Other income (expense):
    
    
    
    
Interest income (expense)
  - 
  13 
  - 
  (1,685 
Other income
  884,620 
  44,280 
  892,652 
  42,329 
Unrealized gain (loss) on stock price guarantee
  8,017 
  (12,025 
  3,688 
  (3,527 
Total other income, net
  892,637
 
  32,268 
  896,340 
  37,117 
 
 
 
    
Income (loss) before provision for income taxes
  581,634 
  (455,044 
  347,361 
  (1,156,490 
Provision for income taxes
  - 
  - 
  960 
  1,260 
Net income (loss)
  581,634 
  (455,044 
  346,401 
  (1,157,750 
Preferred share redemption discount
  - 
  116,017 
  - 
  250,170 
Preferred dividends
  (50,395)
  (45,955 
  (141,287)
  (128,914)
Net income (loss) available to common shareholders
 $531,239 
 $(384,982 
 $205,114 
 $(1,036,494 
 
    
    
    
    
Net income (loss) per share – basic
 $0.33 
 $(0.24)
 $0.13 
 $(0.64)
Net income (loss) per share - diluted
 $0.32
 
 $(0.24)
 $0.12
 
 $(0.64)
Weighted average number of common shares outstanding - basic
  1,614,817 
  1,620,589 
  1,614,817 
  1,625,318 
Weighted average number of common shares outstanding - diluted
  1,671,693
 
  1,620,589
 
  1,667,566
 
  1,625,318
 
Condensed consolidated statements of comprehensive income (loss)
    
    
    
    
Net income (loss)
 $581,634 
 $(455,044 
 $346,401 
 $(1,157,750 
Other comprehensive income (loss):
    
    
    
    
Foreign currency translation adjustments
  (24,925)
  229,484 
  98,453 
  (393,304 
Comprehensive income (loss)
 $556,709 
 $(225,560 
 $444,854 
 $(1,551,054 
 
 
See accompanying notes to condensed consolidated financial statements
 
 
 
PAID, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
 
 
 
2019
 
 
2018
 
Cash flows from operating activities:
 
 
 
 
 
 
  Net income (loss)
 $346,401 
 $(1,157,750)
  Adjustments to reconcile net income (loss) to net cash provided by operating activities:
    
    
  Depreciation and amortization
  368,183 
  649,537 
       Amortization of operating lease right-of-use assets
  16,020 
  - 
  Share-based compensation
  361,698 
  716,833 
  Unrealized loss (gain) on stock price guarantee
  (3,688)
  3,527 
       Other income from stock price guarantee
  (880,553)
  - 
       Loss on disposal of property and equipment
  - 
  1,944 
  Changes in assets and liabilities:
    
    
  Accounts receivable
  (44,051)
  (71,625)
  Prepaid expenses and other current assets
  24,381 
  (43,103)
  Accounts payable
  146,778 
  81,532 
  Accrued expenses
  (192,901)
  33,709 
  Contract liabilities
  (46,382)
  (64,643)
       Operating lease obligations
  (13,266)
  - 
  Net cash provided by operating activities
  82,620 
  149,961 
Cash flows from investing activities:
    
    
      Proceeds from sale of property and equipment
  - 
  1,182 
  Purchase of property and equipment
  (16,077)
  (31,226)
  Net cash used in investing activities
  (16,077)
  (30,044)
 
    
    
Cash flows from financing activities:
    
    
  Payments on finance leases
  (6,523)
  (6,110)
  Payments on notes payable
  (15,346)
  (250,049)
       Payments of preferred dividends
  (163,236)
  - 
  Payments on related party note payable
  - 
  (29,422)
  Net cash used in financing activities
  (185,105)
  (285,581)
Effect of exchange rate changes on cash, cash equivalents and funds in trust
  11,432 
  (22,463)
 
    
    
Net change in cash, cash equivalents and funds in trust
  (107,130)
  (188,127)
 
    
    
Cash, cash equivalents and funds in trust, beginning of period
  632,331 
  738,690 
 
    
    
Cash, cash equivalents and funds in trust, end of period
 $525,201 
 $550,563 
Reconciliation of cash, cash equivalents and funds held in trust at end of period:
    
    
  Cash and cash equivalents
 $525,201 
 $550,563 
  Funds held in trust
  - 
  - 
Cash, cash equivalents and funds held in trust at end of period
 $525,201 
 $550,563 
 
    
    
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
    
    
Cash paid during the period for:
    
    
  Income taxes
 $500 
 $1,260 
  Interest
 $932 
 $1,658 
SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS
    
    
  Repurchase of preferred and common stock with note payable
 $- 
 $202,656 
 Issuance of preferred shares in settlement of accrued expenses
 $83,221 
 $- 
 Operating lease liabilities from obtaining operating lease right-of-use assets
 $55,600 
 $- 
 
 
See accompanying notes to condensed consolidated financial statements
 
 
 
 
PAID, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018
(Unaudited)
 
 
 
 Preferred stock
 
 
 Common stock
 
 
 Paid-in
 
 
 Treasury Stock
 
 
 OtherComprehensive
 
 
 Accumulated
 
 
Total
Stockholders'
 
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Capital
 
 
 Shares
 
 
 Amount
 
 
  income
 
 
 Deficit
 
   Equity
 Balance, December 31, 2017
  3,724,547.00 
 $3,725.00 
  1,648,657 
 $1,649 
 $68,574,974 
  (14,535)
 $(26,529)
 $975,877 
 $(55,845,766)
 $13,683,930 
 
    
    
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
    
    
 Re-purchase of Common and Preferred shares
  (33,899)
  (34)
  - 
  - 
  (107,184)
  (4,905)
  (7,986)
 -
  63,244 
  (51,960)
 
    
    
    
    
    
    
    
    
    
  - 
 Foreign currency translation
 -
 -
 -
 -
 -
 -
 -
  (372,157)
 -
  (372,157)
 
    
    
    
    
    
    
    
    
    
  - 
 Share-based compensation expense
 -
 -
 -
 -
  356,354 
 -
 -
 -
 -
  356,354 
 
    
    
    
    
    
    
    
    
    
  - 
 Net loss
 -
 -
 -
 -
 -
 -
 -
 -
  (509,370)
  (509,370)
 
    
    
    
    
    
    
    
    
    
    
 Balance, March 31, 2018
  3,690,648.00 
 3,691.00 
  1,648,657 
 1,649 
 68,824,144 
  (19,440)
 (34,515)
 603,720 
 (56,291,892)
 13,106,797 
 
    
    
    
    
    
    
    
    
    
    
 Re-purchase of Common and Preferred shares
  (37,320)
  (38)
  - 
  - 
  (120,409)
  (5,400)
  (8,679)
 
  70,909 
  (58,217)
 
    
    
    
    
    
    
    
    
    
  - 
 Foreign currency translation
 -
 -
 -
 -
 -
 -
 -
  (250,631)
 -
  (250,631)
 
    
    
    
    
    
    
    
    
    
  - 
 Share-based compensation expense
 -
 -
 -
 -
  63,095 
 -
 -
 -
 -
  63,095 
 
    
    
    
    
    
    
    
    
    
  - 
 Net loss
 -
 -
 -
 -
 -
 -
 -
 -
  (193,336)
  (193,336)
 
    
    
    
    
    
    
    
    
    
    
 Balance, June 30, 2018
  3,653,328.00 
 3,653.00 
  1,648,657 
 1,649 
 68,766,830 
  (24,840)
 (43,194)
 353,089 
 (56,414,319)
 12,667,708 
 
    
    
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
    
    
 Re-purchase of Common and Preferred shares
  (62,200)
  (62)
  - 
  - 
  (194,984)
  (9,000)
  (14,653)
 -
  116,017 
  (93,682)
 
    
    
    
    
    
    
    
    
    
  - 
 Foreign currency translation
 -
 -
 -
 -
 -
 -
 -
  229,484 
 -
  229,484 
 
    
    
    
    
    
    
    
    
    
  - 
 Share-based compensation expense
  193,584 
  194 
 -
 -
  297,190 
 -
 -
 -
 -
  297,384 
 
    
    
    
    
    
    
    
    
    
  - 
 Net loss
 -
 -
 -
 -
 -
 -
 -
 -
  (455,044)
  (455,044)
 
    
    
    
    
    
    
    
    
    
    
 Balance, September 30, 2018
  3,784,712.00 
 $3,785.00 
  1,648,657 
 $1,649 
 $68,869,036 
  (33,840)
 $(57,847)
 $582,573 
 $(56,753,346)
 $12,645,850 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
 
 
 
 Preferred stock
 
 
 Common stock
 
 
 Paid-in
 
 
Comprehensive
 
 Accumulated
 
 
 Treasury Stock
 
 
Total Stockholders'
 
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Capital
 
 
  income
 
 
 Deficit
 
 
 Shares
 
 
 Amount
 
   Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Balance, December 31, 2018
 
    3,784,712.00 
 
  3,785 
  1,648,657 
 $1,649 
 $68,751,871 
 $344,182 
 $(67,127,122)
  (33,840)
 $(57,847)
 $1,916,518 
 
    
    
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
    
  - 
 Foreign currency translation
 -
 -
 -
 -
 -
 73,145.00 
 -
 -
 -
  73,145 
 
    
    
    
    
    
    
    
    
    
  - 
 Share-based compensation expense
 -
 -
 -
 -
 58,840.00 
 -
 -
 -
 -
  58,840 
 
    
    
    
    
    
    
    
    
    
  - 
 Net loss
 -
 -
 -
 -
 -
 -
 (211,986.00)
 -
 -
  (211,986)
 
    
    
    
    
    
    
    
    
    
  - 
 Balance, March 31, 2019
  3,784,712 
 3,785 
 1,648,657 
 1,649 
 68,810,711 
 417,327 
 (67,339,108)
  (33,840)
 (57,847)
 1,836,517 
 
    
    
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
    
    
 Foreign currency translation
 -
 -
 -
 -
 -
 50,233.00 
 -
 -
 -
  50,233 
 
    
    
    
    
    
    
    
    
    
  - 
 Share-based compensation expense
 -
 -
 -
 -
 (1,100.00)
 -
 -
 -
 -
  (1,100)
 
    
    
    
    
    
    
    
    
    
  - 
 Share-based compensation expense
  653,866 
  654 
 -
 -
 82,567.00 
 -
 -
 -
 -
  83,221 
 
    
    
    
    
    
    
    
    
    
  - 
 Dividend paid
 -
 -
 -
 -
 -
 -
  (163,236.00)
 -
 -
  (163,236)
 
    
    
    
    
    
    
    
    
    
  - 
 Net loss
 -
 -
 -
 -
 -
 -
 (23,247.00)
 -
 -
  (23,247)
 
    
    
    
    
    
    
    
    
    
  - 
 Balance, June 30, 2019
  4,438,578 
 4,439 
 1,648,657 
 1,649 
 8,892,178 
 467,560 
 (67,525,591)
  (33,840)
 (57,847)
 1,782,388 
 
    
    
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
    
 
 Foreign currency translation
 -
 -
 -
 -
 -
 (24,925.00)
 -
 -
 -
  (24,925)
 
    
    
    
    
    
    
    
    
    
  - 
 Share-based compensation expense
 -
 -
 -
 -
 303,958.00 
 -
 -
 -
 -
  303,958 
 
    
    
    
    
    
    
    
    
    
  - 
 Net income
 -
 -
 -
 -
 -
 -
 581,633.00 
 -
 -
  581,633 
 
    
    
    
    
    
    
    
    
    
  - 
 Balance, September 30, 2019
  4,438,578 
 $4,439 
 $1,648,657 
 $1,649 
 $69,196,136 
 $442,635 
 $(66,943,958)
  (33,840)
 $(57,847)
 $2,643,054 
 
 
See accompanying notes to consolidated financial statements
 
 
 
PAID, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2019
 
Note 1. Organization and Significant Accounting Policies
 
PAID, Inc. (“PAID”, the “Company”, “we”, “us”, or “our”) has developed AuctionInc, which is a suite of online shipping and tax management tools assisting businesses with e-commerce storefronts, shipping solutions, tax calculation, inventory management, and auction processing. The product has tools to assist with other aspects of the fulfillment process, but the main purpose of the product is to provide accurate shipping and tax calculations and packaging algorithms that provide customers with the best possible shipping and tax solutions.
 
BeerRun Software is a brewery management and Alcohol and Tobacco Tax and Trade Bureau tax reporting software. Small craft brewers can utilize the product to manage brewery schedules, inventory, packaging, sales and purchasing. Tax reporting can be processed with a single click and is fully customizable by state or province. The software is designed to integrate with QuickBooks accounting platforms by using our powerful sync engine. We currently offer two versions of the software: BeerRun and BeerRun Light. The light version excludes some of the enhanced features of BeerRun without disrupting the core functionality of the software. Additional features include Brewpad and Kegmaster and can be added on to the base product. During 2018, the software was upgraded to create a better user experience.
 
ShipTime Canada Inc. has developed a SaaS-based application, which focuses on the small and medium business segments. This offering allows members to quote, process, generate labels, dispatch and track courier and LTL shipments all from a single interface. The application provides customers with a choice of today’s leading couriers and freight carriers all with discounted pricing allowing members to save on every shipment. ShipTime can also be integrated into on-line shopping carts to facilitate sales via e-commerce. We actively sell directly to small and medium businesses and through long standing partnerships with selected associations throughout Canada. 
 
General Presentation and Basis of Consolidated Financial Statements
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and with the rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2018 that was filed on April 1, 2019.
 
In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited consolidated financial statements, and these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2019.
 
Going Concern and Management's Plan
 
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has continued to incur operating losses, although it has taken significant steps to reduce them. For the nine months ended September 30, 2019, the Company reported a loss from operations of $548,979. The Company has an accumulated deficit of $66,943,957 and has a working capital deficit of $429,512 as of September 30, 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
 
Management feels that the addition of the new PAID platform of services in addition to the continued growth of ShipTime’s services will return a valuable impact on the Company’s success in the near future. The ongoing positive cash flow from operations is a significant indicator of our successful transition to the new shipping services. In addition to the existing services provided, ShipTime will launch products in the United States that are complementary to the current offerings.
 
Although there can be no assurances, the Company believes that the above management plan will be sufficient to meet the Company's working capital requirements and will have a positive impact on the Company for the remainder of 2019 and future years.
 
 
Principles of Consolidation
 
The condensed consolidated financial statements include the accounts of PAID, Inc. and its wholly owned subsidiaries, PAID Run, LLC and ShipTime Canada, Inc. All intercompany accounts and transactions have been eliminated.
 
Foreign Currency
 
The currency of ShipTime, the Company’s international subsidiary, is in Canadian dollars. Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at September 30, 2019 and December 31, 2018. Results of operations and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities is included as a separate component of shareholders’ equity in accumulated other comprehensive income.
 
Geographic Concentrations
 
The Company conducts business in the U.S. and Canada. For customers headquartered in their respective countries, the Company derived approximately 97% of its revenues from Canada and 3% from the U.S. during the three months ended September 30, 2019, compared to 95% from Canada and 5% from the U.S. during the three months ended September 30, 2018. For the nine months ended September 30, 2019, the Company derived 96% of its revenues from Canada and 4% from the U.S. compared to 95% from Canada and 5% from the U.S. during the same period in 2018.
 
At September 30, 2019, the Company maintained 100% of its property and equipment net of accumulated depreciation in Canada.
 
Right of Use Assets
 
A right-of-use asset represents a lessee’s right to use a leased asset for the term of the lease. Our right-of-use assets generally consist of an operating lease for a building.
 
Right-of-use assets are measured initially at the present value of the lease payments, plus any lease payments made before a lease began and any initial direct costs, such as commissions paid to obtain a lease.
 
Right-of-use assets are subsequently measured at the present value of the remaining lease payments, adjusted for incentives, prepaid or accrued rent, and any initial direct costs not yet expensed.
 
Long-Lived Assets
 
The Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the fair value of the related asset. No impairment charges were recognized during the three and nine months ended September 30, 2019 and 2018. There can be no assurance, however, that market conditions will not change or demand for the Company’s services will continue, which could result in impairment of long-lived assets in the future.
 
Revenue Recognition
 
The Company generates revenue principally from fees for coordinating shipping services, sales of shipping calculator subscriptions, brewery management software subscriptions, and client services.
 
Nature of Goods and Services
 
For label generation service revenues the Company recognizes revenue when a customer has successfully prepared a shipping label and scheduled a pickup. Customers with pickups after the end of the reporting period are recorded as contract liabilities on the condensed consolidated balance sheets. The service is offered to consumers via an online registration and allows users to create a shipping label using a credit card on their account (all customers must have a valid credit card on file to process shipments on the ShipTime platform). ShipTime, in partnership with the Canadian Federation of Independent Businesses (“CFIB”), offered a cash rebate to its customers. Revenues were recognized net of the cash rebates, which were held in “funds held in trust” account in the accompanying condensed consolidated balance sheets. The cash rebates were available for twelve months for future use. Rebate revenue was recognized when the rebate was used.
 
 
Beginning in 2018, customers were offered airline miles as a reward in lieu of a cash rebate. As a result, the CFIB allowed the Company to release the funds held in trust for unused customer rebates back to cash and cash equivalents. As the Company transitioned from cash rebates to airline mile rewards, customers were allowed to convert their existing cash rebate balances to airline miles at the rate of 10 miles per $1 of rebates. For the three and nine months ended September 30, 2019, the Company recognized $0 and $8,066, respectively, of other income related to these conversions as the cost of the exchanged airline miles was less than the value of the cash rebates exchanged. Unused airline miles are recorded in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. During the second quarter of 2019 the prepaid miles purchased to be awarded to customers were scheduled to expire. Aeroplan granted permission for a one-time transfer of the balance of the prepaid miles to the Company’s Aeroplan account. As a result, the Company recorded an expense in the amount of $32,102.
 
For shipping calculator revenues and brewery management software revenues, the Company recognizes subscription revenue on a monthly basis. Shipping calculator customers’ renewal dates are based on their date of installation and registration of the shipping calculator line of products. The timing of the revenue recognition and cash collection may vary within a given quarter and the deposits for future services are recorded as contract liabilities on the condensed consolidated balance sheets. Brewery management software subscribers are billed monthly at the first of the month. All payments are made via credit card for the month following.
 
Revenue Disaggregation
 
The Company operates in four reportable segments (see below).
 
Performance Obligations
 
At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Revenue is recognized when the performance obligation has been met, which is when the customer has successfully prepared a shipping label and scheduled a pickup for shipping coordination and label generation services. The Company considers control to have transferred at that time because the Company has a present right to payment at that time, the Company has provided the shipping label, and the customer is able to direct the use of, and obtain substantially all of the remaining benefits from the shipping label.
 
For arrangements under which the Company provides a subscription for shipping calculator services and brewery management software, the Company satisfies its performance obligations over the life of the subscription, typically twelve months or less.
 
The Company has no shipping and handling activities related to contracts with customers.
 
Significant Payment Terms
 
Pursuant to the Company’s contracts with its customers, amounts are collected up front primarily through credit/debit card transactions. Accordingly, the Company determined that its contracts with customers do not include extended payment terms or a significant financing component.
 
Variable Consideration
 
In some cases, the nature of the Company’s contracts may give rise to variable consideration, including rebates and cancellations or other similar items that generally decrease the transaction price.
 
Variable consideration is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical, current and forecasted) that is reasonably available.
 
Revenues are recorded net of variable consideration, such as rebates and cancellations.
   
Warranties
 
The Company’s products and services are provided on an “as is” basis and no warranties are included in the contracts with customers. Also, the Company does not offer separately priced extended warranty or product maintenance contracts.
 
Contract Assets
 
Typically, the Company has already collected revenue from the customer at the time it has satisfied its performance obligation. Accordingly, the Company has only a small balance of accounts receivable, totaling $133,938 and $87,718 as of September 30, 2019 and December 31, 2018, respectively. Generally, the Company does not have material amounts of contract assets since revenue is recognized as control of goods is transferred or as services are performed.
 
Contract Liabilities (Deferred Revenue)
 
Contract liabilities are recorded when cash payments are received in advance of the Company’s performance (including rebates). Contract liabilities were $101,872 and $144,221 at September 30, 2019 and December 31, 2018, respectively. During the three months and nine months ended September 30, 2019, the Company incurred liabilities of $4,133, for the nine months ended September 30, 2019 the Company recognized revenues of $1,301 and $48,516, respectively, related to contract liabilities outstanding at the beginning of the year.
 
Earnings (Loss) Per Common Share
 
Basic earnings (loss) per share represent income (loss) available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income (loss) that would result from the assumed issuance. The potential common shares that may be issued by the Company relate to outstanding stock options.
 
For the three months and nine months ended September 30, 2019, there were approximately 59,000, and 55,000, respectively, of dilutive shares included in the diluted earnings per share. For the three and nine months ended September 30, 2018 there were approximately 60,000 and 61,000, respectively, of dilutive shares that were excluded from the diluted earnings (loss) per share as their effect would have been antidilutive for the period.
 
The Company computes its income (loss) applicable to common shareholders by adding/subtracting dividends on preferred stock, including undeclared or unpaid dividends if cumulative, and any deemed dividends or discounts on redeemed preferred stock from its reported net income (loss) and reports the same on the face of the condensed consolidated statements of operations and comprehensive income (loss).
 
Segment Reporting
 
The Company reports information about segments of its business in its annual consolidated financial statements and reports selected segment information in its quarterly reports issued to shareholders. The Company also reports on its entity-wide disclosures about the products and services it provides and reports revenues and its major customers. The Company’s four reportable segments are managed separately based on fundamental differences in their operations. At September 30, 2019, the Company operated in the following four reportable segments:
 
a.
Client services
b.
Shipping calculator services
c.
Brewery management software
d.
Shipping coordination and label generation services
 
The Company evaluates performance and allocates resources based upon operating income. The accounting policies of the reportable segments are the same as those described in this summary of significant accounting policies. The Company’s chief operating decision makers are the Chief Executive Officer and Chief Financial Officer.
 
The following table compares total revenue for the periods indicated.
 
 
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
 
 
September 30,
2019
 
 
September 30,
2018
 
 
September 30,
2019
 
 
September 30,
2018
 
Client services
 $1,073 
 $2,890 
 $17,191 
 $13,455 
Shipping calculator services
  41,923 
  40,699 
  117,887 
  134,394 
Brewery management software
  49,107 
  68,101 
  156,394 
  211,124 
Shipping coordination and label generation services
  2,634,330 
  2,126,755 
  7,439,478 
  6,213,868 
Total revenues
 $2,726,433 
 $2,238,445 
 $7,730,950 
 $6,572,841 
 
 
 
The following table compares total loss from operations for the periods indicated.
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
September 30,
2019
 
 
September 30,
2018
 
 
September 30,
2019
 
 
September 30,
2018
 
Client services
 $844 
 $2,234 
 $13,034 
 $10,366 
Shipping calculator services
  (359,647)
  (95,941)
  (561,515)
  (644,377)
Brewery management software
  19,231 
  2,461 
  53,029 
  (8,376)
Shipping coordination and label generation services
  28,569 
  (396,066)
  (53,527)
  (551,220)
Total loss from operations
 $(311,003)
 $(487,312)
 $(548,979)
 $(1,193,607)
 
Reclassifications
 
Certain amounts were reclassified in the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2018 in order to conform to the current period presentation.
 
Recent Accounting Pronouncements
 
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases”, which requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018 with early adoption permitted.
 
The Company adopted the new lease standard (ASC 842) on January 1, 2019. We used the modified retrospective approach, which allowed us to make our transition adjustments at January 1, 2019.
 
We currently have two finance leases for office furniture and equipment. We maintain a lease inventory for those leased assets, which are currently reported on our consolidated balance sheets and we continue to report them on our consolidated balance sheet under the new standard. We have reported one material operating lease on our consolidated balance sheet beginning January 1, 2019. This lease resulted in recording operating lease right-of-use assets and operating lease obligations of approximately $84,000. We determined that no adjustment to equity was necessary related to implementation of the new lease standard.
 
The Company elected certain practical expedients and as permitted did not reassess whether existing contracts are or contain leases, the lease classification and initial direct costs for any existing leases. As part of practical expedients selected the Company also used hindsight in determining lease terms. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. Leases with an initial term of twelve months or less are not recorded on the balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term.
 
Note 2. Accrued Expenses
 
Accrued expenses are comprised of the following:
 
 
 
September 30, 2019
(unaudited)
 
 
December  31, 2018
 
Payroll and related costs
 $9,477 
 $169,691 
Professional and consulting fees
  410 
  2,100 
Royalties
  47,803 
  51,838 
Stock price guarantee
  - 
  884,241 
Sales tax
  31,902 
  31,902 
Accrued cost of revenues
  93,507 
  115,133 
Other
  12,020 
  13,728 
 Total
 $195,119 
 $1,268,633 
 
 
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Note 3. Acquisitions and Intangible Assets
 
The Company holds several patents for the real-time calculation of shipping costs for items purchased through online auctions using a zip code as a destination location indicator. It includes shipping charge calculations across multiple carriers and accounts for additional characteristics of the item being shipped, such as weight, special packaging or handling, and insurance costs. These patents help facilitate rapid and accurate estimation of shipping costs across multiple shipping carriers and also include real-time calculation of shipping.
 
In addition, the Company has various other intangibles from past business combinations.
 
At September 30, 2019 and December 31, 2018, intangible assets consisted of the following:
 
 
 
September 30,
2019
 
 
December 31,
2018
 
Patents
 $16,000 
 $16,000 
Software
  83,750 
  83,750 
Trade name
  808,717 
  785,038 
Technology
  516,491 
  501,360 
Client list / relationship
  4,753,601 
  4,620,599 
Accumulated amortization
  (2,099,001)
  (1,715,974)
 
 $4,079,558 
 $4,290,773 
  
Amortization expense of intangible assets for the nine months ended September 30, 2019 and 2018 was $351,531 and $632,630, respectively.
 
Goodwill
 
Goodwill represents the excess of the purchase price of the acquired business over the estimated fair value of the underlying net tangible and intangible assets acquired. During the year ended 2018, the Company determined that the value of goodwill was impaired and recorded a full loss on the impairment of $10,354,172.
 
Note 4. Commitments and Contingencies
 
Notes Payable
 
In 2017, the Company entered into two notes payable with a shareholder to repurchase common and preferred shares. The first note was for a period of one year for CAD $120,000 with payment terms of twelve equal installments of CAD $10,328 at an interest rate of 6%. The second note was an interest-free seven-month note for CAD $70,992 with payment terms of one payment of CAD $10,000 followed by six equal installments of CAD $10,165. Both of these notes were paid in full in 2018.
 
In January 2018, the Company entered into a note payable with a shareholder to repurchase common and preferred shares. The note was an interest-free, eight-month note for CAD $66,708 with payment terms of one payment of CAD $10,000 followed by eight equal installments of CAD $8,101. This note was paid in full in the third quarter of 2018. In April 2018, the Company entered into a note payable with a shareholder to repurchase common and preferred shares. The note was an interest-free, fifteen-month note for CAD $72,500. The Company made payments on this note in the amount of CAD $31,726. The balance of CAD $40,774 on this note was offset in the third quarter of 2018 against a note receivable to the same party (see below). In August 2018, the Company entered into a note payable with a shareholder to repurchase common and preferred shares. The note was an interest-free, six-month note for CAD $122,400 with payment terms of six equal installments of CAD $20,400. This note was paid in full in the first quarter of 2019.
 
 Related Party Note Payable
 
In June 2017, the Company agreed to make monthly payments of CAD $5,000 to related parties for seven months followed by monthly payments of CAD $15,000 with one final payment in March 2018 at which point the note was paid in full.
 
 
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Notes Receivable
 
In April 2018, the Company entered into an agreement with a third party to develop software to assist with the growth of the e-commerce platform. The agreement contained a loan to a third party in the amount of $144,000 to be loaned by the Company in eighteen installments of which CAD $40,744 was actually loaned during 2018.
 
During the third quarter of 2018, the Company cancelled the agreement and called the CAD $40,774 note with the third party developer. As a result, the balance of the note receivable was offset against the CAD $72,500 note payable for the repurchase of common and preferred shares issued to the same party (see above), and no balance on the note receivable was due.
 
Stock Price Guarantee
 
In connection with the Company’s advance royalties with a client, the Company guaranteed that shares of common stock would sell for at least $60.00 per share as adjusted for the reverse stock split.  If the shares are not at the required $60.00 per share when they are sold, the Company has the option of issuing additional shares at their fair value or making cash payments for the difference between the guaranteed price per share and the fair value of the stock.  For the nine months ended September 30, 2019 and 2018, the Company recorded an unrealized gain (loss) of $3,688 and ($3,527), respectively. As of December 31, 2018, the maximum value of the stock price guarantee was $884,241, as the Company’s stock price was below $60.00 per share at December 31, 2018. The Company would have disputed this obligation if demanded by the client; further, pursuing any action by the client was required to be initiated within six years of the time of the original issuance and the Company believes that the time for pursuing an action has expired. As a result of the expiration, the Company has eliminated this obligation from its condensed consolidated balance sheet and recorded $880,553 of other income during the third quarter of 2019.
 
Legal Matters
 
In the normal course of business, the Company periodically becomes involved in litigation. As of September 30, 2019, in the opinion of management, the Company had no pending litigation that would have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.
 
Indemnities and Guarantees
 
The Company has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain actions or transactions. The Company indemnifies its directors, officers, employees and agents, as permitted under the laws of the State of Delaware. In connection with its facility leases, the Company has agreed to indemnify its lessors for certain claims arising from the use of the facilities. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreements. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying condensed consolidated balance sheets.
 
Note 5. Shareholders’ Equity
 
Preferred Stock
 
                On December 19, 2016, the Company filed an amendment to its Certificate of Incorporation to authorize the issuance of 20,000,000 shares of blank-check preferred stock at $0.001 par value, of which 3,825,000 shares have been reserved for future issuance. The Board of Directors will be authorized to fix the designations, rights, preferences, powers and limitations of each series of the preferred stock.
 
The Company filed a Certificate of Designations effective on December 30, 2016 which sets aside 5,000,000 shares of Preferred Stock as Series A Preferred Stock. The Series A Preferred Stock holders have no voting rights and have an aggregate liquidation value of $11,778,367 at September 30, 2019. The Series A Preferred Stock also carries a coupon payment obligation of 1.5% of the liquidation value per share ($3.03) per year in cash or additional Series A preferred Stock, calculated by taking the 30-day average closing price for an equal number of shares of common stock for the month immediately preceding the coupon payment date, which is made annually. The Company paid the 2017 coupon payment due to shareholders in the second quarter of 2019 in the amount of $163,236. For the nine month periods ended September 30, 2019 and 2018, the estimated portion of the annual coupon is $141,287 and $128,914, respectively, which has been added to the liquidation value of the preferred stock. The Series A Preferred Stock has no voting or conversion rights. If purchased, redeemed, or otherwise acquired (other than conversion), the preferred stock may be reissued.
 
During the second quarter of 2019, the Company issued 653,866 preferred shares in the form of compensation to employees. The value of the share issuance is $83,221.
 
 
 
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Common Stock
 
The Company has authorized and reserved for future issuance 512,380 shares of common stock and 3,565,004 shares of preferred stock with respect to the remaining exchangeable shares to be issued as a result of the ShipTime acquisition by the Company in 2016.
 
Share Repurchase
 
In January 2018, the Company entered into an agreement to repurchase 109 exchangeable shares of ShipTime common stock. The total shares exchanged in this transaction were 4,905 common shares and 33,899 preferred shares of the Company. The allocated discount on the repurchase of the preferred stock was $1.87 per share and has been recorded in accumulated deficit, and was added to the net loss available to common shareholders. The repurchase of the common shares was recorded at an allocated cost of $1.59 per share. In April 2018, the Company entered in a second agreement with a shareholder to purchase 120 exchangeable shares of ShipTime common stock. The total shares exchanged in this transaction were 5,400 common shares and 37,320 preferred shares of the Company. The discount on the repurchase of preferred stock was $1.90 per share and has been recorded in accumulated deficit, and was added to the net loss available to common shareholders. The repurchase of the common shares was recorded at an allocated cost of $1.58 per share. In August 2018, the Company entered in an additional agreement with a shareholder to purchase 200 exchangeable shares of ShipTime common stock. The total shares exchanged in this transaction were 9,000 common shares and 62,200 preferred shares of the Company. The discount on the repurchase of preferred stock was $1.87 per share and has been recorded in accumulated deficit, and was added to the net loss available to common shareholders. The repurchase of the common shares was recorded at an allocated cost of $1.58 per share. There were no share repurchases during the nine months ended September 30, 2019.
 
Share-based Incentive Plans
 
The Company has a 2018 Stock Option Plan which reserves 450,000 non-qualified stock options to be granted to employees. The Company has three additional stock option plans that include both incentive and non-qualified stock options to be granted to certain eligible employees, non-employee directors, or consultants of the Company. The Company granted 15,000 stock options to one employee during the quarter ended March 31, 2019. The options have vesting period of one-third immediately, one-third in 18 months, and one-third in 36 months from the date of the grant, they expire if not exercised within ten years from grant date, and the exercise price is $2.92 per share. The Company granted 1,245 stock options to one employee during the quarter ended June 30, 2019. The options have vesting period of one-third immediately, one-third in 18 months, and one-third in 36 months from the date of the grant, they expire if not exercised within ten years from grant date, and the exercise price is $3.50 per share. During the second quarter of 2019, the Company recorded a reversal of unvested stock option expense for the termination of a non-employee consultant’s 25,000 stock options totaling $44,167 and $43,067 of stock compensation expense related to the vesting of applicable options granted in 2019 and prior years. The Company granted 119,775 stock options to three directors and four employees during the third quarter. There were 77,275 stock options granted to the directors and one employee that vested immediately, the remaining three employees received 42,500 stock options with a vesting period of one-third immediately, one-third in 18 months, and one-third in 36 months from the date of the grant. All stock options granted in the third quarter expire if not exercised within ten years from grant date, and the exercise price ranges from $2.96 to $3.00 per share.
 
For the three and nine month periods ended September 30, 2019, the Company recorded $303,958 and $361,698 of stock compensation expense related to the vesting of applicable options granted in 2019 and prior years, net of the reversal discussed above.
 
Note 6. Leases
 
We have operating leases for our corporate offices in Canada and finance leases for furniture and equipment. Our leases have remaining lease terms of fifteen months to forty nine months, and our primary operating leases include options to extend the leases for four years. Future renewal options that are not likely to be executed as of the balance sheet date are excluded from right-of-use assets and related lease liabilities.
 
We report operating leased assets, as well as operating lease current and noncurrent obligations on our balance sheets for the right to use the building in our business. Our finance leases represent furniture and office equipment; we report the furniture and equipment, as well as finance lease current and noncurrent obligations on our balance sheets.
 
 
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Generally, interest rates are stated in our leases for equipment. When no interest rate is stated in a lease, however, we review the interest rates implicit in our recent finance leases to estimate our incremental borrowing rate. We determine the rate implicit in a lease by using the most recent finance lease rate, or other method we think most closely represents our incremental borrowing rate.
 
The components of lease expense were as follows:
 
 
 
Three Months Ended September 30, 2019
 
 
Nine Months Ended September 30, 2019
 
Operating lease cost
 $12,091 
 $23,397 
 
    
    
Finance lease cost:
    
    
Amortization of leased assets
 $2,559 
 $7,812 
Interest on lease liabilities
  393 
  1,325 
Total finance lease cost
 $2,952 
 $9,137 
 
Supplemental cash flow information related to leases was as follows:
 
 
 
Nine Months Ended September 30, 2019
 
Cash paid for amounts included in leases:
 
 
 
Operating cash flows from operating leases
 $20,929 
Operating cash flows from finance leases
 $1,325 
Financing cash flows from finance leases
 $6,523 
 
    
Right-of-use assets obtained in exchange for lease obligations:
    
Operating leases
 $55,600 
Finance leases
 $- 
 
Supplemental balance sheet information related to leases was as follows:
 
 
 
September 30,
2019
 
Operating leases:
 
 
 
Operating lease right-of-use assets
 $125,702 
Current portion of operating lease obligations
 $28,816 
Operating lease obligations, net of current portion
  99,651 
Total operating lease liabilities
 $128,467 
 
    
Finance leases:
    
Property and equipment, at cost
 $52,065 
Accumulated depreciation
  (33,842)
Property and equipment, net
 $18,223 
 
    
Current portion of finance lease obligations
 $9,511 
Finance lease obligations, net of current portion
  5,261 
Total finance lease liabilities
 $14,772 
 
Weighted average remaining lease term:
 
 
 
Operating lease
  3.9 years 
Finance leases
  1.6 years 
 
    
Weighted average discount rate:
    
Operating lease
  9.0%
Finance leases
  9.7%
 
Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.

 
 
-14-
A summary of future minimum payments under non-cancellable operating lease commitment as of September 30, 2019 is as follows:
 
Years ending December 31,
 
Total
 
2019 (remaining months)
 $9,801 
2020
  39,203 
2021
  39,203 
2022
  39,203 
2023
  26,135 
Total lease liabilities
 $153,545 
   Less amount representing interest
  (25,078)
Total
  128,467 
  Less current portion
  (28,816)
 
 $99,651 
 
The following is a schedule of minimum future rentals on the non-cancelable finance leases as of September 30, 2019:
 
Year ending December 31,
 
Total
 
2019 (remaining months)
 $2,622 
2020
  10,489 
2021
  2,804 
Total minimum payments required
  15,915 
Less amount representing interest
  (1,143)
Present value of net minimum lease payments
  14,772 
Less current portion
  (9,511)
 
 $5,261 
 
Disclosures related to periods prior to adoption of ASC 842
 
Minimum future lease payments under lease obligations as of December 31, 2018 are as follows:
 
Year Ended December 31,
 
Capital
 
 
Operating
 
2019
 $10,222 
 $29,779
 
2020
  10,222 
  38,202 
2021
  2,736 
  38,202 
2022
  - 
  38,202 
2023
  - 
  25,477 
Total future minimum lease payments
  23,180 
  169,862 
Less amount representing interest
  (2,484)
    
Present value of net minimum lease payment
  20,696 
    
Less current portion  
  (8,580)
    
 
 $12,116 
    
 
 Note 7. Subsequent Events
 
The Company has evaluated subsequent events through the filing date of this Form 10-Q, and has determined that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto, other than as disclosed herein.
 
 
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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, 2018 that was filed on April 1, 2019.
 
For example, the Company's ability to maintain positive cash flow and to become profitable may be adversely affected as a result of a number of factors that could thwart its efforts. These factors include the Company's inability to successfully implement the Company's business and revenue model, higher costs than anticipated, the Company's inability to sell its products and services to a sufficient number of customers, the introduction of competing products or services by others, the Company's failure to attract sufficient interest in, and traffic to, its site, the Company's inability to complete development of its products, the failure of the Company's operating systems, and the Company's inability to increase its revenues as rapidly as anticipated. If the Company is not profitable in the future, it will not be able to continue its business operations.
 
Except as required by applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise. Readers are urged to review carefully and to consider the various disclosures made by the Company in this Quarterly Report, which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
 
Overview
 
ShipTime Canada Inc. ShipTime’s platform provides its members with the ability to quote, process, track and dispatch shipments while getting preferred rates on packages and skidded (LTL) freight shipments throughout North America and around the world. In addition to these features, ShipTime also provides what it refers to as “Heroic Multilingual Customer Support.” In this capacity, ShipTime acts as an advocate on behalf of its clients in resolving matters concerning orders and shipping.  With an increasing focus and service offering for e-commerce merchants, which include online shopping carts, inventory management, payment services, client prospecting and retention software, ShipTime can help merchants worldwide grow and scale their businesses. ShipTime generates monthly recurring revenue through transactions and “software as a service” (SAAS) offerings. It currently serves in excess of 50,000 members in North America and has plans to expand its services into Europe and then worldwide.
 
AuctionInc Software. AuctionInc is a suite of online shipping and tax management tools assisting businesses with e-commerce storefronts, shipping solutions, tax calculation, inventory management, and auction processing. The application was designed to focus on real-time carrier calculated shipping rates and tax calculations. The product does have tools to assist with other aspects of the fulfillment process, but the main purpose of the product is to provide accurate shipping and tax calculations and packaging algorithms that provide customers with the best possible shipping and tax solutions.
 
 
 
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BeerRun Software. BeerRun Software is a brewery management and Alcohol and Tobacco Tax and Trade Bureau tax reporting software. Small craft brewers can utilize the product to manage brewery schedules, inventory, packaging, sales and purchasing. Tax reporting can be processed with a single click and is fully customizable by state or province. The software is designed to integrate with QuickBooks accounting platforms by using our powerful sync engine. We currently offer two versions of the software BeerRun and BeerRun Light which excludes some of the enhanced features of BeerRun without disrupting the core functionality of the software. Additional features include Brewpad and Kegmaster and can be added on to the base product. Craft brewing continues to grow in the United States and we feel that there is considerable potential to grow this portion of our business.
 
Paid products are in development and include PaidCart and PaidPayments. These additional offerings will provide a full e-commerce solution for small businesses.
 
Significant Accounting Policies
 
Our significant accounting policies are more fully described in Note 3 to our consolidated financial statements for the years ended December 31, 2018 and 2017 included in our Form 10-K filed on April 1, 2019, as updated and amended in Note 1 of the Notes to Condensed Consolidated Financial Statements included herein. In addition, we adopted the new revenue recognition standard on January 1, 2018 with no effect to current or past amounts recognized as revenue. Also, we adopted the new lease standard as required by ASU 2016-02 on January 1, 2019. However, certain of our accounting policies, most notably with respect to revenue recognition, are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management; as a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management makes estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses andrelated disclosures. Those estimates and judgments are based upon our historical experience, the terms of existing contracts, our observance of trends in the industry, information that we obtain from our customers and outside sources, and on various otherassumptions that we believe to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
Results of Operations
 
Comparison of the three months ended September 30, 2019 and 2018.
 
The following discussion compares the Company's results of operations for the three months ended September 30, 2019 with those for the three months ended September 30, 2018. The Company's condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report contain detailed information that should be referred to in conjunction with the following discussion.
 
Revenues
 
The following table compares total revenue for the periods indicated.
 
 
 
Three months Ended September 30,
 
 
 
 
 
 
2019
 
 
2018
 
 
% Change
 
Client services
 $1,073 
 $2,890 
 $(63)%
Brewery management software
  49,107 
  68,101 
  (28)%
Shipping coordination and label generation services
  2,634,330 
  2,126,755 
  24%
Shipping calculator services
  41,923 
  40,699 
  3%
Total revenues
 $2,726,433 
 $2,238,445 
  22%
 
 
 
    
Revenues increased 22% in the third quarter primarily from the growth of our shipping coordination and label generation services.
 
Client service revenues decreased $1,817 or 63% to $1,073 in the third quarter of 2019 compared to $2,890 in 2018. This decrease is a result of the limited number of successful movie posters auctioned during the third quarter.
 
Brewery management software revenues decreased $18,994 to $49,107 in 2019 from $68,101 in 2018. The decrease in revenues is due to cancellations of several clients and an increase in competition.
 
 
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Shipping coordination and label generation service revenues increased $507,575 or 24% to $2,634,330 in the third quarter of 2019 compared to $2,126,755 in 2018. The increase is attributable to the increased marketing, new corporate partnerships and brand recognition for this segment of our business.
 
Shipping calculator services revenue increased $1,224 or 3% to $41,923 in the third quarter of 2019 compared to $40,699 in 2018.  The increase was primarily due to the success of our largest e-commerce client and the increase in billable services.
 
Gross Profit
 
Gross profit increased $240,222 or 47% in the third quarter of 2019 to $752,934 compared to $512,712 in 2018. Gross margin increased to 28% for the third quarter of 2019 compared to 23% in the third quarter of 2018. The growth in gross margin is a result of the reduction in amortization of technology which was fully amortized in 2018.
 
Operating Expenses
 
Total operating expenses in the third quarter 2019 were $1,063,937 compared to $1,000,024 in the third quarter of 2018, an increase of $63,913 or 6%. The increase is primarily due to the stock-based compensation that was recorded for option issuances with immediate vesting during the third quarter of 2019.
 
Other Income/Expense, net
 
Net other income (expense) in the third quarter of 2019 was $892,637 compared to $32,268 in the same period of 2018, a change of $860,369. This change is due to a gain recognized related to the elimination of the stock price guarantee liability of $880,553 in 2019.
 
Net Income
 
The Company realized a net income in the third quarter of 2019 of $581,634 compared to a net loss of ($455,044) for the same period in 2018. The basic net income (loss) available to common shareholders for the third quarter of 2019 and 2018 represent $0.33 and ($0.24) per share, respectively.
 
Comparison of the nine months ended September 30, 2019 and 2018.
 
The following discussion compares the Company's results of operations for the nine months ended September 30, 2019 with those for the nine months ended September 30, 2018. The Company's condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report contain detailed information that should be referred to in conjunction with the following discussion.
 
Revenues
 
The following table compares total revenue for the periods indicated.
 
 
 
Nine months Ended September 30,
 
 
 
 
 
 
2019
 
 
2018
 
 
% Change
 
Client services
 $17,191
 
 $13,455
 
  28%
Brewery management software
  156,394 
  211,124
 
  (26)%
Shipping coordination and label generation services
  7,439,478 
  6,213,868
 
  20%
Shipping calculator services
  117,887 
  134,394
 
  (12)%
Total revenues
 $7,730,950 
 $6,572,841
 
  18%
 
 
 
    
Revenues increased 18% in the first three quarters of 2019 primarily from the growth of our shipping coordination and label generation services.
 
Client service revenues increased $3,736 or 28% to $17,191 in 2019 compared to $13,455 in 2018. This increase is a result of the number of successful sales of our movie posted inventory at auction.
 
 
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Brewery management software revenues decreased $54,730 to $156,394 in 2019 from $211,124 in 2018. The decrease in revenues is due to a reduced number of new clients and an increase in competition.
 
Shipping calculator services revenue decreased $16,507 or 12% to $117,887 in 2019 compared to $134,394 in 2018.  The decrease was primarily due to a decline in new customers and the focus on transitioning this segment of the business to a new platform.
 
Shipping coordination and label generation service revenues increased $1,225,610 or 20% to $7,439,478 in 2019 compared to $6,213,868 in 2018. The increase is attributable to the increased marketing and strengthening of carrier and affiliate relationships for this segment of our business.
 
Gross Profit
 
Gross profit increased $515,969 or 33% in 2019 to $2,081,415 compared to $1,565,446 in 2018. Gross margin increased to 27% for 2019 compared to 24% for 2018. The growth in gross margin is a result of the reduction in amortization of technology which was fully amortized in 2018.
 
Operating Expenses
 
Total operating expenses in 2019 were $2,630,394 compared to $2,759,053 in 2018, a decrease of $128,659 or 5%. The decrease is due to the ongoing expense analysis in addition to a decrease in stock-based compensation. The Company recorded a $361,698 stock-based compensation expense in 2019 compared to $716,833 in 2018.
 
Other Income/Expense, net
 
Net other income (expense) in 2019 was $896,340 compared to $37,117 in the same period of 2018, a change of $859,223. This change is due to a gain recognized related to the elimination of the stock price guarantee liability of $880,553 in 2019.
 
Net income
 
The Company realized a net income in 2019 of $346,401 compared to a net loss of ($1,157,750) for the same period in 2018. The basic net income (loss) available to common stockholders for the nine months ended September 30, 2019 and 2018 represent $0.13 and ($0.64) per share, respectively.
 
Cash Flows from Operating Activities
 
A summarized reconciliation of the Company's net income (loss) to cash and cash equivalents provided by operating activities for the nine months ended September 30, 2019 and 2018 is as follows:
 
 
 
2019
 
 
2018
 
Net income (loss)
 $346,401
 
 $(1,157,750)
Depreciation and amortization
  368,183 
  649,537
 
Amortization of operating lease right-of-use assets
  16,020 
  -
 
Share-based compensation
  361,698 
  716,833
 
Unrealized loss (gain) on stock price guarantee
  (3,688)
  3,527
 
Other income from stock price guarantee
  (880,553)
    
Loss on disposal of property and equipment
  - 
  1,944
 
Changes in assets and liabilities
  (125,441)
  (64,130
 
Net cash provided by operating activities
 $82,620
 
 $149,961 
 
Working Capital and Liquidity
 
The Company had cash and cash equivalents of $525,201 at September 30, 2019, compared to $632,331 at December 31, 2018. The Company had a negative working capital of $429,512 at September 30 2019, a change of $935,164 compared to $1,364,676 at December 31, 2018. The decrease in working capital deficit is attributable to the write-off of the stock price guarantee liability. The decrease in cash and cash equivalents is due to the additional personnel and consultants that the Company has hired.
 
The Company may need an infusion of additional capital to fund anticipated operating costs over the next twelve months, however, management believes that the Company has adequate cash resources to fund operations. There can be no assurance that anticipated growth will occur, and that the Company will be successful in launching new products and services. If necessary, management will seek alternative sources of capital to support operations.
 
 
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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
As a smaller reporting company, the Company is not required to provide the information for this Item 3.
 
ITEM 4.    CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
The Company's management, including the Chief Executive Officer of the Company and the Chief Financial Officer of the Company, as its principal financial officers have evaluated the effectiveness of the Company's “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based upon this evaluation, the Chief Executive Officer, and Chief Financial Officer both have concluded that, as of September 30, 2019, the Company's disclosure controls and procedures were not effective, due to material weaknesses in internal control over financial reporting, for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time period specified by the Securities and Exchange Commission's rules and forms, and is accumulated and communicated to the Company's management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
 
The Company has identified numerous material weaknesses in internal control over financial reporting as described in the Company's Form 10-K for the year ended December 31, 2018.
 
Changes in Internal Control over Financial Reporting
 
The Company continues to evaluate the internal controls over financial reporting and is working toward implementation of corporate governance, increased communication and updates to control documents and documentation of all procedures. During the third quarter the Company published several policies and procedures to communicate internal control guidelines. The personnel count continues to grow allowing us to easily segregate duties and have proper approval processes.
 
PART II - OTHER INFORMATION
 
ITEM 1.     LEGAL PROCEEDINGS
 
In the normal course of business, the Company periodically becomes involved in litigation.  As of September 30, 2019, in the opinion of management, the Company had no material pending litigation other than ordinary litigation incidental to the business.
 
ITEM 1A.     RISK FACTORS
 
There are no material changes for the risk factors previously disclosed on Form 10-K for the year ended December 31, 2018.
 
ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
There were no issuances of unregistered securities during the three months ended September 30, 2019.
 
ITEM 3.     DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4.     MINE SAFETY DISCLOSURES
 
Not Applicable.
 
ITEM 5.     OTHER INFORMATION
 
None.
 
ITEM 6.     EXHIBITS
 
 
CEO Certification required under Section 302 of Sarbanes-Oxley Act of 2002
 
CFO Certification required under Section 302 of Sarbanes-Oxley Act of 2002
 
CEO and CFO Certification required under Section 906 of Sarbanes-Oxley Act of 2002
     101.INS XBRL Instance Document (filed herewith)
     101.SCH XBRL Taxonomy Extension Schema (filed herewith)
     101.CAL XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
     101.DEF XBRL Taxonomy Extension Definition Linkbase (filed herewith)
     101.LAB XBRL Taxonomy Extension Label Linkbase (filed herewith)
     101.PRE XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
PAID, INC.
 
 
 
 
 
 
 
 
 
By:
/s/ Allan Pratt
 
 
 
Allan Pratt, Chief Executive Officer
 
 
 
By:
/s/ W. Austin Lewis IV
 
Date: November 14, 2019
 
 
W. Austin Lewis, IV, Chief Financial Officer
 
 
 
 
 
 
 
 
-21-
 
LIST OF EXHIBITS
 
Exhibit No.
Description
 
CEO Certification required under Section 302 of Sarbanes-Oxley Act of 2002
CFO Certification required under Section 302 of Sarbanes-Oxley Act of 2002
CEO and CFO Certification required under Section 906 of Sarbanes-Oxley Act of 2002
          101.INS                                  XBRL Instance Document (filed herewith)
          101.SCH                                 
XBRL Taxonomy Extension Schema (filed herewith)
          101.CAL                                 
XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
          101.DEF                                 
XBRL Taxonomy Extension Definition Linkbase (filed herewith)
          101.LAB                                 
XBRL Taxonomy Extension Label Linkbase (filed herewith)
          101.PRE                                 
XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
 
 
 
 
 
 
 
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