PAID INC - Quarter Report: 2019 June (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 June 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)

 

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 every Interactive Data File required to be submitted 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 such files).  

Yes ☐     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer	☐	Accelerated Filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		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 August 14, 2019, the issuer had outstanding 1,614,817 shares of its Common Stock.

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

 

 

 

PAID, INC.

FORM 10-Q

 

TABLE OF CONTENTS

 

Part I – Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets
		June 30, 2019 (unaudited) and December 31, 2018 (audited)	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
		Three and six months ended June 30, 2019 and 2018	2
		Unaudited Condensed Consolidated Statements of Cash Flows
		Six months ended June 30, 2019 and 2018	3
		Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity
		Three and six months ended June 30, 2019 and 2018	4-5
		Notes to Condensed Consolidated Financial Statements (unaudited)	6-16
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
	Item 4.	Controls and Procedures	21
Part II – Other Information
	Item 1.	Legal Proceedings	22
	Item 1A.	Risk Factors	22
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
	Item 3.	Defaults Upon Senior Securities	22
	Item 4.	Mine Safety Disclosures	22
	Item 5.	Other Information	22
	Item 6.	Exhibits	22
		Signatures	23

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

PAID, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

	June 30, 2019	December 31, 2018
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$595,933	$632,331
Accounts receivable, net	134,219	87,718
Prepaid expenses and other current assets	114,396	110,028
Total current assets	844,548	830,077
Property and equipment, net	99,799	90,843
Other intangible assets, net	4,232,899	4,290,773
Operating lease right-of-use assets	79,275	-
Total assets	$5,256,521	$5,211,693
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$1,028,057	$758,365
Notes payable	-	14,954
Finance leases - current portion	9,364	8,580
Accrued expenses	1,120,445	1,268,633
Contract liabilities	97,739	144,221
Operating lease obligations – current portion	16,492	-
Total current liabilities	2,272,097	2,194,753
Long term liabilities:
Finance leases - net of current portion	7,796	12,116
Operating lease obligations – net of current portion	63,136	-
Deferred tax liability, net	1,131,104	1,088,306
Total liabilities	3,474,133	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 June 30, 2019 and December 31, 2018, respectively; liquidation value of $11,727,972 and $11,800,316 at June 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 June 30, 2019 and December 31, 2018	1,649	1,649
Additional paid-in capital	68,892,178	68,751,871
Accumulated other comprehensive income	467,560	344,182
Accumulated deficit	(67,525,591)	(67,127,122)
Common stock in treasury, at cost; 33,840 shares at June 30, 2019 and December 31, 2018	(57,847)	(57,847)
Total shareholders' equity	1,782,388	1,916,518
Total liabilities and shareholders' equity	$5,256,521	$5,211,693

 

See accompanying notes to condensed consolidated financial statements

 

 

PAID, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Revenues, net	$2,715,497	$2,336,460	$5,004,517	$4,334,396
Cost of revenues:
Cost of revenues	1,976,118	1,726,985	3,676,036	3,133,832
Amortization of acquired technology	-	73,208	-	147,830
Total cost of revenues	1,976,118	1,800,193	3,676,036	3,281,662
Gross profit	739,379	536,267	1,328,481	1,052,734
Operating expenses
Salaries and related	332,026	192,904	660,874	396,181
General and administrative	325,389	333,305	617,298	666,555
Stock-based compensation	(1,100)	63,095	57,740	419,449
Amortization of other intangible assets	110,418	137,154	230,545	276,844
Total operating expenses	766,733	726,458	1,566,457	1,759,029
Loss from operations	(27,354)	(190,191)	(237,976)	(706,295)
Other income (expense):
Interest expense	-	(734)	-	(1,698)
Other income (expense), net	2,492	(1,951)	8,032	(1,951)
Unrealized gain (loss) on stock price guarantee	2,085	-	(4,329)	8,498
Total other income (expense), net	4,567	(2,685)	3,703	4,849
Loss before provision for income taxes	(22,787)	(192,876)	(234,273)	(701,446)
Provision for income taxes	460	460	960	1,260
Net loss	(23,247)	(193,336)	(235,233)	(702,706)
Preferred share redemption discount	-	70,909	-	134,153
Preferred dividends	(47,921)	(39,988)	(90,892)	(82,959)
Net loss available to common shareholders	$(71,168)	$(162,415)	$(326,125)	$(651,512)
Net loss per share – basic and diluted	$(0.04)	$(0.08)	$(0.20)	$(0.40)
Weighted average number of common shares outstanding - basic and diluted	1,614,817	1,625,004	1,614,817	1,627,722
Condensed consolidated statements of comprehensive loss
Net loss	$(23,247)	$(193,336)	$(235,233)	$(702,706)
Other comprehensive income (loss):
Foreign currency translation adjustments	50,233	(250,631)	123,378	(622,788)
Comprehensive income (loss)	$26,986	$(443,967)	$(111,855)	$(1,325,494)
See accompanying notes to condensed consolidated financial statements.

   

 

PAID, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30,

(Unaudited)

 

	2019	2018
Cash flows from operating activities:
Net loss	$(235,233)	$(702,706)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	246,207	436,469
Amortization of operating lease right-of-use assets	7,553	-
Share-based compensation	57,740	419,449
Unrealized loss (gain) on stock price guarantee	4,329	(8,498)
Loss on disposal of property and equipment	-	1,951
Changes in assets and liabilities:
Accounts receivable	(43,346)	(26,201)
Prepaid expenses and other current assets	(295)	(76,394)
Accounts payable	247,943	218,034
Accrued expenses	(84,169)	34,632
Contract liabilities	(51,202)	(8,501)
Operating lease obligations	(7,206)	-
Net cash provided by operating activities	143,321	288,235
Cash flows from investing activities:
Proceeds from sale of property and equipment	-	1,190
Loans under note receivable	-	(31,925)
Purchase of property and equipment	(16,024)	(31,472)
Net cash used in investing activities	(16,024)	(62,207)
Cash flows from financing activities:
Payments on finance leases	(4,281)	(4,055)
Payments on notes payable	(15,346)	(158,232)
Payments of preferred dividends	(163,236)	-
Payments on related party note payable	-	(29,653)
Net cash used in financing activities	(182,863)	(191,940)
Effect of exchange rate changes on cash, cash equivalents and funds in trust	20,168	(35,572)
Net change in cash, cash equivalents and funds in trust	(36,398)	(1,484)
Cash, cash equivalents and funds in trust, beginning of period	632,331	738,690
Cash, cash equivalents and funds in trust, end of period	$595,933	$737,206
Reconciliation of cash, cash equivalents and funds held in trust at end of period:
Cash and cash equivalents	$595,933	$550,637
Funds held in trust	-	186,569
Cash, cash equivalents and funds held in trust at end of period	$595,933	$737,206
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes	$500	$1,260
Interest	$932	$1,698
SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS
Repurchase of preferred and common stock with note payable	$-	$106,039
Issuance of preferred shares in settlement of accrued expenses	$83,221	$-

 

 

See accompanying notes to condensed consolidated financial statements

 

PAID, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018

 

	Preferred Stock		Common Stock		Additional Paid-in	Accumulated Other Comprehensive	Accumulated	Treasury Stock
	Shares	Amount	Shares	Amount	Capital	Income	Deficit	Shares	Amount	Total
Balance, January 1, 2018	3,724,547	$3,725	1,648,657	$1,649	$68,574,974	$975,877	$(55,845,766)	(14,535)	$(26,529)	$13,683,930
Repurchase of common and preferred shares	(33,899)	(34)	-	-	(107,184)	-	63,244	(4,905)	(7,986)	(51,960)
Foreign currency translation adjustment	-	-	-	-	-	(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	$3,691	1,648,657	$1,649	$68,824,144	$603,720	$(56,291,892)	(19,440)	$(34,515)	$13,106,797
Repurchase of common and preferred shares	(37,320)	(38)	-	-	(120,409)	-	70,909	(5,400)	(8,679)	(58,217)
Foreign currency translation adjustment	-	-	-	-	-	(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	$3,653	1,648,657	$1,649	$68,766,830	$353,089	$(56,414,319)	(24,840)	$(43,194)	$12,667,708

 

 

 

PAID, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019

 

	Preferred Stock		Common Stock		Additional Paid in	Accumulated Other Comprehensive	Accumulated	Treasury Stock
	Shares	Amount	Shares	Amount	Capital	Income	Deficit	Shares	Amount	Total
Balance, January 1, 2019	$3,784,712	$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 adjustment	-	-	-	-	-	$73,145	-	-	-	73,145
Share-based compensation expense	-	-	-	-	58,840	-	-	-	-	58,840
Net loss	-	-	-	-	-	-	(211,986)	-	-	(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 adjustment	-	-	-	-	-	50,233	-	-	-	50,233
Preferred dividends paid	-	-	-	-	-	-	(163,236)	-	-	(163,236)
Share-based compensation expense	-	-	-	-	(1,100)	-	-	-	-	(1,100)
Net loss	-	-	-	-	-	-	(23,247)	-	-	(23,247)
Preferred shares issued as compensation	653,866	654			82,567	-	-	-	-	83,221
Balance, June 30, 2019	4,438,578	$4,439	1,648,657	1,649	$68,892,178	467,560	(67,525,591)	(33,840)	(57,847)	$1,782,388

  

See accompanying notes to consolidated financial statements

 

 

PAID, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 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 losses, although it has taken significant steps to reduce them. For the six months ended June 30, 2019, the Company reported a net loss of $235,233. The Company has an accumulated deficit of $67,525,591 and has a working capital deficit of $1,427,549 as of June 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 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 June 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 96% of its revenues from Canada and 4% from the U.S. during the three months ended June 30, 2019, compared to 95% from Canada and 5% from the U.S. during the three months ended June 30, 2018. For the six months ended June 30, 2019, the Company derived 96% of its revenues from Canada and 4% from the U.S. compared to 94% from Canada and 6% from the U.S. during the same period in 2018.

 

At June 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 six months ended June 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 are available for twelve months for future use. Rebate revenue is recognized when the rebate is 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 six months ended June 30, 2019, the Company recognized $2,516 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 $134,219 and $87,718 as of June 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 $97,739 and $144,221 at June 30, 2019 and December 31, 2018, respectively. During the three and six months ended June 30, 2019, the Company recognized revenues of $3,045 and $46,482, 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 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 June 30, 2019 and 2018 and the six months ended June 30, 2019 and 2018, there were approximately 50,000 and 61,000, and 51,000 and 62,000, respectively, dilutive shares that were excluded from the diluted earnings (loss) per share as their effect would have been antidilutive for the periods then ended.

 

The Company computes its loss applicable to common shareholders by adding/subtracting dividends on preferred stock, including undeclared or unpaid dividends if cumulative, and any deemed dividends or discounts on redeemed preferred stock from its reported net loss and reports the same on the face of the condensed consolidated statements of operations and comprehensive loss.

 

Segment Reporting

 

The Company reports information about segments of its business in its annual consolidated financial statements and reports selected segment information in its quarterly reports issued to shareholders. The Company also reports on its entity-wide disclosures about the products and services it provides and reports revenues and its major customers. The Company’s four reportable segments are managed separately based on fundamental differences in their operations. At June 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		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Client services	$13,076	$5,182	$16,118	$10,565
Shipping calculator services	41,235	45,569	75,964	93,695
Brewery management software	51,218	70,960	107,287	143,023
Shipping coordination and label generation services	2,609,968	2,214,749	4,805,148	4,087,113
Total revenues	$2,715,497	$2,336,460	$5,004,517	$4,334,396

 

The following table compares total loss from operations for the periods indicated.

 

	Three Months Ended		Six Months Ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
Client services	$9,836	$3,943	$12,190	$8,132
Shipping calculator services	(49,283)	(113,177)	(201,868)	(548,436)
Brewery management software	13,191	(10,608)	33,798	(10,837)
Shipping coordination and label generation services	(1,098)	(70,349)	(82,096)	(155,154)
Total loss from operations	$(27,354)	$(190,191)	$(237,976)	$(706,295)

 

Reclassifications

Certain amounts were reclassified in the accompanying condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 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, which 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:

	June 30, 2019	December  31, 2018
	(unaudited)
Payroll and related costs	$10,603	$169,691
Professional and consulting fees	410	2,100
Royalties	51,838	51,838
Stock price guarantee	888,570	884,241
Other	169,024	160,763
Total	1,120,445	$1,268,633

 

Note 3. Acquisitions and Intangible Assets

 

The Company holds several patents for the real-time calculation of shipping costs for items purchased through online auctions using a zip code as a destination location indicator. It includes shipping charge calculations across multiple carriers and accounts for additional characteristics of the item being shipped, such as weight, special packaging or handling, and insurance costs. These patents help facilitate rapid and accurate estimation of shipping costs across multiple shipping carriers and also include real-time calculation of shipping.

 

In addition, the Company has various other intangibles from past business combinations.

 

 

At June 30, 2019 and December 31, 2018, intangible assets consisted of the following:

 

	June 30, 2019	December 31, 2018
Patents	$16,000	$16,000
Software	83,750	83,750
Trade Name	815,908	785,038
Technology	521,075	501,360
Client list / relationship	4,793,898	4,620,599
Accumulated amortization	(1,997,732)	(1,715,974)
	$4,232,899	$4,290,773

  

Amortization expense of intangible assets for the six months ended June 30, 2019 and 2018 was $235,643 and $424,674, respectively.

 

  

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