PAID INC - Quarter Report: 2020 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, 2020

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:

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  

Yes ☒     No ☐

 

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

Large accelerated filer	☐	Accelerated Filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒

 

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 13, 2020, the issuer had outstanding 6,455,164 shares of its Common Stock.

 

PAID, INC.

FORM 10-Q

 

TABLE OF CONTENTS

 

Part I – Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets
		September 30, 2020 (unaudited) and December 31, 2019 (audited)	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
		Three and nine months ended September 30, 2020 and 2019	2
		Unaudited Condensed Consolidated Statements of Cash Flows
		Nine months ended September 30, 2020 and 2019	3
		Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity Three and nine months ended September 30, 2020 and 2019	4-5
		Notes to Condensed Consolidated Financial Statements (unaudited)	6-15
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
	Item 4.	Controls and Procedures	20
Part II – Other Information
	Item 1.	Legal Proceedings	21
	Item 1A.	Risk Factors	21
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
	Item 3.	Defaults Upon Senior Securities	21
	Item 4.	Mine Safety Disclosures	21
	Item 5.	Other Information	21
	Item 6.	Exhibits	21
	Signatures		22

 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

PAID, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

	September 30, 2020 (Unaudited)	December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$1,317,374	$475,881
Accounts receivable, net	196,160	131,561
Prepaid expenses and other current assets	138,114	124,257
Total current assets	1,651,648	731,699
Property and equipment, net	63,533	89,707
Other intangible assets, net	3,593,580	4,048,572
Operating lease right-of-use assets	96,891	121,440
Total assets	$5,405,652	$4,991,418
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$1,103,937	$876,260
Finance leases - current portion	5,230	9,951
Accrued expenses	334,246	207,786
Contract liabilities	9,472	5,338
Operating lease obligations – current portion	31,492	30,255
Total current liabilities	1,484,377	1,129,590
Long term liabilities:
Finance leases - net of current portion	-	2,797
Operating lease obligations – net of current portion	67,077	93,642
Deferred tax liability, net	1,041,438	1,070,189
Total liabilities	2,592,892	2,296,218
Commitments and contingencies
Shareholders' equity:
Series A Preferred stock, $0.001 par value, 5,000,000 shares authorized; none and 4,438,578 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively; liquidation value of $0 and $13,808,610 at September 30, 2020 and December 31, 2019, respectively	-	4,439
Common stock, $0.001 par value, 25,000,000 shares authorized; 6,489,004 shares issued and 6,455,164 shares outstanding at September 30, 2020, 1,648,657 shares issued and 1,614,817 outstanding at December 31, 2019	6,489	1,649
Additional paid-in capital	69,947,414	69,242,412
Accumulated other comprehensive income	441,496	512,894
Accumulated deficit	(67,524,792)	(67,008,347)
Common stock in treasury, at cost; 33,840 shares at September 30, 2020 and December 31, 2019	(57,847)	(57,847)
Total shareholders' equity	2,812,760	2,695,200
Total liabilities and shareholders' equity	$5,405,652	$4,991,418

 

 

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, 2020	September 30, 2019	September 30, 2020	September 30, 2019
Revenues, net	$3,409,316	$2,726,433	$9,303,510	$7,730,950
Cost of revenues	2,548,833	1,973,499	7,056,764	5,649,535
Gross profit	860,483	752,934	2,246,746	2,081,415
Operating expenses:
Salaries and related	360,702	381,585	1,109,922	1,042,459
General and administrative	178,930	261,993	629,076	879,291
Share-based compensation	329,140	303,958	311,129	361,698
Amortization of other intangible assets	115,439	116,401	340,875	346,946
Total operating expenses	984,211	1,063,937	2,391,002	2,630,394
Loss from operations	(123,728)	(311,003)	(144,256)	(548,979)
Other income:
Other income, net	6	884,620	13,201	892,652
Unrealized gain on stock price guarantee	-	8,017	-	3,688
Total other income, net	6	892,637	13,201	896,340
Income (loss) before provision for income taxes	(123,722)	581,634	(131,055)	347,361
Provision for income taxes	-	-	500	960
Net income (loss)	(123,722)	581,634	(131,555)	346,401
Preferred dividends	-	(50,395)	(28,532)	(141,287)
Net income (loss) available to common shareholders	$(123,722)	$531,239	$(160,087)	$205,114
Net income (loss) per share – basic	$(0.02)	$0.33	$(0.03)	$0.13
Weighted average number of common shares outstanding - basic	6,181,044	1,614,817	5,139,206	1,614,817
Net income (loss) per share – diluted	$(0.02)	$0.32	$(0.03)	$0.12
Weighted average number of common shares outstanding - diluted	6,181,044	1,671,693	5,139,206	1,667,566
Condensed consolidated statements of comprehensive income (loss)
Net income (loss)	$(123,722)	$581,634	$(131,555)	$346,401
Other comprehensive income (loss):
Foreign currency translation adjustments	57,659	(24,925)	(71,398)	98,453
Comprehensive income (loss)	$(66,063)	$556,709	$(202,953)	$444,854

 

 

        See accompanying notes to condensed consolidated financial statements

 

 

PAID, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30,

(Unaudited)

	2020	2019
Cash flows from operating activities:
Net income (loss)	$(131,555)	$346,401
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	364,273	368,183
Amortization of operating lease right-of-use assets	20,957	16,020
Provision for bad debts	20,125	-
Share-based compensation	311,129	361,698
Gain on sale of property and equipment	(739)	-
Unrealized loss on stock price guarantee	-	(3,688)
Other income from stock price guarantee	-	(880,553)
Changes in assets and liabilities:
Accounts receivable	(87,361)	(44,051)
Prepaid expenses and other current assets	(17,686)	24,381
Accounts payable	246,405	146,778
Accrued expenses	127,860	(192,901)
Contract liabilities	4,211	(46,382)
Operating lease obligations	(21,660)	(13,266)
Net cash provided by operating activities	835,959	82,620
Cash flows from investing activities:
Purchase of property and equipment	-	(16,077)
Proceeds from sale of property and equipment	739	-
Net cash provided by (used in) investing activities	739	(16,077)
Cash flows from financing activities:
Payments on finance leases	(7,065)	(6,523)
Payments on notes payable	-	(15,346)
Proceeds from warrant exercise	35,636	-
Payments of preferred dividends	(26,252)	(163,236)
Net cash provided by (used in) financing activities	2,319	(185,105)
Effect of exchange rate changes on cash and cash equivalents	2,476	11,432
Net change in cash and cash equivalents	841,493	(107,130)
Cash and cash equivalents, beginning of period	475,881	632,331
Cash and cash equivalents, end of period	$1,317,374	$525,201
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes	$500	$500
Interest	$496	$932
SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS
Issuance of preferred shares in settlement of accrued expenses	$-	$83,221
Issuance of preferred shares in settlement of dividends	$358,638	$-
Operating lease liabilities from obtaining 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, 2019 (Unaudited)

					Additional	Accumulated Other
	Preferred Stock		Common Stock		Paid-in	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
Share-based compensation expense	-	-	-	-	(1,100)	-	-	-	-	(1,100)
Preferred shares issued as compensation	653,866	654	-	-	82,567	-	-	-	-	83,221
Preferred dividend paid	-	-	-	-	-	-	(163,236)			(163,236)
Net loss	-	-	-	-	-	-	(23,247)	-	-	(23,247)
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
Foreign currency translation adjustment	-	-	-	-	-	(24,925)	-	-	-	(24,925)
Share-based compensation expense	-	-	-	-	303,958	-	-	-	-	303,958
Net income	-	-	-	-	-	-	581,634	-	-	581,634
Balance, September 30, 2019	4,438,578	$4,439	1,648,657	$1,649	$69,196,136	$442,635	$(66,943,957)	(33,840)	$(57,847)	$2,643,055

 

 

 

 

PAID, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

(Unaudited)

 

					Additional	Accumulated Other
	Preferred Stock		Common Stock		Paid-in	Comprehensive	Accumulated	Treasury Stock
	Shares	Amount	Shares	Amount	Capital	Income	Deficit	Shares	Amount	Total
Balance, January 1, 2020	4,438,578	$4,439	1,648,657	$1,649	$69,242,412	$512,894	$(67,008,347)	(33,840)	$(57,847)	$2,695,200
Foreign currency translation adjustment	-	-	-	-	-	(235,181)	-	-	-	(235,181)
Share-based compensation expense	-	-	-	-	(20,789)	-	-	-	-	(20,789)
Preferred dividends paid in shares	126,727	127	-	-	358,511	-	(358,638)	-	-	-
Exchange of Preferred to Common	(4,125,500)	(4,126)	4,126,422	4,126	-	-	-	-	-	-
Preferred dividends paid	-	-	-	-	-	-	(26,252)	-	-	(26,252)
Net loss	-	-	-	-	-	-	(113,242)	-	-	(113,242)
Balance, March 31, 2020	439,805	440	5,775,079	5,775	69,580,134	277,713	(67,506,479)	(33,840)	(57,847)	2,299,736
Foreign currency translation adjustment	-	-	-	-	-	106,124	-	-	-	106,124
Share-based compensation expense	-	-	-	-	2,778	-	-	-	-	2,778
Exchange of Preferred to Common	(439,805)	(440)	439,805	440	-	-	-	-	-	-
Net income	-	-	-	-	-	-	105,409	-	-	105,409
Balance, June 30, 2020	-	-	6,214,884	6,215	69,582,912	383,837	(67,401,070)	(33,840)	(57,847)	2,514,047
Foreign currency translation adjustment	-	-	-	-	-	57,659	-	-	-	57,659
Share-based compensation expense	-	-	-	-	10,247		-	-	-	10,247
Warrant exercise	-	-	274,120	274	35,362	-	-	-	-	35,636
Warrant reprice	-	-	-		318,893	-	-	-	-	318,893
Net loss	-	-	-	-	-	-	(123,722)	-	-	(123,722)
Balance, September 30, 2020	-	$-	6,489,004	$6,489	$69,947,414	$441,496	$(67,524,792)	(33,840)	$(57,847)	$2,812,760

 

 

See accompanying notes to consolidated financial statements

 

PAID, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2020

 

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 (“BeerRun”) is a brewery management and Alcohol and Tobacco Tax and Trade Bureau tax reporting software. Small craft brewers can utilize the product to manage brewery schedules, inventory, packaging, sales and purchasing. Tax reporting can be processed with a single click and is fully customizable by state or province. The software is designed to integrate with QuickBooks accounting platforms by using our powerful sync engine. We currently offer two versions of the software BeerRun and BeerRun Light which excludes some of the enhanced features of BeerRun without disrupting the core functionality of the software. Additional features include Brewpad and Kegmaster and can be added on to the base product. Craft brewing is on the rise in the United States and we feel that there is a large potential to grow this portion of our business.

 

ShipTime Canada Inc. (“ShipTime”) 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. 

 

PaidPayments provides commerce solutions to small- and medium-sized businesses by enabling them to sell their goods and services, accept payment, and create repeat sales though an online payment processing solution. The Company has operated as a Payment Facilitator since 2019, which enables our merchants to get the benefit of instant boarding and discounted rates. Our platform provides all aspects required for payment processing, including merchant boarding, underwriting, fraud monitoring, settlement, funding to the sub-merchant, and monthly reporting and statements. The Company controls all of these necessary aspects in the payment process and is then able to supply a one-step boarding process for our partners and value-added resellers. This capability also provides cost advantages, rapid response to market needs, simplified processes for boarding business and a seamless interface for our merchant customers.

 

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, 2019 that was filed on March 30, 2020.

 

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 2020.

 

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 generally incurred losses, although it has taken significant steps to reduce them. For the nine months ended September 30, 2020, the Company reported a net loss of $131,555. The Company also has an accumulated deficit of $67,524,792 as of September 30, 2020. These factors raise doubt about the Company’s ability to continue as a going concern.

 

 

Management believes that the continued growth of the new PAID platform of services in addition to the continued profitability of ShipTime’s services will return a valuable impact on the Company’s success in the near future. The ongoing positive cash flows from operations are 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 2020 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, 2020 and December 31, 2019. 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 September 30, 2020 compared to 97% from Canada and 3% from the U.S. during the three months ended September 30, 2019. For the nine months ended September 30, 2020 and 2019, the Company derived approximately 95% of its revenues from Canada and 5% from the U.S. compared to 95% from Canada and 5% from the U.S. during the same period of 2019.

 

At September 30, 2020, 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, 2020 and 2019. 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, merchant processing services 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).

 

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 following month.

 

For payment processing services, the Company recognizes revenue based on daily transactions by our partners and merchants. Customers process credit card payments for sales and remit fees based on the number of transactions and percent of the processed amounts. The merchant bank deposits the funds to the customer net of fees. The remainder of the fees withheld is disbursed to the Company on a daily basis, net of interchange and other transactional charges.

 

Revenue Disaggregation

 

The Company operates in five 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.

 

Customers of PaidPayments receive a merchant identification number which allows them to process credit card transactions. Once the transaction is approved, the funds are disbursed in an overnight feed and the Company has met its performance obligation.

 

The Company has no shipping and handling activities related to contracts with customers.

 

Revenues are recognized net of any taxes collected from customers, which are subsequently remitted to government authorities.

 

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 $196,160 and $131,561 as of September 30, 2020 and December 31, 2019, 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 $9,472 and $5,338 at September 30, 2020 and December 31, 2019, respectively. During the three and nine months ended September 30, 2020, the Company recognized revenues of $0 and $5,338, 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 and nine months ended September 30, 2020, there were approximately 35,000 and 34,000, respectively, of potentially dilutive shares excluded from the diluted loss per share calculation, as their effect would be anti-dilutive. For the three and nine months ended September 30, 2019, there were approximately 57,000 and 53,000, respectively, of dilutive shares that were included in the diluted earnings per share calculation.

 

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).

 

The following is a reconciliation of the numerators and denominators of the basic earnings (loss) per common share and diluted earnings (loss) per common share computation for the three and nine months ended September 30, 2020 and 2019.

 

	Three Months Ended September 30, 2020	Three Months Ended September 30, 2019
Numerator:
Net income (loss) available to common shareholders	$(123,722)	$531,239
Denominator:
Basic weighted-average shares outstanding	6,181,044	1,614,817
Effect of dilutive securities	-	56,876
Diluted weighted-average shares outstanding	6,181,044	1,671,693
Basic earnings (loss) per common share	$(0.02)	$0.33
Diluted earnings (loss) per common share	$(0.02)	$0.32

 

 

	Nine Months Ended September 30, 2020	Nine Months Ended September 30, 2019
Numerator:
Net income (loss) available to common shareholders	$(160,087)	$205,114
Denominator:
Basic weighted-average shares outstanding	5,139,206	1,614,817
Effect of dilutive securities	-	52,749
Diluted weighted-average shares outstanding	5,139,206	1,667,566
Basic earnings (loss) per common share	$(0.03)	$0.13
Diluted earnings (loss) per common share	$(0.03)	$0.12

 

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 five reportable segments are managed separately based on fundamental differences in their operations. At September 30, 2020, the Company operated in the following five reportable segments:

 

a.	Client services;
b.	Shipping calculator services;
c.	Brewery management software;
d.	Merchant processing services; and
e.	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 maker is the interim Chief Executive Officer/Chief Financial Officer.

 

The following table compares total revenue for the periods indicated.

 

	Three Months Ended		Nine Months Ended
	September 30, 2020	September 30, 2019	September 30, 2020	September 30, 2019
Client services	$1,878	$1,073	$3,283	$17,191
Shipping calculator services	6,321	41,923	22,114	117,887
Brewery management software	25,600	49,107	93,413	156,394
Merchant processing services	105,713	-	379,012	-
Shipping coordination and label generation services	3,269,804	2,634,330	8,805,688	7,439,478
Total revenues	$3,409,316	$2,726,433	$9,303,510	$7,730,950

 

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

 

	Three Months Ended		Nine Months Ended
	September 30, 2020	September 30, 2019	September 30, 2020	September 30, 2019
Client services	$1,417	$844	$2,517	$13,334
Shipping calculator services	(448,957)	(359,647)	(686,640)	(561,515)
Brewery management software	17,830	19,231	35,845	53,029
Merchant processing services	37,548	-	86,477	-
Shipping coordination and label generation services	268,434	28,569	417,545	(53,527)
Total loss from operations	$(123,728)	$(311,003)	$(144,256)	$(548,979)

 

Subsequent Events

 

The Company has evaluated subsequent events through the filing date of this Form 10-Q, and has determine that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto, other that as disclosed herein.

 

Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments”, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses. The Company’s adoption of ASU 2016-13 had no impact on its consolidated financial position, results of operations, cash flows, or disclosures.

 

In August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which improved the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements. The Company’s adoption of ASU 2018-13 had no impact on its consolidated financial position, results of operations, cash flows, or disclosures.

 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” to identify, evaluate, and improve areas of GAAP for which costs and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The amendments for ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. An entity that elects to early adopt must adopt all the amendments in the same period. The Company is currently evaluating the impact of ASU 2019-12 and does not expect the adoption of this guidance to have a material impact on its consolidated financial position or results of operations.

 

Note 2. Accrued Expenses

 

Accrued expenses are comprised of the following:

 

	September 30, 2020 (unaudited)	December  31, 2019
Payroll and related costs	$849	$1,797
Professional and consulting fees	1,989	960
Royalties	47,803	47,803
Accrued cost of revenues	241,667	114,455
Sales tax	31,902	31,902
Other	10,036	10,869
Total	$334,246	$207,786

 

Note 3. 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, 2020 and December 31, 2019, intangible assets consisted of the following:

 

	September 30, 2020 (unaudited)	December 31, 2019
Patents	$16,000	$16,000
Software	83,750	83,750
Trade name	803,904	826,098
Technology	513,409	527,583
Client list / relationship	4,726,509	4,851,093
Accumulated amortization	(2,549,992)	(2,255,952)
	$3,593,580	$4,048,572

  

 

Amortization expense of intangible assets for the three months ended September 30, 2020 and 2019 was $115,439 and $116,401, respectively, and for the nine months ended September 30, 2020 and 2019, amortization expense was $340,875 and $346,946, respectively.

 

Note 4. Commitments and Contingencies

 

Notes Payable

 

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.

 

Stock Price Guarantee

 

In connection with one of the Company’s advance royalties with a client, the Company guaranteed that shares of its common stock issued as royalties would sell for at least $60.00 per share.  If the shares were not at the required $60.00 per share when they were sold, the Company had 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.  The change in fair value of the guarantee was $3,688 for the nine months ended September 30, 2019. The Company would have disputed this obligation if demanded by the client; further, pursuing any action by the client was required to be commenced within six years of the time of the original issuance and the Company believes the time for pursuing an action expired in 2019. As a result of the expiration, the Company eliminated this obligation from its consolidated balance sheet and recorded $880,553 in other income during the year ended December 31, 2019.

 

Legal Matters

 

In the normal course of business, the Company periodically becomes involved in litigation. As of September 30, 2020, 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

 

The Company’s amended Certificate of Incorporation authorizes the issuance of 20,000,000 shares of blank-check preferred stock at $0.001 par value. 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 or conversion rights. 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 a share of common stock for the month immediately proceeding the coupon payment date which is made annually. For the nine month periods ended September 30, 2020 and 2019, the portion of the annual coupon is $28,532 and $141,287, respectively. If purchased, redeemed, or otherwise acquired (other than conversion), the preferred stock may be reissued. In April 2019, the Company paid the annual coupon in cash for the year ended December 31, 2017. The Company paid the 2018 and 2019 coupon payments totaling $358,638 in 126,727 preferred shares and a cash payment of $26,252 for the 2020 coupon payment through March of 2020. During 2019, the Board of Directors satisfied 2018 accrued Executive Compensation by means of issuance of 653,866 preferred shares valued at $83,221. During the nine months ended September 30, 2020, all 4,565,305 shares of Series A Preferred Stock were exchanged for common stock (see below). As of September 30, 2020, there are no outstanding shares of Series A Preferred Stock.

 

 

Common Stock

 

In February 2020, ShipTime amended its rights to exchange one share of ShipTime stock from 45 PAID common shares and 311 PAID Series A Preferred Stock to 356 PAID common shares. As a result, certain ShipTime exchangeable shareholders exercised their rights to receive 1,461,078 shares of PAID Series A Preferred Stock for 1,461,078 shares of PAID common stock. At the same time, the Company made available to its Series A Preferred Stock shareholders the option to exchange existing Series A preferred shares for PAID common shares. The exchange was offered on a one-to-one basis. Shareholders holding 1,015,851 shares of Series A Preferred Stock exchanged such shares for 1,015,851 shares of PAID common stock. Furthermore, as a result of the amended exchange rights, the Company reflected an additional exchange of PAID Series A Preferred Stock shares totaling 2,089,298 to PAID common shares, representing the additional amount of PAID common shares that will be issued to the ShipTime shareholders upon the exchange. During the third quarter of 2020, two shareholders sold 500 ShipTime exchangeable shares which were subsequently exchanged for 178,000 common shares. In total, the Company has reserved for future issuance of 2,213,608 shares of PAID common stock with respect to the remaining 6,218 exchangeable shares to be issued as a result of the ShipTime acquisition which are considered issued and outstanding as of September 30, 2020 for financial reporting purposes.

 

On September 30, 2020, the Company issued 274,120 shares of the Company’s common stock as a result of the exercise of an investor warrant for 770 ShipTime exchangeable shares. The Company received gross proceeds of $35,636 and issued 274,120 shares of the Company’s common stock with an exercise price of $0.13 per share in connection with the warrant exercise.

 

Share-based Incentive Plans

The Company has a 2018 Stock Option Plan which reserved 450,000 non-qualified stock options to be granted to employees. In November 2020, the board approved an increase to this plan up to 900,000 non-qualified stock options. 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 a 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 September 30, 2019. The options have a 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 of 2019. 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 of 2019 expire if not exercised within ten years from grant date, and the exercise price ranges from $2.96 to $3.00 per share. During the second quarter of 2020, the Company reversed $7,469 unvested stock option expenses for the termination of one employee.

For the three and nine month periods ended September 30, 2020, the Company recorded $329,140 and $311,129, respectively, of share-based compensation expense related to the vesting of applicable options granted in 2019 and prior years and the repricing of 770 warrants in the third quarter of 2020. Share-based compensation expense for the nine months ended September 30, 2020 included the reversal of unvested stock option expense of $42,549 for the termination of several employees.

On August 14, 2020, the Board of Directors approved an amendment to ShipTime’s December 30, 2016 Warrant Agreement with an entity controlled by the Company’s Interim CEO/CFO to reprice the outstanding warrants. The modification of the warrant resulted in a charge to the Company’s share-based compensation expense of $318,893.

 

Note 6. Leases

 

We have an operating lease for our corporate offices in Canada and finance leases for furniture and equipment. Our leases have remaining lease terms of one month to thirty-five 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 sheet.

 

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, 2020	Three Months Ended September 30, 2019
Operating lease cost	$9,612	$12,091
Finance lease cost:
Amortization of leased assets	$2,698	$2,559
Interest on lease liabilities	168	393
Total finance lease cost	$2,866	$2,952

 

	Nine Months Ended September 30, 2020	Nine Months Ended September 30, 2019
Operating lease cost	$28,347	$23,397
Finance lease cost:
Amortization of leased assets	$7,763	$7,812
Interest on lease liabilities	664	1,325
Total finance lease cost	$8,427	$9,137

 

Supplemental cash flow information related to leases was as follows:

 

	Nine Months Ended September 30, 2020	Nine Months Ended September 30, 2019
Cash paid for amounts included in leases:
Operating cash flows from operating leases	$29,402	$20,929
Operating cash flows from finance leases	$664	$1,325
Financing cash flows from finance leases	$7,065	$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, 2020	December 31, 2019
Operating leases:
Operating lease right-of-use assets	$96,891	$121,440
Current portion of operating lease obligations	$31,492	$30,255
Operating lease obligations, net of current portion	67,077	93,642
Total operating lease liabilities	$98,569	$123,897
Finance leases:
Property and equipment, at cost	$51,754	$53,183
Accumulated depreciation	(43,585)	(37,227)
Property and equipment, net	$8,169	$15,956
Current portion of finance lease obligations	$5,230	$9,951
Finance lease obligations, net of current portion	-	2,797
Total finance lease liabilities	$5,230	$12,748