Note 3 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Significant Accounting Policies [Text Block]

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The consolidated financial statements include the accounts of PAID, Inc. and its wholly owned subsidiaries, PAID Run, LLC and ShipTime Canada. 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 each balance sheet date. 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 99% of its revenues from Canada and 1% from the U.S. during the years ended December 31, 2022 and 2021.

At December 31, 2022 and 2021, the Company maintained 100% of its net property and equipment in Canada.

Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes in equity (net assets) during a period from non-owner sources. For the years ended December 31, 2022 and 2021, the components of comprehensive income (loss) consist solely of foreign currency translation gains (losses).

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by the Company’s management include, but are not limited to, the collectability of accounts and note receivable, the recoverability of long-lived assets, the valuation of deferred tax assets and liabilities, renewal periods and discount rates for leases and the valuation of share-based transactions. Actual results could materially differ from those estimates.

Fair Value Measurements

The Company measures the fair value of certain of its financial assets on a recurring basis. A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

At December 31, 2022 and 2021, the Company’s financial instruments include cash and cash equivalents, accounts receivable, note receivable, accounts payable, and accrued expenses. The carrying amount of cash and cash equivalents, accounts receivable, note receivable, accounts payable, and accrued expenses approximates fair value due to the short-term maturities of these instruments.

Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with initial maturities of three months or less to be cash equivalents.

Concentration of Risk

The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to USD $250,000 and the Canadian Depositors Insurance Corporation (“CDIC”) up to CAD $100,000. At December 31, 2022, the Company had amounts that exceeded the CDIC insurance limits but none that were in excess of the FDIC insurance limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to these deposits.

The Company extends credit based on an evaluation of the customer's financial condition, generally without requiring collateral. Exposure to losses on accounts receivable is principally dependent on each customer’s financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts. As of December 31, 2022 and 2021, the Company recorded an allowance for doubtful accounts of $36,845 and $0, respectively.

For the years ended December 31, 2022 and 2021, no revenues from any one individual customer accounted for more than 10% of the total revenues. As of December 31, 2022 and 2021, there was no customer that accounted for more than 10% of the accounts receivable balance.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of three to eight years. Any leasehold improvements are depreciated at the lesser of the useful life of the asset or the lease term. Equipment purchased under capital leases is amortized on a straight-line basis over the estimated useful life of the asset or the term of the lease, whichever is shorter. Expenditures for repairs and maintenance are charged to expense as incurred.

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.

Intangible Assets

Intangible assets consist of patents, client lists, trade names, customer relationships, brewery and distillery management software and shipping label generation technology which are being amortized on a straight-line basis over their estimated useful lives. Currently the intangible assets are being amortized between two and 17 years.

Long-Lived Assets

The Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flows 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 years ended December 31, 2022 and 2021. 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 revenues principally from fees for coordinating shipping services, sales of shipping calculator subscriptions, brewery management software subscriptions, merchant processing services and client services (see Note 4).

Cost of Revenues

Cost of revenues includes carrier services, web hosting, data storage, commissions, carrier insurance costs and merchant processing interchange fees.

Operating Expenses

Operating expenses include indirect expenses, including credit card processing fees, marketing, payroll, travel, facility costs, amortization of intangible assets and other general and administrative expenses.

Advertising

Advertising costs are charged to expense as incurred. For the years ended December 31, 2022 and 2021, advertising expense totaled $247,549 and $184,075, respectively, and are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

Share-Based Compensation

The Company grants options to purchase the Company’s common stock to employees, directors and consultants under stock option plans. The benefits provided under these plans are share-based payments that the Company accounts for using the fair value method. In addition, in 2021 the Board of Directors approved an amendment to ShipTime’s December 30, 2016 Warrant Agreement with an entity controlled by the Company’s CEO/CFO to reprice the outstanding warrants.  The modification of the warrant resulted in a charge to the Company’s share-based compensation expense. In addition, during 2021, the Company’s board of directors granted shares of common stock valued at the closing price on the date of the grant, for 2019 and 2020 bonuses and a 2021 signing bonus to the CEO/CFO (see Note 10). The Company  recorded $82,180 for share-based bonus payments related to 2022 which were approved by the Board of Directors on March 21, 2023. The shares of common stock were issued to the CEO/CFO, one additional officer and one employee.

The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option pricing model (“Black-Scholes-Merton model”) that uses assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, expected stock price volatility, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. Expected volatilities are based on the historical volatility of the Company’s common stock. The expected terms of options granted are based on analyses of historical employee termination rates and option exercises. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant. Since the Company does not expect to pay dividends on common stock in the foreseeable future, it estimated the dividend yield to be 0%.

Share-based compensation expense recognized during a period is based on the value of the portion of share-based payment awards that is ultimately expected to vest and is amortized under the straight-line attribution method. As share-based compensation expense recognized in the accompanying consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2022 and 2021 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. The fair value method requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimates forfeitures based on historical experience. Changes to the estimated forfeiture rate are accounted for as a cumulative effect of change in the period the change occurred.

Since the Company has a net operating loss carry-forward as of December 31, 2022 and 2021, no excess tax benefits for tax deductions related to share-based awards were recognized from any stock options exercised in the years ended December 31, 2022 and 2021 that would have resulted in a reclassification from cash flows from operating activities to cash flows from financing activities.

Income Taxes

The Company accounts for income taxes and the related accounts under the liability method. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax bases of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Therefore, the Company has recorded a full valuation allowance against the net deferred tax assets. The Company’s income tax provision includes state minimum taxes.

The Company recognizes any uncertain income tax positions on income tax returns at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained (see Note 11).

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

The Company is subject to taxation in the U.S., and Canada and various state jurisdictions.

Income (Loss) Per Common Share

Basic income (loss) per share represent income (loss) divided by the weighted-average number of common shares outstanding during the period. Diluted income (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 income (loss) per share in 2021 because they would reduce the reported loss per share and therefore have an anti-dilutive effect. For the year ended December 31, 2022 there were approximately 11,400 dilutive shares that were included in the diluted income (loss) per share.

The following is a reconciliation of the numerators and denominators of the basic and diluted income (loss) per share computations for the years ended December 31:

	2022		2021
Numerator:
Net income (loss)	$	652,146	$	(696,760	)
Denominator:
Basic weighted-average shares outstanding		7,770,298		7,444,732
Effect of dilutive securities		11,391		-
Diluted weighted-average shares outstanding		7,781,689		7,444,732
Net income (loss) per share – basic	$	0.08	$	(0.09	)
Net income (loss) per share – diluted	$	0.08	$	(0.09	)

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 six reportable segments are managed separately based on fundamental differences in their operations. At December 31, 2022, the Company operated in the following six reportable segments:

a) Client services;

b) Shipping calculator services;

c) Brewery management software;

d) Merchant processing services;

e) Shipping coordination and label generation services; and

f) Corporate operations.

The Company evaluates performance and allocates resources based on 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 Chief Executive Officer/Chief Financial Officer.

The following table compares total revenues for the years indicated.

	Years Ended
	December 31, 2022		December 31, 2021
Client services	$	806	$	3,141
Brewery management software		38,575		59,075
Shipping calculator services		7,964		22,872
Merchant processing services		40,153		54,003
Shipping coordination and label generation services		16,498,431		14,750,625
Total revenues, net	$	16,585,929	$	14,889,716

The following table compares total income (loss) from operations for the years indicated.

	Years Ended
	December 31, 2022			December 31, 2021
Client services	$	689		$	2,529
Brewery management software		(38,933	)		20,747
Shipping calculator services		251			12,383
Merchant processing services		(4,434	)		20,417
Shipping coordination and label generation services		273,363			115,473
Corporate operations		(171,943	)		(662,052	)
Total income (loss) from operations	$	58,993		$	(490,503	)

During 2022 and 2021, the Company recorded depreciation and amortization expense of $325,940 and $511,698, respectively, which was solely related to the shipping coordination and label generations service segment of the Company. During 2022, the Company reclassified expenses of $537,602 related to transfer price adjustments from corporate operations segment to shipping coordination and label generations services segment for the year ended 2021 to conform to the 2022 presentation.

Reclassifications

Certain amounts were reclassified in the accompanying consolidated balance sheet as of December 31, 2021 in order to conform to the current period presentation.

Recent Accounting Pronouncements

There were no new accounting pronouncements issued by the FASB during the year that would apply to the Company and would have a material impact on its consolidated financial position or results of operations.