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.

The Company conducts business in the U.S. and Canada. For customers headquartered in their respective countries, the Company derived approximately 97% of its revenues from Canada and 3% from the U.S. during the year ended December 31, 2019, compared to 95% of its revenues from Canada and 5% from the U.S. during the year ended December 31, 2018.

At December 31, 2019 and 2018, the Company maintained 100% of its net property and equipment in Canada.

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 period. Significant estimates made by the Company’s management include, but are not limited to, the collectability of accounts receivable, the recoverability of long-lived assets, the valuation of deferred tax assets and liabilities, renewal periods and discount rates for leases and valuation of share-based transactions. Actual results could materially differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an initial maturity of three months or less to be cash equivalents. Management believes that the carrying amounts of cash equivalents approximate their fair value because of the short maturity period.

Advanced Royalties

Advanced royalties represented amounts the Company had advanced to certain customers and were recoverable against future royalties earned by the customers. In connection with one of the Company’s advance royalties with a client, the Company guaranteed that shares of common stock would sell for at least $60.00 per share. If the shares are not at the required $60.00 per share when they are sold, the Company has the option of issuing additional shares at their fair value or making cash payments for the difference between the guaranteed price per share and the fair value of the stock. The change in fair value was recorded at ($3,688) and $3,527 for the year ended December 31, 2019 and 2018, respectively. As of December 31, 2018 the stock price guarantee was $884,241. The Company would have disputed this obligation if demanded by the client; further, pursuing any action by the client was required to be filed within six years of the time of the original issuance and the Company believes the time for pursuing an action has expired. 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.

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 and Goodwill

The Company reviews the carrying values of its long-lived assets and goodwill 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. During the year ended December 31, 2018, the Company recorded impairment of goodwill in the amount of $10,354,172. 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 additional impairment of long-lived assets in the future.

Cost of Revenues

Cost of revenues includes carrier services, web hosting, data storage, and commissions, carrier insurance costs and amortization of acquired technology.

Advertising

Advertising costs are charged to expense as incurred. For the years ended December 31, 2019 and 2018, advertising expense totaled $165,941 and $154,455, respectively, and are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

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. There are no unrecognized tax benefits included in the consolidated balance sheet that would, if recognized, affect the effective tax rate.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had $0 accrued for interest and penalties on the Company’s consolidated balance sheets at December 31, 2019 and 2018.

The Company is subject to taxation in the U.S. and various state jurisdictions. The Company does not foresee material changes to its gross uncertain income tax position liability within the next twelve months.

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 December 31, 2019, 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 makers are the Chief Executive Officer and Chief Financial Officer.

The following table compares total revenues for the years indicated.

	Year Ended
	December 31, 2019		December 31, 2018
Client services	$	19,395	$	16,079
Brewery management software		193,150		273,294
Shipping calculator services		148,035		176,159
Merchant processing services		2,011		-
Shipping coordination and label generation services		10,185,704		8,787,918
Total revenues, net	$	10,548,295	$	9,253,450

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

	Year Ended
	December 31, 2019			December 31, 2018
Client services	$	14,739		$	12,373
Brewery management software		51,612			12,530
Shipping calculator services		(676,940	)		(818,317	)
Merchant processing services		(673	)		-
Shipping coordination and label generation services		(100,771	)		(10,861,979	)
Total loss from operations	$	(712,033	)	$	(11,655,393	)