UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ Annual Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 2020
☐ Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the
transition period
from
to
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 under Section 12(b) of the Act:
|
Title of each
class
|
|
Trading Symbol
|
|
Name of each exchange on which
registered
|
|
None
|
|
None
|
|
None
|
Securities
registered under Section 12(g) of the Act:
Common Stock, $0.001 Par Value
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
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 Website, 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or emerging growth company. See the definitions
of “large accelerated filer”, “accelerated
filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
|
Large accelerated filer
|
☐
|
Accelerated
Filer
|
☐
|
Non-accelerated
filer
|
☑
|
Smaller reporting company
|
☑
|
Emerging
Growth Company
|
☐
|
If an
emerging growth company, indicate by check mark if the Registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ☐ No ☑
The
aggregate market value of the common stock held by non-affiliates
of the registrant based on the last sale price of such stock as
reported by the Over-the-Counter Bulletin Board on June 30, 2020
(the last business day of the Registrant's most recently completed
second fiscal quarter) was approximately $6,427,535.
As of
March 31, 2021, the registrant had 7,755,164 shares of Common Stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
No
documents are incorporated by reference into this Annual Report
except those Exhibits so incorporated as set forth in the Exhibit
Index.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
|
PART I
|
|
||
|
|
|
|
|
|
|
1
|
||
|
|
4
|
||
|
|
11
|
||
|
|
11
|
||
|
|
11
|
||
|
|
11
|
||
|
|
|
||
|
|
|||
|
|
|
||
|
|
11
|
||
|
|
12
|
||
|
|
13
|
||
|
|
17
|
||
|
|
17
|
||
|
|
17
|
||
|
|
17
|
||
|
|
21
|
||
|
|
|
|
|
|
|
|||
|
|
|||
|
22
|
|||
|
|
23
|
||
|
|
25
|
||
|
|
26
|
||
|
|
26
|
||
|
|
|
|
|
|
|
|||
|
|
|||
|
27
|
|||
|
|
27
|
||
|
|
28
|
||
|
|
|
||
PART I
Forward Looking Statements
This
Annual Report on Form 10-K contains certain forward-looking
statements (within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934)
regarding the Company and its business, financial condition,
results of operations and prospects. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks,"
"estimates", "could", "may", "should", "will", "would", and similar
expressions or variations of such words are intended to identify
forward-looking statements in this report. Additionally, statements
concerning future matters such as the development of new services,
technology enhancements, purchases of equipment, credit
arrangements, possible changes in legislation and other statements
regarding matters that are not historical are forward-looking
statements.
Although
forward-looking statements in this Annual Report reflect the good
faith judgment of the Company's management, such statements can
only be based on facts and factors currently known by the Company.
Consequently, forward-looking statements are inherently subject to
risks, contingencies and uncertainties, and actual results and
outcomes may differ materially from results and outcomes discussed
in this Annual Report. Although the Company believes that its
plans, intentions and expectations reflected in these
forward-looking statements are reasonable, the Company can give no
assurance that its plans, intentions or expectations will be
achieved. For a more complete discussion of these risk factors, see
Item 1A, "Risk Factors".
For
example, the Company's ability to maintain a positive cash flow and
to become profitable may be adversely affected as a result of a
number of factors that could thwart its efforts. These factors
include the Company's inability to successfully implement the
Company's business and revenue model, higher costs than
anticipated, the Company's inability to sell its products and
services to a sufficient number of customers, the introduction of
competing products by others, the Company's inability to complete
development of its core products, the failure of the Company's
operating systems, and the Company's inability to increase its
revenues as rapidly as anticipated. If the Company is not
profitable in the future, it will not be able to continue its
business operations.
Except
as required by applicable laws, we do not intend to publish updates
or revisions of any forward-looking statements we make to reflect
new information, future events or otherwise. Readers are urged to
review carefully and to consider the various disclosures made by
the Company in this Annual Report, which attempts to advise
interested parties of the risks and factors that may affect our
business, financial condition, results of operations and
prospects.
Item 1. Business
Overview
PAID,
Inc. (the “Company” or “PAID”) was
incorporated in Delaware on August 9, 1995. The Company has
multiple web addresses, www.paid.com, which offers updated information
on various aspects of our operations and www.shiptime.com which
showcases our online label generation software. Information
contained in the Company's website shall not be deemed to be a part
of this Annual Report. The Company's principal executive offices
are located at 225 Cedar Hill Street, Marlborough, Massachusetts
01581 with offices also located at 700 Dorval Drive, Oakville,
Ontario, Canada. The Company's telephone number is (617)
861-6050.
We file
annual reports on Form 10-K, quarterly reports on Form 10-Q, and
current reports on Form 8-K with the Securities and Exchange
Commission (the “SEC”). These reports, any amendments
to these reports, proxy and information statements and certain
other documents we file with the SEC are available through the
SEC's website at www.sec.gov or free of charge on our website
as soon as reasonably practicable after we file the documents with
the SEC. The public may also read and copy these reports and any
other materials we file with the SEC at the SEC's Public Reference
Room at 100 F Street, NE, Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.
Our Business
ShipTime Inc. ShipTime’s platform
provides its members with the ability to quote, process, track and
dispatch shipments while getting preferred rates on packages and
skidded less than truckload (“LTL”) freight shipments
throughout North America and around the world. In addition to these
features, ShipTime also provides what it refers to as “Heroic
Multilingual Customer Support.” In this capacity, ShipTime
acts as an advocate on behalf of its clients in resolving matters
concerning orders and shipping. With an increasing focus and
service offering for e-commerce merchants; which include online
shopping carts, inventory management, payment services, client
prospecting and retention software, ShipTime can help merchants
worldwide grow and scale their businesses. ShipTime generates
monthly recurring revenue through transactions and “software
as a service” (SAAS) offerings. It currently serves in excess
of 60,000 members in North America and desires to expand its
services worldwide.
AuctionInc Software. AuctionInc is a
suite of online shipping and tax management tools assisting
businesses with e-commerce storefronts, shipping solutions, tax
calculation, inventory management, and auction processing. The
application was designed to focus on real-time carrier calculated
shipping rates and tax calculations. The product does have tools to
assist with other aspects of the fulfillment process, but the main
purpose of the product is to provide accurate shipping and tax
calculations and packaging algorithms that provide customers with
the best possible shipping and tax solutions. This product has been
retired and the Company is announcing the new eCommerce shipping
calculator and shopping cart solutions. PaidWeb, PaidCart and
PaidShipping was launched in 2020 and the clients continue to
transition to our new solutions.
BeerRun Software. BeerRun Software is a
brewery management and Alcohol and Tobacco Tax and Trade Bureau tax
reporting software. Small craft brewers can utilize the product to
manage brewery schedules, inventory, packaging, sales and
purchasing. Tax reporting can be processed with a single click and
is fully customizable by state or province. The software is
designed to integrate with QuickBooks accounting platforms by using
our powerful sync engine. We currently offer two versions of the
software BeerRun and BeerRun Light which excludes some of the
enhanced features of BeerRun without disrupting the core
functionality of the software. Additional features include Brewpad
and Kegmaster and can be added on to the base product. Craft
brewing continues to grow in the United States and we feel that
there is potential to grow this portion of our
business.
Paid,
Inc. 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 offered PaidPayments 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.
Business Strategy
The
Company’s focus in 2020 was to effectively execute the
integration of Paid Inc. and ShipTime while ensuring that our
vision (“To provide a
comprehensive e-commerce platform for small to medium
enterprises”) continued to move with the pace needed
for our members to compete in today’s on-line
marketplace.
While
the ShipTime portion of our business is now our key revenue driver;
our strategy in 2020 was to continue to buildout the foundation of
our e-commerce platform while driving our core business forward
with double digit growth. By continuing to offer small to medium
enterprises meaningful solutions and an integrated infrastructure
platform we can enhance the value proposition to both our channel
partners and our growing customer base allowing us to cost
effectively break into new markets.
In
order to support the Company’s members via our strategic
build-out of e-commerce services, a transition has begun to shift
our Heroic Support team from an inbound support role to a combined
Support and Customer Success mindset. Our new Sales and Account
Management Teams will be engaging with our prospects and members to
provide guidance and support in utilizing new tools and services.
Paid will provide the infrastructure to assist in accelerating
growth for our customers in both their existing markets and new
markets as well. We continue to focus on clients in both the United
States and Canada. Paid products will continue to grow in 2021 with
the addition of the PaidShipping, PaidWeb and PaidCart
products.
Our
strategy for the shipping calculator clients includes upgrading the
AuctionInc clients to our new Paid platform. We are increasing our
product offerings to include plug-ins for several online shopping
cart platforms.
BeerRun
continues to be a valuable component of the Company, we hope to
maintain our client base in the Craft Brewery
industry.
The business
strategy described above is intended to expand our markets,
increase revenue per member while enhancing our opportunities in
the online ecommerce market. There are always a variety of factors
that may impact our plans and inhibit our success. See “Risk
Factors” included in Item 1A. Therefore, we have no
guarantees and can provide no assurances that our plans will be
successful.
Marketing and Sales
The
Company continues to successfully nurture and grow the
relationships with our channel partners and has added new
relationships that are global in scope. While much of the growth
and success in 2020 was the result of the cooperative efforts of
ShipTime and our channel partners with new marketing initiatives,
this strategy alone will not be enough to drive our new service
offerings without enhancing our marketing strategy. Additions to
our marketing team will allow us to continue to pursue digital
marketing efforts, as well as increasing our in-house sales team to
fast forward our growth.
The
Company will continue to market PAID and ShipTime throughout 2021
and beyond. Cross selling efforts will be enhanced and new features
are being added to our Paid platform. Based on experience and
feedback with existing partnerships that promote our product lines,
the Company believes that creating additional partnerships beyond
North America is an effective marketing tool to promote and
encourage new registrations. Additional resources and marketing
initiatives will be utilized to increase onboarding and converting
our members to being active long-time users of the Company’s
services in order to accelerate our growth.
Revenue Sources
In
2020, our revenues were primarily derived from our label generation
services. This portion of our business has maintained consistent
growth since our merger in 2016. In addition to the label
generation services we continue to focus on launching our new
e-commerce platforms. See “Risk Factors” included in
Item 1A. We have no guarantees and can provide no assurances that
our plans will be successful.
Competition
Technology within
the logistics industry is highly competitive and we have focused a
variety of differentiators including our Heroic Customer
Support™ to elevate our services beyond those of our
competition. Our product offerings may also be available from other
companies in our industry and we continue to emphasize value and
quality customer support. The ShipTime trademark has been
registered in both Canada and the United States. Our line of
AuctionInc shipping calculator software is proprietary. Our
intellectual property rights do not guarantee any competitive
advantage and may not sufficiently protect us against competitors
with similar technology. We believe that our products and other
proprietary rights do not infringe on the proprietary rights of
third parties. However, there can be no assurance that third
parties will not assert infringement claims against us in the
future with respect to current or future products or other works of
ours.
We also
utilize free open-source technology in certain areas. Unlike
proprietary software, open-source software has publicly available
source code and can be copied, modified and distributed with
minimal restrictions. We use open source software and technology as
well to support the growing social and viral opportunities on the
internet. By using 'best-of-breed' products and tools we can
maximize our clients’ opportunities while minimizing our
costs, which we are able to pass on to our customers.
As with
any software product BeerRun is not excluded from the competitive
market. There are a growing number of competitors in the industry
all with a unique perspective. The updates to our existing offering
have helped us maintain a presence in the brewery management
industry. Our support team stays informed with the competition and
we have the ability to modify our product as the industry
changes.
Research and Development
Over
the past years, the Company has made significant progress
developing new integrations with e-commerce shopping cart
platforms. The Company now employs several developers who are
focused on the growth of the PAID brand and ShipTime products and
their technologies. Our technology roadmap has been projected for
the 2021 calendar year and we have enhancements scheduled for all
aspects of our businesses. Our strategy includes continuous user
enhancements on our existing platforms, new websites, updates to
our e-commerce shopping cart solution, enhancements to our merchant
payment processing platform, shipping calculator enhancements and
many additional features and upgrades to our online shopping and
shipping tools.
Employees
As of
March 31, 2021, the Company currently has twenty-three full time
equivalent employees and one part time employee. We have no
collective bargaining agreements and consider the relationship with
our employees to be good.
Government Regulation
We are
not currently subject to direct federal, state or local regulation,
and laws or regulations applicable to access or commerce on the
Internet, other than regulations applicable to businesses
generally. However, due to the increasing popularity and use of the
Internet and other online services, it is possible that a number of
laws and regulations may be adopted with respect to the Internet or
other online services covering issues such as user privacy, freedom
of expression, pricing, content and quality of products and
services, taxation, advertising, intellectual property rights and
information security.
Item 1A. Risk Factors
You should carefully consider the risks
and uncertainties described below
before deciding to invest in shares of our common stock. If
any of the following risks or
uncertainties actually occurs, our business, prospects,
financial condition and operating
results would likely suffer.
In that event, the market price of
our common stock could decline and you could lose
all or part of your
investment.
Risks
Relating to the Company
We have experienced operating losses.
Our
business and prospects must be considered in light of the risks,
expenses and difficulties that are inherent in our business. The
risks include:
●
our ability to
anticipate and adapt to a developing market;
●
our ability to
market, license and enforce our shipping calculator, payment
processing platform and shopping cart;
●
development of
equal or superior Internet portals, shipping calculators and
related services by competitors; and
●
our ability to
maintain competitive pricing with our carriers
To address these risks, we must, among other things, successfully
market our e-commerce shopping cart, our merchant payment platform
and shipping label generation services, continue to develop new
relationships with carriers, e-commerce service providers, maintain
our customer base, attract significant numbers of new customers,
respond to competitive developments, and continue to develop and
upgrade our technologies. We cannot offer any assurances that we
will be successful in addressing these risks.
The
Company has reported substantial operating losses since 1999. There
can be no assurance that we will be profitable in the
future.
Our capital is limited and we may need additional financing to
continue operations.
We
require substantial working capital to fund our business. If we are
unable to obtain additional financing in the amounts desired and on
acceptable terms, or at all, or issue stock, we could be required
to significantly
reduce the scope of our expenditures, which impact our business
potential and the market price of our common stock. By raising
additional funds by issuing equity securities, our shareholders
will be further diluted. Based on our cash position as of December
31, 2020, we believe we have sufficient capital to fund our
anticipated operating expenses over the next 12
months.
We are unable to guarantee that the marketplace will accept our
software products.
The
software markets are characterized by rapid technological change,
frequent new product enhancements, uncertain product life cycles,
changes in customer demands and evolving industry standards. Our
software products could be rendered obsolete if products based on
new technologies are introduced or new industry standards emerge,
or if we do not obtain adequate intellectual property protection.
We are unable to provide any assurances that the marketplace will
accept our software products and services, or that we will be able
to provide these products and services at a profit.
Our operating results are unpredictable.
You
should not rely on the results for any period as an indication of
future performance. Our operating results and rate of growth are
unpredictable and are expected to fluctuate in the future due to a
number of additional factors, many of which are outside our
control. These factors beyond our control include:
●
our
ability to significantly increase our customer base and traffic to
our websites, maintain gross margins, and maintain customer
satisfaction;
●
our
ability to market and sell our software products;
●
consumer
confidence in encrypted transactions in the internet
environment;
●
the
announcement or introduction of new types of services or products
by our competitors;
●
technical
difficulties with respect to customer use of our
technologies;
●
governmental
regulation by federal or local governments; and
●
general
economic conditions and economic conditions specific to the
internet and e-commerce.
As a
strategic response to changes in the competitive environment, we
may from time to time make certain service, marketing or supply
decisions or acquisitions that could have a material adverse effect
on our results of operations and financial condition. In 2020, our
revenues were derived from our shipping coordination, shipping
label generation services, shipping calculator services, merchant
payment processing and brewery management software
solutions.
The successful operation of our business depends upon the supply of
critical technology elements from other third parties, including
our internet service provider and technology
licensors.
Our
operations depend on a number of third parties for internet/telecom
access, delivery services, and software services. We have limited
control over these third parties and no long-term relationships
with many of them. We rely on an internet service provider to
connect our websites to the internet. From time to time, we have
experienced temporary interruptions in our websites connection and
also our telecommunications access. The Company has recently
secured a secondary subscription for our internet services and have
migrated our hosted services to a cloud based offsite location in
order to mitigate any potential outages. We license technology and
related databases from third parties for certain elements of our
properties. Furthermore, we are dependent on hardware suppliers for
prompt delivery, installation, and service of servers and other
equipment to deliver our products and services. Our internally
developed software depends on operating system, database and server
software that was developed and produced by and licensed from third
parties. We have from time to time discovered errors and defects in
the software from these third parties and, in part, rely on these
third parties to correct these errors and defects in a timely
manner. Any errors, failures, interruptions, or delays experienced
in connection with these third-party technologies and information
services could negatively impact our relationship with users and
adversely affect our brand and our business, and could expose us to
liabilities to third parties.
Our failure to manage growth could place a significant strain on
our management, operational and financial resources.
Growth
places a significant strain on our management, operational and
financial resources, and has placed significant demands on our
management, which currently include two executive officers, a vice
president of operations and a vice president of finance. In order
to manage growth, we will be required to expand existing
operations, particularly with respect to enhanced product
offerings, customer service and development, to improve existing
and implement new operational, financial systems, procedures and
controls. In 2020, the Company added a significant number of
personnel and has included in its growth a number of new positions
to assist with the workload.
We have
experienced some strain on our resources because of:
●
the need to manage
relationships with various technology licensors, other websites and
services, and other third parties;
●
pressures for the
continued development of our core of software products;
and
●
the need for
additional sales and marketing personnel.
Difficulties we may
encounter in dealing successfully with the above risks could
seriously harm our operations. We cannot offer any assurance that
our current personnel, systems, procedures and controls will be
adequate to support our future operations or that management will
be able to identify, hire, train, retain, motivate and manage
required personnel.
Our Company's success still depends upon the continued services of
its current management and other relationships.
We are
substantially dependent on the continued services of our key
personnel, W. Austin Lewis, IV and David Scott. Mr. Lewis has
specialized knowledge and skills with respect to our Company and
our operations and relationships with our clients. As a result, if
Mr. Lewis were to leave our Company, we could face some
difficulties in hiring qualified successors. Mr. Scott has unique
knowledge regarding the technology of the Company and its
integrations to other third-party software. If Mr. Scott were to
leave the Company, we could face some setbacks in development or
possible outages. We do not maintain any key person life
insurance.
Our Company's success will depend on our ability to attract and
retain qualified personnel.
We
believe that our future success will depend upon our ability to
identify, attract, hire, train, motivate and retain other highly
skilled managerial, accounting, technical consulting, marketing and
customer service personnel. The Company has recently added seven
new employees and has had minimal turnover in the last year. We
cannot offer assurances that we will be successful in attracting,
assimilating or retaining the necessary personnel, and the failure
to do so could have an adverse effect on our business.
Our success depends upon market awareness of our
brand.
Development and
awareness of our Company will depend largely on our success in
increasing our customer base, specifically in the United States. To
attract and retain customers and to promote and maintain our
Company in response to competitive pressures, we may find it
necessary to increase our marketing and advertising budgets and
otherwise to increase substantially our financial commitment to
creating and maintaining brand loyalty among consumers. We will
need to continue to devote substantial financial and other
resources to increase and maintain the awareness of our online
brands among website users, advertisers, affiliate relationships,
and e-commerce entities that we have advertising relationships with
through:
●
web advertising,
marketing, and social media;
●
traditional media
advertising campaigns;
●
Canadian seller
resources; and
●
trade show exhibits
in the United States and Canada.
Our
results of operations could be seriously harmed if our investment
of financial and other resources, in an attempt to achieve or
maintain a leading position in internet commerce or to promote and
maintain our brand, does not generate a corresponding increase in
net revenue, or if the expense of developing and promoting our
online brands becomes excessive.
System failures could result in interruptions in our service, which
could harm our business.
A key
element of our strategy is to generate a high volume of traffic to,
and use of, our products. Accordingly, the satisfactory
performance, reliability and availability of the shipping
calculations, transaction processing systems and network
infrastructure are critical to our operating results, as well as
our reputation and our ability to attract and retain customers and
maintain adequate customer service levels.
We
periodically have experienced minor systems interruptions,
including internet disruptions. Some of the interruptions are due
to upgrading our technology. During these upgrades, the outages
have generally lasted less than an hour. Any systems interruptions,
including internet disruptions, which result in the unavailability
of our services, could harm our business. In addition to placing
increased burdens on our engineering staff, these outages create a
large number of user questions and complaints that need to be
responded to by our personnel. We cannot offer assurances
that:
●
we will be able to
accurately project the rate or timing of increases if any, in the
use of our services; or
●
we will have
uninterrupted access to the internet.
Any
disruption in the Internet access to our websites and services or
any systems failures could significantly reduce consumer demand for
our services, diminish the level of traffic to our products, impair
our reputation and reduce our e-commerce and advertising
revenues.
We currently identify vulnerabilities with our communications
hardware and computer hardware.
Our
main servers are cloud-based and are located within two separate
third party hosting facilities. The cloud-based servers are spread
across North America. ShipTime maintains several non-critical
servers which are located in Canada with daily operations conducted
in Oakville, Ontario. Neither our Massachusetts facilities nor our
Canadian facilities are protected from flood, power loss,
telecommunication failure, break-in and similar events however the
equipment located at these offices is not considered critical to
our service offerings.
As with
all servers, our cloud-based servers are also vulnerable to
computer viruses, physical or electronic break-ins, attempts by
third parties to deliberately exceed the capacity of our systems
and similar disruptive problems. Computer viruses, break-ins or
other problems caused by third parties could lead to interruptions,
delays, loss of data or cessation in service to users of our
services and products and could seriously harm our business. Our
implementation of redundancies minimizes the risk of loss though
there are no guarantees.
There are certain provisions of Delaware law that could have
anti-takeover effects.
Certain
provisions of Delaware law and our Certificate of Incorporation,
and Bylaws could make an acquisition of our Company by means of a
tender offer, a proxy contest or otherwise, and the removal of our
incumbent officers and directors more difficult. Our Certificate of
Incorporation and Bylaws do not provide for cumulative voting in
the election of directors. Our Bylaws include advance notice
requirements for the submission by stockholders of nominations for
election to the Board of Directors and for proposing matters that
can be acted upon by stockholders at a meeting.
We are
subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law (the “DGCL”), which
will prohibit us from engaging in a “business
combination” with an “interested stockholder” for
three years after the date of the transaction in which the person
became an interested stockholder unless the business combination is
approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three
years prior to the determination of interested stockholder status,
did own) 15% or more of a corporation's voting stock. The existence
of this provision would be expected to have an anti-takeover effect
with respect to transactions not approved in advance by the Board
of Directors, including discouraging attempts that might result in
a premium over the market price for the shares of common stock held
by stockholders. Section 203 could adversely affect the ability of
stockholders to benefit from certain transactions, which are
opposed by the Board or by stockholders owning 15% of our common
stock, even though such a transaction may offer our stockholders
the opportunity to sell their stock at a price above the prevailing
market price.
Our success is dependent in part on our ability to obtain and
maintain proprietary protection for our technologies and
processes.
Our
most important intellectual property relates to the software for
our shipping calculator, label generation and payment processing
products. We do not have any patents or patent applications for our
designs or innovations, except for our patent with respect to our
online auction shipping and tax calculator. We may not be able to
obtain copyright, patent or other protection for our proprietary
technologies or for the processes developed by our employees. Legal
standards relating to intellectual property rights in computer
software are still developing and this area of the law is evolving
with new technologies. Our intellectual property rights do not
guarantee any competitive advantage and may not sufficiently
protect us against competitors with similar
technology.
As part
of our confidentiality procedures, we generally enter into
agreements with our employees and consultants and limit access to
and distribution of our software, documentation and other
proprietary information. We cannot offer assurances that the steps
we have taken will prevent misappropriation of our technology or
that agreements entered into for that purpose will be enforceable.
Notwithstanding the precautions we have taken, it might be possible
for a third party to copy or otherwise obtain and use our software
or other proprietary information without authorization or to
develop similar software independently. Policing unauthorized use
of our technology is difficult, particularly because the global
nature of the internet makes it difficult to control the ultimate
destination or security of software or other data transmitted. The
laws of other countries may afford our Company little or no
effective protection of its intellectual property. Because our
success in part relies upon our technologies, if proper protection
is not available or can be circumvented, our business may
suffer.
Intellectual property infringement claims would harm our
business.
We may
in the future receive notices from third parties claiming
infringement by our software or other aspects of our business. Any
future claim, with or without merit, could result in significant
litigation costs and diversion of resources, including the
attention of management, and require us to enter into licensing
agreements, which could have a material adverse effect on our
business, results of operations and financial condition. Licensing
agreements, if required, may not be available on terms acceptable
to the Company or at all. In the future, we may also need to file
lawsuits to enforce our intellectual property rights, to protect
our trade secrets, or to determine the validity and scope of the
proprietary rights of others. This litigation, whether successful
or unsuccessful, could result in substantial costs and diversion of
resources, which could have a material adverse effect on our
business, results of operations and financial
condition.
Our success is dependent on licensed technologies.
We rely
on a variety of technologies that we license from third parties. We
also rely on encryption and authentication technology licensed from
a third party through an online user agreement to provide the
security and authentication necessary to effect secure transmission
of confidential information.
We
cannot make any assurances that these third-party technology
licenses will continue to be available to us on commercially
reasonable terms. Although no single software vendor licensor
provides us with irreplaceable software, the termination of a
license and the need to obtain and install new software on our
systems would interrupt our operations. Our inability to maintain
or obtain upgrades to any of these technology licenses could result
in delays in completing our proprietary software enhancements and
new developments until equivalent technology could be identified,
licensed or developed and integrated. These delays would materially
and adversely affect our business, results of operations and
financial condition.
We may be exposed to liability for content retrieved from our
websites.
Our
exposure to liability from providing content on the internet is
currently uncertain. Due to third party use of information and
content downloaded from our websites, we may be subject to claims
relating to:
●
the content and
publication of various materials based on defamation, libel,
negligence, personal injury and other legal theories;
●
copyright,
trademark or patent infringement and wrongful action due to the
actions of third parties; and
●
other theories
based on the nature and content of online materials made available
through our websites.
Our
exposure to any related liability could result in us incurring
significant costs and could drain our financial and other
resources. We do not maintain insurance specifically covering these
claims. Liability or alleged liability could further harm our
business by diverting the attention and resources of our management
and by damaging our reputation in our industry and with our
customers.
The Company may be exposed to potential risks relating to our
significant deficiencies and material weaknesses in our internal
controls over financial reporting.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002
(“SOX 404”), the Securities and Exchange Commission
adopted rules requiring public companies to include a report of
management on the Company's internal control over financial
reporting in their annual reports, including Form 10-K. We have
identified deficiencies and material weaknesses in our internal
controls and have taken steps to remediate them as cost-effectively
as possible. Based on these deficiencies and material weaknesses,
investors and others may lose confidence in the reliability of our
financial statements and our ability to obtain equity or debt
financing could suffer.
Risks
Associated With Our Industry
The market for online services is intensely competitive with low
barriers to entry.
The
market for internet products and services is very competitive.
Barriers to entry are relatively low, and current and new
competitors can launch new sites at relatively low costs using
commercially available software. We currently or potentially
compete with a variety of other companies depending on the type of
services offered to customers. These competitors include a number
of indirect competitors that specialize in e-commerce shipping
solutions or derive a substantial portion of their revenue from
e-commerce products and those that specialize in brewery management
solutions.
It is
possible that new competitors or alliances may emerge and rapidly
acquire market share. Increased competition is likely to result in
reduced operating margins, loss of market share and a diminished
brand recognition, any one of which could materially adversely
affect our business, results of operations and financial condition.
Many of our current and potential competitors have greater
financial, marketing, customer support, technical and other
resources than the Company. As a result, these competitors may be
able to provide services on more favorable terms than we can, and
they may be able to respond more quickly to changes in customer
preferences or to devote greater resources to the development of
their products than the Company.
We may be adversely affected by the deterioration in economic
conditions, which could affect consumer and corporate spending and
our ability to raise capital, and, therefore, significantly
adversely impact our operating results.
The
impact of slowdowns on our business is difficult to predict, but
they may result in reductions in new client registrations and our
ability to generate revenue. The risks associated with our
businesses may become more acute in periods of a slowing economy or
a recession, which may be accompanied by a decrease in e-commerce
business. Instability in the financial markets as a result of
recession or otherwise, as well as insufficient financial sector
liquidity, also could affect the cost of capital and energy
suppliers and our ability to raise capital.
Our
business depends on discretionary consumer and corporate spending.
Many factors related to corporate spending and discretionary
consumer spending, including economic conditions affecting
disposable consumer income such as employment, fuel prices,
interest and tax rates and inflation can significantly impact our
operating results. Business conditions, as well as various industry
conditions, including corporate marketing and promotional spending,
can also significantly impact our operating results. Negative
factors such as challenging economic conditions, public concerns
over terrorism and security incidents, particularly when combined,
can impact corporate and consumer spending and one negative factor
can impact our results more than another. There can be no assurance
that consumer and corporate spending will not be adversely impacted
by economic conditions, thereby possibly impacting our operating
results and growth.
On March 11, 2020, the
World Health Organization declared COVID-19 a global pandemic. The
extent of COVID-19’s effect on the Company’s
operational and financial performance would depend on future
developments, including the duration, spread and intensity of the
pandemic, all of which are uncertain and difficult to predict
considering the rapidly evolving landscape. The Company continues
to analyze the potential impacts to all of its business segments.
At this time, it is not possible to determine the magnitude of the
overall impact of COVID-19 on the Company’s business.
However, it could have a material adverse effect on the
Company’s business, financial condition, liquidity, results
of operations, and cash flows.
Security breaches and credit card fraud could harm our
business.
We rely
on encryption and authentication technology licensed from a third
party through an online user agreement to provide the security and
authentication necessary to effect secure transmission of
confidential information. We believe that a significant barrier to
e-commerce and communications is the secure transmission of
confidential information over public networks. We cannot give an
assurance that advances in computer capabilities, new discoveries
in the field of cryptography or other events or developments will
not result in a compromise or breach of the algorithms we use to
protect customer transaction data. If this compromise of our
security were to occur, it could have a material adverse effect on
our business, results of operations and financial condition. A
party who is able to circumvent our security measures and those of
our third party providers could misappropriate proprietary
information or cause interruptions in our operations. To the extent
that activities of our Company or third-party contractors involve
the storage and transmission of proprietary information. Security
breaches could expose us to a risk of loss or litigation and
possible liability. We may be required to expend significant
capital and other resources to protect against the threat of
security breaches or to alleviate problems caused by these
breaches. We cannot offer assurances that our security measures
will prevent security breaches or that failure to prevent these
security breaches will not have a material adverse effect on our
business.
Our industry may be exposed to increased government
regulation.
Our
Company is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to access
to, or commerce on, the internet. Today there are relatively few
laws specifically directed towards online services, other than to
protect user privacy or children. However, due to the increasing
popularity and use of the internet, it is possible that a number of
laws and regulations may be adopted with respect to the internet,
covering issues such as user privacy, freedom of expression,
pricing, content and quality of products and services, fraud,
taxation, advertising, intellectual property rights and information
security. Compliance with additional regulation could hinder our
growth or prove to be prohibitively expensive.
The
applicability to the internet of existing laws in various
jurisdictions governing issues such as property ownership, sales
tax, libel and personal privacy is uncertain and may take time to
resolve. In addition, because our service is available over the
internet in multiple states, and we sell to numerous consumers
resident in these states, these jurisdictions may claim that we are
required to qualify to do business as a foreign corporation in each
state. Our failure to qualify as a foreign corporation in a
jurisdiction where it is required to do so could subject our
Company to taxes and penalties for the failure to qualify. Any new
legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to
our business, could have a material adverse effect our business,
results of operations and financial condition.
Risks
Associated with our Common Stock
Our stock price has been and may continue to be very
volatile.
The
market price of the shares of our common stock has been, and is
likely to be, highly volatile. During the year ended December 31,
2020 our stock price as quoted on the OTC Pink operated by the OTC
Markets Group, Inc., on the OTCPINK has ranged from a high of $5.45
per share to a low of $2.02 per share. The variance in our share
price makes it difficult to forecast with any certainty the stock
price at which you may be able to buy or sell your shares of our
common stock. The market price for our stock could be subject to
wide fluctuations in response to factors that are out of our
control such as:
●
actual or
anticipated variations in our results of operations;
●
announcements of
new products, services or technological innovations by our
competitors;
●
short selling our
common stock and stock price manipulation;
●
merger, split or
issuance;
●
developments in
internet regulation; and
●
general conditions
and trends on the internet and e-commerce industries.
The
trading prices of many technology companies' stock have experienced
extreme price and volume fluctuations. These fluctuations often
have been unrelated or disproportionate to the operating
performance of these companies. These broad market factors may
adversely affect the market price of our common stock. These market
fluctuations, as well as general economic, political and market
conditions such as recessions or interest rate fluctuations, may
adversely affect the market price of our common stock. Any negative
change in the public's perception of the prospects of Internet or
e-commerce companies could depress our stock price regardless of
our results.
“Penny stock” regulations may impose certain
restrictions on marketability of securities.
The SEC
adopted regulations which generally define "penny stock" to be an
equity security that has a market price of less than $5.00 per
share. Our common stock may be subject to rules that impose
additional sales practice requirements on broker-dealers who sell
these securities to persons other than established customers and
accredited investors (generally those with assets in excess of
$1,000,000, or annual incomes exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these
rules, the broker-dealer must make a special suitability
determination for the purchase of these securities and have
received the purchaser's prior written consent to the
transaction.
Additionally, for
any transaction, other than exempt transactions, involving a penny
stock, the rules require the delivery, prior to the transaction, of
a risk disclosure document mandated by the SEC relating to the
penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over
the market. Finally, monthly statements must be sent disclosing
recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of
broker-dealers to sell our common stock and may affect the ability
to sell our common stock in the secondary market.
The market for our Company's securities is limited and may not
provide adequate liquidity.
Our
common stock is currently quoted on the OTCPINK, a regulated
quotation service that displays real-time quotes, last-sale prices,
and volume information in over-the-counter equity securities. As a
result, an investor may find it more difficult to dispose of, or
obtain accurate quotations as to the price of, our securities than
if the securities were traded on the Nasdaq Stock market, or
another national exchange. There are a limited number of active
market makers of our common stock. In order to trade shares of our
common stock you must use one of these market makers unless you
trade your shares in a private transaction. In the year ended
December 31, 2020 the actual daily trading volume ranged from a low
of 0 shares of common stock to a high of over 8,815 shares of
common stock. Selling our shares can be more difficult because
smaller quantities of shares are bought and sold and news media
coverage about us is limited. These factors result in a limited
trading market for our common stock and therefore holders of our
Company's stock may be unable to sell shares purchased should they
desire to do so.
Item 1B. Unresolved Staff
Comments
None.
Item 2. Properties
The
Company’s primary offices are located at 700 Dorval Drive,
Oakville, Ontario with a presence at 225 Cedar Hill Street,
Marlborough, Massachusetts, pursuant to a lease agreement for the
Oakville property which expires in August 2023.
Item 3. Legal Proceedings
From
time to time we may be a party to various legal proceedings arising
in the ordinary course of our business. Our management is not aware
of any litigation outstanding, threatened or pending as of the date
hereof by or against us or our properties which we believe would be
material to our financial condition or results of operations,
except with respect to a dispute related to its non-renewal of the
employment agreement with Mr. Allan Pratt, the Company's former
CEO, in which Mr. Pratt appears to be treating it as a termination
which would trigger a two-year severance payment.
Item 4. Mine Safety Disclosure
Not
applicable.
PART II
Item 5. Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our
common stock, par value $0.001 per share, is presently quoted on
the OTC Pink operated by the OTC Markets Group Inc., on the OTCPINK
under the symbol "PAYD".
The
following table sets forth the high and low bid information for our
common stock as reported by OTCPINK for the eight quarters ended
December 31, 2019 (retroactively to reflect the reverse stock
split). The quotations from the OTCPINK reflect inter-dealer prices
without retail mark-up, mark-down, or commission and may not
represent actual transactions.
|
2019
|
High
|
Low
|
|
Quarter ended March
31, 2019
|
$3.50
|
$2.69
|
|
Quarter ended June
30, 2019
|
$3.26
|
$2.55
|
|
Quarter ended
September 30, 2019
|
$3.55
|
$2.69
|
|
Quarter ended
December 31, 2019
|
$3.50
|
$2.52
|
|
2020
|
High
|
Low
|
|
Quarter ended March
31, 2020
|
$2.95
|
$2.49
|
|
Quarter ended June
30, 2020
|
$3.25
|
$2.10
|
|
Quarter ended
September 30, 2020
|
$5.45
|
$2.33
|
|
Quarter ended
December 31, 2020
|
$3.36
|
$2.02
|
As of March 31, 2021, there were approximately 873 holders of
record of our common stock. Because many of the shares are held by
brokers and other institutions on behalf of stockholders, the
Company is unable to estimate the total number of individual
stockholders represented by these holders of record.
We have
not previously paid cash dividends on our common stock, and intend
to utilize current resources to operate the business; thus, it is
not anticipated that cash dividends will be paid on our common
stock in the foreseeable future.
Exchangeable Shares
Holders of our subsidiary’s exchangeable shares have the same
dividend and distribution rights as holders of Company shares, and
if Company shares are subdivided or in the event of a Company stock
dividend, the exchangeable shares will be equally subdivided, as
exchangeable shares are intended to be economically the same as
shares of common or preferred stock of the Company. The Company
will have a “liquidation call right” in the event of
proposed liquidation, dissolution or winding up of ShipTime Canada
Inc. Absent prior events, the Company will redeem the
exchangeable shares on the fifth anniversary whereby the Company
will redeem the exchangeable shares for shares of the
Company’s preferred stock and common stock. By
agreement, exchangeable shares also may be purchased by ShipTime
Canada Inc. for cancellation. The Company also has a right to
call the shares in the event of a change in the applicable
laws.
The holders of exchangeable shares have an “automatic
exchange right” in the event of any bankruptcy or insolvency
or in general, related proceedings, of ShipTime Canada Inc. or the
Company. The exchangeable shares would at such time be
converted automatically into that number of shares of common stock
and preferred stock of the Company at the agreed upon conversion
ratio. Moreover, Callco will have an overriding call right to
purchase some or all of the exchangeable shares. This mechanism
will be triggered with the automatic exchange right and is
necessary to comply with Canadian tax laws. The exercise of this
call right does not alter the outcome of the exchangeable share
transaction.
Under a
Support Agreement, the Company is required to treat holders of
Exchangeable Shares substantially similar, or economically
equivalent, to holders of Company stock. As such, under the
Support Agreement, the Company cannot declare or pay any dividend
or other distribution on Company stock unless ShipTime Inc.
simultaneously declares or pays the dividend or distribution on the
Exchangeable Shares and has sufficient money or other assets to
meet these requirements. In turn, ShipTime Inc. would effect a
corresponding dividend or distribution of its securities related to
the Exchangeable Shares. The Company also undertakes to
advise ShipTime Inc. of the declaration of dividend or
distribution, among other similar events, and to cooperate with it
to effect the dividend or distribution as of the same record and
effective date. The Company is also required in this
case to segregate funds to pay for the dividend, and to reserve
sufficient number of shares to permit the exchange of the
Exchangeable Shares into the required number of Company shares of
common stock and preferred stock. The Support Agreement is
also binding on any successor to the Company and with respect to
any successor transaction.
Equity Compensation Plan Information
|
|
Number of Securities
To be Issued Upon Exercise of Outstanding Options, Warrants and
Rights
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
|
Number of Securities
Remaining Available For Future Issuance Under Equity Compensation
Plans (Excluding Securities Reflected
in
Column (a)
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity Compensation
Plans Approved by Security Holders
|
16,000
|
$23.33
|
-
|
|
Equity Compensation
Plans Not Approved by Security Holders
|
387,790
|
$3.24
|
591,210
|
|
Total
|
403,790
|
$3.81
|
591,210
|
See
Note 10, Notes to Consolidated Financial Statements for the years
ended December 31, 2020 and 2019 included in Part IV, Item 15, of
this Annual Report, for a discussion of the material features of
the stock options, warrants and related stock plans.
Item 6. Selected Financial
Data
As a
smaller reporting company, the Company is not required to provide
the information for this Item 6.
Item 7. Management's Discussion and
Analysis of Financial Condition and Results of
Operations
Forward
Looking Statements
This
Annual Report on Form 10-K contains certain forward-looking
statements (within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934)
regarding the Company and its business, financial condition,
results of operations and prospects. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks,"
"estimates", "could", "may", "should", "will", "would", and similar
expressions or variations of such words are intended to identify
forward-looking statements in this report. Additionally, statements
concerning future matters such as the development of new services,
technology enhancements, purchase of equipment, credit
arrangements, possible changes in legislation and other statements
regarding matters that are not historical are forward-looking
statements.
Although
forward-looking statements in this Annual Report reflect the good
faith judgment of the Company's management, such statements can
only be based on facts and factors currently known by the Company.
Consequently, forward-looking statements are inherently subject to
risks, contingencies and uncertainties, and actual results and
outcomes may differ materially from results and outcomes discussed
in this report. Although the Company believes that its plans,
intentions and expectations reflected in these forward-looking
statements are reasonable, the Company can give no assurance that
its plans, intentions or expectations will be achieved. For a more
complete discussion of these risk factors, see Item 1A, "Risk
Factors.”
For
example, the Company's ability to maintain a positive cash flow and
to become profitable may be adversely affected as a result of a
number of factors that could thwart its efforts. These factors
include the Company's inability to successfully implement the
Company's business and revenue model, higher costs than
anticipated, the Company's inability to sell its products and
services to a sufficient number of customers, the introduction of
competing products or services by others, the Company's failure to
attract sufficient interest in, and traffic to, its sites, the
Company's inability to complete development of its products, the
failure of the Company's operating systems, and the Company's
inability to increase its revenues as rapidly as
anticipated.
Overview
ShipTime Inc. has
developed a SaaS based application, which focuses on the small to
medium business segment. 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 businesses and through long
standing partnerships with selected associations throughout
Canada. Our focus in 2021 will be to significantly grow this
portion of our business.
PAID,
Inc. (the “Company”) 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 does have tools to assist with other aspects of the
fulfillment process, but the main purpose of the product is to
provide accurate shipping and tax calculations and packaging
algorithms that provide customers with the best possible shipping
and tax solutions.
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
providence. 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.
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.
Critical Accounting Policies
Our
significant accounting policies are more fully described in Note 3
to our consolidated financial statements. However, certain of our
accounting policies are particularly important to the portrayal of
our financial position and results of operations and require the
application of significant judgment by our management; as a result,
they are subject to an inherent degree of uncertainty. In applying
these policies, our management makes estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosures. Those estimates and judgments are
based upon our historical experience, the terms of existing
contracts, our observance of trends in the industry, information
that we obtain from our customers and outside sources, and on
various other assumptions that we believe to be reasonable and
appropriate under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions. Our critical accounting policies
include:
Revenue Recognition
The
Company generates revenue principally from the sales related to the
label generation services, shipping calculator services, brewery
management software subscriptions, merchant processing services,
and client services.
The
Company recognizes revenues in accordance with the FASB ASC Topic
606. Accordingly, the Company recognizes revenues when the transfer
of goods or services to customers at an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services.
For
label generation service revenues the Company recognizes revenue
when a customer has successfully prepared a shipping label and had
a pickup. 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 and
other subscription-based 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 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.
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.
Foreign Currency
The currencies of ShipTime, the Company’s international
subsidiary, are in Canadian dollars. Foreign currency denominated
assets and liabilities are translated into U.S. dollars using the
exchange rates in effect at December 31, 2020. 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 component of shareholders’ equity in accumulated other
comprehensive income.
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. 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.
Share- Based Compensation
The
Board of Directors has on occasion voted to award stock options or
common shares/preferred shares to employees or directors. The price
at which the option shares may be purchased is based on the fair
market value of the shares on the date of the agreement. Each
recipient’s option agreement may differ; the vesting terms
may vary from fully vested immediately to one-third immediately,
one-third vesting in 18 months and the final one-third vesting in
36 months from the date of the grant or one-third immediately,
one-third vesting on January 1, 2019 and one-third vesting on
January 1, 2020. Historically the options granted have had a
10-year term. If the recipient’s employment or relationship
with the Company is terminated the options recipient may be allowed
up to three months to exercise their options. Option compensation
is calculated by using the
Black-Scholes-Merton option pricing model to estimate the fair
value of these share-based awards.
Leases
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.
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 six months to thirty-two 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.
Results of Operations
Comparison of the years ended December 31, 2020 and
2019
The
following discussion compares the Company's results of operations
for the year ended December 31, 2020 with those for the year ended
December 31, 2019. The Company's consolidated financial
statements and notes thereto included elsewhere in this Annual
Report contain detailed information that should be referred to in
conjunction with the following discussion.
Revenues
The
following table compares total revenue for the periods
indicated.
|
|
Years ended December
31,
|
||
|
|
2020
|
2019
|
%
Change
|
|
Client
services
|
$3,541
|
$19,395
|
(82)%
|
|
Shipping calculator
services
|
27,845
|
148,035
|
(81)%
|
|
Brewery management
software
|
114,881
|
193,150
|
(41)%
|
|
Merchant processing
services
|
425,839
|
2,011
|
21,071%
|
|
Shipping
coordination and label generation services
|
12,348,683
|
10,185,704
|
21%
|
|
Total
revenues
|
$12,920,789
|
$10,548,295
|
22%
|
Revenues increased
22% in 2020 primarily from the continued growth of the shipping
coordination and label generation services and the addition of
merchant processing services to the Company’s revenue
stream.
Client
services revenues decreased $15,854 or 82% to $3,541 compared to
$19,395 in 2019. The decrease was attributable to depleting
inventory of our movie posters available for auction.
Shipping calculator
services revenues decreased $120,190 or 81% to $27,845 compared to
$148,035 in 2019. The decrease was attributed to discontinuance of
billable services for a portion of the AuctionInc products. The
Company is preparing to launch a new platform where the new clients
will be migrated to.
Brewery management software revenues decreased $78,269 or 41% to
$114,881 in 2020 compared to $193,150 in 2019. The decrease is
attributable to the additional competition in the brewery
management software industry and the limited marketing to new
clients.
Merchant processing
services is a new segment for the Company launched in late 2019.
This segment has contributed to the overall growth of the Company
increasing $423,828 to $425,839 in 2020 from $2,011 in 2019. These
services also have a higher gross margin and gross profit. They
will continue to be a source of growth for the
Company.
Shipping
coordination and label generation service revenues increased
$2,162,979 or 21% to $12,348,683 in 2020 compared to $10,185,704 in
2019. The increase is attributable to the increase in marketing
efforts along with the impact of COVID-19 on the small businesses
and their ability to sell and ship online.
Gross Profit
Gross
profit increased $364,548 or 13% to $3,111,289 in 2020 compared to
$2,746,741 in 2019. Gross margin decreased 2 percentage points to
24% in 2020 from 26% in 2019. The decrease in gross margin was
partially due to the increase in revenue from our shipping label
generation services which are offered at a lower
margin.
Operating Expenses
Total
operating expenses in 2020 were $5,242,763 compared to $3,458,774
in 2019, an increase of $1,783,989 or 52%. The increase is mainly
due to the share-based compensation for 2020.
Other Income/Expense, net
Net
other income in 2020 was $21,128 compared to $991,840 in the same
period of 2019, a decrease of $970,712. This is primarily
attributable to the gain recorded on the elimination of the stock
price guarantee in 2019.
Net Income (Loss)
The
Company reported a net loss in 2020 of $(2,232,553) compared to a
net income of $282,011 for the same period in 2019. The basic loss
per common share in 2020 represents $(0.41) while the basic net
income per common share in 2019 represents $0.06.
Inflation
The
Company believes that inflation has not had a material effect on
its results of operations.
Operating Cash Flows
A
summarized reconciliation of the Company's net income (loss) to
cash provided by operating activities for the years ended December
31, 2020 and 2019 is as follows:
|
|
2020
|
2019
|
|
Net income
(loss)
|
$(2,232,553)
|
$282,011
|
|
Provision for bad
debts
|
20,125
|
-
|
|
Depreciation and
amortization
|
488,745
|
490,250
|
|
Amortization of
operating lease right-of-use assets
|
28,545
|
22,850
|
|
Share-based
compensation
|
2,452,701
|
407,974
|
|
Other income from
stock price guarantee
|
-
|
(880,553)
|
|
Deferred income
taxes
|
(120,835)
|
(73,208)
|
|
Gain on sale of
property and equipment
|
(739)
|
-
|
|
Unrealized loss on
stock price guarantee
|
-
|
(3,688)
|
|
Changes in current
assets and liabilities
|
464,820
|
(230,103)
|
|
Net cash provided
by operating activities
|
$1,100,809
|
$15,533
|
Working Capital and Liquidity
The
Company had cash and cash equivalents of $1,644,210 on December 31,
2020 compared to $475,881 at December 31, 2019. The Company had
working capital of $218,615 as of December 31, 2020 compared to a
working capital deficit of $397,891 at December 31, 2019, an
improvement of $616,506. The improvement in working capital is
primarily attributed to the cash on hand at year end.
Management believes
that the Company has adequate cash resources to fund operations
during the next 12 months. In addition, management continues to
explore opportunities and has organized additional resources to
monetize its patents. However, there can be no assurance that
anticipated growth in new business will occur, and that the Company
will be successful in launching new products and services.
Management continues to seek alternative sources of capital to
support the growth of future operations.
Item 7A. Quantitative and
Qualitative Disclosure about Market Risk
As a
smaller reporting company, the Company is not required to provide
the information for this Item 7A.
Item 8. Financial Statements and Supplementary Data
The
financial statements listed in Item 15(a) are incorporated herein
by reference and are filed as a part of this report and follow the
signature pages to this Annual Report on Form 10-K on page
34.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The
Company's management, including the interim Chief Executive Officer
/Chief Financial Officer of the Company, as its principal financial
officer has evaluated the effectiveness of the Company's
“disclosure controls and procedures,” as such term is
defined in Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”).
Based upon this evaluation, the interim Chief Executive
Officer/Chief Financial Officer has concluded that, as of December
31, 2020, the Company's disclosure controls and procedures were not
effective, due to material weaknesses in internal control over
financial reporting, for the purpose of ensuring that the
information required to be disclosed in the reports that the
Company files or submits under the Exchange Act with the Securities
and Exchange Commission is recorded, processed, summarized and
reported within the time period specified by the Securities and
Exchange Commission's rules and forms, and is accumulated and
communicated to the Company's management, including its principal
executive/financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
As
described in our accompanying Management's Annual Report on Internal Control
over Financial Reporting, we have identified four remaining
material weaknesses in internal control over financial reporting.
Because of these remaining material weaknesses, we concluded that,
as of December 31, 2020, our internal control over financial
reporting was not effective based on the criteria outlined in
Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission
(“COSO”).
We
continued to implement new procedures and controls in 2020 and have
taken steps to remediate the material weaknesses at the entity and
activity levels, and to review further our procedures and controls
in 2021. In addition, we expect to make additional changes to our
infrastructure, personnel and related processes that we believe are
also reasonably likely to strengthen and materially affect our
internal control over financial reporting.
Prior
to the complete remediation of these material weaknesses, there
remains risk that the processes and procedures on which we
currently rely will fail to be sufficiently effective, which could
result in material misstatement of our financial position or
results of operations and require a restatement. Moreover, because
of the inherent limitations in all control systems, no evaluation
of controls even where we conclude the controls are operating
effectively can provide absolute assurance that all control issues,
including instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty, and breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of
any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, our control
systems, as we develop them, may become inadequate because of
changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected and could be
material to our financial statements.
The
certifications of our principal executive officer/principal
financial officer required in accordance with Rule 13a-14(a) under
the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002
are attached as exhibits to this Annual Report on Form 10-K. The
disclosures set forth in this Item 9A contain information
concerning (i) the evaluation of our disclosure controls and
procedures, and changes in internal control over financial
reporting, referred to in paragraph 4 of the certifications, and
(ii) material weaknesses in the design or operation of our internal
control over financial reporting, referred to in paragraph 5 of the
certifications. Those certifications should be read in conjunction
with this Item 9A for a more complete understanding of the matters
covered by the certifications.
Management's Annual Report on Internal Control over Financial
Reporting
Management is
responsible for establishing and maintaining effective internal
control over financial reporting of the Company. Internal control
over financial reporting is a process designed by, or under the
supervision of, our interim Chief Executive Officer/Chief Financial
Officer and effected by our Board of Directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles.
Our
internal control over financial reporting includes those policies
and procedures that: (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect our
transactions and dispositions of our assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations
of our management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a
material effect on the financial statements.
A
material weakness is a deficiency, or combination of deficiencies,
in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual
or interim financial statements will not be prevented or detected
on a timely basis.
Management, with
the participation of our principal executive officer/principal
financial officer, is required to evaluate the effectiveness of our
internal controls over financial reporting as of December 31, 2020
based on criteria established under the COSO integrated framework
of internal controls. The COSO framework identifies five components
of internal control and provides a basis for evaluating the
effectiveness of internal controls. Management has concluded that
our internal controls over financial reporting were not effective
as of December 31, 2020 due to the following:
1.
Entity
Level Controls
-
Ineffective control
environment, including lack of corporate governance
-
Ineffective
communication of information
-
Ineffective
monitoring of activities
2.
Activity Level
Controls
-
Lack of
procedures and control documentation
1. Inadequate Entity Level Controls
Ineffective Control Environment, Including Lack of Corporate
Governance
The
Control Environment is the tone of an organization and how the tone
influences the control consciousness of its people. Control
Environment factors include, the integrity, ethical values, and
competence of the entity’s people; management’s
philosophy and operating style; the way management assigns
authority and responsibility; the way management organizes and
develops its people; and the attention and direction provided by
the audit committee and board of directors. The Control Environment
includes the Company’s Corporate Governance which is made up
of a set of practices, policies, laws, and principals, designed to
provide guidance and structure to directors, managers, and
employees with a clear view of corporate goals and business
objectives. These processes and procedures need to be clearly
defined, presented and administered to each participant in the
organization, and should document the distribution of rights and
responsibilities among employees, management, clients and
customers.
Steps taken towards Remediation for an Ineffective Control
Environment:
●
The
Company has included in its hiring process supplemental
documentation regarding the internal control, insider trading and
other Corporate matters
●
The
Company meets monthly in a town hall style with the opportunity to
convey best practices for public companies.
●
Management
and the Board formally meet to discuss our filings. During these
discussions, our auditors, and legal counsel may present to the
Company various information which may be of material importance to
our financial reporting and internal controls.
●
The
Company has made improvements by designing and drafting a corporate
governance policy which has been approved by the Board of
Directors, which documents the role of the Board and management,
functions of the Board, role of the Audit Committee, agenda items
for Board meetings, recoupment of unearned compensation,
indemnification, reporting of concerns and complaints, and director
access to management.
●
The
Board of Directors has appointed a Compensation Committee Chairman
to oversee matters relating to employment, personnel and
independent contractors.
Ineffective Communication of Information
Information and
communication systems support the identification, capture, and,
exchange of information in a form and time frame that enable people
to carry out their responsibilities. This component includes
information technology controls which are specific activities
performed by persons of systems designed to ensure that the
business objective can be met, protect the business from fraud and
collusion, and keep the corporate assets protected and
safe.
Steps taken towards Remediation of Ineffective Communication of
Information:
●
Enhanced
the documentation and procedures of our information technology to
control assurance that changes to financial applications are
properly authorized and tested and that access to our information
systems and financial applications are appropriately
restricted.
●
Technology
staff has implemented a documenting and sharing process for
software development
●
Updated
our information systems user profiles and passwords to improve
access controls.
●
Implemented
improvements to our information systems to further address control
deficiencies.
●
Updated
secure backup procedures with best practice methodologies for
protecting our financial data and, in case of a
problem.
●
Enhanced
the documentation of certain core proprietary technologies so that
there is more redundancy and protection of corporate
assets.
Ineffective Monitoring of Activities
Monitoring is a
process that assesses the quality of internal control performance
over time.
Steps taken towards Remediation of Ineffective Monitoring of
Activities:
●
The
Company has reorganized the organizational reporting structure to
enable greater oversight and control of operations which has
increased the level of awareness and accountability.
●
The
Company meets regularly throughout the year to review operating
results, policies and procedures, and staff reviews and
practices.
●
New
management personnel are required to review their procedures and
policies to make sure they are effective. The Company is evaluating
the procedure and polices that have material weakness and
developing corrective action plans to strengthen our internal
controls.
●
The
Company has made changes to its policies and procedures with regard
to its financial reporting systems. Upgrades to software systems
have been made which has resulted in the automation of accounting
transactions and has enhanced our financial reporting and
timeliness of operating results. Management and staff are more
integrated into the review process.
●
Finance
staff is required to review expenses for proper approval and
accounting treatment. Managers and staff are required to have
expenditures pre-approved by their supervisor. All significant
expenditures require multiple approvals including Company
officers.
The
Company believes significant improvements have been made to
remediate its material weakness in the internal controls over
financial reporting at the entity level, but does not have the
appropriate documentation to support its efforts. The Company also
believes that further work is still required to develop appropriate
controls in some aspects of entity level control to provide
reasonable assurance that controls are designed in the most
effective and efficient manner possible. While we believe these
changes will be effective at mitigating risk of material error,
there continues to be additional work required for us to conclude
that all three of these control areas are operating effectively. As
noted in the Management's Report on Internal Control over Financial
Reporting, we consider each of these control areas within the
entity level control to constitute a material
weakness.
The
Company has taken significant steps to reduce risks associated with
information technology controls and documentation. Our information
technology department has worked toward cross training and
redundancies to assure that no one single person has the ability to
make changes to the core operating systems of our products.
Additionally, we have contacted with our third party hosting
provider to gain the ability to increase bandwidth in cases of
larger than normal traffic to our websites and servers. The
critical employees have continued network access with additional
access to two independent internet providers.
In
addition to the ongoing increase of documentation of the policies
and procedures the Company has added increased internal controls
with regard to the segregation of duties. As the Company grows and
adds additional management level personnel it is increasingly
easier to segregate duties. We have also added internal spending
and approval limits to monitor activities.
2.
Inadequate Activity Level Controls
Lack of Procedures and Control Documentation
The
Company lacks specific documentation relating to certain accounts,
and financial closing, which in effect make these internal controls
ineffective. The lack of documentation in internal controls
relating to these accounts may affect the financial statements and
will directly affect the nature and timing of other auditing
procedures for certain activities.
Steps taken towards Remediation of Revenue
Recognition:
●
The
Company upgraded its transactional processing systems which
resulted in the automation of several manual accounting tasks. This
automation eliminated the risk of human error for these manual
tasks and created a more concise audit trail in the revenue
recognition process.
●
All
sales are reconciled across the Company's multiple revenue and
accounting systems comparing for any discrepancies.
●
The
Company continues to document new processes and procedures to
assure employees are following proper protocols with regard to
activity that has an effect on the financial transactions of the
Company.
Steps taken towards Remediation of Expenditures and Accounts
Payable:
●
Expenses
are reviewed as incurred for proper accounting treatment and
approval, department heads are responsible for budgeting and
reviewing all expenses for their department..
●
The
Vendor Master File is reviewed for updates and changes and any
changes are analyzed and monitored for their activity and
frequency.
●
Management
evaluates all new client relationships for savings opportunities
and value.
●
The
Chief Financial Officer is required to review and approve all cash
disbursements.
●
Policies
for accounts payable approvals and payments have been reviewed with
all department heads.
Steps taken towards Remediation of Financial Closing:
●
The
Company closes its books and reconciles all accounts monthly, and
provides management with a comprehensive set of financial and
operating reports and analysis of results.
●
The
interim CEO/CFO receives monthly financial updates on each segment
of the Company.
The
Company has made significant improvements to the activity level
controls specifically with regard to the deficiencies with the
financial close. In addition, further work is required to develop
appropriate controls in the other aspects of activity level control
to provide reasonable assurance that controls are designed in the
most effective and efficient manner possible. Therefore, while we
believe these changes are effective at mitigating risk of material
error, there continues to be additional work required for us to
conclude that both of these control areas are operating
effectively. Therefore, as noted in the Management's Report on
Internal Control over Financial Reporting, we consider each of
these control areas within the activity level control to constitute
a material weakness.
A
factor for our internal control deficiencies is the small size of
the Company and the lack of a financial expert on the Audit
Committee of the Board of Directors and other corporate governance
controls. As defined by the Public Company Accounting
Oversight Board Auditing Standard No. 5, a material weakness is a
significant control deficiency or a combination of significant
control deficiencies that results in there being more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected.
Management continues to monitor and assess the controls to ensure
compliance.
As a
smaller reporting company, our independent registered public
accounting firm is not required to issue a report on the Company's
internal control over financial reporting as of December 31,
2020.
Changes in Internal Control Over Financial Reporting
As
discussed in the Managements' Annual Report on Internal Control
over Financial Reporting, the Company made continuous improvements
to the entity and activity controls and expects to take further
steps in 2021 to remediate the outlined deficiencies. The Company
has implemented a substantial amount of policies and procedures
with regard to financial reporting, specifically in terms of
segregation of duties. The Interim CEO/CFO has worked with the SVP
Finance and management to identify areas of improvement and
together they created appropriate written procedures for approvals
and spending limits for individuals within the Company.
Departmental budgets have been established and all transactions are
reviewed monthly. The Company has also implemented dual approval
and review of all cash disbursements and financial transactions.
While we believe they are effective at mitigating risk of material
error, we have not yet concluded that they are operating
effectively. There were several areas of improvement in our
segregation of duties, financial closing, and information
technology controls that have positively impacted our internal
control over financial reporting for the fiscal year ended
2020.
Item 9B. Other
Information
Not
applicable.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
Directors and Executive Officers
The
following table sets forth certain information regarding the
directors and executive officers of PAID:
|
Name
|
|
Age
|
|
Position
|
|
W.
Austin Lewis, IV
|
|
45
|
|
Interim
CEO, CFO
|
|
David
Scott
|
|
26
|
|
COO
|
|
Andrew
Pilaro
|
|
51
|
|
Director
|
|
Laurie
Bradley
|
|
66
|
|
Director
|
|
David
Ogden
|
|
57
|
|
Director
|
Andrew
Pilaro was elected as of September 19, 2000, for a term expiring at
the 2001 Annual Meeting of Stockholders and until their successors
are elected and qualified. On March 27, 2021, the
Company amended its Bylaws to reduce the existing Board of
Directors from five positions to three positions. At that time, W.
Austin Lewis, IV and Allan Pratt automatically rolled off from the
Board of Directors. Under Delaware law, unless otherwise provided
in the certificate of incorporation or bylaws, directors are
elected for one-year terms at the annual meeting of shareholders.
The Amended Bylaws would provide for the Board to be divided into
three classes of directors serving staggered three-year terms.
As a result, approximately one-third of the Board will be
elected each year. Initially, three directors will serve
between one-to-three-year terms. The directors placed in a
Class I position will serve for approximately one year. The
directors placed in a Class II position will serve for
approximately two years. The directors placed in a Class III
position will serve approximately three years. After this
transitional arrangement, the Directors will serve for three-year
terms, with one class being elected each year.
Andrew Pilaro has served as a
Director of PAID since September 2000. He is President of CAP
Properties Limited, a family office which is an investment
management company, with a primary responsibility for asset
management. Mr. Pilaro was asked to serve as a director because he
provides investment management skills and a general business
background.
W.
Austin Lewis, IV currently serves as
CFO, interim CEO of PAID and previously served as the Chairman of
the Audit Committee for MAM Software, Inc. (MAMS). Since
2004, Mr. Lewis has served as Chief Executive Officer of Lewis
Asset Management Corporation, an investment management company he
founded, where he is also the General Partner of the Lewis
Opportunity Fund. Prior to founding Lewis Asset Management, Mr.
Lewis held a variety of positions with investment firms, including
Puglisi & Co., Thompson Davis & Co., and Branch Cabell
& Company. Mr. Lewis holds a Bachelor of Science in Finance and
a Bachelor of Science in Financial Economics from James Madison
University. Mr. Lewis was asked to serve as the interim CEO
because he had a thorough knowledge of the Company’s
strengths and weaknesses and has a strong background in being able
to make companies run efficiently and
successfully.
David
Ogden is the CEO of
Soho Management Consulting, a global investment consulting firm.
David held many senior positions with FedEx, including
Managing Director of Sales for FedEx Middle East and Africa
region based in Dubai, and instrumental in India's launch
as a direct served FedEx location. He was Managing Director of
FedEx Logistics in the Middle East and Africa and was
responsible for the region's first FedEx Logistics
subsidiary's start-up. After FedEx, he moved to Egypt, where
he created a group of companies representing best-of-class
business support services under a group holding company. After
Egypt, he moved to Abu Dhabi to work for an
alternative investment company developing warehousing and
logistics parks in the United Arab Emirates. He has recently been
working with ecommerce ventures from around the
world.
Laurie Bradley is the Chief Executive Officer of
Flexible Support Group providing funding, accounting, and payroll
services to small and mid-size businesses across North America. Ms.
Bradley also retains ownership in ASG Renaissance and
serves as its President. ASG sold it staffing and contracting
business in 2016 and now operates with a focus on executive search,
and consulting services that delivers training to assist clients
with their diversity and inclusion initiatives. The ASG consulting
practice also leverages the 2007 Mosaic Advantage initiative
which aggregated a network of minority, women, and veteran
owned businesses providing them with access to larger business
opportunities, coaching, mentoring and financial services.
Ms. Bradley has worked in both the public and private sectors
specializing in talent management, executive leadership, and
advisory services. Ms. Bradley holds a Bachelor of Arts degree from
McMaster University and a certificate in Business Strategy from
Cornell University.
David
Scott currently serves as
COO of PAID. Prior, he served as the Director of Technology joining
the Company in 2017. Mr. Scott leads the Development and IT
teams from requirements through to implementation while
supporting Sales, Marketing & Customer Success. Mr. Scott has
completed courses in Computer Science at both Mohawk College and
McMaster University.
The
Company has not made any material changes to the procedures by
which security holders may recommend nominees to the Board of
Directors. The Board does not have a separate nominating
committee.
Audit Committee
The
Securities and Exchange Commission has adopted rules to implement
certain requirements of the Sarbanes-Oxley Act of 2002 pertaining
to public company audit committees. One of the rules requires a
company to disclose whether it has an “audit committee
financial expert” serving on its audit committee. Based on
its review of the criteria of an audit committee financial expert
under the rule adopted by the SEC, the Board of Directors does not
believe that any member of the Board of Directors' Audit Committee
would be described as an audit committee financial expert. At this
time, the Board of Directors believes it would be desirable for the
Audit Committee to have an audit committee financial expert serving
on the committee. While from time to time informal discussions as
to potential candidates have occurred, no formal search process has
commenced. Andrew Pilaro, one of the Company’s independent
directors, is the sole member of the audit committee. The audit
committee does not have a charter.
Audit Committee Report
The
Audit Committee reviewed and discussed our audited consolidated
financial statements for the year ended December 31, 2020 with our
management. The Audit Committee also reviewed and
discussed our audited consolidated financial statements and the
matters required to be discussed, by the Public Company Accounting
Oversight Board (“PCAOB”), including material
weaknesses and other internal control deficiencies with KMJ Corbin
& Company LLP, our independent registered public accounting
firm. The Audit Committee received from KMJ Corbin & Company
LLP the written disclosures and letter required by applicable
requirements of the PCAOB regarding the independent accountant's
communications with the audit committee concerning independence,
and has discussed with the independent accountant the independent
accountant's independence.
Based
on the reviews and discussions referred to above, the Audit
Committee recommended to our Board of Directors that our audited
consolidated financial statements be included in our Annual Report
on Form 10-K for the year ended December 31,
2020.
|
|
The Audit
Committee
|
|
|
Andrew
Pilaro
|
Code of Ethics
The
Company has adopted a Code of Ethics that applies to all of its
directors, officers, and employees, including its principal
executive officer, principal financial officer, principal
accounting officer, or controller, or persons performing similar
functions. A written copy of the Company's Code of Ethics will be
provided to anyone, free of charge, upon request to: W. Austin
Lewis, CFO, PAID, Inc., 225 Cedar Hill Street, Marlborough,
Massachusetts 01752.
Any
waiver of the code of business conduct and ethics for directors or
executive officers, or any amendment to the code that applies to
directors or executive officers, may only be made by the board of
directors. We intend to satisfy the disclosure requirement under
Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a
provision of this code of ethics by posting such information on our
website, at the address and location specified above. To date, no
such waivers have been requested or granted.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10%
of the Company's outstanding Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of Common Stock. These persons are
required by SEC regulation to furnish the Company with copies of
all such reports they file. To the Company's knowledge, based
solely on a review of the copies of such reports furnished to the
Company and representations that no other reports were required,
all Section 16(a) filing requirements applicable to its officers
and directors and beneficial owners of more than 10% of the
Company's stock, have been complied with for the period which this
Form 10-K relates.
Item 11. Executive
Compensation
On May
10, 2017, the Board of Directors appointed Laurie Bradley as the
Chairman of the Compensation Committee. Ms. Bradley along with the
remaining Board of Directors will be responsible for carrying out
the Boards responsibilities relating to executive compensation,
employment agreements, executive succession and equity based
compensation programs and practices of the Company.
On March 29, 2021, the Company entered into an Employment Agreement
and an Executive Non-Competition Agreement with W. Austin Lewis,
IV, as CEO of the Company, with an effective date of January 4,
2021. The Employment Agreement is for a two-year term from the
effective date with automatic one-year renewals subject to 12
months’ notice of termination by the Company. Mr. Lewis shall
receive an annualized salary of $300,000 and may qualify for a
bonus. Mr. Lewis also received 250,000 shares of Company common
stock as a signing bonus, of which 125,000 shares may be
repurchased at $1.91 per share in the event that Mr. Lewis
terminates his employment prior to January 1, 2022. In
addition, other than termination “for cause”, Mr. Lewis
qualifies for a one-year severance of his then current salary. By
separate agreement dated March 29, 2021, Mr. Lewis is also bound by
a non-competition restriction for a period of 12 months following
termination.
Compensation to the Named Executive Officers
The
following table sets forth the compensation of the Company's chief
executive officer, chief financial officer and the chief operating
officer, and each officer whose total cash compensation exceeded
$100,000, for the last two fiscal years ended December 31, 2020 and
2019.
|
|
Summary
Compensation Table
|
||||
|
Name
and
Principal
Position
|
Year
|
Salary
|
Bonus
|
Option Awards ($)
|
Total
|
|
W. Austin Lewis, IV
(1),(2),(7) (CFO, Interim CEO)
|
2020
|
$283,294
|
$2,005,500
|
$-
|
$2,288,794
|
|
|
2019
|
$180,000
|
$-
|
$-
|
$180,000
|
|
Allan Pratt (3),
(4)
|
2019
|
$185,000
|
$-
|
$-
|
$185,000
|
|
David Scott (5),
(6) (COO)
|
2020
|
$104,475
|
$-
|
$109,200
|
$215,675
|
|
|
2019
|
$82,896
|
$-
|
$85,050
|
$167,946
|
1.
Mr. Lewis’s
start date was July 31, 2012.
2.
Mr. Lewis’s
salary was approved by the Board of Directors at
$300,000.
3.
Mr. Pratt’s
start date was December 30, 2016.
4.
Mr. Pratt’s
salary and employment agreement were approved by the Board of
Directors on December 19. 2016. On February 29, 2020, Mr. Pratt
completed his contractual obligation as Chief Executive
Officer.
5.
Mr. Scott was
promoted to Chief Operating Officer on May 1, 2020.
6.
Mr. Scott received
15,000 non-qualified options on February 13, 2019, 15,000 on August
13, 2019. On November 10, 2020 he was awarded an additional 40,000
non-qualified options.
7.
Mr. Lewis' bonus
of 1,050,000 shares for 2019 and 2020 was approved by the Board of
Directors on March 29, 2021 and was valued at $1.91 per share based
on the close price of the Company's common stock at March 29,
2021.
The
following tables set forth certain information related to
outstanding equity awards as of December 31, 2020 for our executive
officers.
|
|
Option Awards
|
||||
|
Name
|
Number of Securities Underlying Unexercised
Options (#) Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity Incentive Plan Awards: Number of
Securities Underlying Unexercised Unearned Options
(#)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
|
W. Austin Lewis
IV
|
10,000
|
-
|
-
|
$0.975
|
08/08/2022
|
|
CFO, (PFO),
(PEO)
|
10,000
|
-
|
-
|
$0.975
|
10/15/2022
|
|
|
2,000
|
-
|
-
|
$0.975
|
12/06/2022
|
|
|
2,000
|
-
|
-
|
$0.975
|
05/21/2023
|
|
|
4,000
|
-
|
-
|
$0.975
|
11/18/2024
|
|
|
2,000
|
-
|
-
|
$0.975
|
04/01/2026
|
|
David
Scott
|
7,000
|
-
|
-
|
$4.10
|
03/23/2028
|
|
3,000
|
|
-
|
$3.50
|
10/01/2028
|
|
|
15,000
|
5,000
|
-
|
$2.92
|
02/13/2029
|
|
|
15,000
|
5,000
|
-
|
$3.00
|
08/13/2029
|
|
|
40,000
|
26,667
|
-
|
$2.885
|
11/10/2030
|
|
None of
the Company's executive officers who serve as directors receive
separate compensation from the Company for serving as
directors.
On
August 26, 2016 the Board of Directors approved to vote to reprice
53,500 stock options and fully vest any unvested options for two
employees and three board members. The exercise price was lowered
to $0.975 which reflects the market value of the
stock.
In
2020, a number of non-executive employees and non-employee
directors received compensation though cash and through stock
option grants under the Company’s 2018 Non-Qualified Stock
Option Plan. The Company granted 105,000 stock options to employees
and consultants during the year ended December 31, 2020. The
options have vesting periods of immediately and over a three-year
period, they expire if not exercised within ten years from grant
date, and the exercise price was $2.885 per share. As a result of
the issuance and the expense recorded on previously issued stock
options, in addition to an accrued common stock bonus, the Company
recorded share-based compensation expense of $2,133,808 during the
year ended December 31, 2020.
The
following table provides compensation information for the one-year
period ended December 31, 2020 for the only non-employee members of
our Board of Directors.
|
|
Director
Compensation in 2020
|
||
|
Name
|
Fees
earned or paid in cash
|
Option
Awards ($)
|
Total
|
|
Andrew
Pilaro
|
$2,500
|
$25,700
|
$28,200
|
|
Laurie
Bradley
|
$2,500
|
$25,700
|
$28,200
|
|
David
Ogden
|
$1,000
|
$12,850
|
$13,850
|
Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
To the
knowledge of the management of the Company the following table sets
forth the beneficial ownership of our common stock as of March 31,
2021 of each of our directors and executive officers, and all of
our directors and executive officers as a group, and other
beneficial owners holding more than five percent of the
Company’s issued and outstanding shares.
|
|
Amount and Nature of
Beneficial Ownership
|
Percent of Class
(3)
|
|
W. Austin Lewis,
IV
|
3,006,178(1)
|
37%
|
|
Allan
Pratt
|
2,222,273(4)
|
27%
|
|
John
Smith
|
914,973
|
11%
|
|
David
Ogden
|
35,000(5)
|
1%
|
|
Laurie
Bradley
|
74,217(6)
|
1%
|
|
Andrew
Pilaro
|
68,337(2)
|
1%
|
|
All directors
beneficial owners
|
6,320,978
|
78%
|
(1)
Included
are options to purchase 30,000 shares of the Company’s common
stock, and 1,402,058 shares held for which W. Austin Lewis, IV is
the General Partner.
(2)
Includes
options to purchase 66,000 shares of the Company's common
stock.
(3)
Percentages
are calculated on the basis of the amount of outstanding securities
plus for such person or group, any securities that person or group
has the right to acquire within 60 days.
(4)
Included
in this amount are shares authorized and reserved for future
issuance from exchangeable shares.
(5)
Includes
options to purchase 35,000 shares of the Company's common
stock.
(6)
Includes
options to purchase 47,500 shares of the Company's common
stock.
To the
knowledge of the management of the Company, based solely on our
review of SEC filings, four shareholders are the beneficial owner
of more than five percent of the Company’s common
stock.
The
information regarding the Company's “Equity Compensation Plan
Information” is incorporated herein by reference in Part II,
Item 5 of this Annual Report on Form 10-K.
Item 13. Certain Relationships and
Related Transactions, and Director Independence
The
Company did not engage in any transaction in 2019 or 2020, and does
not currently propose any transaction, in which the Company was a
participant whereas the amount involved exceeds $120,000, and in
which any related person had or will have a direct or indirect
material interest.
Review, Approval or Ratification of Transactions with Related
Parties
It is
our unwritten policy, which policy is not otherwise evidenced, for
any related party transaction that involves more than a de minimis
obligation, expense or payment or stock option or equity grants, to
obtain approval by our entire board of directors prior to our
entering into any such transaction. In conformity with our various
policies on related party transactions, any transactions discussed
in this Item 13 has been reviewed and approved by our board of
directors.
Director Independence
The
Company has a majority of independent directors with Laurie Bradley
as the sole member of the compensation committee and Andrew Pilaro
is the sole member of the audit committee.
Our
board of directors currently consists of three members. Our board
of directors determined that the three directors, Andrew Pilaro,
Laurie Bradley and David Ogden, are independent under the standards
of the “Nasdaq Global Market" pursuant to Nasdaq Listing Rule
5605.
Item 14. Principal Accountant Fees
and Services
KMJ
Corbin & Company LLP (“KMJ”) is our independent
registered public accounting firm for the years ended December 31,
2020 and 2019.
The
following is a summary of the fees billed to the Company by KMJ for
professional services rendered for the years ended December 31,
2020 and 2019. These fees are for work performed in the years
indicated and, in some instances, we have estimated the fees for
services rendered but not yet billed.
|
|
2020
|
2019
|
|
Audit Fees:
|
|
|
|
Consists of fees
billed for professional services rendered for the audit of the
Company’s annual financial statements and the review of the
interim financial statements included in the Company’s
Quarterly Reports (together, the “Financial
Statements” ) and for services normally provided in
connection with statutory and regulatory filings or
engagements
|
$54,600
|
$55,550
|
|
Tax Fees
|
|
|
|
Consists of fees
billed for tax compliance, tax advice and tax planning
|
5,250
|
8,350
|
|
Total All Fees
|
$59,850
|
$63,900
|
The
Audit Committee approves all audit and audit-related fees. The
Audit Committee is required to pre-approve all non-audit services
to be performed by the auditor. The percentage of hours expended on
the principal accountant's engagement to audit the Company's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees was 0%.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1)
Financial Statements
For a
list of the financial information included herein, see “Index
to Audited Consolidated Financial Statements” on page 32 of
this Annual Report on Form 10-K.
(a)(2)
Financial Statements Schedules
All
schedules are omitted because they are not applicable or the
required information is included in the financial statements or
notes thereto.
(a)(3)
Exhibits
The
list of exhibits filed as a part of this Annual Report on Form 10-K
is set forth on the Exhibit Index immediately preceding the
exhibits hereto and is incorporated herein by
reference.
Item 16. Form 10-K
Summary
None.
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
|
|
PAID,
INC.
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
|
|
|
Date:
March 31, 2021
|
|
W.
Austin Lewis, IV, Interim Chief Executive Officer, Chief Financial
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
|
|
|
|
|
|
Andrew
Pilaro
|
|
Director
|
|
March
31, 2021
|
|
|
|
|
|
|
|
/s/
|
|
|
|
|
|
Laurie
Bradley
|
|
Director
|
|
March
31, 2021
|
PAID, INC.
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Consolidated
Balance Sheets as of December 31, 2020 and 2019
|
F-2
|
|
Consolidated
Statements of Operations and Comprehensive Income (Loss) for the
Years ended December 31, 2020 and 2019
|
F-3
|
|
|
|
|
Consolidated
Statements of Changes in Shareholders' Equity for the Years ended
December 31, 2020 and 2019
|
F-4
|
|
Consolidated
Statements of Cash Flows for the Years ended December 31, 2020 and
2019
|
F-5
|
|
Notes
to Consolidated Financial Statements
|
F-6
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders of
PAID,
Inc.
Opinion on the Consolidated Financial Statements
We have
audited the accompanying consolidated balance sheets of PAID, Inc.
and subsidiaries (the “Company”) as of
December 31, 2020 and 2019, the related consolidated
statements of operations and comprehensive income (loss), changes
in shareholders’ equity and cash flows for each of the two
years in the period ended December 31, 2020, and the related notes
(collectively referred to as the "consolidated financial
statements"). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2020 and 2019, and the results of
its operations and its cash flows for each of the two years in the
period ended December 31, 2020, in conformity with accounting
principles generally accepted in the United States of
America.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We
are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The
critical audit matters communicated below are matters arising from
the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Liquidity Assessment
Critical Audit Matter Description
Management has prepared the Company’s consolidated financial
statements on a going concern basis, which contemplates the continuity of
operations, and the realization of assets and the satisfaction of
liabilities in the normal course of business. As discussed in Note
2, the Company incurred an operating loss for the year ended
December 31, 2020, but had positive working capital as of December
31, 2020 and net cash provided by operating activities for the year
ended December 31, 2020. Management assesses whether the Company
has sufficient liquidity to fund its costs for the next twelve
months from the financial statement issuance date in order to
determine if there is substantial doubt about the Company’s
ability to continue as a
going concern. In the
preparation of this liquidity assessment, management applies
judgment to estimate the projected cash flows of the Company, which
are based on known or planned cash requirements for operating costs
as well as planned costs for project
development.
The principal consideration for our determination that performing
procedures relating to the liquidity assessment is a critical audit
matter is the significant judgments made by management when
assessing whether the Company has sufficient liquidity. We
determined there is significant estimation and execution
uncertainty regarding the Company’s future cash flows and the
risk of bias in management’s judgments and assumptions in
estimating these cash flows.
How the Critical Audit Matter Was Addressed in the
Audit
Our audit procedures related to the Company’s assertion as to
its ability to continue as a going concern included the following, among
others:
●
We
gained an understanding of the Company’s process relating to
the preparation of projected information and considerations of the
Company’s obligations.
●
We
tested the reasonableness of the projected operating expenses, and
uses and sources of cash used in management’s assessment of
whether the Company has sufficient liquidity to fund operations for
at least one year from the financial statement issuance date. This
testing included inquiries with management, comparison of prior
period projections to actual results, and consideration of positive
and negative evidence impacting management’s
projections.
●
We
evaluated the reasonableness of management’s assumptions
related to the likelihood that the Company would be able to reduce
operating expenditures if required.
KMJ
Corbin & Company LLP
We have
served as the Company’s auditor since 2013.
Irvine,
California
March
31, 2021
PAID, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
|
|
2020
|
2019
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$1,644,210
|
$475,881
|
|
Accounts
receivable, net
|
171,785
|
131,561
|
|
Prepaid expenses
and other current assets
|
184,366
|
124,257
|
|
Total current
assets
|
2,000,361
|
731,699
|
|
Property and
equipment, net
|
59,848
|
89,707
|
|
Intangible assets,
net
|
3,633,420
|
4,048,572
|
|
Operating lease
right-of-use assets
|
93,457
|
121,440
|
|
Total
assets
|
$5,787,086
|
$4,991,418
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$1,460,484
|
$876,260
|
|
Finance leases -
current portion
|
2,844
|
9,951
|
|
Accrued
expenses
|
276,254
|
207,786
|
|
Contract
liabilities
|
9,046
|
5,338
|
|
Operating lease
obligations – current portion
|
33,118
|
30,255
|
|
Total current
liabilities
|
1,781,746
|
1,129,590
|
|
Long-term
liabilities:
|
|
|
|
Finance leases -
net of current portion
|
-
|
2,797
|
|
Operating lease
obligations – net of current portion
|
61,794
|
93,642
|
|
Deferred tax
liability, net
|
960,947
|
1,070,189
|
|
Total
liabilities
|
2,804,487
|
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 December 31, 2020 and
2019, respectively; liquidation value of $0 and $13,808,610 at
December 31, 2020 and 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 December 31, 2020,
1,648,657 shares issued and 1,614,817 outstanding at December 31,
2019
|
6,489
|
1,649
|
|
Accrued common
stock bonus
|
2,005,500
|
-
|
|
Additional paid-in
capital
|
70,083,486
|
69,242,412
|
|
Accumulated other
comprehensive income
|
570,761
|
512,894
|
|
Accumulated
deficit
|
(69,625,790)
|
(67,008,347)
|
|
Common stock in
treasury, at cost, 33,840 shares at December 31, 2020 and
2019
|
(57,847)
|
(57,847)
|
|
Total shareholders'
equity
|
2,982,599
|
2,695,200
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
$5,787,086
|
$4,991,418
|
See
accompanying notes to consolidated financial
statements
PAID, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
FOR THE YEARS ENDED DECEMBER 31,
|
|
2020
|
2019
|
|
|
|
|
|
Revenues,
net
|
$12,920,789
|
$10,548,295
|
|
Cost of
revenues
|
9,809,500
|
7,801,554
|
|
Gross
profit
|
3,111,289
|
2,746,741
|
|
Operating
expenses:
|
|
|
|
Salaries and
related
|
1,530,151
|
1,452,134
|
|
General and
administrative
|
800,996
|
1,135,230
|
|
Amortization of
intangible assets
|
458,915
|
463,436
|
|
Share-based
compensation
|
2,452,701
|
407,974
|
|
Total operating
expenses
|
5,242,763
|
3,458,774
|
|
Loss from
operations
|
(2,131,474)
|
(712,033)
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
Other income,
net
|
21,128
|
988,152
|
|
Unrealized gain on
stock price guarantee
|
-
|
3,688
|
|
Total other income,
net
|
21,128
|
991,840
|
|
Income (loss)
before income tax provision (benefit)
|
(2,110,346)
|
279,807
|
|
Income tax
provision (benefit)
|
122,207
|
(2,204)
|
|
Net income
(loss)
|
(2,232,553)
|
282,011
|
|
Preferred
dividends
|
(28,532)
|
(192,005)
|
|
Net income (loss)
available to common shareholders
|
$(2,261,085)
|
$90,006
|
|
|
|
|
|
Net income (loss)
per share – basic
|
$(0.41)
|
$0.06
|
|
Net income (loss)
per share – diluted
|
$(0.41)
|
$0.05
|
|
|
|
|
|
Weighted average
number of common shares outstanding – basic
|
5,469,908
|
1,614,817
|
|
Weighted average
number of common shares outstanding – diluted
|
5,469,908
|
1,669,178
|
|
|
|
|
|
Consolidated
statements of comprehensive income (loss):
|
|
|
|
Net income
(loss)
|
$(2,232,553)
|
$282,011
|
|
Other comprehensive
income (loss):
|
|
|
|
Foreign currency
translation adjustments
|
57,867
|
168,712
|
|
Comprehensive
income (loss)
|
$(2,174,686)
|
$450,723
|
See
accompanying notes to consolidated financial
statements
PAID,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
Preferred
Stock
|
Common
Stock
|
|
Additional Paid
in
|
Accumulated Other
Comprehensive
|
Accumulated
|
Treasury
Stock
|
|
|||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Stock Bonus
|
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
|
-
|
-
|
-
|
-
|
-
|
-
|
168,712
|
-
|
-
|
-
|
168,712
|
|
Preferred dividends
paid
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(163,236)
|
-
|
-
|
(163,236)
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
407,974
|
-
|
-
|
-
|
-
|
407,974
|
|
Preferred shares
issued as compensation
|
653,866
|
654
|
-
|
-
|
-
|
82,567
|
-
|
-
|
-
|
-
|
83,221
|
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
282,011
|
-
|
-
|
282,011
|
|
Balance December
31, 2019
|
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
|
-
|
-
|
-
|
-
|
-
|
-
|
57,867
|
-
|
-
|
-
|
57,867
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
2,005,500
|
128,308
|
-
|
-
|
-
|
-
|
2,133,808
|
|
Preferred dividends
paid in shares
|
126,727
|
127
|
-
|
-
|
-
|
358,511
|
-
|
(358,638)
|
-
|
-
|
-
|
|
Exchange of
Preferred to Common
|
(4,565,305)
|
(4,566)
|
4,566,227
|
4,566
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Preferred dividends
paid
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(26,252)
|
-
|
-
|
(26,252)
|
|
Warrant
reprice
|
-
|
-
|
-
|
-
|
-
|
318,893
|
-
|
-
|
-
|
-
|
318,893
|
|
Warrant
exercise
|
-
|
-
|
274,120
|
274
|
-
|
35,362
|
-
|
-
|
-
|
-
|
35,636
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,232,553)
|
-
|
-
|
(2,232,553)
|
|
Balance December
31, 2020
|
-
|
$-
|
6,489,004
|
$6,489
|
$2,005,500
|
$70,083,486
|
$570,761
|
$(69,625,790)
|
(33,840)
|
$(57,847)
|
$2,982,599
|
See
accompanying notes to consolidated financial
statements
PAID, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
|
|
2020
|
2019
|
|
Cash flows from
operating activities:
|
|
|
|
$(2,232,553)
|
$282,011
|
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
488,745
|
490,250
|
|
Amortization
of operating lease right-of-use assets
|
28,545
|
22,850
|
|
Provision
for bad debts
|
20,125
|
-
|
|
Gain on sale
of property and equipment
|
(739)
|
-
|
|
Share-based
compensation
|
2,452,701
|
407,974
|
|
Unrealized
(gain) loss on stock price guarantee
|
-
|
(3,688)
|
|
Other income
from stock price guarantee
|
-
|
(880,553)
|
|
Deferred
income taxes
|
(120,835)
|
(73,208)
|
|
Changes in
assets and liabilities:
|
|
|
|
Accounts
receivable
|
(60,044)
|
(39,574)
|
|
Prepaid
expenses and other current assets
|
(59,362)
|
(8,589)
|
|
Accounts
payable
|
546,859
|
164,652
|
|
Accrued
expenses
|
63,460
|
(183,229)
|
|
Contract
liabilities
|
3,444
|
(142,914)
|
|
Operating
lease obligations
|
(29,537)
|
(20,449)
|
|
Net cash
provided by operating activities
|
1,100,809
|
15,533
|
|
Cash flows from
investing activities:
|
|
|
|
Proceeds
from sale of property and equipment
|
739
|
-
|
|
Purchase of
property and equipment
|
-
|
(16,106)
|
|
Net cash
provided by (used in) investing activities
|
739
|
(16,106)
|
|
Cash flows from
financing activities:
|
|
|
|
Payments on
finance leases
|
(9,627)
|
(8,821)
|
|
Payments on
notes payable
|
-
|
(15,346)
|
|
Proceeds
from warrant exercise
|
35,636
|
-
|
|
Payments of
preferred dividends
|
(26,252)
|
(163,236)
|
|
Net cash
used in financing activities
|
(243)
|
(187,403)
|
|
Effect of exchange
rate changes on cash and cash equivalents
|
67,024
|
31,526
|
|
|
|
|
|
Net change in cash
and cash equivalents
|
1,168,329
|
(156,450)
|
|
|
|
|
|
Cash and cash
equivalents, beginning of year
|
475,881
|
632,331
|
|
|
|
|
|
Cash and cash
equivalents, end of year
|
$1,644,210
|
$475,881
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
Cash paid during
the year for:
|
|
|
|
Income
taxes
|
$500
|
$960
|
|
Interest
|
$664
|
$1,687
|
|
SUPPLEMENTAL
DISCLOSURES OF NON-CASH ITEMS
|
|
|
|
Issuance
of preferred shares for settlement of dividends
|
$358,638
|
$-
|
|
Issuance
of preferred shares for settlement of accrued expenses
|
$-
|
$83,221
|
|
Operating
lease liabilities from obtaining operating lease right-of-use
assets
|
$-
|
$55,600
|
See
accompanying notes to consolidated financial
statements
PAID, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 1. ORGANIZATION
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.
NOTE 2. LIQUIDITY AND MANAGEMENT’S PLANS
For the
year ended December 31, 2020, the Company reported cash and cash
equivalents of $1,644,210 and cash flow from operations of
$1,100,809 with working capital of $218,615. The Company has
reported an operating loss of $2,131,474 for the year ended
December 31, 2020 and has an accumulated deficit of $69,625,790 at
December 31, 2020.
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 future. The ongoing positive cash flows from
operations is a significant indicator of our successful transition
to the new shipping and eCommerce services. In addition to the
existing services provided, ShipTime will launch products in the
United States that are complementary to the current offerings. The
Company also continues to seek alternate sources of capital to
support future operations.
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 through the end of March 2022 and will have a positive
impact on the Company for the foreseeable future.
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 96% of its revenues from Canada and 4% from the U.S.
during the year ended December 31, 2020, compared to 97% of its
revenues from Canada and 3% from the U.S. during the year ended
December 31, 2019.
At
December 31, 2020 and 2019, 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,
2020 and 2019, 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 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.
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, 2020 and 2019, the Company’s financial
instruments include cash and cash equivalents, accounts receivable,
accounts payable, and accrued expenses. The carrying amount of cash
and cash equivalents, accounts 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
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.
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, 2020, 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 receivables 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, 2020, and 2019, the Company recorded a provision for doubtful
accounts of $20,125 and $0, respectively.
For the
years ended December 31, 2020 and 2019, no revenues from any one
individual customer accounted for more than 10% of the total
revenues. As of December 31, 2020, there was no customer that
accounted for more than 10% of the accounts receivable balance, As
of December 31, 2019, there was one customer that accounted for 39%
of the accounts receivable balance.
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 ($3,688) for the year ended December
31, 2019. 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 during the year ended December 31, 2019, the
Company believed the time for pursuing an action 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.
Property
and Equipment
Property and
equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of 3 to 8
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, 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 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, and
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, 2020 and 2019, advertising expense totaled $104,121 and
$165,941, 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, 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. 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 2021 signing bonus to the Interim CEO/CFO (See Note 10
and Note 13).
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, 2020 and 2019 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, 2020 and 2019, 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, 2020 and 2019
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. 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, 2020 and
2019.
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.
Earnings
(Loss) Per Common Share
Basic
earnings (loss) per share represent income (loss) available to
common stockholders 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
year ended December 31, 2020, there were no dilutive shares that
were included in the diluted earnings (loss) per share as their
effect would have been anti-dilutive for the year then
ended.
The
Company computes its income (loss) available to common shareholders
by 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 consolidated
statements of operations and comprehensive income
(loss).
The
following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for the years
ended December 31:
|
|
2020
|
2019
|
|
Numerator:
|
$(2,261,085)
|
$90,006
|
|
Net income (loss)
available to common shareholders
|
|
|
|
Denominator:
|
|
|
|
Basic
weighted-average shares outstanding
|
5,469,908
|
1,614,817
|
|
Effect of dilutive
securities
|
-
|
54,361
|
|
Diluted
weighted-average shares outstanding
|
5,469,908
|
1,669,178
|
|
Net income (loss)
per share attributed to common stockholders –
basic
|
$(0.41)
|
$0.06
|
|
Net income (loss)
per share attributed to common stockholders - diluted
|
$(0.41)
|
$0.05
|
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, 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;
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 makers are the interim Chief Executive Officer
and Chief Financial Officer.
The
following table compares total revenues for the years
indicated.
|
|
Years
Ended
|
|
|
|
December 31,
2020
|
December 31,
2019
|
|
Client
services
|
$3,541
|
$19,395
|
|
Brewery management
software
|
114,881
|
193,150
|
|
Shipping calculator
services
|
27,845
|
148,035
|
|
Merchant processing
services
|
425,839
|
2,011
|
|
Shipping
coordination and label generation services
|
12,348,683
|
10,185,704
|
|
Total revenues,
net
|
$12,920,789
|
$10,548,295
|
The
following table compares total income (loss) from operations for
the years indicated.
|
|
Years
Ended
|
|
|
|
December 31,
2020
|
December 31,
2019
|
|
Client
services
|
$2,775
|
$14,739
|
|
Brewery management
software
|
49,601
|
51,612
|
|
Shipping calculator
services
|
6,274
|
108,512
|
|
Merchant processing
services
|
104,958
|
(673)
|
|
Shipping
coordination and label generation services
|
679,130
|
(100,771)
|
|
Corporate
operations
|
(2,974,212)
|
(785,452)
|
|
Total loss from
operations
|
$(2,131,474)
|
$(712,033)
|
During
2020, the Company recorded depreciation and amortization of
$488,745 which was solely related to the shipping coordination and
label generations service segment of the Company.
Recent
Accounting Pronouncements
In June
2016, the FASB issued 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 on January 1, 2020 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 on January 1, 2020 had no
impact on its consolidated financial position, results of
operations, cash flows or disclosures.
In
December 2019, the FASB issued ASU No. 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 No. 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 No.
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 No. 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 4. REVENUE FROM CONTRACTS WITH CUSTOMERS
In
accordance with current accounting guidance, the Company recognizes
revenue by taking into consideration the following five steps: (1)
identify the contract(s) with a customer; (2) identify the
performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to the
performance obligations in the contract; and (5) recognize revenue
when (or as) the entity satisfies a performance obligation.
Due to the nature of the Company’s product offerings and
contracts associated with those products, the Company’s
deliverables do not fluctuate and its revenue recognition is
consistent.
Nature of Goods and Services
For
label generation service revenues the Company recognizes revenue
when a customer has successfully prepared a shipping label and had
a pickup. 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. 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 consolidated balance
sheets. The cash rebates were available for twelve months for
future use. Rebate revenue was recognized when the rebate was
used.
Beginning in 2018,
customers were offered airline miles as a reward in lieu of a cash
rebate. As a result, the CFIB allowed the Company to release the
funds held in trust for unused customer rebates back to cash and
cash equivalents. As the Company transitioned from cash rebates to
airline mile rewards, customers were allowed to convert their
existing cash rebate balances to airline miles at the rate of 10
miles per $1 of rebates. For the year ended December 31, 2019, the
Company recognized $8,066 of other income related to the conversion
of airline miles as the cost was less than the value of the cash
rebated exchanged. In December 2019, the Company recognized $95,500
of other income related to the expiration of the cash rebates.
Unused airline miles are recorded in prepaid expenses and other
current assets in the accompanying 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 the year
ended December 31, 2019.
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 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.
Merchant
processing revenue consists of fees a seller pays us to process
their payment transactions and is recognized upon authorization of
a transaction. Revenue is recognized net of estimated refunds,
which are reversals of transactions initiated by sellers. We act as
the merchant of record for our sellers, which puts us in their
shoes with respect to card networks and puts the risk for refunds
and chargebacks on us. The gross transaction fees collected from
sellers is recognized as revenue as we are the primary obligor to
the seller and are responsible for processing the payment, have
latitude in establishing pricing with respect to the sellers and
other terms of service, have sole discretion in selecting the third
party to perform the settlement, and assume the credit risk for the
transaction processed.
Revenue Disaggregation
The
Company operates in five reportable segments (see Note
3).
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 had 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.
Merchant
processing customers receive a merchant identification number which
allows them to process credit card transactions. Once the
transaction is approved, the funds are distributed 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, refunds
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
$171,785 and $131,561 at December 31, 2020 and 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 $9,046 and $5,338 at December 31, 2020 and
2019, respectively. During the years ended December 31, 2020 and
2019, the Company recognized revenues of $5,338 and $40,152,
respectively, related to contract liabilities outstanding at the
beginning of each year.
NOTE 5. PROPERTY AND EQUIPMENT
At
December 31, property and equipment consisted of the
following:
|
|
2020
|
2019
|
|
Computer equipment
and software
|
$139,551
|
$139,328
|
|
Office furniture
and equipment
|
70,348
|
69,343
|
|
Website development
costs
|
402,306
|
400,866
|
|
|
612,205
|
609,537
|
|
Accumulated
depreciation
|
(552,357)
|
(519,830)
|
|
|
$59,848
|
$89,707
|
Depreciation
expense of property and equipment for the years ended December 31,
2020 and 2019 amounted to $29,830 and $26,814,
respectively.
NOTE 6. 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 intangible assets from past
business combinations.
At
December 31 2020, intangible assets consisted of the
following:
|
|
Patents
|
Trade
Name
|
Technology &
Software
|
Customer
Relationships
|
Total
|
|
Gross carrying
amount
|
$16,000
|
$839,816
|
$620,094
|
$4,928,102
|
$6,404,012
|
|
Accumulated
amortization
|
(16,000)
|
(668,929)
|
(620,094)
|
(1,465,569)
|
(2,770,592)
|
|
|
$-
|
$170,887
|
$-
|
$3,462,533
|
$3,633,420
|
At December 31, 2019, intangible assets consisted of the
following:
|
|
Patents
|
Trade
Name
|
Technology &
Software
|
Customer
Relationships
|
Total
|
|
Gross carrying
amount
|
$16,000
|
$826,098
|
$611,333
|
$4,851,093
|
$6,304,524
|
|
Accumulated
amortization
|
(16,000)
|
(492,783)
|
(611,333)
|
(1,135,836)
|
(2,255,952)
|
|
|
$-
|
$333,315
|
$-
|
$3,715,257
|
$4,048,572
|
Amortization
expense of intangible assets for the years ended December 31, 2020
and 2019 was $458,915 and $463,436, respectively.
Amortization of
intangible assets for the next five years ending December 31 are as
follows:
|
Year Ended December
31,
|
|
|
2021
|
482,236
|
|
2022
|
314,279
|
|
2023
|
314,279
|
|
2024
|
314,279
|
|
2025
|
314,279
|
|
Total 5 year
amortization
|
$1,739,352
|
NOTE 7. ACCRUED EXPENSES
At
December 31, accrued expenses consist of the
following:
|
|
2020
|
2019
|
|
Payroll and related
costs
|
$25,319
|
$1,797
|
|
Professional and
consulting fees
|
-
|
960
|
|
Royalties
|
47,803
|
47,803
|
|
Accrued cost of
revenues
|
170,928
|
114,455
|
|
Sales
tax
|
31,902
|
31,902
|
|
Other
|
302
|
10,869
|
|
Total
|
$276,254
|
$207,786
|
NOTE 8. NOTE 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.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Legal
Matters
In the normal course
of business, the Company periodically becomes involved in
litigation and disputes. During 2020, the Company was notified of a
dispute related to its non-renewal of the employment agreement with
Mr. Allan Pratt, the Company's former CEO, in which Mr. Pratt
appears to be treating it as a termination which would trigger a
two-year severance payment. As of December 31,
2020, in the opinion of management, the Company had no pending
litigation and disputes 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 lease, the Company has agreed to indemnify its
lessor 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 agreement. 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 consolidated balance sheets.
NOTE 10. 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 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 preceding the coupon
payment date which is made annually. For the years ended December
31, 2020 and 2019, the annual coupon is $28,532 and $192,005,
respectively. The Series A Preferred Stock has no voting or
conversion rights. If purchased, redeemed, or otherwise acquired
(other than conversion), the preferred stock may be reissued. In
April 2019, the Company paid the annual coupon for the year ended
December 31, 2017. The Company paid the 2018 and 2019 coupon
payments totaling $358,638 by issuing 126,727 preferred shares and
a cash payment of $26,252 for the 2020 coupon payment through March
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. In 2020, all 4,565,305 shares of Series A
Preferred Stock were exchanged for common stock (see below). As of
December 31, 2020, there are no outstanding shares of Series A
Preferred Stock.
Common Stock
In
February 2020, ShipTime Canada amended its rights to exchange one
share of ShipTime Canada stock from 45 PAID common shares and 311
PAID preferred shares to 356 PAID common shares. The Company made
available to its ShipTime Canada exchangeable preferred
shareholders the one-time option to convert existing book entry
preferred shares and exchangeable rights to preferred shares into
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 shareholder 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, because 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
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 December 31, 2020 for
financial reporting purposes.
During
2020, the Company issued 274,120 shares of PAID 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
in connection with the warrant exercise. On
March 29, 2021, the Company's Board of Directors authorized the
issuance of 1,050,000 bonus shares of PAID common stock to the
interim CEO/CFO for services rendered during 2019 and 2020. This
bonus was valued at $2,005,500 based on the closing price of the
Company's common stock at March 29, 2021 and is recorded in accrued
common stock bonus in shareholders’ equity at December 31,
2020. These shares were issued in March 2021.
Share-Based
Incentive Plans
During
the years ended December 31, 2020 and 2019, the Company had four
stock option plans that include both incentive and non-qualified
options to be granted to certain eligible employees, non-employee
directors, or consultants of the Company.
On
March 23, 2018, the Board of Directors voted to approve the 2018
Stock Option Plan which reserves 450,000 non-qualified stock
options to be granted to employees. On November 10, 2020 the board
voted to increase the 2018 Stock Option Plan from 450,000 options
to 900,000 options. The Company granted 136,020 stock options to
employees and consultants during the year ended December 31, 2019.
For the year ended December 31, 2020, the Company granted 105,000
stock options to employees, consultants and directors. The 2020
options have vesting periods of immediately and over a three-year
period, they expire if not exercised within ten years from grant
date, and the exercise price is $2.885 per share. During 2020, as a
result of the termination of several employees, the Company
recorded 61,948 expired options and an additional 20,459 that were
cancelled.
Active
Plans:
2018 Plan
On
March 23, 2018, the Company adopted the 2018 Non-Qualified Stock
Option Plan (the "2018 Plan"). The purpose of the 2018 Plan is to
provide long-term incentives and rewards to those employees of the
Company, and any other individuals, whether directors, consultants
or advisors who are in a position to contribute to the long-term
success and growth of the Company. The options granted have a
10-year contractual term and have a vesting period that ranges from
one hundred percent on the date of grant to fully vest over a
two-year period. There are currently 591,210 shares reserved for
future issuance under this plan. Information with respect to stock
options granted under this plan during the year ended December 31,
2020 is as follows:
|
|
Number of
shares
|
Weighted average
exercise price per share
|
|
Options outstanding
at January 1, 2020
|
286,197
|
$3.50
|
|
Granted
|
105,000
|
2.89
|
|
Cancelled/Expired
|
(82,407)
|
3.68
|
|
Exercised
|
-
|
-
|
|
Options outstanding
at December 31, 2020
|
308,790
|
$3.24
|
2012 Plan
On
October 15, 2012, the Company adopted the 2012 Non-Qualified Stock
Option Plan (the "2012 Plan"). The purpose of the 2012 Plan is to
provide long-term incentives and rewards to those employees of the
Company, and any other individuals, whether directors, consultants
or advisors who are in a position to contribute to the long-term
success and growth of the Company. The options granted have a
10-year contractual term and vest one hundred percent on the date
of grant. There are no shares reserved for future issuance under
this plan. Information with respect to stock options granted under
this plan during the year ended December 31, 2020 is as
follows:
|
|
Number of
shares
|
Weighted average
exercise price per share
|
|
Options outstanding
at January 1, 2020
|
36,000
|
$0.98
|
|
Granted
|
-
|
-
|
|
Cancelled
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Options outstanding
at December 31, 2020
|
36,000
|
$0.98
|
2011 Plan
On
February 1, 2011, the Company adopted the 2011 Non-Qualified Stock
Option Plan (the "2011 Plan"). Under the 2011 Plan, employees and
consultants may elect to receive their gross compensation in the
form of options, exercisable at $0.98 per share, to acquire the
number of shares of the Company's common stock equal to their gross
compensation divided by the fair value of the stock on the date of
grant. The options granted have a 10-year contractual term and have
vesting periods that range from one hundred percent on the date of
grant to one-third immediately, one-third vesting in 18 months and
the final one-third vesting in 36 months from the date of the
grant. There are no shares reserved for issuance under this plan.
Information with respect to stock options granted under this plan
during the year ended December 31, 2020 is as follows:
|
|
Number of
shares
|
Weighted average
exercise price per share
|
|
Options outstanding
at January 1, 2020
|
43,000
|
$3.00
|
|
Granted
|
-
|
-
|
|
Cancelled
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Options outstanding
at December 31, 2020
|
43,000
|
$3.00
|
2002 Plan
The
2002 Stock Option Plan (“2002 Plan”) provides for the
award of qualified and non-qualified options for up to 60,000
shares. The options granted have a ten-year contractual term and
have a vesting schedule of either immediately, two years, or four
years from the date of grant. There are no shares reserved for
issuance under this plan. Information with respect to stock options
granted under this plan during the year ended December 31, 2020 is
as follows:
|
|
Number of
shares
|
Weighted average
exercise price per share
|
|
Options outstanding
at January 1, 2020
|
16,000
|
$23.33
|
|
Granted
|
-
|
-
|
|
Cancelled
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Options outstanding
at December 31, 2020
|
16,000
|
$23.33
|
Fair value of issuances
The
fair value of the Company's option grants under the 2018, 2012,
2011, and 2002 Plans was estimated at the date of grant using the
Black-Scholes-Merton model with the following weighted average
assumptions:
|
|
2020
|
2019
|
|
Expected term
(based upon historical experience)
|
5.0-5.8
years
|
5.0
years
|
|
Expected
volatility
|
143 - 159%
|
178-180%
|
|
Expected
dividends
|
None
|
None
|
|
Risk free interest
rate
|
0.46%
|
2.05 –
2.4%
|
For the
years ended December 31, 2020 and 2019, the Company recorded total
share-based compensation expense related to accrued common stock
bonus and stock options of $2,133,808 and $407,974, respectively,
which is recorded in share-based compensation expenses in the
accompanying consolidated statements of operations and
comprehensive income (loss).
The
Company has unrecognized share-based compensation expense of
$178,349 for options outstanding as of December 31, 2020 which will
be recognized over the weighted average period of approximately
three years.
Information
pertaining to options outstanding and exercisable at December 31,
2020 is as follows:
|
Options
Outstanding
|
Options
Exercisable
|
|||
|
Exercise
Prices
|
Number of
shares
|
Weighted
Average Remaining contractual Life (In Years)
|
Number of
shares
|
Weighted Average
Remaining contractual Life (In Years)
|
|
$0.98
|
52,500
|
2.93
|
52,500
|
2.93
|
|
$2.89
|
105,000
|
9.87
|
51,667
|
9.87
|
|
$2.92
|
52,500
|
8.13
|
47,500
|
8.13
|
|
$3.00
|
65,000
|
8.62
|
46,667
|
8.62
|
|
$3.30
|
37,500
|
6.75
|
37,500
|
6.75
|
|
$3.50
|
7,590
|
7.76
|
7,590
|
7.76
|
|
$4.10
|
78,700
|
7.23
|
78,700
|
7.23
|
|
$72.50
|
5,000
|
0.86
|
5,000
|
0.86
|
|
|
403,790
|
7.58
|
327,124
|
7.14
|
Summary
of all stock option plans activity during the year ended December
31, 2020 is as follows:
|
|
Number
of Shares
|
Weighted
Average Price
|
Weighted
Average Remaining Contractual Life (In Years)
|
Aggregate
Intrinsic Value
|
|
Options
outstanding at January 1, 2020
|
381,197
|
$4.03
|
|
|
|
Granted
|
105,000
|
2.89
|
|
|
|
Cancelled/Expired
|
(82,407)
|
3.68
|
|
|
|
Exercised
|
-
|
-
|
|
|
|
Options
outstanding and expected to vest at December 31, 2020
|
403,790
|
$3.81
|
7.58
|
$57,488
|
|
Options
exercisable at December 31, 2020
|
327,124
|
$4.02
|
7.14
|
$57,488
|
The
aggregate intrinsic value of options is calculated as the
difference between the exercise price of options and the fair value
of the Company’s common stock.
Warrants
From
time to time, the Company issues warrants to purchase shares of the
Company’s common stock to investors, note holders and to
non-employees for services rendered or to be rendered in the
future. 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. As of December 31, 2020,
there were no outstanding warrants.
NOTE 11. INCOME TAXES
The
Company’s income (loss) before taxes includes the following
components for the years ended December 31:
|
|
2020
|
2019
|
|
U.S.
|
$(2,537,388)
|
$277,014
|
|
Foreign
|
427,042
|
2,793
|
|
|
$(2,110,346)
|
$279,807
|
The
Company is subject to taxation in the U.S., Canada, and
Massachusetts. The provision (benefit) for income taxes for the
years ended December 31 are summarized below:
|
|
2020
|
2019
|
|
Current:
|
|
|
|
Federal
|
$-
|
$-
|
|
State
|
500
|
456
|
|
Foreign
|
250,711
|
62,135
|
|
Total
current
|
251,211
|
62,591
|
|
|
|
|
|
Deferred:
|
|
|
|
Federal
|
-
|
-
|
|
State
|
-
|
-
|
|
Foreign
|
(129,004)
|
(64,795)
|
|
Total
deferred
|
(129,004)
|
(64,795)
|
|
Income tax
provision (benefit)
|
$122,207
|
$(2,204)
|
A
reconciliation of income taxes computed by applying the statutory
U.S. income tax rate to the Company’s income (loss) before
income tax provision (benefit) to the income tax provision
(benefit) is as follows for the years ended December
31:
|
|
2020
|
2019
|
|
U.S. federal
statutory tax rate
|
21.00%
|
21.00%
|
|
State tax benefit,
net
|
7.52%
|
7.62%
|
|
Stock
compensation
|
(5.16)%
|
8.79%
|
|
Attributes
expiration
|
(38.04)%
|
114.46%
|
|
Other
|
(0.85)%
|
1.82%
|
|
Valuation
allowance
|
9.75%
|
(154.66)%
|
|
Effective income
tax rate
|
(5.78)%
|
(0.97)%
|
Deferred tax assets
and liabilities reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company’s
deferred tax assets are as follows as of December 31:
|
|
2020
|
2019
|
|
Deferred
taxes:
|
|
|
|
NOLs
|
$9,456,605
|
$10,155,715
|
|
Inventory and other
reserves
|
24,128
|
-
|
|
Stock based
compensation expense
|
853,239
|
380,544
|
|
Lease
liability
|
25,151
|
32,576
|
|
Accruals
|
1,892
|
-
|
|
Other
|
96
|
96
|
|
Total deferred tax
assets
|
10,361,111
|
10,568,931
|
|
Depreciation and
amortization
|
(908,380)
|
(1,012,528)
|
|
Right-of-use
assets
|
(24,767)
|
(31,929)
|
|
Valuation
allowance
|
(10,388,911)
|
(10,594,663)
|
|
Net deferred tax
liabilities
|
$(960,947)
|
$(1,070,189)
|
Realization of
deferred tax assets is dependent upon future earnings, if any, the
timing and amount of which are uncertain. Accordingly, the net
deferred tax assets have been fully offset by a valuation
allowance. The reduction in the valuation allowance is
approximately $206,000 and $432,000 in 2020 and 2019,
respectively.
As of
December 31, 2020, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $41,093,000. Of
the total amount approximately $494,000 were generated after
January 1, 2018, and therefore will not expire but can only be used
to offset 80 percent of future taxable income. The remaining amount
of approximately $40,599,000 expire beginning in the year 2021. As
of December 31, 2020, the Company had net operating loss
carryforwards for state income tax purposes of approximately
$12,559,000 which expire beginning in the year 2030.
Utilization of the
net operating losses may be subject to substantial annual
limitation due to federal and state ownership change limitation
provided by the Internal Revenue Code and similar state provisions.
Such annual limitations could result in the expiration of the net
operating losses and credits before their utilization. The Company
has not performed an analysis to determine the limitation of the
net operating loss carryforwards.
A
valuation allowance of 100% has been established in respect of the
deferred income tax assets due to the uncertainty of the
Company’s utilization of such deferred tax assets for the
U.S. federal and state on each of the Company’s consolidated
balance sheets at December 31, 2020 and 2019.
The
income tax provision at December 31, 2020 reflects a full
accounting of tax filings under ASC Subtopic 740-10. Paid, Inc. is
subject to U.S. federal and Massachusetts state tax. With limited
exceptions, the Company is no longer subject to U.S. federal, state
and local income tax examinations by tax authorities for years
before 2017. Generally, the tax years remain open for examination
by the Federal authority under three-year statute of limitation;
however, states generally keep their statute open for four years.
In addition, the Company's tax years from inception are subject to
limited examination by the United States and Massachusetts
authorities due to the carry forward of unutilized net operating
losses. ShipTime is subject to taxation in Canada and Ontario. The
Company recognizes interest and penalties, as estimated or
incurred, as general and administrative expense.
On
March 27, 2020, the Coronavirus Aid, Relief, and Economic Security
Act (CARES Act) was enacted in response to the COVID-19 pandemic.
The CARES Act, among other things, permits NOL carryovers and
carrybacks to offset 100% of taxable income for taxable years
beginning before 2021. In addition, the CARES Act allows NOLs
incurred in 2018, 2019, and 2020 to be carried back to each of the
five preceding taxable years to generate a refund of previously
paid income taxes. Due to the Company's history of net operating
losses, the CARES Act is not expected to have a material impact on
the Company's financial statements.
On
December 27, 2020, the United States enacted the Consolidated
Appropriations Act of 2021 (“CAA”). The CAA includes
provisions extending certain CARES Act provisions and adds
coronavirus relief, tax and health extenders. The Company will
continue to evaluate the impact of the CAA and its impact on our
financial statements in 2021 and beyond.
NOTE 12. 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 six months to thirty-two 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 consolidated 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 consolidated balance sheets.
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 for the years ended December 31, were
as follows:
|
|
2020
|
2019
|
|
Operating lease
cost
|
$38,163
|
$31,009
|
|
|
|
|
|
Finance lease
cost:
|
|
|
|
Amortization of
leased assets
|
$10,813
|
$10,636
|
|
Interest on lease
liabilities
|
832
|
1,669
|
|
Total finance lease
cost
|
$11,645
|
$12,305
|
Supplemental
cash flow information related to leases for the years ended
December 31, was as follows:
|
|
2020
|
2019
|
|
Cash paid for
amounts included in leases:
|
|
|
|
Operating cash
flows from operating leases
|
$39,583
|
$30,960
|
|
Operating cash
flows from finance leases
|
$832
|
$1,669
|
|
Financing cash
flows from finance leases
|
$9,627
|
$8,821
|
|
|
|
|
|
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:
|
|
December 31,
2020
|
|
Operating
leases:
|
|
|
Operating lease
right-of-use assets
|
$93,457
|
|
Current portion of
operating lease obligations
|
$33,118
|
|
Operating lease
obligations, net of current portion
|
61,794
|
|
Total operating
lease liabilities
|
$94,912
|
|
|
|
|
Finance
leases:
|
|
|
Property and
equipment, at cost
|
$54,066
|
|
Accumulated
depreciation
|
(48,659)
|
|
Property and
equipment, net
|
$5,407
|
|
|
|
|
Current portion of
finance lease obligations
|
$2,844
|
|
Finance lease
obligations, net of current portion
|
-
|
|
Total finance lease
liabilities
|
$2,844
|
|
|
Year
Ended December 31, 2020
|
|
Weighted Average
Remaining Lease Term
|
|
|
Operating
lease
|
2.6
years
|
|
Finance
leases
|
0.3
years
|
|
|
|
|
Weighted Average
Discount Rate
|
|
|
Operating
lease
|
9.0%
|
|
Finance
leases
|
9.7%
|
Upon
adoption of the new lease standard, discount rates used for
existing leases were established at January 1, 2019.
A
summary of future minimum payments under non-cancellable operating
lease commitment as of December 31, 2020 is as
follows:
|
Years ending
December 31,
|
Total
|
|
2021
|
$40,869
|
|
2022
|
40,869
|
|
2023
|
25,274
|
|
Total lease
liabilities
|
107,012
|
|
Less
amount representing interest
|
(12,100)
|
|
Total
|
94,912
|
|
Less
current portion
|
(33,118)
|
|
|
$61,794
|
The
following is a schedule of minimum future rentals on the
non-cancelable finance leases as of December 31, 2020:
|
Year ending
December 31,
|
Total
|
|
2021
|
$2,919
|
|
Total minimum
payments required:
|
2,919
|
|
Less amount
representing interest:
|
(75)
|
|
Present value of
net minimum lease payments:
|
2,844
|
|
Less current
portion
|
(2,844)
|
|
|
$-
|
NOTE 13. SUBSEQUENT EVENTS
On March 29, 2021,
the Board of Directors approved the issuance of 250,000 shares of
PAID common stock valued at $1.91 per share to W. Austin Lewis IV
as it relates to his 2021 employment agreement, of which 125,000 of
the shares are subject to repurchase at the award value of $1.91
per share if Mr. Lewis terminates employment prior to January 1,
2022, as defined in the employment agreement. Total shares issued
of PAID common stock to Mr. Lewis on March 29, 2021 were 1,300,000
(see Note 10).
The
Company has evaluated subsequent events through the filing of this
Annual Report on Form 10-K, and determined that there have been no
events that have occurred that would require adjustment to or
additional disclosure in the consolidated financial statements,
except as disclosed herein.
EXHIBIT
INDEX
|
No.
|
|
Description
of Exhibits
|
|
|
Certificate
of Incorporation, as amended (incorporated by reference to Exhibit
3.1 to Form 8-K, filed on November 25, 2003)
|
|
|
|
Amended
and Restated Bylaws (incorporated by reference to Exhibit 3.2 to
Form 8-K, filed on December 8, 2004)
|
|
|
|
Certificates
of Amendment of Certificate of Incorporation of the Company
effective December 30, 2016 (incorporated by reference to Exhibit
3.1 to Form 8-K filed on December 23, 2016)
|
|
|
|
Amendment
No. 1 to Bylaws effective December 30, 2016 (incorporated by
reference to Exhibit 3.2 to Form 8-K filed on December 23,
2016)
|
|
|
|
Specimen
of certificate for Common Stock (incorporated by reference to
Exhibit 4.1 to Form SB-2/A filed on December 1,
2000)
|
|
|
|
Agreement
dated November 21, 2008, by and between the Company and Lewis Asset
Management Equity Fund, LLP with respect to the purchase of
2,500,000 shares at $.20 per share (incorporated by reference to
Exhibit 4.2 to Form 10-KSB filed on March 31, 2009)
|
|
|
|
Form of
Warrant to Lewis Asset Management with respect to Promissory Note
dated April 29, 2009 (incorporated by reference to Exhibit 4.2 to
Form 10-Q filed on May 12, 2009)
|
|
|
|
2002
Non-Qualified Stock Option Plan (incorporated by reference from
Exhibit 10.17 to Form 10-KSB filed on March 31, 2003)
|
|
|
|
2011
Non-Qualified Stock Option Plan (incorporated by reference from
Exhibit 99.1 to Form S-8 filed on February 2, 2011)
|
|
|
|
2018
Non-Qualified Stock Option Plan (incorporated by reference from
Exhibit 10.35 to Form 10-K filed on April 1, 2019 )
|
|
|
|
PAID,
Inc. 2012 Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Form 10-Q filed on October 18,
2012)
|
|
|
|
Agreement
for Non-Qualified Stock Option under the PAID, Inc. 2012
Non-Qualified Stock Option Plan awarded to W. Austin Lewis, IV,
dated October 15, 2012 (incorporated by reference to Exhibit 10.2
to Form 10-Q filed on October 18, 2012)
|
|
|
|
Agreement
for Non-Qualified Stock Option under the PAID, Inc. 2011
Non-Qualified Stock Option Plan awarded to W. Austin Lewis, IV,
dated August 8, 2012 (incorporated by reference to Exhibit 10.3 to
Form 10-Q filed on October 18, 2012)
|
|
|
|
Amalgamation
Agreement dated September 1, 2016 by and among PAID, Inc.,
emergeIT, Inc., 2534845 Ontario Inc. and 2534841 Ontario Inc.
(incorporated by reference to Exhibit 10.1 to Form 8-K filed on
December 23, 2016)
|
|
|
|
Exchange
and Call Rights Agreement (incorporated by reference to Exhibit
10.2 to Form 8-K filed on December 23, 2016)
|
|
|
|
Support
Agreement (incorporated by reference to Exhibit 10.4 to Form 8-K
filed on December 23, 2016)
|
|
|
|
Employment
Agreement for Allan Pratt (incorporated by reference to Exhibit
10.6 to Form 8-K filed on December 23, 2016)
|
|
|
|
Employment
Agreement for W. Austin Lewis IV
|
|
|
|
Non-Compete
Agreement for W. Austin Lewis IV
|
|
|
|
CEO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
|
|
CFO
Certification required under Section 302 of Sarbanes-Oxley Act of
2002
|
|
|
|
CEO and
CFO Certification required under Section 906 of Sarbanes-Oxley Act
of 2002
|
|
|
EX-101.INS
|
|
XBRL
Instance Document
|
|
EX-101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
|
EX-101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
EX-101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
EX-101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase
|
|
EX-101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
|
*filed
herewith
|
|
|
+Indicates
a management contract or any compensatory plan, contract or
arrangement
|
|
F-23
