NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2021
Note 1. Organization and Significant Accounting Policies
PAID, Inc. (“PAID”, the “Company”, “we”, “us”, or “our”) has developed AuctionInc, which is a suite of online shipping and tax management tools assisting businesses with e-commerce storefronts, shipping solutions, tax calculation, inventory management, and auction processing. The product has tools to assist with other aspects of the fulfillment process, but the main purpose of the product is to provide accurate shipping and tax calculations and packaging algorithms that provide customers with the best possible shipping and tax solutions.
BeerRun Software (“BeerRun”) is a brewery management and Alcohol and Tobacco Tax and Trade Bureau tax reporting software. Small craft brewers can utilize the product to manage brewery schedules, inventory, packaging, sales and purchasing. Tax reporting can be processed with a single click and is fully customizable by state or province. The software is designed to integrate with QuickBooks accounting platforms by using our powerful sync engine. We currently offer two versions of the software BeerRun and BeerRun Light which excludes some of the enhanced features of BeerRun without disrupting the core functionality of the software. Additional features include Brewpad and Kegmaster and can be added on to the base product. Craft brewing is on the rise in the United States, and we feel that there is a large potential to grow this portion of our business.
ShipTime Canada Inc. (“ShipTime”) has developed a SaaS-based application, which focuses on the small and medium business segments. This offering allows members to quote, process, generate labels, dispatch and track courier and LTL shipments all from a single interface. The application provides customers with a choice of today’s leading couriers and freight carriers all with discounted pricing allowing members to save on every shipment. ShipTime can also be integrated into on-line shopping carts to facilitate sales via e-commerce. We actively sell directly to small and medium businesses and through long-standing partnerships with selected associations throughout Canada.
PaidPayments provides commerce solutions to small - and medium-sized businesses by enabling them to sell their goods and services, accept payment, and create repeat sales though an online payment processing solution. The Company has operated as a Payment Facilitator since 2019, which enables our merchants to get the benefit of instant boarding and discounted rates. Our platform provides all aspects required for payment processing, including merchant boarding, underwriting, fraud monitoring, settlement, funding to the sub-merchant, and monthly reporting and statements. The Company controls all of these necessary aspects in the payment process and is then able to supply a one-step boarding process for our partners and value-added resellers. This capability also provides cost advantages, rapid response to market needs, simplified processes for boarding business and a seamless interface for our merchant customers.
General Presentation and Basis of Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and with the rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2020 that was filed on March 31, 2021.
In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited consolidated financial statements, and these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2021.
-
6-
Liquidity and Management’s Plans
As of and for the three months ended September 30, 2021, the Company reported cash and cash equivalents of $2,480,524 and cash flows from operations of $845,795 and net working capital of $739,063. The Company has reported a net loss of $354,645 for the nine months ended September 30, 2021 and has an accumulated deficit of $69,980,435 at September 30, 2021.
Management believes that the growth of the 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 plans will be sufficient to meet the Company's working capital requirements through the end of November 2022 and will have a positive impact on the Company for the foreseeable future.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of PAID, Inc. and its wholly owned subsidiaries, PAID Run, LLC and ShipTime Canada, Inc. All intercompany accounts and transactions have been eliminated.
Reclassifications
Certain reclassifications have been made to prior year’s financial statements to conform to classifications used in the current year.
Foreign Currency
The currency of ShipTime, the Company’s international subsidiary, is in Canadian dollars. Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at September 30, 2021 and 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 separate component of shareholders’ equity in accumulated other comprehensive income.
Geographic Concentrations
The Company conducts business in the U.S. and Canada. For customers headquartered in their respective countries, the Company derived approximately 99% of its revenues from Canada and 1% from the U.S. during the three and nine months ended September 30, 2021. For the three months ended September 30, 2020, the Company derived approximately 96% of its revenues from Canada and 4% from the U.S. compared to 95% from Canada and 5% from the U.S. for the nine months ended September 30, 2020.
At September 30, 2021, the Company maintained 100% of its property and equipment net of accumulated depreciation in Canada.
Right-of-Use Assets
A right-of-use asset represents a lessee’s right to use a leased asset for the term of the lease. Our right-of-use assets generally consist of an operating lease for a building.
Right-of-use assets are measured initially at the present value of the lease payments, plus any lease payments made before a lease began and any initial direct costs, such as commissions paid to obtain a lease.
Right-of-use assets are subsequently measured at the present value of the remaining lease payments, adjusted for incentives, prepaid or accrued rent, and any initial direct costs not yet expensed.
-
7-
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 three and nine months ended September 30, 2021 and 2020. There can be no assurance, however, that market conditions will not change or demand for the Company’s services will continue, which could result in impairment of long-lived assets in the future.
Revenue Recognition
The Company generates revenue principally from fees for coordinating shipping services, sales of shipping calculator subscriptions, brewery management software subscriptions, merchant processing services and client services.
Nature of Goods and Services
For label generation service revenues, the Company recognizes revenue when a customer has successfully prepared a shipping label and scheduled a pickup. Customers with pickups after the end of the reporting period are recorded as contract liabilities on the condensed consolidated balance sheets. The service is offered to consumers via an online registration and allows users to create a shipping label using a credit card on their account (all customers must have a valid credit card on file to process shipments on the ShipTime platform).
For shipping calculator revenues and brewery management software revenues, the Company recognizes subscription revenue on a monthly basis. Shipping calculator customers’ renewal dates are based on their date of installation and registration of the shipping calculator line of products. The timing of the revenue recognition and cash collection may vary within a given quarter and the deposits for future services are recorded as contract liabilities on the condensed consolidated balance sheets. Brewery management software subscribers are billed monthly at the first of the month. All payments are made via credit card for the following month.
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 below).
Performance Obligations
At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Revenue is recognized when the performance obligation has been met, which is when the customer has successfully prepared a shipping label and scheduled a pickup for shipping coordination and label generation services. The Company considers control to have transferred at that time because the Company has a present right to payment at that time, the Company has provided the shipping label, and the customer is able to direct the use of, and obtain substantially all of the remaining benefits from the shipping label.
For arrangements under which the Company provides a subscription for shipping calculator services and brewery management software, the Company satisfies its performance obligations over the life of the subscription, typically twelve months or less.
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8-
Customers of PaidPayments receive a merchant identification number which allows them to process credit card transactions. Once the transaction is approved, the funds are disbursed in an overnight feed and the Company has met its performance obligation.
The Company has no shipping and handling activities related to contracts with customers.
Revenues are recognized net of any taxes collected from customers, which are subsequently remitted to government authorities.
Significant Payment Terms
Pursuant to the Company’s contracts with its customers, amounts are collected up front primarily through credit/debit card transactions. The Company has offered to its customers consolidated payments which are billed weekly and are paid with a credit card on file. 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 $223,276 and $171,785 as of September 30, 2021, and December 31, 2020, 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 $10,535 and $9,046 at September 30, 2021 and December 31, 2020, respectively. During the nine months ended September 30, 2021, the Company recognized revenues of $9,046 related to contract liabilities outstanding at the beginning of the year.
Earnings (Loss) Per Common Share
Basic earnings (loss) per share represent income (loss) available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income (loss) that would result from the assumed issuance. The potential common shares that may be issued by the Company relate to outstanding stock options and are excluded from the computation of diluted earnings (loss) per share if they would reduce the reported loss per share and therefore have an anti-dilutive effect.
-
9-
For the three months ended September 30, 2021 and 2020, and the nine months ended September 30, 2021 and 2020, there were approximately 38,000 and 35,000 and 37,000 and 57,000, respectively, of potentially dilutive shares excluded from the diluted loss per share calculation, as their effect would be anti-dilutive.
The Company computes its income (loss) applicable to common shareholders by adding/subtracting dividends on preferred stock, including undeclared or unpaid dividends if cumulative, and any deemed dividends or discounts on redeemed preferred stock from its reported net income (loss) and reports the same on the face of the condensed consolidated statements of operations and comprehensive income (loss).
The following is a reconciliation of the numerators and denominators of the basic earnings (loss) per common share and diluted earnings (loss) per common share computation for the three and nine months ended September 30, 2021 and 2020.
|
|
Three Months Ended
September 30, 2021
|
|
|
Three Months Ended
September 30, 2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
$
|
(144,548
|
)
|
|
$
|
(123,722
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
7,773,263
|
|
|
|
6,181,044
|
|
Effect of dilutive securities
|
|
|
-
|
|
|
|
-
|
|
Diluted weighted-average shares outstanding
|
|
|
7,773,263
|
|
|
|
6,181,044
|
|
Basic loss per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Diluted loss per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
Nine Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 30, 2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
$
|
(354,645
|
)
|
|
$
|
(160,087
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
7,334,018
|
|
|
|
5,139,206
|
|
Effect of dilutive securities
|
|
|
-
|
|
|
|
-
|
|
Diluted weighted-average shares outstanding
|
|
|
7,334,018
|
|
|
|
5,139,206
|
|
Basic loss per common share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
Diluted loss per common share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
Segment Reporting
The Company reports information about segments of its business in its annual consolidated financial statements and reports selected segment information in its quarterly reports issued to shareholders. The Company also reports on its entity-wide disclosures about the products and services it provides and reports revenues and its major customers. The Company’s five reportable segments are managed separately based on fundamental differences in their operations. At September 30, 2021, the Company operated in the following five reportable segments:
|
b.
|
Shipping calculator services;
|
|
c.
|
Brewery management software;
|
|
d.
|
Merchant processing services;
|
|
e.
|
Shipping coordination and label generation services; and
|
-
10-
The Company evaluates performance and allocates resources based upon operating income. The accounting policies of the reportable segments are the same as those described in this summary of significant accounting policies. The Company’s chief operating decision maker is the Chief Executive Officer/Chief Financial Officer.
The following table compares total revenue for the periods indicated.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
Client services
|
|
$
|
1,548
|
|
|
$
|
1,878
|
|
|
$
|
3,057
|
|
|
$
|
3,283
|
|
Shipping calculator services
|
|
|
5,565
|
|
|
|
6,321
|
|
|
|
17,284
|
|
|
|
22,114
|
|
Brewery management software
|
|
|
12,825
|
|
|
|
25,600
|
|
|
|
48,050
|
|
|
|
93,413
|
|
Merchant processing services
|
|
|
13,828
|
|
|
|
105,713
|
|
|
|
40,806
|
|
|
|
379,012
|
|
Shipping coordination and label generation services
|
|
|
3,446,343
|
|
|
|
3,269,804
|
|
|
|
10,899,495
|
|
|
|
8,805,688
|
|
Total revenues
|
|
$
|
3,480,109
|
|
|
$
|
3,409,316
|
|
|
$
|
11,008,692
|
|
|
$
|
9,303,510
|
|
The following table compares total income (loss) from operations for the periods indicated.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
Client services
|
|
$
|
1,250
|
|
|
$
|
1,417
|
|
|
$
|
2,445
|
|
|
$
|
2,517
|
|
Shipping calculator services
|
|
|
3,346
|
|
|
|
3,749
|
|
|
|
8,763
|
|
|
|
9,908
|
|
Brewery management software
|
|
|
1,656
|
|
|
|
17,830
|
|
|
|
19,674
|
|
|
|
35,845
|
|
Merchant processing services
|
|
|
4,803
|
|
|
|
37,548
|
|
|
|
15,129
|
|
|
|
86,477
|
|
Shipping coordination and label generation services
|
|
|
104,847
|
|
|
|
268,434
|
|
|
|
484,272
|
|
|
|
417,545
|
|
Corporate operations
|
|
|
(260,450
|
)
|
|
|
(452,706
|
)
|
|
|
(883,972
|
)
|
|
|
(696,548
|
)
|
Total income (loss) from operations
|
|
$
|
(144,548
|
)
|
|
$
|
(123,728
|
)
|
|
$
|
(353,689
|
)
|
|
$
|
(144,256
|
)
|
Subsequent Events
The Company has evaluated subsequent events through the filing date of this Form 10-Q and has determined that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto, other than as disclosed herein.
Recent Accounting Pronouncements
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. The Company’s adoption of ASU No. 2019-12 in January 2021 had no impact on its consolidated financial position, results of operations, cash flows or disclosures.
Note 2. Accrued Expenses
Accrued expenses are comprised of the following:
|
|
September 30, 2021
(unaudited)
|
|
|
December 31, 2020
|
|
Payroll and related costs
|
|
$
|
9,410
|
|
|
$
|
25,319
|
|
Royalties
|
|
|
47,803
|
|
|
|
47,803
|
|
Accrued cost of revenues
|
|
|
315,157
|
|
|
|
170,928
|
|
Sales tax
|
|
|
31,902
|
|
|
|
31,902
|
|
Other
|
|
|
410
|
|
|
|
302
|
|
Total
|
|
$
|
404,682
|
|
|
$
|
276,254
|
|
-
11-
Note 3. Intangible Assets
The Company holds several patents for the real-time calculation of shipping costs for items purchased through online auctions using a zip code as a destination location indicator. It includes shipping charge calculations across multiple carriers and accounts for additional characteristics of the item being shipped, such as weight, special packaging or handling, and insurance costs. These patents help facilitate rapid and accurate estimation of shipping costs across multiple shipping carriers and also include real-time calculation of shipping.
In addition, the Company has various other intangibles from past business combinations.
At September 30, 2021, intangible assets consisted of the following:
|
|
Patents
|
|
|
Trade Name
|
|
|
Technology & Software
|
|
|
Customer Relationships
|
|
|
Total
|
|
Gross carrying amount
|
|
$
|
16,000
|
|
|
$
|
844,169
|
|
|
$
|
622,874
|
|
|
$
|
4,952,537
|
|
|
$
|
6,435,580
|
|
Accumulated amortization
|
|
|
(16,000
|
)
|
|
|
(799,022
|
)
|
|
|
(622,874
|
)
|
|
|
(1,708,856
|
)
|
|
|
(3,146,752
|
)
|
|
|
$
|
-
|
|
|
$
|
45,147
|
|
|
$
|
-
|
|
|
$
|
3,243,681
|
|
|
$
|
3,288,828
|
|
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
|
|
Amortization expense of intangible assets for the three months ended September 30, 2021 and 2020 was $122,054 and $115,439, respectively, and for the nine months ended September 30, 2021 and 2020 was $368,595 and $340,875, respectively.
Note 4. 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. By further action filed in the Court of Chancery of the State of Delaware on July 6, 2021, Mr. Pratt is seeking to be reinstated as a director by challenging the Board’s approval process in reducing the board size from five to three, which was effective as of the time in which Mr. Pratt’s and Mr. Austin Lewis’ terms expired in April 2020. As of September 30, 2021, 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 leases, the Company has agreed to indemnify its lessors for certain claims arising from the use of the facilities. The duration of the guarantees and indemnities varies and is generally tied to the life of the agreements. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying condensed consolidated balance sheets.
-
12-
Note 5. Shareholders’ Equity
Preferred Stock
The Company’s amended Certificate of Incorporation authorizes the issuance of 20,000,000 shares of blank-check preferred stock at $0.001 par value. The Board of Directors will be authorized to fix the designations, rights, preferences, powers and limitations of each series of the preferred stock.
The Company filed a Certificate of Designations effective on December 30, 2016 which sets aside 5,000,000 shares of Preferred Stock as Series A Preferred Stock. The Series A Preferred Stock 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 year ended December 31, 2020, the annual coupon was $28,532. 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. 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 for the nine months ended September 30, 2020. In 2020, all 4,565,305 shares of Series A Preferred Stock were exchanged for common stock (see below). As of September 30, 2021 and 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 September 30, 2021 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 on March 31, 2021. 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. These shares were issued on March 31, 2021. The value of the shares that are subject to repurchase will be recognized ratably as share-based compensation expense through December 31, 2021. For the three and nine months ended September 30, 2021, the Company recognized $79,583 and $397,916, respectively, related to these shares as share-based compensation. Unrecognized compensation expense related to these shares is $79,584. During the second quarter of 2021, the Company issued 18,099 shares valued at $2.21 per share for a total of $40,000 to two employees as bonus compensation which is included in share-based compensation in the condensed statements of operations and comprehensive income (loss) for the nine months ended September 30, 2021. The shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of the SEC’s Regulation D thereunder.
On September 30, 2020, the Company issued 274,120 shares of the Company’s common stock as a result of the exercise of an investor warrant for 770 ShipTime exchangeable shares. The Company received gross proceeds of $35,636 and issued 274,120 shares of the Company’s common stock with an exercise price of $0.13 per share in connection with the warrant exercise.
-
13-
Share-based Incentive Plans
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. The Company has three additional stock option plans that include both incentive and non-qualified stock options to be granted to certain eligible employees, non-employee directors, or consultants of the Company. On November 10, 2020, the board voted to increase the 2018 Stock Option Plan from 450,000 options to 900,000 options. 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. During the first quarter of 2021, the Company granted 10,000 stock options to one employee. These options have a three-year vesting schedule with one-third vesting immediately, one-third vesting in 18 months and the final one-third vesting in 36 months, they expire if not exercised in ten years from the grant date, and their exercise price is $1.91 per share. During the second quarter of 2021, the Company granted 7,000 stock options to one employee. These options have a three-year vesting schedule with one-third vesting immediately, one-third vesting in 18 months and the final one-third vesting in 36 months, they expire if not exercised in ten years from the grant date, and their exercise price was $2.21 per share. During the third quarter of 2021, the Company reversed $3,944 unvested stock option expenses for the termination of one employee.
For the three- and nine-month periods ended September 30, 2021, the Company recorded $15,030 and $64,511, respectively, of share-based compensation expense related to the vesting of applicable options granted in 2021 and prior years. For the three- and nine-month periods ended September 30, 2020, the Company recorded $329,140 and $311,129 respectively, of share-based compensation expense related to the vesting of applicable options granted in 2020 and prior years and the repricing of 770 warrants in the third quarter of 2020. Share-based compensation expense for the nine months ended September 30, 2020, included the reversal of unvested stock option expense for the termination of several employees totaling $42,549.
On August 14, 2020, the Board of Directors approved an amendment to ShipTime’s December 30, 2016 Warrant Agreement with an entity controlled by the Company’s Interim CEO/CFO to reprice the outstanding warrants. The modification of the warrant resulted in a charge to the Company’s share-based compensation expense of $318,893.
Note 6. Leases
We have an operating lease for our corporate offices in Canada and finance leases for furniture and equipment. Our leases have remaining lease terms of twenty-two months to twenty-three months, and our primary operating leases include options to extend the leases for four years. Future renewal options that are not likely to be executed as of the balance sheet date are excluded from right-of-use assets and related lease liabilities.
We report operating leased assets, as well as operating lease current and noncurrent obligations on our balance sheets for the right to use the building in our business. Our finance leases represent furniture and office equipment; we report the furniture and equipment, as well as finance lease current and noncurrent obligations on our balance sheet.
Generally, interest rates are stated in our leases for equipment. When no interest rate is stated in a lease, however, we review the interest rates implicit in our recent finance leases to estimate our incremental borrowing rate. We determine the rate implicit in a lease by using the most recent finance lease rate, or other method we think most closely represents our incremental borrowing rate.
The components of lease expense were as follows:
|
|
Three Months Ended
September 30, 2021
|
|
|
Three Months Ended
September 30, 2020
|
|
Operating lease cost
|
|
$
|
10,150
|
|
|
$
|
9,612
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of leased assets
|
|
$
|
-
|
|
|
$
|
2,698
|
|
Interest on lease liabilities
|
|
|
-
|
|
|
|
168
|
|
Total finance lease cost
|
|
$
|
-
|
|
|
$
|
2,866
|
|
|
|
Nine Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 30, 2020
|
|
Operating lease cost
|
|
$
|
30,652
|
|
|
$
|
28,347
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of leased assets
|
|
$
|
5,557
|
|
|
$
|
7,763
|
|
Interest on lease liabilities
|
|
|
86
|
|
|
|
664
|
|
Total finance lease cost
|
|
$
|
5,643
|
|
|
$
|
8,427
|
|
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14-
Supplemental cash flow information related to leases was as follows:
|
|
Nine Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 30, 2020
|
|
Cash paid for amounts included in leases:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
31,562
|
|
|
$
|
29,402
|
|
Operating cash flows from finance leases
|
|
$
|
86
|
|
|
$
|
664
|
|
Financing cash flows from finance leases
|
|
$
|
2,907
|
|
|
$
|
7,065
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
-
|
|
|
$
|
-
|
|
Finance leases
|
|
$
|
-
|
|
|
$
|
-
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
69,444
|
|
|
|
93,457
|
|
Current portion of operating lease obligations
|
|
$
|
36,169
|
|
|
|
33,118
|
|
Operating lease obligations, net of current portion
|
|
|
33,843
|
|
|
|
61,794
|
|
Total operating lease liabilities
|
|
$
|
70,012
|
|
|
|
94,912
|
|
|
|
|
|
|
|
|
|
|
Finance leases:
|
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
$
|
54,346
|
|
|
|
54,066
|
|
Accumulated depreciation
|
|
|
(54,346
|
)
|
|
|
(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
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Weighted Average Remaining Lease Term
|
|
|
|
|
|
|
|
|
Operating lease (years)
|
|
|
1.8
|
|
|
|
2.6
|
|
Finance leases (years)
|
|
|
0.0
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
|
|
|
|
Operating lease
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
Finance leases
|
|
|
-
|
%
|
|
|
9.7
|
%
|
A summary of future minimum payments under non-cancellable operating lease commitment as of September 30, 2021 is as follows:
Years ending December 31,
|
|
Total
|
|
2021 (remaining months)
|
|
$
|
10,270
|
|
2022
|
|
|
41,081
|
|
2023
|
|
|
25,405
|
|
Total lease liabilities
|
|
$
|
76,756
|
|
Less amount representing interest
|
|
|
(6,744
|
)
|
Total
|
|
|
70,012
|
|
Less current portion
|
|
|
(36,169
|
)
|
|
|
$
|
33,843
|
|
-
15-