PAYD 10-K
Paid Inc (PAYD)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the fiscal year ended
For the transition period from to
COMMISSION FILE NUMBER
(Exact Name of Registrant as Specified in its Charter)
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| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
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(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:
Indicate by check mark whether the registrant has filed a report on an attestation to its management’s assessment of the effectiveness of its internal control of financial reporting under Section 404(b) of the Sarbanes Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
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 ☐
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.
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).
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 | ☐ | | ☑ | 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
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, 2021 (the last business day of the Registrant's most recently completed second fiscal quarter) was approximately $
As of March 31, 2022, the registrant had
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, 2021
TABLE OF CONTENTS
| PART I |
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| Item 1A. |
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| Item 1B. |
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| Item 2. |
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| Item 3. |
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| PART II |
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| Item 5. |
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| Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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| PART III |
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| Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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| Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
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| PART IV |
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| F-23 | |||
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.
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 01752 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 revenue through transactions and “software as a service” (SAAS) offerings. It currently serves in excess of 68,000 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 transitioning these clients to our PaidWeb, PaidCart and PaidShipping 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 2021 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 toward this goal by the adding fundamental tools for our members to compete in today’s on-line marketplace.
While the ShipTime portion of our business is our key revenue driver; our strategy in 2021 was to continue to buildout the foundation of our e-commerce platform while driving our core business forward. 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 2022 with the promotion of our 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 Paid 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 2021 was the result of the cooperative efforts of ShipTime, our channel partners and our new marketing strategies. Additions to our marketing team have allowed 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 2022 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 2021, 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 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 from 2022 through the 2023 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, 2022, 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.
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 suffe r . 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:
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our ability to anticipate and adapt to a developing market; |
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our ability to market, license and enforce our shipping calculator, payment processing platform, shopping cart and other e-commerce tools; |
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development of equal or superior Internet portals, shipping calculators and related services by competitors; and |
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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, 2021, 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:
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our ability to significantly increase our customer base and traffic to our websites, maintain gross margins, and maintain customer satisfaction; |
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our ability to market and sell our software products; |
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consumer confidence in encrypted transactions in the internet environment; |
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the announcement or introduction of new types of services or products by our competitors; |
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technical difficulties with respect to customer use of our technologies; |
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governmental regulation by federal or local governments; and |
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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 2021, 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 director of sales 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 2021, the Company added a significant number of consultants to assist with development and will continue to add customer support and technical personnel.
We have experienced some strain on our resources because of:
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the need to manage relationships with various technology licensors, other websites and services, and other third parties; |
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pressures for the continued development of our core of software products; and |
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the need for additional development and technology 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:
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web advertising, marketing, and social media; |
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traditional media advertising campaigns; and |
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Canadian seller resources. |
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:
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we will be able to accurately project the rate or timing of increases if any, in the use of our services; or |
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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:
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the content and publication of various materials based on defamation, libel, negligence, personal injury and other legal theories; |
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copyright, trademark or patent infringement and wrongful action due to the actions of third parties; and |
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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.
The COVID-19 pandemic has created economic and financial disruptions that could adversely affect our business, financial condition, liquidity, capital, and results of operations. Even as efforts to contain the pandemic, including vaccinations, have made progress and some restrictions have relaxed, new variants of the virus are causing additional outbreaks. The impact of the Delta variant, or other variants that may emerge, cannot be predicted at this time, and could depend on numerous factors, including the availability of vaccines in different parts of the world, vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant and other variants, and the response by governmental bodies to reinstate restrictive measures.
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, 2021 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 $3.27 per share to a low of $1.85 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:
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actual or anticipated variations in our results of operations; |
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announcements of new products, services or technological innovations by our competitors; |
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short selling our common stock and stock price manipulation; |
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merger, split or issuance; |
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developments in internet regulation; and |
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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, 2021 the actual daily trading volume ranged from a low of 0 shares of common stock to a high of over 8,300 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.
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. The agreement for the Marlborough Massachusetts office is month to month.
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 President and CEO, in which Mr. Pratt appears to be treating it as a termination which would trigger a two-year severance payment. Around the same time that Mr. Pratt’s employment term expired, the Company’s Board of Directors voted to reduce the board from five to three, and Mr. Pratt and Mr. Austin Lewis, CFO, automatically rolled off from the Board of Directors. More than a year later, in 2021, Mr. Pratt filed a claim in Delaware courts to contest that decision.
Item 4. Mine Safety Disclosure
Not applicable.
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, 2021. The quotations from the OTCPINK reflect inter-dealer prices without retail mark-up, mark-down, or commission and may not represent actual transactions.
| 2020 |
High |
Low |
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| 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 | ||||
| 2021 |
High |
Low |
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| Quarter ended March 31, 2021 |
$ | 3.27 | $ | 1.85 | ||||
| Quarter ended June 30, 2021 |
$ | 2.85 | $ | 2.07 | ||||
| Quarter ended September 30, 2021 |
$ | 2.95 | $ | 2.26 | ||||
| Quarter ended December 31, 2021 |
$ | 2.88 | $ | 2.21 | ||||
As of March 31, 2022, there were approximately 867 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) |
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| (a) |
(b) |
(c) |
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| Equity Compensation Plans Approved by Security Holders |
10,000 | $ | 0.98 | - | ||||||||
| Equity Compensation Plans Not Approved by Security Holders |
393,000 | $ | 2.95 | 586,000 | ||||||||
| Total |
403,000 | $ | 2.90 | 586,000 | ||||||||
See Note 9, Notes to Consolidated Financial Statements for the years ended December 31, 2021 and 2020 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 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 2022 will be to continue to 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, 2021. 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. 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 nineteen months to twenty 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, 2021 and 2020
The following discussion compares the Company's results of operations for the year ended December 31, 2021 with those for the year ended December 31, 2020. 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, |
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| 2021 |
2020 |
% Change |
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| Client services |
$ | 3,141 | $ | 3,541 | (11 | %) |
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| Shipping calculator services |
22,872 | 27,845 | (18 | )% |
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| Brewery management software |
59,075 | 114,881 | (49 | )% |
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| Merchant processing services |
54,003 | 425,839 | (87 | )% |
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| Shipping coordination and label generation services |
14,750,625 | 12,348,683 | 19 | % |
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| Total revenues |
$ | 14,889,716 | $ | 12,920,789 | 15 | % |
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Revenues increased $1,968,927 or 15% in 2021 from the continued growth of the shipping coordination and label generation services.
Client services revenues decreased $400 or 11% to $3,141 compared to $3,541 in 2020. The decrease was attributable to depleting inventory of our movie posters available for auction.
Shipping calculator services revenues decreased $4,973 or 18% to $22,872 compared to $27,845 in 2020. The decrease was attributed to retirement of a portion of our service offering. The Company has launched a new platform where the new clients will be migrated to.
Brewery management software revenues decreased $55,806 or 49% to $59,075 in 2021 compared to $114,881 in 2020. The decrease is attributable to the impacts of COVID-19 on the brewery industry and the limited marketing to new clients.
Merchant processing services had difficulties with the launch and had declined 87% from $425,839 to $54,003 in 2021. The Company is reevaluating the launch and preparing to combine these services with other Paid products for a re-release.
Shipping coordination and label generation service revenues increased $2,401,942 or 19% to $14,750,625 in 2021 compared to $12,348,683 in 2020. 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 $342,192 or 11% to $3,453,481 in 2021 compared to $3,111,289 in 2020. Gross margin decreased 1 percentage point to 23% in 2021 from 24% in 2020. The decrease in gross margin was partially due to the decrease in pricing to remain competitive in the shipping coordination and label generation industry.
Operating Expenses
Total operating expenses in 2021 were $3,943,984 compared to $5,242,763 in 2020, a decrease of $1,298,779 or 25%. The decrease is mainly due to the share-based compensation for 2020.
Other Income/Expense, net
Net other income in 2021 was $0 compared to $21,128 in the same period of 2020. The 2020 amount is primarily attributable to the recovery of a bad debt that was previously written off in addition to the reversal of a written off accrued expense.
Net Income (Loss)
The Company reported a net loss in 2021 of $(696,760) compared to a net loss of $(2,232,553) for the same period in 2020. The basic loss per common share in 2021 is $(0.09) while the basic net loss per common share in 2020 is $(0.41).
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 loss to cash provided by operating activities for the years ended December 31, 2021 and 2020 is as follows:
| 2021 |
2020 |
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| Net loss |
$ | (696,760 | ) | $ | (2,232,553 | ) | ||
| Provision for bad debts |
- | 20,125 | ||||||
| Depreciation and amortization |
511,698 | 488,745 | ||||||
| Amortization of operating lease right-of-use assets |
33,447 | 28,545 | ||||||
| Share-based compensation |
603,533 | 2,452,701 | ||||||
| Deferred income taxes |
(131,204 | ) | (120,835 | ) | ||||
| Gain on sale of property and equipment |
- | (739 | ) | |||||
| Changes in current assets and liabilities |
882,640 | 464,820 | ||||||
| Net cash provided by operating activities |
$ | 1,203,354 | $ | 1,100,809 | ||||
Working Capital and Liquidity
The Company had cash and cash equivalents of $2,839,687 on December 31, 2021 compared to $1,644,210 at December 31, 2020. The Company had working capital of $495,446 as of December 31, 2021 compared to a working capital of $218,615 at December 31, 2020, an improvement of $276,831. 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 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 Chief Executive Officer/Chief Financial Officer has concluded that, as of December 31, 2021, 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 controls over financial reporting. Because of these remaining material weaknesses, we concluded that, as of December 31, 2021, 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 review new procedures and controls in 2021 and have taken steps to remediate the material weaknesses at the entity and activity levels, and to review further our procedures and controls in 2022. 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 immediately 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 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, 2021 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, 2021 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 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. |
| ● |
Daily financial summaries are distributed to senior management to review gross margins, cash receipts and customer activity to evaluate for fraudulent or inconsistent behavior. |
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 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 this control area is operating effectively. Therefore, as noted in the Management's Report on Internal Control over Financial Reporting, we consider this control area 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, 2021.
Changes in Internal Control Over Financial Reporting
As discussed in the Managements' Annual Report on Internal Control over Financial Reporting, the Company continues to make improvements to the entity and activity controls and expects to take further steps in 2022 to remediate the outlined deficiencies. The Company has implemented a substantial number of policies and procedures with regard to financial reporting, specifically in terms of segregation of duties. The 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 2021.
Not applicable.
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 |
46 |
CEO, CFO |
||
| David Scott |
27 |
COO |
||
| Andrew Pilaro |
52 |
Director |
||
| Laurie Bradley |
67 |
Director |
||
| David Ogden |
58 |
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 and 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 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 its 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, 2021 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, 2021.
| 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, CEO and 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 except that Mr. Scott was due to file a Form 3 on June 20, 2021 and is late and not yet filed.
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 Board 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 $100,000, for the last two fiscal years ended December 31, 2021 and 2020.
| Summary Compensation Table |
|||||||||||||||||
| Name and Principal Position |
Year |
Salary |
Bonus |
Option Awards ($) |
Total |
||||||||||||
| W. Austin Lewis, IV (1)(2)(5)(6) (CFO, CEO) |
2021 |
$ | 300,000 | $ | 477,500 | $ | - | $ | 777,500 | ||||||||
| 2020 |
$ | 283,294 | $ | 2,005,500 | $ | - | $ | 2,288,794 | |||||||||
| David Scott (3) (4)(7) (COO) |
2021 |
$ | 149,675 | $ | 25,000 | $ | - | $ | 174,675 | ||||||||
| 2020 |
$ | 104,475 | $ | - | $ | 109,200 | $ | 213,675 | |||||||||
| 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. Scott was promoted to Chief Operating Officer on May 1, 2020. |
| 4. |
Mr. Scott received 15,000 non-qualified options on February 13, 2019 and 15,000 on August 13, 2019. On November 10, 2020 he was awarded an additional 40,000 non-qualified options. |
| 5. |
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. |
| 6. |
Mr. Lewis received 250,000 shares on March 29, 2021 valued at $1.91 per share. |
| 7. |
Mr. Scott received 11,312 shares on June 18, 2021 valued at $2.21 per share. |
The following tables set forth certain information related to outstanding equity awards as of December 31, 2021 for our executive officers.
| Option Awards |
|||||||||||||||||
| Name |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($) |
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 |
|||||||||||||
| 10,000 | 5,000 | - | $ | 2.92 | 02/13/2029 |
||||||||||||
| 10,000 | 5,000 | - | $ | 3.00 | 08/13/2029 |
||||||||||||
| 13,333 | 26,667 | - | $ | 2.885 | 11/10/2030 |
||||||||||||
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. During the year ended December 31, 2021, the Company granted 22,300 stock option to employees. The options vest over a three-year period, they expire if not exercised within ten years from grant date, and the exercise prices ranged from $1.91 to $2.68. As a result of the issuances and the expense recorded on previously issued stock options, in addition to the accrued common stock bonus and other stock issuances, the Company recorded share-based compensation expense of $603,533 and $2,133,808 during the years ended December 31, 2021 and 2020, respectively. On August 13, 2020, the Board of Directors approved cash compensation to board members equal to $4,000, payable in equal installments quarterly, plus an additional $6,000 for each chairperson payable in equal installments quarterly. There were no options granted to executives in 2021.
The following table provides compensation information for the one-year period ended December 31, 2021 for the only non-employee members of our Board of Directors.
| Director Compensation in 2021 |
||||||||||||
| Name |
Fees earned or paid in cash |
Option Awards ($) |
Total |
|||||||||
| Andrew Pilaro |
$ | 10,000 | $ | - | $ | 10,000 | ||||||
| Laurie Bradley |
$ | 10,000 | $ | - | $ | 10,000 | ||||||
| David Ogden |
$ | 4,000 | $ | - | $ | 4,000 | ||||||
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, 2022 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 | % | ||||
| David Scott |
91,312 | (7) | 1 | % | ||||
| John Smith |
914,973 | 11 | % | |||||
| David Ogden |
35,000 | (5) | 0 | % | ||||
| Laurie Bradley |
74,217 | (6) | 1 | % | ||||
| Andrew Pilaro |
67,337 | (2) | 1 | % | ||||
| All directors beneficial owners |
6,411,290 | 78 | % | |||||
| (1) |
Included are options to purchase 30,000 shares of the Company’s common stock. |
| (2) |
Includes options to purchase 65,000 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. |
| (7) |
Includes options to purchase 80,000 shares of the Company’s common stock |
To the knowledge of the management of the Company, based solely on our review of SEC filings, three 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 2020 or 2021, 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 have 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, 2021 and 2020.
The following is a summary of the fees billed to the Company by KMJ for professional services rendered for the years ended December 31, 2021 and 2020. 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.
| 2021 |
2020 |
|||||||
| 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 |
$ | 64,925 | $ | 54,600 | ||||
| Tax Fees |
||||||||
| Consists of fees billed for tax compliance, tax advice and tax planning |
5,000 | 5,250 | ||||||
| Total All Fees |
$ | 69,925 | $ | 59,850 | ||||
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%.
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 29 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.
None.
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/ W. Austin Lewis, IV |
||
| Date: March 31, 2022 |
W. Austin Lewis, IV, 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 |
|||||
| Andrew Pilaro |
Director |
March 31, 2022 |
|||
| /s/ Laurie Bradley |
|||||
| Laurie Bradley |
Director |
March 31, 2022 |
|||
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
| Report of Independent Registered Public Accounting Firm (PCAOB ID: |
F-1 |
| Consolidated Balance Sheets as of December 31, 2021, and 2020 |
F-3 |
| Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years ended December 31, 2021, and 2020 |
F-4 |
| Consolidated Statements of Changes in Shareholders' Equity for the Years ended December 31, 2021, and 2020 |
F-5 |
| Consolidated Statements of Cash Flows for the Years ended December 31, 2021, and 2020 |
F-6 |
| Notes to Consolidated Financial Statements |
F-7 |
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, 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 matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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, 2021, but had positive working capital as of December 31, 2021 and net cash provided by operating activities for the year ended December 31, 2021. Management assesses whether the Company has sufficient liquidity to fund its costs for the next twelve months from the consolidated financial statements 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 ongoing efforts to develop technologies to maintain competitive advantage.
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 revenues and 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 consolidated financial statements 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. |
We have served as the Company’s auditor since 2013.
March 31, 2022
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Finance leases - current portion | ||||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Operating lease obligations – current portion | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Operating lease obligations – net of current portion | ||||||||
| Deferred tax liability, net | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders' equity: | ||||||||
| Series A Preferred stock, $ par value, shares authorized; shares issued and outstanding at December 31, 2021 and 2020, respectively | ||||||||
| Common stock, $ par value, shares authorized; shares issued and shares outstanding at December 31, 2021, shares issued and outstanding at December 31, 2020 | ||||||||
| Accrued common stock bonus | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Common stock in treasury, at cost, shares at December 31, 2021 and 2020 | ( | ) | ( | ) | ||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31,
| 2021 | 2020 | |||||||
| Revenues, net | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Salaries and related | ||||||||
| General and administrative | ||||||||
| Amortization of intangible assets | ||||||||
| Share-based compensation | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Other income, net | ||||||||
| Loss before income tax provision | ( | ) | ( | ) | ||||
| Income tax provision | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Preferred dividends | ( | ) | ||||||
| Net loss available to common shareholders | $ | ( | ) | ( | ) | |||
| Net income loss per share – basic | $ | ( | ) | $ | ( | ) | ||
| Net income loss per share – diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding – basic | ||||||||
| Weighted average number of common shares outstanding – diluted | ||||||||
| Consolidated statements of comprehensive income (loss): | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income: | ||||||||
| Foreign currency translation adjustments | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
| Preferred Stock | Common Stock | Accrued Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Treasury Stock |
| |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Bonus | Capital | Income | Deficit | Shares | Amount | Total | ||||||||||||||||||||||||||||||||||
| Balance, January 1, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Preferred dividends paid | - | - | - | - | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||||||
| Share-based compensation expense | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Exchange of Preferred to Common | ( | ) | ( | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Preferred dividends paid in shares | - | - | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||||||
| Warrant reprice | ||||||||||||||||||||||||||||||||||||||||||||
| Warrant exercise | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||||||||
| Balance December 31, 2020 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for accrued bonus and signing bonus | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for compensation | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Provision for bad debts | ||||||||
| Gain on sale of property and equipment | ( | ) | ||||||
| Share-based compensation | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Operating lease obligations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of property and equipment | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Payments on finance leases | ( | ) | ( | ) | ||||
| Proceeds from warrant exercise | ||||||||
| Payments of preferred dividends | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net change in cash and cash equivalents | ||||||||
| Cash and cash equivalents, beginning of year | ||||||||
| Cash and cash equivalents, end of year | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS | ||||||||
| Issuance of common shares in settlement of accrued expenses | $ | $ | ||||||
| Issuance of preferred shares for settlement of dividends | $ | $ | ||||||
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
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, 2021, the Company reported cash and cash equivalents of $
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 2023 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
At December 31, 2021 and 2020, the Company maintained
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, 2021 and 2020, the components of comprehensive income (loss) consist solely of foreign currency translation gains (losses).
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by the Company’s management include, but are not limited to, the collectability of accounts receivable, the recoverability of long-lived assets, the valuation of deferred tax assets and liabilities, renewal periods and discount rates for leases and the valuation of share-based transactions. Actual results could materially differ from those estimates.
Fair Value Measurements
The Company measures the fair value of certain of its financial assets on a recurring basis. A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
At December 31, 2021 and 2020, 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 initial maturities 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, 2021, 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, 2021, and 2020, the Company recorded a provision for doubtful accounts of $
For the years ended December 31, 2021 and 2020,
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of
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 and
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.
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, 2021 and 2020, advertising expense totaled $
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 CEO/CFO to reprice the outstanding warrants. The modification of the warrant resulted in a charge to the Company’s share-based compensation expense. In addition, during 2021, the Company’s board of directors granted shares of common stock valued at the closing price on the date of the grant, for 2019 and 2020 bonuses and a 2021 signing bonus to the CEO/CFO (See Note 9).
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
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, 2021 and 2020 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, 2021 and 2020,
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
The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had $
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 shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income (loss) that would result from the assumed issuance. The potential common shares that may be issued by the Company relate to outstanding stock options and have been excluded from the computation of diluted earnings (loss) per share because they would reduce the reported loss per share and therefore have an anti-dilutive effect.
For the years ended December 31, 2021 and 2020, there were
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:
| 2021 | 2020 | |||||||
| Numerator: | ||||||||
| Net loss available to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Denominator: Basic weighted-average shares outstanding | ||||||||
| Effect of dilutive securities | ||||||||
| Diluted weighted-average shares outstanding | ||||||||
| Net loss per share attributed to common shareholders – basic | $ | ( | ) | $ | ( | ) | ||
| Net loss per share attributed to common shareholders - diluted | $ | ( | ) | $ | ( | ) | ||
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
| 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 Chief Executive Officer and Chief Financial Officer.
The following table compares total revenues for the years indicated.
| Years Ended | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Client services | $ | $ | ||||||
| Brewery management software | ||||||||
| Shipping calculator services | ||||||||
| Merchant processing services | ||||||||
| Shipping coordination and label generation services | ||||||||
| Total revenues, net | $ | $ | ||||||
The following table compares total income (loss) from operations for the years indicated.
| Years Ended | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Client services | $ | $ | ||||||
| Brewery management software | ||||||||
| Shipping calculator services | ||||||||
| Merchant processing services | ||||||||
| Shipping coordination and label generation services | ||||||||
| Corporate operations | ( | ) | ( | ) | ||||
| Total loss from operations | $ | ( | ) | $ | ( | ) | ||
During 2021, the Company recorded depreciation and amortization expense of $
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 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.
Beginning in 2018, customers were offered airline miles as a reward for using the shipping coordination and label generation services. Our affiliated partner, Canadian Federation of Independent Businesses (“CFIB”) has allowed us to provide this benefit to their members. Miles are purchased from Air Canada and distributed to the members once monthly based on a calculation of one mile for each base and fuel dollar of their spend with the Company. Unused airline miles are recorded in prepaid expenses and other current assets in the accompanying consolidated balance sheets.
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
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 $
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 $
NOTE 5. PROPERTY AND EQUIPMENT
At December 31, property and equipment consisted of the following:
| 2021 |
2020 |
|||||||
| Computer equipment and software |
$ | $ | ||||||
| Office furniture and equipment |
||||||||
| Website development costs |
||||||||
| Accumulated depreciation |
( |
) | ( |
) | ||||
| $ | $ | |||||||
Depreciation expense of property and equipment for the years ended December 31, 2021 and 2020 amounted to $
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, 2021, intangible assets consisted of the following:
| Patents |
Trade Name |
Technology & Software |
Customer Relationships |
Total |
||||||||||||||||
| Gross carrying amount |
$ | $ | $ | $ | $ | |||||||||||||||
| Accumulated amortization |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
At December 31, 2020, intangible assets consisted of the following:
| Patents |
Trade Name |
Technology & Software |
Customer Relationships |
Total |
||||||||||||||||
| Gross carrying amount |
$ | $ | $ | $ | $ | |||||||||||||||
| Accumulated amortization |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
Amortization expense of intangible assets for the years ended December 31, 2021 and 2020 was $
Amortization of intangible assets for the next five years ending December 31 are as follows:
| Year Ended December 31, |
||||
| 2022 |
||||
| 2023 |
||||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| Total 5 year amortization |
$ |
NOTE 7. ACCRUED EXPENSES
At December 31, accrued expenses consist of the following:
| 2021 |
2020 |
|||||||
| Payroll and related costs |
$ | $ | ||||||
| Professional and consulting fees |
||||||||
| Royalties |
||||||||
| Accrued cost of revenues |
||||||||
| Sales tax |
||||||||
| Other |
||||||||
| Total |
$ | $ | ||||||
NOTE 8. COMMITMENTS AND CONTINGENCIES
Legal Matters
In the normal course of business, the Company periodically becomes involved in litigation and disputes. During 2021, the Company was notified of a dispute related to its non-renewal of the employment agreement with Mr. Allan Pratt, the Company's former President, CEO and Chairman. On or around January 2020, the Company had allowed the Mr. Pratt’s employment agreement to not renew, but Mr. Pratt alleges in a court in Canada that the Company terminated him and that the Company owes him a severance payment. Around the same time that Mr. Pratt’s employment term expired, the Company’s Board of Directors voted to reduce the size of the Board from five to three, and Mr. Pratt and Mr. Austin Lewis, then CFO, automatically rolled off from the Board of Directors. More than a year later, in 2021, Mr. Pratt filed a claim in Delaware courts to contest that decision.
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 9. SHAREHOLDERS’ EQUITY
Preferred Stock
The Company’s amended Certificate of Incorporation authorizes the issuance of
The Company filed a Certificate of Designations effective on December 30, 2016 which sets aside
Common Stock
In February 2020, ShipTime Canada amended its rights to exchange
During 2020, the Company issued
Share-Based Incentive Plans
During the years ended December 31, 2021 and 2020, 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
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 -year contractual term and have a vesting period that ranges from percent on the date of grant to fully vest over a -year period. There are currently
| Number of shares | Weighted average exercise price per share | |||||||
| Options outstanding at January 1, 2021 | $ | |||||||
| Granted | ||||||||
| Cancelled/Expired | ( | ) | ||||||
| Exercised | ||||||||
| Options outstanding at December 31, 2021 | $ | |||||||
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
| Number of shares | Weighted average exercise price per share | |||||||
| Options outstanding at January 1, 2021 | $ | |||||||
| Granted | ||||||||
| Cancelled | ||||||||
| Exercised | ||||||||
| Options outstanding at December 31, 2021 | $ | |||||||
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 $
| Number of shares | Weighted average exercise price per share | |||||||
| Options outstanding at January 1, 2021 | $ | |||||||
| Granted | ||||||||
| Cancelled | ||||||||
| Exercised | ||||||||
| Options outstanding at December 31, 2021 | $ | |||||||
2002 Plan
The 2002 Stock Option Plan (“2002 Plan”) provides for the award of qualified and non-qualified options for up to
| Number of shares | Weighted average exercise price per share | |||||||
| Options outstanding at January 1, 2021 | $ | |||||||
| Granted | ||||||||
| Cancelled/Expired | ( | ) | ||||||
| Exercised | ||||||||
| Options outstanding at December 31, 2021 | $ | |||||||
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:
| 2021 | 2020 | |||||||||||
| Expected term (based upon historical experience) (in years) | | - | | - | ||||||||
| Expected volatility | - | % | - | % | ||||||||
| Expected dividends | ||||||||||||
| Risk free interest rate | - | % | % | |||||||||
For the years ended December 31, 2021 and 2020, the Company recorded total share-based compensation expense related to the common stock bonuses, other stock issuances, and stock options of $
The Company has unrecognized share-based compensation expense of $
Information pertaining to options outstanding and exercisable at December 31, 2021 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) | ||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
Summary of all stock option plans activity during the year ended December 31, 2021 is as follows:
| Number of Shares | Weighted Average Price | Weighted Average Remaining Contractual Life (In Years) | Aggregate Intrinsic Value | |||||||||||||
| Options outstanding at January 1, 2021 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Cancelled/Expired | ( | ) | ||||||||||||||
| Exercised | ||||||||||||||||
| Options outstanding and expected to vest at December 31, 2021 | $ | $ | ||||||||||||||
| Options exercisable at December 31, 2021 | $ | $ | ||||||||||||||
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 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 $
NOTE 10. INCOME TAXES
The Company’s loss before income tax provision includes the following components for the years ended December 31:
| 2021 |
2020 |
|||||||
| U.S. |
$ | ( |
) | $ | ( |
) | ||
| Foreign |
||||||||
| $ | ( |
) | $ | ( |
) | |||
The Company is subject to taxation in the U.S., Canada, and Massachusetts. The provision for income taxes for the years ended December 31 are summarized below:
| 2021 |
2020 |
|||||||
| Current: |
||||||||
| Federal |
$ | $ | ||||||
| State |
||||||||
| Foreign |
||||||||
| Total current |
||||||||
| Deferred: |
||||||||
| Federal |
||||||||
| State |
||||||||
| Foreign |
( |
) | ( |
) | ||||
| Total deferred |
( |
) | ( |
) | ||||
| Income tax provision |
$ | $ | ||||||
A reconciliation of income taxes computed by applying the statutory U.S. income tax rate to the Company’s loss before income tax provision to the income tax provision is as follows for the years ended December 31:
| 2021 |
2020 |
|||||||
| U.S. federal statutory tax rate |
% |
% |
||||||
| State tax benefit, net |
( |
)% |
% |
|||||
| Stock compensation |
( |
)% |
( |
)% |
||||
| Officers compensation |
( |
)% |
% |
|||||
| Attributes expiration |
( |
)% |
( |
)% |
||||
| Other |
% |
( |
)% |
|||||
| Interest and penalties |
( |
)% |
% |
|||||
| Valuation allowance |
% |
% |
||||||
| Effective income tax rate |
( |
)% |
( |
)% |
||||
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 net deferred tax liabilities are as follows as of December 31:
| 2021 |
2020 |
|||||||
| Deferred taxes: |
||||||||
| NOLs |
$ | $ | ||||||
| Inventory and other reserves |
||||||||
| Stock based compensation expense |
||||||||
| Lease liability |
||||||||
| Accruals |
||||||||
| Other |
||||||||
| Total deferred tax assets |
||||||||
| Depreciation and amortization |
( |
) | ( |
) | ||||
| Right-of-use assets |
( |
) | ( |
) | ||||
| Valuation allowance |
( |
) | ( |
) | ||||
| Net deferred tax liabilities |
$ | ( |
) | $ | ( |
) | ||
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 $
As of December 31, 2021, the Company had net operating loss carryforwards for federal income tax purposes of approximately $
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
The income tax provision at December 31, 2021 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 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 related with income taxes, as estimated or incurred, as a part of the income tax provision. As of December 31, 2021, and 2020 the Company accrued $
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 2022 and beyond.
NOTE 11. Leases
We have an operating lease for our corporate offices in Canada and finance leases for furniture and equipment, which expired in June 2021. Our leases have remaining lease terms of months to months, and our primary operating leases include options to extend the leases for 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 lease 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.
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:
| 2021 |
2020 |
|||||||
| Operating lease cost |
$ | $ | ||||||
| Finance lease cost: |
||||||||
| Amortization of leased assets |
$ | $ | ||||||
| Interest on lease liabilities |
||||||||
| Total finance lease cost |
$ | $ | ||||||
Supplemental cash flow information related to leases for the years ended December 31, was as follows:
| 2021 |
2020 |
|||||||
| Cash paid for amounts included in leases: |
||||||||
| Operating cash flows from operating leases |
$ | $ | ||||||
| Operating cash flows from finance leases |
$ | $ | ||||||
| Financing cash flows from finance leases |
$ | $ | ||||||
| Right-of-use assets obtained in exchange for lease obligations: |
||||||||
| Operating leases |
$ | $ | ||||||
| Finance leases |
$ | $ | ||||||
Supplemental balance sheet information related to leases was as follows:
| Operating leases: |
December 31, 2021 | December 31, 2020 | ||||||
| Operating lease right-of-use assets |
$ | $ | ||||||
| Current portion of operating lease obligations |
$ | $ | ||||||
| Operating lease obligations, net of current portion |
||||||||
| Total operating lease liabilities |
$ | $ | ||||||
| Finance leases: |
||||||||
| Property and equipment, at cost |
$ | $ | ||||||
| Accumulated depreciation |
( |
) |
( |
) | ||||
| Property and equipment, net |
$ | $ | ||||||
| Current portion of finance lease obligations |
$ | $ | ||||||
| Finance lease obligations, net of current portion |
||||||||
| Total finance lease liabilities |
$ | $ | ||||||
| Year Ended |
||||
| Weighted Average Remaining Lease Term (in years) |
||||
| Operating lease |
||||
| Finance leases |
||||
| Weighted Average Discount Rate |
||||
| Operating lease |
% |
|||
| Finance leases |
% |
|||
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, 2021 is as follows:
| Years ending December 31, |
Total |
|||
| 2022 |
$ | |||
| 2023 |
||||
| Total lease liabilities |
||||
| Less amount representing interest |
( |
) | ||
| Total |
||||
| Less current portion |
( |
) | ||
| $ | ||||
NOTE 12. SUBSEQUENT EVENTS
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.
| 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 (incorporated by reference from Exhibit 10.11to Form 10-K filed on March 31, 2021 ) |
||
| Non-Compete Agreement for W. Austin Lewis IV (incorporated by reference from Exhibit 10.12to Form 10-K filed on March 31, 2021) |
||
| 31.2* |
CFO Certification required under Section 302 of Sarbanes-Oxley Act of 2002 |
|
| 32.0* |
CEO and CFO Certification required under Section 906 of Sarbanes-Oxley Act of 2002 |
|
| EX-101.INS |
Inline XBRL Instance Document |
|
| EX-101.SCH |
Inline XBRL Taxonomy Extension Schema |
|
| EX-101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase |
|
| EX-101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase |
|
| EX-101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase |
|
| EX-101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase |
|
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101) |
| *filed herewith |
|
| +Indicates a management contract or any compensatory plan, contract or arrangement |
|