NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 1. ORGANIZATION
PAID,
Inc. (“PAID”, the “Company”,
“we”, “us”, “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 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.
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.
SpiritRun is a
product of BeerRun and is designed specifically for distilleries.
This product was recently released and we feel that there with
additional marketing and visibility in the distillery industry
SpiritRun has the right core resources to be a valuable tool in
distilleries around the United States.
ShipTime Inc. 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 ecommerce. We
actively sell directly to small and medium businesses and through
long standing partnerships with selected associations throughout
Canada.
NOTE 2. GOING CONCERN AND MANAGEMENT’S PLANS
The
accompanying consolidated financial statements have been prepared
on a going concern basis which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company has continued to incur losses. For the year
ended December 31, 2017, the Company reported a net loss of
$617,020. The Company has an accumulated deficit of $55,845,766 and
has a working capital deficit of $1,313,844 at December 31, 2017.
These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
Management feels
that the addition of ShipTime’s services will return a
valuable impact on the Company’s growth in the near future.
The positive cash flow from operations is a significant indicator
of our successful transition to the new shipping services. In
addition to the existing services provided, ShipTime will launch
products that are complementary to the current offering of
AuctionInc, BeerRun and SpiritRun. Combined, the Company believes
that all segments of the operations will benefit from
ShipTime.
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 2018 and will have a positive
impact on the Company for 2018 and future years.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation
and Basis of Consolidated Financial Statements
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., it’s wholly owned subsidiaries, PAID Run, LLC and,
ShipTime Canada, Inc. All intercompany accounts and transactions
have been eliminated.
On
November 9, 2016, the board of directors agreed to effectuate a
reverse split immediately followed by a forward split. The process
was completed with FINRA on January 23, 2017. As a result of the
split every ten shares of common stock outstanding prior to the
reverse split were consolidated into one share, reducing the number
of common shares outstanding on the effective date from 10,989,608
to 1,098,960. All share and per share information in this Form 10-K
has been retroactively adjusted to reflect the reverse stock
split.
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, 2017. 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 (loss).
Geographic
Concentrations
The
Company conducts business in the US and Canada. For customers
headquartered in their respective countries, the Company derived
approximately 93% of its revenues from Canada and 7% from the US
during the year ended December 31, 2017, compared to 100% of its
revenues from the US during the year ended December 31,
2016.
At
December 31, 2017, the Company maintained 96% of its net property
and equipment in Canada and the remaining 4% in the US. At December
31, 2016, the Company maintained 93% of its net property and
equipment in Canada and the remaining 7% in the US.
Comprehensive
Income
Comprehensive
income includes all changes in equity (net assets) during a period
from non-owner sources. For the years ended December 31, 2017 and
2016, the components of comprehensive income consist of solely
foreign currency translation gains.
Business
Combinations
The
Company accounts for business combinations by recognizing the
assets acquired and liabilities assumed at their fair values on the
acquisition date. The purchase price allocation process requires
management to make estimates and assumptions at the acquisition
date, especially with respect to intangible assets and
pre-acquisition contingencies. Examples of critical estimates in
valuing certain of the intangible assets the Company has acquired
or may acquire in the future include but are not limited to:
unanticipated events and circumstances may occur that may affect
the accuracy or validity of such assumptions, and estimates
compared to actual results.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Significant estimates made by
the Company’s management include, but are not limited to, the
collectability of accounts receivable, the recoverability of
long-lived assets and goodwill, the allocation of purchase price in
a business combination transaction, the valuation of deferred tax
assets and liabilities and the estimated fair value of the royalty
and advance guarantees and 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, 2017 and 2016, the Company’s financial
instruments include cash and cash equivalents, accounts receivable,
other receivables, funds held in trust, accounts payable, notes
payable, funds due to and from related parties, and accrued
expenses. The carrying amount of cash and cash equivalents,
accounts receivable, other receivables, accounts payable, capital
leases, notes payable and accrued expenses approximates fair value
due to the short-term maturities of these instruments.
Cash
and Cash Equivalents
The
Company considers all highly liquid temporary cash investments with
an initial maturity of three months or less to be cash equivalents.
Management believes that the carrying amounts of cash equivalents
approximate their fair value because of the short maturity
period.
Concentration
of Credit 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, 2017, 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, 2017 and 2016, the Company recorded a provision for doubtful
accounts of $55,434 and $40,609, respectively.
For the
year ended December 31, 2017 and 2016 no revenues from any one
individual client accounted for more than 10% of the total
revenues.
Funds
Held in Trust
Funds
held in trust consist of rebates earned by ShipTime customers that
have existing relationships with the Canadian Federation of
Independent Business (“CFIB”). The rebate is held in
escrow at CFIB for one year until earned by the customer, they then
have three years after the last shipment to use the rebate after
which time the rebate expires.
Advanced
Royalties
Advanced royalties
represented amounts the Company had advanced to certain clients and
were recoupable against future royalties earned by the clients.
Advances were issued in either cash or shares of the
Company’s common stock and advanced amounts were calculated
based on the clients’ projected earning potential over a
fixed period of time. Advances made by issuing common stock or
common stock options are recorded at their fair value on the date
of issue. If the shares do not reach the required price per share,
the Company has the option of issuing additional shares or making
cash payment of the difference between the sales price and the fair
value of the stock. The Company records a liability for the
difference between the fair value of the stock and the guaranteed
sales price amount. The change in fair value of the stock price
guarantee is recorded in the accompanying consolidated statements
of operations (see Note 10).
Property
and Equipment
Property and
equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of 3 to 8
years. Any leasehold improvements are depreciated at the lesser of
the useful life of the asset or the lease term. Equipment purchased
under capital leases is amortized on a straight-line basis over the
estimated useful life of the asset or the term of the lease,
whichever is shorter.
Expenditures for
repairs and maintenance are charged to expense as
incurred.
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 life. Currently the
intangible assets are being amortized between 2 and 17
years.
Long-Lived
Assets
The
Company reviews the carrying values of its long-lived assets for
possible impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the
expected future cash 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. No impairment charges for long lived assets
were incurred during the years ended December 31, 2017 and 2016.
There can be no assurance, however, that market conditions will not
change or demand for the Company’s services will continue,
which could result in impairment of long-lived assets in the
future.
Revenue
Recognition
The
Company generates revenue principally from the sales related to the
shipping coordination and label generation services, shipping
calculator subscriptions, brewery management software
subscriptions, and client services.
The
Company recognizes revenues in accordance with the FASB ASC Topic
605. Accordingly, the Company recognizes revenues when there is
persuasive evidence that an arrangement exists, product delivery
and acceptance have occurred, the sales price is fixed or
determinable, and collectability of the resulting receivable is
reasonably assured.
For
label generation service revenues the Company recognizes revenue
when a customer has successfully prepared a shipping label and
scheduled 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. Customers that cancel
shipments are refunded at the time of cancellation and revenue is
adjusted in the month of the cancellation. ShipTime in partnership
with the CFIB offers a rebate to customers that ship with ShipTime.
The rebate is held on their account for future use. Rebate revenue
is recognized when the rebate is used. All clients must have a
valid credit card on file to process shipments on the ShipTime
platform.
For
shipping calculator revenues and brewery management software
revenues the Company recognizes subscription revenue on a monthly
basis. Shipping calculator customers’ renewal dates are
based on their date of installation and registration of the
shipping calculator line of products. Brewery management software
subscribers are billed on a calendar month at the first of the
month. All payments are made via credit card for the month
following.
Cost
of Revenues
Cost of
revenues includes carrier services, web hosting, data storage, and
commissions, carrier insurance costs and amortization of acquired
technology.
Operating
Expenses
Operating expenses
include indirect expenses, including credit card processing fees,
marketing, payroll, travel, facility costs, amortization of other
intangibles and other general and administrative
expenses.
Advertising
Advertising costs
are charged to expense as incurred. For the years ended December
31, 2017 and 2016, advertising expense totaled $156,856 and $7,854,
respectively, and are included in general and administrative
expenses in the accompanying consolidated statements of operations
and comprehensive income (loss).
Share-Based
Compensation
The
Company grants options to purchase the Company’s common stock
to employees, directors and consultants under stock option plans.
The benefits provided under these plans are share-based payments
that the Company accounts for using the fair value
method.
The
fair value of each option award is estimated on the date of grant
using a Black-Scholes-Merton option pricing model
(“Black-Scholes-Merton model”) that uses assumptions
regarding a number of complex and subjective variables. These
variables include, but are not limited to, expected stock price
volatility, actual and projected employee stock option exercise
behaviors, risk-free interest rate and expected dividends. Expected
volatilities are based on the historical volatility of the
Company’s common stock. The expected terms of options granted
are based on analyses of historical employee termination rates and
option exercises. The risk-free interest rate is based on the U.S.
Treasury yield in effect at the time of the grant. Since the
Company does not expect to pay dividends on common stock in the
foreseeable future, it estimated the dividend yield to be
0%.
Share-based
compensation expense recognized during a period is based on the
value of the portion of share-based payment awards that is
ultimately expected to vest and is amortized under the
straight-line attribution method. As share-based compensation
expense recognized in the accompanying consolidated statements of
operations and comprehensive income (loss) for the years ended
December 31, 2017 and 2016 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, 2017 and 2016, no excess tax benefits for tax deductions
related to share-based awards were recognized from stock options
exercised in the years ended December 31, 2017 and 2016 that would
have resulted in a reclassification from cash flows from operating
activities to cash flows from financing activities.
Income
Taxes
The
Company accounts for income taxes and the related accounts under
the liability method. Deferred tax assets and liabilities are
determined based on the differences between the financial statement
carrying amounts and the income tax bases of assets and
liabilities. A valuation allowance is applied against any net
deferred tax asset if, based on available evidence, it is more
likely than not that some or all of the deferred tax assets will
not be realized. Therefore, the Company has recorded a full
valuation allowance against the net deferred tax assets. The
Company’s income tax provision consists of 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.
The
total unrecognized tax benefit resulting in an increase in deferred
tax assets and corresponding decrease in the valuation allowance at
December 31, 2017 is approximately $6,000,000. There are no
unrecognized tax benefits included in the consolidated balance
sheet that would, if recognized, affect the effective tax
rate.
The
Company’s policy is to recognize interest and/or penalties
related to income tax matters in income tax expense. The Company
had $0 accrued for interest and penalties on each of the
Company’s consolidated balance sheets at December 31, 2017
and 2016.
The
Company is subject to taxation in the U.S. and various state
jurisdictions. The Company’s tax years for 2013 and forward
for federal and 2012 and forward for state purposes are subject to
examination by the U.S., Massachusetts and New Jersey tax
authorities due to the carry-forward of unutilized net operating
losses. The Company does not foresee material changes to its gross
uncertain income tax position liability within the next twelve
months.
Earnings
(Loss) Per Common Share
Basic
earnings (loss) per share represent income (loss) available to
common stockholders divided by the weighted-average number of
common shares outstanding during the period. Diluted earnings
(loss) per share reflects additional common shares that would have
been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income (loss) that would
result from the assumed issuance. The potential common shares that
may be issued by the Company relate to outstanding stock options
and have been excluded from the computation of diluted earnings
(loss) per share because they would reduce the reported loss per
share and therefore have an anti-dilutive effect.
For the
year ended December 31, 2017, there were no dilutive shares that
were included in the diluted earnings (loss) per share as their
effect would have been antidilutive for the year then
ended.
The
Company computes its loss applicable to common stockholders 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 loss
and reports the same on the face of the consolidated statements of
operations and comprehensive income (loss).
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 four
reportable segments are managed separately based on fundamental
differences in their operations. At December 31, 2017, the Company
operated in the following four reportable segments (see Note
13):
b.
Shipping
calculator services
c.
Brewery
management software and
d.
Shipping
coordination and label generation services.
The
Company evaluates performance and allocates resources based upon
operating income. The accounting policies of the reportable
segments are the same as those described in this summary of
significant accounting policies. The Company’s chief
operating decision makers are the Chief Executive Officer and Chief
Financial Officer.
Reclassification
Certain
amounts were reclassified in the accompanying consolidated
statements of operations and comprehensive income (loss) for the
year ended December 31, 2016 in order to conform to the current
period presentation.
Recent
Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) 2016-02, Leases, which requires the lease
rights and obligations arising from lease contracts, including
existing and new arrangements, to be recognized as assets and
liabilities on the balance sheet. ASU 2016-02 is effective for
reporting periods beginning after December 15, 2018 with early
adoption permitted. While the Company is still evaluating ASU
2016-02, the Company expects the adoption of ASU 2016-02 to have a
material effect on the Company’s financial condition due to
the recognition of the lease rights and obligations as assets and
liabilities. The Company does not expect ASU 2016-02 to have a
material effect on the Company’s results of operations and
cash flows.
In
January 2016, the FASB issued ASU 2016-01, Financial Instruments:
Recognition and Measurement of Financial Assets and Financial
Liabilities, which addresses certain aspects of recognition,
measurement, presentation and disclosure of financial statements.
This guidance will be effective in the first quarter of fiscal year
2019 and early adoption is not permitted. The Company is currently
evaluating the impact that this guidance will have on its
consolidated financial statements.
In May 2014, the
FASB issued ASU 2014-09, Revenue from Contracts with Customers.
This updated guidance supersedes the current revenue recognition
guidance, including industry-specific guidance. The updated
guidance introduces a five-step model to achieve its core principal
of the entity recognizing revenue to depict 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. The updated guidance is
effective for interim and annual periods beginning after December
15, 2016, and early adoption is not permitted. In July 2015, the
FASB decided to delay the effective date of ASU 2014-09 until
December 15, 2017. The FASB also agreed to allow entities to choose
to adopt the standard as of the original effective date. The
Company has elected to adopt the Cumulative-Effect Adjustment
method and has determined there is no impact on its consolidated
financial statements.
In
January 2017, the FASB issued ASU 2017-01, Business Combinations
(Topic 805): Clarifying the definition of a business
.
The amendments in this updated
guidance clarify the definition of a business with the objective of
adding guidance to assist entities with evaluating whether
transactions should be accounted for as acquisitions (or disposals)
of businesses. The guidance in this update is effective for fiscal
years beginning after December 15, 2017, and interim periods within
those years.
In
January 2017, the FASB also issued ASU 2017-04, Intangibles -
Goodwill and other (Topic 350): Simplifying the test for goodwill
impairment. The amendments in this Update remove the second step of
the current goodwill impairment test. An entity will apply a
one-step quantitative test and record the amount of goodwill
impairment as the excess of a reporting unit's carrying amount over
its fair value, not to exceed the total amount of goodwill
allocated to the reporting unit. The new guidance does not amend
the optional qualitative assessment of goodwill impairment. This
guidance is effective for impairment tests in fiscal years
beginning after December 15, 2019.
NOTE 4. ACQUISITION – emergeIT
In
September 2016, the Company announced that it entered into an
Amalgamation Agreement (the “Amalgamation Agreement”)
with emergeIT Inc., an Ontario corporation, which does business as
“ShipTime” (“emergeIT” or
“ShipTime”) to acquire emergeIT and merge it with a
newly formed PAID subsidiary. The closing for the Amalgamation
Agreement occurred on December 19, 2016, and the amalgamation was
effective on December 30, 2016.
The
transaction has been accounted for as a business combination and
the financial results of ShipTime have been included in the
Company’s consolidated financial statements for the period
subsequent to its acquisition. At estimated acquisition date of the
fair value of consideration transferred, assets acquired and
liabilities assumed for ShipTime are presented below and represent
the Company’s best estimates.
Fair Value of Consideration Transferred
Pursuant to the
Amalgamation Agreement the Company formed a new subsidiary under
Canadian law (“Callco”). The new subsidiary formed its
own Canadian subsidiary (“Exchangeco”), and Callco is
the sole shareholder of Exchangeco. Both Callco and Exchangeco are
incorporated in Ontario under the province’s
Business Corporations Act
. Effective
December 30, 2016 (the “Effective Date”), Exchangeco
merged (amalgamated) with emergeIT so that as of the effective
date, the Company owns, indirectly through Callco, all of the
issued and outstanding shares of common stock of emergeIT. At that
time, the amalgamated entity was renamed “ShipTime Canada
Inc.” and is the operating company with respect to the
emergeIT assets.
emergeIT was
privately held by 13 holders (“emergeIT Sellers”). The
emergeIT Sellers owned “Class A” and “Class
B” common shares, which converted into “exchangeable
shares” of ShipTime Canada Inc. in the merger. Exchangeable
shares are rights to the Company’s common stock and preferred
stock. These rights can be exercised by the conversion of the
exchangeable shares into shares of common and preferred stock of
the Company, in accordance with an Exchange and Call Rights
Agreement, described below.
emergeIT Class A
common shares and Class B common shares were converted into
exchangeable shares with rights to receive 447 shares of the
Company’s common stock and 3,109 shares of preferred stock,
provided that upon the reverse/forward split described below, the
right shall be to receive 45 shares of the Company’s common
stock and 311 shares of the Company’s Preferred Stock. As of
the effective date, outstanding emergeIT options and warrants were
replaced by exchangeable shares in the same manner as
emergeIT’s Class A and Class B common shares. The Company
currently reserves for 550,000 shares of its common stock with
regard to the exchangeable shares. Warrants have been issued it an
entity controlled by the Company’s CFO for exchangeable
shares and are valued at $523,000 on the date of the
acquisition.
Pursuant to the
Amalgamation Agreement, the Company filed a Certificate of
Designations effective on December 30, 2016 which sets aside
5,000,000 shares of Preferred Stock as Series A Preferred Stock.
The Series A Preferred Stock holders have no voting rights and had
an aggregate liquidation value of approximately $11,581,000. The
Series A Preferred Stock also carries a coupon payment obligation
of 1.5% per year in cash or common stock calculated by taking the
30-day average closing price for an equal number of shares of
common stock for the month immediately preceding the coupon payment
date, which is made annually. Payout of the coupon may be made out
of existing cash or in shares of Series A Preferred stock of the
Company. The Series A Preferred Stock have no voting or conversion
rights. If purchased, redeemed, or otherwise acquired (other than
conversion), the preferred stock may be reissued.
The
total acquisition date fair value of the consideration transferred
is estimated at approximately as follows:
Preferred stock
issuance to emergeIT Sellers
|
$
11,581,000
|
Common stock
issuance to the emergeIT Sellers
|
2,035,000
|
Warrant issuance to
an emergeIT warrant holder
|
523,000
|
Total acquisition
date fair value
|
$
14,139,000
|
Allocation of Consideration Transferred
The
identifiable assets acquired and liabilities assumed were
recognized and measured as of the acquisition date based on their
estimated fair values as of December 30, 2016, the acquisition
date. The excess of the acquisition date fair value of
consideration transferred over the estimated fair value of the net
tangible assets and intangible assets acquired was recorded as
goodwill.
The
following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the acquisition
date.
Cash and cash
equivalents
|
$
278,709
|
Accounts
receivable
|
13,514
|
Due from related
party
|
1,026
|
Prepaid expenses
and other assets
|
20,742
|
Funds held in
trust
|
169,082
|
Property and
equipment
|
86,517
|
Intangible
assets
|
5,780,000
|
Total assets
acquired
|
6,349,590
|
Accounts payable
and accrued liabilities
|
538,792
|
Other
liabilities
|
401,114
|
Deferred tax
liabilities
|
1,260,369
|
Total liabilities
assumed
|
2,220,275
|
Goodwill
|
9,989,685
|
Net assets
acquired
|
$
14,139,000
|
Results of Operations
Since
the effective date of the acquisition and merger, revenues and
expenses of ShipTime have been included in the Company’s
consolidated statement of operations for the period ended December
31, 2017 and were insignificant.
Pro Forma Financial Information
The
following table presents the Company’s unaudited pro forma
results (including ShipTime) for the year ended December 31, 2016
as though the companies had been combined as of the beginning of
the period presented.
The pro
forma information is presented for informational purposes only and
is not indicative of the results of operations that would have been
achieved if the acquisition had taken place at the beginning of
each period presented, nor is it indicative of results of
operations which may occur in the future. The unaudited pro forma
results presented include amortization charges for intangible
assets and eliminations of intercompany transactions.
|
For
the Year Ended December 31, 2016
|
Total
Revenues
|
$
6,091,401
|
Net
loss
|
(1,011,764
)
|
Management engaged
a third-party valuation firm to assist in the determination of the
fair value of the acquired intangible assets of ShipTime. In
determining the fair value of the intangible assets, the Company
considered, among other factors, the best use of acquired assets,
analyses of historical financial performance of ShipTime and
estimates of future performance of ShipTime. The fair values of the
identified intangible assets related to ShipTime’s customer
relationships, trade name, and technology. The fair value of
customer relationships was calculated using the income approach.
The fair value of the trade name and technology were calculated
using the cost approach. The following table sets forth the
components of identified intangible assets associated with the
ShipTime acquisition and their estimated useful lives.
|
|
Useful
Life
|
Customer
relationships
|
$
4,474,000
|
15
Years
|
Trade
Name
|
797,000
|
5
years
|
Technology
|
509,000
|
2
years
|
|
$
5,780,000
|
|
The
Company determined the useful lives of intangible assets based on
the expected future cash flows and contractual lives associated
with the respective asset. Trade names represent the fair value of
the brand and name recognition associated with the marketing of
ShipTime’s formulations and services. Customer relationships
represent the expected benefit from customer contracts that, at the
date of acquisition, were reasonably anticipated to continue given
the history and operating practices of ShipTime.
In preparing its report, the
third-party valuation firm used various financial and other
information provided to the valuation firm by the Company’s
and emergeIT’s management or obtained from other private and
public sources including financial projections prepared by emergeIT
management, and relied on the accuracy and completeness of this
information. There is no assurance that the valuation firm, or any
other financial adviser that the Company might choose, will utilize
the same process of methodologies in connection with future
valuations of emergeIT, or that such advisor(s) will reach
conclusions that are consistent with those
presented
.
NOTE 5. PROPERTY AND EQUIPMENT
At
December 31, property and equipment consisted of the
following:
|
|
|
Computer equipment
and software
|
$
135,271
|
$
134,657
|
Office furniture
and equipment
|
69,521
|
66,263
|
Website development
costs
|
377,052
|
345,197
|
|
581,844
|
546,157
|
Accumulated
depreciation
|
(489,358
)
|
(453,565
)
|
|
$
92,486
|
$
92,552
|
Depreciation
expense of property and equipment for the years ended December 31,
2017 and 2016 amounted to $34,698 and $2,798.
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.
On
October 7, 2015, the Company, through a newly formed limited
liability company named PAID Run, LLC, entered into an asset
purchase agreement to purchase assets related to BeerRun Software
and SpiritRun Software and related intellectual property. The
purchase price and additional development for these assets was
$297,500, which include all of the client lists, along with all
rights, benefits and privileges associated with the software and
intellectual property, associated contracts, and books and
records.
On
December 30, 2016, the Company completed a merger with ShipTime
Inc. and its subsidiary to acquire assets related to the
technology, client base and other intellectual property. The
Company engaged an outside independent third party valuation firm
to assist in establishing a value for the ShipTime
Inc.
At
December 31, intangible assets consisted of the
following:
|
|
|
Patents
|
$
16,000
|
$
16,000
|
Software
|
83,750
|
83,750
|
Trade
Name
|
850,311
|
797,000
|
Technology
|
540,201
|
509,000
|
Client list /
relationship
|
4,998,130
|
4,687,750
|
Accumulated
amortization
|
(986,070
)
|
(136,729
)
|
|
$
5,502,322
|
$
5,956,771
|
Amortization
expense of intangible assets for the years ended December 31, 2017
and 2016 was $824,512 and $100,107, respectively.
Amortization of
intangible assets for future years ending December 31, are as
follows:
Year Ended December
31,
|
|
2018
|
837,698
|
2019
|
489,985
|
2020
|
489,985
|
2021
|
489,985
|
2022
|
319,329
|
Total 5 year
amortization
|
$
2,262,982
|
Goodwill
Of the
total estimated purchase price, $9,989,685 was allocated to
goodwill and is attributable to expected synergies between the
combined companies, including the ability for the combined
companies to estimate and process shipping calculations and support
e-commerce shopping cart platforms in addition to the acquired
workforce. Goodwill represents the excess of the purchase price of
the acquired business over the estimated fair value of the
underlying net tangible and intangible assets acquired. In the
event the Company determines that the value of goodwill has become
impaired, it will incur an accounting charge for the amount of the
impairment during the fiscal quarter in which the determination is
made. None of the goodwill is expected to be deductible for income
tax purposes. As of December 31, 2017 no impairment has been
recognized on the value of goodwill.
For the
year ended December 31, 2017, goodwill activity was as
follows;
|
For the year
ended December 31, 2017
|
|
|
Beginning
Balance
|
$
9,989,685
|
Effect of exchange
rate changes
|
705,435
|
Ending
Balance
|
$
10,695,120
|
NOTE 7. ACCRUED EXPENSES
At
December 31, accrued expenses consist of the
following:
|
|
|
Payroll and related
costs
|
$
3,448
|
$
3,136
|
Royalties
|
51,838
|
51,838
|
Stock price
guarantee (see Note 10)
|
880,713
|
867,403
|
Other
|
130,995
|
55,514
|
Total
|
$
1,066,994
|
$
977,891
|
NOTE 8. OTHER LIABILITIES
Notes
Payable
In
October 2016, the Company entered into a $30,000 note payable with
a financial institution. The term of the note was for a period of
one year and was payable in 10 monthly installments of $2,632 at an
interest rate of 3%. The note was paid in full as of September 30,
2017.
In 2017, the
Company entered into two notes payable with a shareholder to
repurchase common and preferred shares. The first note is for a
period of one year for CAD $120,000 with payment terms of twelve
equal installments of CAD $10,328 at an interest rate of 6%. The
second note is an interest free seven month note for CAD $70,992
with payment terms of one payment of CAD $10,000 followed by six
equal installments of CAD $10,165. The balance of the notes on
December 31, 2017 is USD $113,033, both notes are expected to be
paid in full in July 2018.
Capital
Lease Obligations
The
Company is obligated under capital leases for equipment, which
expire at various dates through 2020 and 2021. The assets
capitalized under these leases and associated accumulated
depreciation at December 31, are as follows:
|
|
|
Property and
equipment
|
$
49,440
|
$
129,025
|
Accumulated
depreciation
|
(10,986
)
|
(83,000
)
|
|
$
38,454
|
$
46,025
|
Depreciation of
equipment under capital leases is included in depreciation
expense.
Minimum
future lease payments under capital lease obligations as of
December 31, 2017 are as follows:
Year Ended December
31,
|
|
|
|
2018
|
$
11,110
|
2019
|
11,110
|
2020
|
11,110
|
2021
|
2,974
|
Total future
minimum lease payments
|
36,304
|
Less amount
representing interest
|
(5,351
)
|
Present value of
net minimum lease payment
|
30,953
|
Less current
portion
|
(8,459
)
|
|
$
22,494
|
NOTE 9. RELATED PARTY NOTES PAYABLE
Prior
to the acquisition of ShipTime, two notes were issued. One note
issued was issued at an 8% interest rate and was paid in full in
September 2017. A second note was issued in 2014 and renegotiated
in June 2017 with a 6% interest rate and is due to mature in March
2018.
For the years ended
December 31, 2017 and 2016 the balance on the notes due to related
parties was $30,176 and $169,697. Interest expense related to the
notes payable totaled $10,731 for the year ended December 31,
2017.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Operating
Leases
In November 2016,
the Company renewed its office lease located at 200 Friberg
Parkway, Westborough, MA. The terms of the lease are for 18 months
at a rate of $500 per month. In July 2016, ShipTime entered into in
an office lease located at 700 Dorval Street, Oakville Ontario at a
rate of CAD $2,254 per month. The terms of this lease are 3 years.
The approximate future minimum rents under the current operating
leases are:
2018
|
$
24,884
|
2019
|
$
11,607
|
|
$
36,491
|
Stock
Price Guarantee
In
connection with the Company’s advance royalties with a
client, the Company guaranteed that shares of common stock
would sell for at least $60.00 per share. If the shares are
not at the required $60.00 per share when they are sold, the
Company has the option of issuing additional shares at their fair
value or making cash payments for the difference between the
guaranteed price per share and the fair value of the stock.
As of December 31, 2017 and 2016, the stock price guarantee was
$880,713 and $867,403, respectively, and included in accrued
expenses in the consolidated balance sheets, although any required
payment would be disputed by the Company.
Legal
Matters
In the
normal course of business, the Company periodically becomes
involved in litigation. As of December 31, 2017, in the opinion of
management, the Company had no pending litigation that would have a
material adverse effect on the Company's consolidated financial
position, results of operations, or cash flows.
The
Company commenced on December 20, 2013 patent infringement
litigation against eBay, Inc. (Paid, Inc. v. eBay, Inc.; CV No.
4:13-cv-40151-TSH) in the United States District Court for the
District of Massachusetts Central Division. This litigation
was settled pursuant to a Confidential Settlement and License
Agreement dated March 11, 2016. Under the agreement, the
Company received $53,500 after costs as full and final payment for
such settlement of the lawsuit and non-exclusive licensing of the
Company’s patents. The payment was received in full in April
2016 and recorded in other income in the consolidated statements of
operations.
Indemnities
and Guarantees
The
Company has made certain indemnities and guarantees, under which it
may be required to make payments to a guaranteed or indemnified
party, in relation to certain actions or transactions. The Company
indemnifies its directors, officers, employees and agents, as
permitted under the laws of the State of Delaware. In connection
with its facility leases, the Company has agreed to indemnify its
lessors for certain claims arising from the use of the facilities.
The duration of the guarantees and indemnities varies, and is
generally tied to the life of the 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 11. SHAREHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
On December 19,
2016, the Company filed an amendment to its Certificate of
Incorporation to authorize the issuance of 20,000,000 shares of
blank-check preferred stock at $.001 par value, of which 3,825,000
shares were reserved for the amalgamation agreement. The Board of
Directors will be authorized to fix the designations, rights,
preferences, powers and limitations of each series of the preferred
stock. See Note 4 for information regarding the preferred
stock.
Common
Stock
In
November 2016, the majority shareholders approved an amendment to
the Company’s Certificate of Incorporation to increase the
Company’s authorized shares of common stock from 1,100,000 to
25,000,000, to issue up to 2,000,000 shares of blank check
preferred stock and to make effective, a reverse stock split at a
range of 1 for 500 through 1 for 3,000 immediately followed by a
forward split of the outstanding common stock at an exchange rate
of 50 for 1 through 300 for 1 to reduce the number of authorized
shares of the Company’s common stock, subject to the Board of
Directors’ discretion.
In
January 2017, the Company completed a reverse split of 1-for 3,000
immediately followed by a forward split of 300 for 1. As a result
of the split every ten shares of common stock outstanding were
consolidated into one share, reducing the number of common shares
outstanding on the effective date from 10,989,608 to 1,098,960. All
share and per share information on this Form 10-K has been
retroactively adjusted to reflect the reverse stock split. As a
result of the round up during the reverse split followed by the
forward split the Company reduced its shares outstanding by 303
shares.
During
the year ended December 31, 2016, the Company issued a total of
205,714 shares of common stock for gross proceeds of $180,000 from
the exercise of warrants.
In
December 2016, the Company issued 550,000 shares of common stock in
connection with the Amalgamation Agreement (see Note
4).
Share
Repurchase
During 2017, the
Company entered into three agreements to repurchase exchangeable
shares of ShipTime Canada common stock. Each ShipTime exchangeable
share exchanges into 311 preferred shares and 45 common shares. The
total shares exchanged in these transactions were 14,535 common
share and 100,453 preferred shares. The allocated discount on the
repurchase of the preferred stock was $1.77 per share of preferred
stock and has been recorded in Company’s accumulated deficit,
and was added to the net loss available to common stockholders in
accordance with ASC 260-10-S99-2. The repurchase of the common
shares was recorded at an allocated cost of $1.83 per
share.
Share-based
Incentive Plans
During
the years ended December 31, 2017 and 2016, the Company had three
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. In 2017 there were 37,500
stock options granted to board members. The options vested
immediately and expire if not exercised within ten years, the
exercise price is $3.30 per share. As a result of the issuance
during 2017, the Company recorded a share-based compensation
expense of $118,572.
Active
Plans:
2012 Plan
On
October 15, 2012, the Company adopted the 2012 Non-Qualified Stock
Option Plan (the "2012 Plan"). The purpose of the 2012 Plan, is to
provide long-term incentives and rewards to those employees of the
Company, and any other individuals, whether directors, consultants
or advisors who are in a position to contribute to the long-term
success and growth of the Company. The options granted have a 10
year contractual term and vest one hundred percent on the date of
grant. There are no shares reserved for future issuance under this
plan. Information with respect to stock options granted under this
plan during the year ended December 31, 2017:
|
|
Weighted average
exercise price per share
|
Options outstanding
at January 1, 2017
|
36,000
|
$
0.98
|
Granted
|
-
|
-
|
Cancelled
|
-
|
-
|
Exercised
|
-
|
-
|
Options outstanding
at December 31, 2017
|
36,000
|
$
0.98
|
2011 Plan
On
February 1, 2011, the Company adopted the 2011 Non-Qualified Stock
Option Plan (the "2011 Plan"). Under the 2011 Plan, employees and
consultants may elect to receive their gross compensation in the
form of options, exercisable at $0.98 per share, to acquire the
number of shares of the Company's common stock equal to their gross
compensation divided by the fair value of the stock on the date of
grant. The options granted have a 10 year contractual term and have
vesting periods that range from one hundred percent on the date of
grant to one third immediately, one third vesting in 18 months and
the final on third vesting in 36 months from the date of the grant.
Information with respect to stock options granted under this plan
during the years ended December 31, 2017 is as
follows:
|
|
Weighted average
exercise price per share
|
Options outstanding
at January 1, 2017
|
5,500
|
$
0.98
|
Granted
|
37,500
|
3.30
|
Cancelled
|
-
|
-
|
Exercised
|
-
|
-
|
Options outstanding
at December 31, 2017
|
43,000
|
$
3.00
|
At
December 31, 2017 there are no shares reserved for issuance under
this plan.
2002 Plan
The
2002 Stock Option Plan (“2002 Plan”) provides for the
award of qualified and non-qualified options for up to 60,000
shares. The options granted have a ten-year contractual term and
have a vesting schedule of either immediately, two years, or four
years from the date of grant. Information with respect to stock
options granted under this plan during the year ended December 31,
2017 is as follows:
|
|
Weighted average
exercise price per share
|
Options outstanding
at January 1, 2017
|
16,000
|
$
23.33
|
Granted
|
-
|
-
|
Cancelled
|
-
|
-
|
Exercised
|
-
|
-
|
Options outstanding
at December 31, 2017
|
16,000
|
$
23.33
|
There
are currently no shares reserved for issuance under this
plan.
Fair value of issuances
The
fair value of the Company's option grants under the 2012, 2011, and
2002 Plans was estimated at the date of grant using the
Black-Scholes model with the following weighted average
assumptions:
|
|
Expected term
(based upon historical experience)
|
|
Expected
volatility
|
296%
|
Expected
dividends
|
|
Risk free interest
rate
|
1.0%
|
For the years ended
December 31, 2017 and 2016, the Company recorded share-based
compensation expense related to stock options of $118,572 and
$41,814 and are included in general and administrative expenses in
the accompanying consolidated statements of operations and
comprehensive income (loss), respectively.
On
August 26, 2016, the Board of Directors approved to vote to reprice
and immediately vest 52,500 stock options for two employees and
three board members. The grant price was lowered to $0.975 which
reflects the market value of the stock. The incremental expense for
the repricing of the options was approximately
$17,000.
The
Company has no unrecognized share-based compensation expense for
options outstanding as of December 31, 2017.
Information
pertaining to options outstanding and exercisable at December 31,
2017 is as follows:
|
|
|
|
Weighted
Average Remaining contractual Life (In Years)
|
|
Weighted Average
Remaining contractual Life (In Years)
|
0.98
|
52,500
|
5.93
|
52,500
|
5.93
|
|
|
5,000
|
3.86
|
5,000
|
3.86
|
3.30
|
37,500
|
9.75
|
37,500
|
9.75
|
|
95,000
|
7.33
|
95,000
|
7.33
|
Summary
of all stock option plans during the year ended December 31, 2017
is as follows:
|
|
|
Weighted
Average Remaining Contractual Life (In Years)
|
Aggregate
Intrinsic Value
|
Options
exercisable at January 1, 2017
|
57,500
|
$
7.20
|
|
|
Granted
|
37,500
|
$
3.30
|
|
|
Expired
|
-
|
-
|
|
|
Options
outstanding and exercisable at December 31, 2017
|
95,000
|
$
5.66
|
7.33
|
$
137,363
|
Warrants
From
time to time, the Company issues warrants to purchase share of the
Company’s common stock to investors, note holders and to
non-employees for service rendered or to be rendered in the
future.
A
summary of the warrant activity during the year ended December 31,
2017 is as follows:
|
Number of Shares
Subject to Warrants Outstanding
|
Weighted Average
Exercise Price
|
Warrants
outstanding - January 1, 2017
|
34,425
|
$
0.87
|
Granted
|
-
|
$
-
|
Exercised
|
-
|
$
-
|
Warrants
outstanding and exercisable - December 31, 2017
|
34,425
|
$
0.87
|
Weighted average
remaining contractual life of the outstanding warrants in
years
|
4.0 years
|
|
NOTE 12. INCOME TAXES
The Company is
subject to taxation in the United States, Canada, and
Massachusetts. The provision for income taxes for the years ended
December 31, 2017 and 2016 are summarized
below:
|
|
|
|
|
|
Current:
|
|
|
Federal
|
$
-
|
$
-
|
State
|
456
|
456
|
Foreign
|
-
|
-
|
Total
current
|
456
|
456
|
|
|
|
Deferred:
|
|
|
Federal
|
-
|
-
|
State
|
-
|
-
|
Foreign
|
(76,665
)
|
-
|
|
(76,665
)
|
-
|
Total
deferred
|
-
|
-
|
Income tax
provision (benefit)
|
$
(76,209
)
|
$
456
|
A
reconciliation of income taxes computed by applying the statutory
U.S. income tax rate to the Company’s loss before income
taxes to the income provision is as follows:
|
|
|
|
|
|
U.S. federal
statutory tax rate
|
34.00
%
|
34.00
%
|
State tax benefit,
net
|
2.61
%
|
5.17
%
|
Other
|
(6.02
)%
|
41.65
%
|
Tax law
change
|
(904.97
)%
|
-
%
|
Valuation
allowance
|
885.38
%
|
(80.95
)%
|
Effective income
tax rate
|
11.00
%
|
(0.13
)%
|
Deferred tax assets
and liabilities reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company’s
deferred tax assets are as follows:
|
|
|
|
|
|
Deferred
taxes:
|
|
|
NOL's
|
$
10,526,744
|
$
16,478,100
|
Inventory and other
reserves
|
31,892
|
40,000
|
Depreciation and
amortization
|
(1,341,573
)
|
(1,438,600
)
|
Change in value of
stock
|
240,611
|
340,700
|
NQ stock option
expense
|
523,026
|
705,400
|
Other
|
58,896
|
55,000
|
Total deferred tax
assets
|
10,039,596
|
16,180,600
|
Valuation
allowance
|
(11,309,256
)
|
(17,441,000
)
|
Net deferred tax
liabilities
|
$
(1,269,660
)
|
$
(1,260,400
)
|
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 valuation allowance is approximately $6,000,000 in
2017.
As of
December 31, 2017, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $46,000,000 which
expire beginning in the year 2019. As of December 31, 2017, the
Company had net operating loss carryforwards for state income tax
purposes of approximately $12,000,000 which expire beginning in the
year 2030.
As
of December 31, 2017, the Company also had Canada net operating
loss carryforwards of $229,000 which expire beginning in the year
2034.
Utilization of the
net operating losses may be subject to substantial annual
limitation due to federal and state ownership change limitations
provided by the Internal Revenue Code and similar state provisions.
Such annual limitations could result in the expiration of the net
operating losses ad credits before their utilization. The Company
has not performed an analysis to determine the limitation of the
net operating loss carryforwards.
For
income tax purposes, emergeIT has non-capital losses which can be
applied to reduce future years’ taxable income totaling
approximately $229,000. These losses expire between 2030 and 2037.
The Company also has a Scientific Research and Experimental
Development Expenditure pool balance of approximately $59,000 which
may be used to reduce future year’s taxable income. The
expenditure pool can be carried forward indefinitely.
A
valuation allowance of 100% has been established in respect of the
net deferred income tax assets due to the uncertainty of the
Company’s utilization of such deferred tax assets for US
Federal and State.
At
December 31, 2017, both Paid, Inc. and ShipTime have no
unrecognized tax benefits as a result of tax positions taken in the
current or prior years, and accordingly there are neither
unrecognized tax that will change benefits or would affect the
effective tax rate, nor there are any situations where it is
reasonably possible that the unrecognized tax benefit significantly
within twelve months of the reporting date. As of December 31,
2017, the Company has no unrecognized tax exposure.
The
Company’s policy is to recognize interest and/or penalties
related to income tax matters in income tax expense. The Company
had $0 accrued for interest and penalties on each of the
Company’s consolidated balance sheets at December 31, 2017
and 2016.
The
income tax provision at December 31, 2017 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, we are no longer subject to U.S. federal, state and
local income tax examinations by tax authorities for years before
2012. 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
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. As of December 31,
2017, the Company’s tax years for 2012 through 2017 are
subject to examination by tax authorities. The Company recognizes
interest and penalties, as estimated or incurred, as general and
administrative expense.
On December 22,
2017, the President of the United States signed into law the Tax
Cuts and Jobs Act (“the Act”). The Act amends the
Internal Revenue Code to reduce tax rates and modify policies,
credits, and deductions for individuals and businesses. For
businesses, the Act reduces the
corporate tax rate from a maximum of
35% to a flat 21% rate. The rate reduction is effective January 1,
2018. As a result of the rate reduction, the Company has reduced
the deferred tax asset balance as of December 31, 2017 by
$6,300,000. Due to the Company’s full valuation allowance
position, the Company has also reduced valuation allowance by the
same amount.
Due to uncertainties which currently exist in the interpretation of
the provisions of the Tax Cuts and Jobs Act of 2017 regarding
Internal Revenue Code section 162(m), the Company has not evaluated
the potential impacts of IRC Section 162(m) as amended by the Tax
Cuts and Jobs Acts of 2017 on its consolidated financial
statements.
On December 22, 2017 Staff Accountant Bulletin No. 118 (“SAB
118”) was issue to address the application of US GAAP in
situations when a registrant does not have the necessary
information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for
certain income tax effects of the Act. In accordance with SAB 118,
the Company has determined that there is no deferred tax benefit of
expense with respect to the remeasurement of certain deferred tax
assets and liabilities due to the full valuation allowance against
the net deferred tax assets. Additional analysis of the law and the
impact to the Company will be performed and any impact will be
recorded in the respective quarter in 2018.
NOTE 13. SEGMENT REPORTING
The
Company reports information about segments of its business in its
annual financial statements and reports selected segment
information in its quarterly reports. 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 three reportable segments, client services, brewery
management software and shipping calculator services, are managed
separately based on fundamental differences in their
operations.
The
Company evaluates performance and allocates resources based upon
operating income. The accounting policies of the reportable
segments are the same as those described in this summary of
significant accounting policies. The Company’s chief
operating decision makers are the Chief Executive Officer and Chief
Financial Officer.
The
following table compares total revenues for the years
indicated.
|
|
|
|
|
Client
services
|
$
22,702
|
$
18,556
|
Brewery management
software
|
309,049
|
320,215
|
Shipping calculator
services
|
205,748
|
184,976
|
Shipping
coordination and label generation services
|
7,034,498
|
-
|
Total revenues,
net
|
$
7,571,997
|
$
523,747
|
The
following table compares total income (loss) from operations for
the years indicated.
|
|
|
|
|
Client
services
|
$
17,380
|
$
13,761
|
Brewery management
software
|
36,040
|
40,176
|
Shipping calculator
services
|
(389,640
)
|
(508,647
)
|
Shipping
coordination and label generation services
|
(354,532
)
|
-
|
Total loss from
operations
|
$
(690,752
)
|
$
(454,710
)
|
NOTE 14. SUBSEQUENT EVENTS
On
March 23, 2018 the Board of Directors approved the 2018
Non-Qualified Stock Option Plan which reserves for issuance 450,000
shares of the Corporation’s Common Stock. The Board also
approved the issuance of 172,300 option grants to employees with
vesting periods from immediately to two years.
In
January 2018, the Company entered into a note payable with a
shareholder to repurchase 4,905 common shares which are held in
treasury and 33,899 preferred shares. The interest free note is for
a period of 8 months for CAD $66,708 with payment terms of one
installment of CAD $10,000 followed by seven equal installments of
CAD $8,101.