Item 7. Management’s Discussion and Analysis
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, insure, 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 2024 will be to continue to grow this portion of our business.
PAID, Inc. (the “Company”) has developed a full line of SaaS-based business services including PaidPayments, PaidCart, PaidShipping and PaidWeb. These solutions are developed to provide businesses with a streamlined experience for website creation, online sales, payment collection and shipping all in one platform.
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:
14
Revenue Recognition
The Company generates revenue principally from the sales related to the coordinating shipping services, sales of shipping calculator subscriptions, 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. Customers with pickups after the end of the reporting period are recorded as contract liabilities on the condensed consolidated balance sheets. The service is offered to consumers via an online registration and allows users to create a shipping label using a credit card on their account (all customers must have a valid credit card 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.
Merchant processing revenue consists of fees a seller pays to process payment transactions and is recognized upon authorization of a transaction. Revenue is recognized net of estimated funds, 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.
Long-Lived Assets
The Company reviews the carrying value 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.
15
Note Receivable
The Company has one note receivable outstanding that accrues annual interest and penalties for non-payment. The note is backed by the assets of the debtor and management continues to evaluate the collectability of the note. The Company has recognized significant gains on the interest and penalties, however, as of the year ended 2023, the note is in default. If the Company determines the note is uncollectible, it could result in a significant loss and subsequent litigation for the Company.
Results of Operations
Comparison of the years ended December 31, 2023 and 2022
The following discussion compares the Company's results of operations for the year ended December 31, 2023 with those for the year ended December 31, 2022. 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,
2023
2022
% Change
Client services
$
33,938
$
47,345
(28
)%
Shipping coordination and label generation services
16,465,724
16,498,431
(0
)%
Merchant processing services
65,167
40,153
62
%
Total revenues
$
16,564,829
$
16,585,929
0
%
Revenues decreased $21,100 or 0.1% in 2023 from the result of a minor change in the pricing model to be more competitive. This change has had a minimal impact on the pricing but has shifted business to a more profitable carrier.
Client services revenues which include brewery management software and shipping calculator services decreased $13,407 or 28% to $33,938 compared to $47,345 in 2022. The decrease was attributable to the cancellation of several clients using our brewery management software and the limited marketing of this segment of the business.
Shipping coordination and label generation services revenues decreased $32,707 or 0.2% to $16,465,724 in 2023 compared to $16,498,431 in 2022. The decrease is attributable to the change in our pricing structure to remain competitive in addition to the reduced cost of fuel as it significantly impacts the shipping industry.
16
Merchant processing services has launched its United States shipping portal which resulted in an increase of $25,014 or 62% to $65,167 in 2023 compared to $40,153 in 2022. The Company continues to increase the product offerings in this segment of the business.
Gross Profit
Gross profit increased $96,667 or 3% to $3,785,648 in 2023 compared to $3,688,981 in 2022. Gross margin increased one percentage point to 23% in 2023 from 22% in 2022. The increase in gross margin was due to ongoing efforts to reduce the cost of goods sold in addition to a pricing restructure to more profitable carriers.
Operating Expenses
Total operating expenses in 2023 were $4,373,471 compared to $3,629,988 in 2022, an increase of $743,483 or 20%. The increase is mainly due to the additional share-based compensation for 2023 compared to 2022.
Other Income/Expense, net
Net other income in 2023 was $849,258 compared to $136,662 in 2022, an increase of $712,596 or 521%. The 2023 amount is made up of other income of $849,258 on the Embolx, Inc. note receivable vs other income of $104,167 recorded in 2022. Note receivable interest income of $203,425 which is included in Other Income has been recognized in 2023.
(Benefit) Provision for Income Taxes
Total income tax (benefit) provision for 2023 was $(91,779) compared to $(456,491) in 2022. The change of $364,712 is a result of the net effect of the adjustment for 2017 to 2023 transfer price adjustments and the reserve for long term tax liabilities.
Net Income
The Company reported a net income in 2023 of $353,214 compared to $652,146 for the same period in 2022. The basic income per common share in 2023 is $0.04 compared to $0.08 per common share in 2022.
Inflation
The Company believes that inflation has not had a material effect on its results of operations.
Cash Flows
A summarized reconciliation of the Company's cash flows for the years ended December 31, 2023 and 2022 is as follows:
2023
2022
Net income
$
353,214
$
652,146
Provision for bad debts
-
36,845
Depreciation and amortization
309,972
325,940
Accretion of discount on note receivable
(270,833
)
(104,167
)
Interest and default income accrued on note receivable
(578,425
)
-
Amortization of operating lease right-of-use assets
29,831
35,337
Deferred income taxes
(99,914
)
(77,128
)
Share-based compensation
703,761
172,488
Write-off of other payables
-
(32,495
)
Changes in current assets and liabilities
(212,090
)
(207,554
)
Net cash provided by operating activities
$
235,516
$
801,412
Net cash used in investing activities
$
-
$
(1,500,000
)
Net cash provided by (used in) financing activities
$
3,412
$
(87,493
)
Effect of exchange rate on cash and cash equivalents
$
26,245
$
(266,358
)
Net change in cash and cash equivalents
$
265,173
$
(1,052,439
)
17
Working Capital and Liquidity
The Company had cash and cash equivalents of $2,052,421 on December 31, 2023 compared to $1,787,248 on December 31, 2022. The Company had working capital of $2,912,950 on December 31, 2023 compared to $1,635,370 as of December 31, 2022, an improvement of $1,277,580. The improvement in working capital is primarily attributed to the recognition of the interest and penalties due on the note receivable.
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 partnerships to grow the Paid platform of services. 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 6A.
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 35.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.