PAID INC 10-K

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, 2023, 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, 2023 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 2023 and have taken steps to remediate the material weaknesses at the entity and activity levels, and to review further our procedures and controls in 2024. In addition, we expect to continue improve our infrastructure, personnel and related processes in order to strengthen and materially affect our internal control over financial reporting. 18 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, 2023 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, 2023 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 19 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: ● 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 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: ● Daily sales activity is distributed to senior management for review of accuracy. ● Newly formed Human Resource department monitors the employee concerns and is the primary distributor of Company emails, updates and policy changes to all employees. ● The Information Technology department documents and distributes to the employees any updates to our software including enhancements and bug fixes. 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: ● Management monitors all revenue, gross margin and top customers via automated distribution daily from our platform, which allows better monitoring of the Company performance. ● The CFO and VP of Finance Company meet frequently to discuss and evaluate operations, sales activity, technology enhancements and their impact on the financial strength of the Company. They also review all cash activity on a daily basis. ● Automation has been updated to include a risk assessment and notification of potential fraudulent or unusual activity. 20 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. We used cloud-based solutions, tokenization to remove the need to capture and site confidential financial data in addition to encryption to protect personal data. 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 continues to use automation to support its revenue recognition. Our internal software produces real-time transactional based reporting that is tied to our cash transactions. This automation eliminated the risk of human error for these 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. 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. All transactions are audited on a quarterly basis. ● 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. 21 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, 2023. 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 2024 to remediate the outlined deficiencies. The Company monitors all financial activity and has implemented automated tools to support the reconciliation process specific to financial reporting. The CEO/CFO has worked with the SVP of Finance and management to identify areas of improvement and together they continue to implement cross training and redundancies to assist with internal controls. Departmental budgets have been established and all transactions are reviewed monthly. The forecast is reviewed by the CFO on a regular basis and all members of Management contribute to the review. While we believe these improvements are effective at mitigating the risk of a 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 2023. Item 9B. Other Information Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance Directors and Executive Officers The following table sets forth certain information regarding the directors and executive officers of PAID: Name Age Position W. Austin Lewis, IV 48 CEO, CFO David Scott 29 COO Andrew Pilaro 54 Director Laurie Bradley 70 Director David Ogden 61 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. 22 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, and President of Soho Printing LLC 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 the COO of PAID, having previously served as the Director of Technology joining the Company in 2017. With a computer science background from Mohawk College and McMaster University, Mr. Scott has played a pivotal role in driving technological advancements and operational efficiency at PAID. As COO, he continues to foster innovation, optimize processes, and nurture a collaborative work culture, solidifying Paid's position as a leading force in the industry. 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, 2023 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. 23 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, 2023. 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. 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’s 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. On March 21, 2023, the Board of Directors approved a renewal of Mr. Lewis’s employment agreement. The Amendment to the Employment Agreement is for a two-year term with automatic one-year renewals subject to 12 months’ notice of termination by the Company. Mr. Lewis shall receive an annualized salary of $321,000 and may qualify for a bonus. Mr. Lewis also received 250,000 shares of the Company’s common stock of which 125,000 shares may be repurchased at $0.01 per share in the event that Mr. Lewis terminates his employment agreement prior to January 1, 2024. On March 23, 2023, the Board of Directors approved the terms of an employment contract for David Scott, the Company’s COO. The Employment Agreement as executed is for a one-year term with automatic one-year renewals subject to 6 months’ notice of termination by the Company. Mr. Scott shall receive an annualized salary of $214,000 CAD and may qualify for a bonus. Mr. Scott will also receive $25,000 USD shares of the Company’s common stock which may be repurchased at $0.01 per share in the event that Mr. Scott terminates his employment agreement prior to April 1, 2024. 24 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 $100,000, for the last two fiscal years ended December 31, 2022 and 2021. Summary Compensation Table Name and Principal Position Year Salary Bonus Option Awards ($) Total W. Austin Lewis, IV (1)(2)(4)(7)(8) (CFO, CEO) 2023 $ 321,000 $ 550,256 $ - $ 871,256 2022 $ 300,000 $ 109,574 $ - $ 409,574 David Scott (3)(5)(6)(9)(10) (COO) 2023 $ 158,509 $ 81,378 $ - $ 239,887 2022 $ 153,787 $ 79,787 $ - $ 233,574 1. Mr. Lewis’s start date was July 31, 2012. 2. Mr. Lewis’s salary was approved by the Board of Directors at $321,000. 3. Mr. Scott was promoted to Chief Operating Officer on May 1, 2020. 4. Mr. Lewis received 250,000 shares on March 29, 2023 valued at $1.75 per share. 5. Mr. Scott received 13,889 shares on April 10, 2023 valued at $1.80 per share. 6. Mr. Scott received 13,021 shares on June 16, 2022 valued at $1.92 per share. 7. Mr. Lewis’ bonus of $109,574 to be paid out in 2023 in cash and shares for 2022 was approved by the Board of Directors on March 21, 2023. 31,307 shares were valued at $1.75 per share based on the close price of the Company's common stock at March 20, 2023. 8. Mr. Lewis’ bonus of $112,756 to be paid out in 2024 in cash and shares for 2023 was approved by the Board of Directors on February 22, 2024. 36,373 shares were valued at $1.55 per share based on the close price of the Company’s common stock at February 21, 2024. 9. Mr. Scott’s bonus for 2022 includes $54,787 to be paid out in 2023 in cash and shares, which was approved by the Board of Directors on March 21, 2023. 7,827 shares were valued at $1.75 per share based on the close price of the Company’s common stock at March 20, 2023. 10. Mr. Scott’s bonus for 2023 includes $56,378 to be paid out in 2024 in cash and shares, which was approved by the Board of Directors on February 22, 2024. 9,093 shares were valued at $1.55 per share based on the close price of the Company’s common stock at February 21, 2024. The following tables set forth certain information related to outstanding equity awards as of December 31, 2023 for our executive officers. Option Awards Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Option Exercise Price ($) Option Expiration Date David Scott 7,000 - - $ 4.10 03/23/2028 3,000 - - $ 3.50 10/01/2028 15,000 - - $ 2.92 02/13/2029 15,000 - - $ 3.00 08/13/2029 40,000 - - $ 2.89 11/10/2030 25 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 2022. On March 23, 2023 the Board of Directors approved stock option awards of 15,000 shares for board members and an additional 20,000 shares for committee chairmen. These awards take into consideration the absence of option issuance in 2021 and 2022. Options were granted at an exercise price of $1.75 per share, and vested immediately. The Company recorded $104,550 of share-based compensation with relation to the options granted to the Board. The following table provides compensation information for the one-year period ended December 31, 2023 for the only non-employee members of our Board of Directors. Director Compensation in 2023 Name Fees earned or paid in cash Option Awards ($) Total Andrew Pilaro $ 10,000 $ 43,050 $ 53,050 Laurie Bradley $ 10,000 $ 43,050 $ 53,050 David Ogden $ 4,000 $ 18,450 $ 22,450 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 April 1, 2024 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 (2) W. Austin Lewis, IV 3,313,858 39 % Allan Pratt 2,222,273 (3 ) 26 % David Scott 121,253 (6 ) 1 % John Smith 914,973 11 % David Ogden 55,000 (4 ) 1 % Laurie Bradley 119,217 (5 ) 1 % Andrew Pilaro 110,337 (1 ) 1 % All directors beneficial owners 6,856,911 80 % (1) Includes options to purchase 106,000 shares of the Company’s common stock. (2) 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. (3) Included in this amount are shares authorized and reserved for future issuance from exchangeable shares. (4) Includes options to purchase 55,000 shares of the Company’s common stock. (5) Includes options to purchase 92,500 shares of the Company’s common stock. (6) Includes options to purchase 80,000 shares of the Company’s common stock 26 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 2023 or 2022, 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 12 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, 2023 and 2022. The following is a summary of the fees billed to the Company by KMJ for professional services rendered for the years ended December 31, 2023 and 2022. 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. 2023 2022 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 $ 78,500 $ 61,715 Tax Fees Consists of fees billed for tax compliance, tax advice and tax planning 6,600 5,400 Total All Fees $ 85,100 $ 67,115 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%. 27 PART IV Item 15. Exhibits and Financial Statement Schedules (a)(1) Financial Statements For a list of the financial information included herein, see “Index to Audited Consolidated Financial Statements” on page 35 of this Annual Report on Form 10-K. (a)(2) Financial Statements Schedules All schedules are omitted because they are not applicable, or the required information is included in the financial statements or notes thereto. (a)(3) Exhibits The list of exhibits filed as a part of this Annual Report on Form 10-K is set forth on the Exhibit Index immediately preceding the exhibits hereto and is incorporated herein by reference. Item 16. Form 10-K Summary None. EXHIBIT INDEX No. Description of Exhibits 3.1 Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to Form 8-K, filed on November 25, 2003) 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K, filed on December 8, 2004) 3.3 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) 3.4 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) 4.1 Specimen of certificate for Common Stock (incorporated by reference to Exhibit 4.1 to Form SB-2/A filed on December 1, 2000) 10.1+ 2002 Non-Qualified Stock Option Plan (incorporated by reference from Exhibit 10.17 to Form 10-KSB filed on March 31, 2003) 10.2+ 2011 Non-Qualified Stock Option Plan (incorporated by reference from Exhibit 99.1 to Form S-8 filed on February 2, 2011) 10.3 2018 Non-Qualified Stock Option Plan (incorporated by reference from Exhibit 10.35 to Form 10-K filed on April 1, 2019 ) 10.4+ PAID, Inc. 2012 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q filed on October 18, 2012) 10.5+ 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) 10.6+ 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) 10.7 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) 10.8 Exchange and Call Rights Agreement (incorporated by reference to Exhibit 10.2 to Form 8-K filed on December 23, 2016) 10.9 Support Agreement (incorporated by reference to Exhibit 10.4 to Form 8-K filed on December 23, 2016) 10.10+ Employment Agreement for Allan Pratt (incorporated by reference to Exhibit 10.6 to Form 8-K filed on December 23, 2016) 10.11+ Employment Agreement for W. Austin Lewis IV dated March 29, 2021 (incorporated by reference to Exhibit 10.11 to Form 10-K filed on March 31, 2021) 10.12+ Non-Compete Agreement for W. Austin Lewis IV dated March 29, 2021 (incorporated by reference to Exhibit 10.12 to Form 10-K filed on March 31, 2021) 10.13+ Addendum to Employment Agreement for W. Austin Lewis IV dated March 21, 2023 10.14+ Employment Agreement for David Scott dated March 29, 2023 10.15 Securities Purchase Agreement dated March 26, 2024, by and between Paid, Inc. and Embolx, Inc. 10.16 Convertible Note dated March 26, 2024 by Embolx, Inc for the benefit of Paid, Inc. 10.17 Security Agreement dated March 26, 2024 by and between Embolx, Inc. and Paid, Inc. 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 and contained in Exhibit 101) *filed herewith +Indicates a management contract or any compensatory plan, contract or arrangement 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PAID, INC. By: /s/ W. Austin Lewis, IV, April 1, 2024 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 Director April 1, 2024 Andrew Pilaro /s/ Laurie Bradley Director April 1, 2024 Laurie Bradley 29 PAID, INC. & SUBSIDIARIES INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Report of Independent Registered Public Accounting Firm (PCAOB ID: 170 ) F-1 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-3 Consolidated Statements of Income and Comprehensive Income for the Years ended December 31, 2023 and 2022 F-4 Consolidated Statements of Changes in Shareholders’ Equity for the Years ended December 31, 2023 and 2022 F-5 Consolidated Statements of Cash Flows for the Years ended December 31, 2023 and 2022 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, 2023 and 2022, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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 Matter 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. F-1 Collectability of Note Receivable Critical Audit Matter Description As discussed in Note 5 to the consolidated financial statements, on October 13, 2022, the Company entered in a Securities Purchase Agreement (“SPA”) with respect to a secured $1,875,000 convertible note (“Note”) made by a noteholder (“Noteholder”). The Note was purchased at a 20% ($375,000) original issue discount and is subject to a 9-month maturity, after which, if unpaid will then carry a 20% interest rate. The Company has the option to convert the Note into shares of common stock of the Noteholder. The Note is secured by essentially all assets of the Noteholder. As additional consideration, the Company received a 5-year warrant to purchase shares of common stock of the Noteholder. The shares are subject to certain piggyback registration rights under a Registration Rights Agreement. The warrant is offered at 50% of the original principal amount and will be valued at the price per share of common stock paid in the first liquidity event following October 19, 2022. The warrants expire five years from the original issue date. As of July 19, 2023, the Note was in default and carried an additional 20% penalty and 20% interest resulting in $578,425 of other income which has been recognized in the Company’s consolidated financial statements. The Company entered into an amendment of the Note on March 26, 2024. Management assesses whether the Note will be collectable in order to determine if there is a need for an allowance to be recognized. As the Noteholder is an early-stage entity with limited operating history and no audited financial information, management applies judgment to determine collectability based on its knowledge of the Noteholder. The principal consideration for our determination that performing procedures relating to the collectability of the Note is a critical audit matter is the extent and subjective nature of management judgment required with respect to assessing the collectability of the Note. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s assertion as to the collectability of the Note included the following, among others: ● We obtained a copy of the SPA, security agreement, Registration Rights Agreement, Note, and common stock purchase warrant agreement and examined the terms of such agreements in detail. ● We obtained and tested for reasonableness management’s analysis to support the collectability of the Note balance. This testing included inquiries with management, corroboration of the inquiries with management of the Noteholder, understanding the technology of the Noteholder through reading Noteholder technical presentations and the Noteholder’s website, and assessing the security position of the Company. ● We obtained confirmation directly from the Noteholder of the outstanding balance as of December 31, 2023. ● We obtained from management the unaudited internal 2023 financial information of the Noteholder to assess the financial viability of the Noteholder. /s/ KMJ Corbin & Company LLP We have served as the Company’s auditor since 2013. Irvine, California April 1, 2024 F-2 PAID, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 2,052,421 $ 1,787,248 Accounts receivable, net 205,647 169,074 Note receivable, net of discount 2,453,425 1,604,167 Prepaid expenses and other current assets 134,110 151,374 Total current assets 4,845,603 3,711,863 Property and equipment, net 10,678 23,487 Intangible assets, net 2,422,590 2,663,311 Operating lease right-of-use assets 14,161 23,063 Total assets $ 7,293,032 $ 6,421,724 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,482,498 $ 1,610,416 Accrued expenses 420,611 430,858 Contract liabilities 15,382 13,020 Operating lease obligations 14,162 22,199 Total current liabilities 1,932,653 2,076,493 Long-term liabilities: Deferred tax liability, net 622,568 707,952 Uncertain tax position liability 278,704 265,167 Total liabilities 2,833,925 3,049,612 Commitments and contingencies Shareholders’ equity: Series A Preferred stock, $ 0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at December 31, 2023 and 2022 - - Common stock, $ 0.001 par value, 25,000,000 shares authorized; 8,154,474 shares issued and 8,010,837 shares outstanding at December 31, 2023, 7,840,124 shares issued and 7,696,487 shares outstanding at December 31, 2022 8,154 7,840 Accrued common stock bonus 84,576 82,180 Additional paid-in capital 73,505,439 72,800,976 Accumulated other comprehensive income 342,968 316,360 Accumulated deficit ( 69,317,190 ) ( 69,670,404 ) Common stock in treasury, at cost, 143,637 shares at December 31, 2023 and 2022, respectively ( 164,840 ) ( 164,840 ) Total shareholders’ equity 4,459,107 3,372,112 Total liabilities and shareholders’ equity $ 7,293,032 $ 6,421,724 See accompanying notes to consolidated financial statements F-3 PAID, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2023 2022 Revenues, net $ 16,564,829 $ 16,585,929 Cost of revenues 12,779,181 12,896,948 Gross profit 3,785,648 3,688,981 Operating expenses: Salaries and related 1,984,504 1,912,142 General and administrative 1,388,350 1,233,549 Amortization of intangible assets 296,856 311,809 Share-based compensation 703,761 172,488 Total operating expenses 4,373,471 3,629,988 Income (loss) from operations ( 587,823 ) 58,993 Other income (expense): Interest income 203,425 - Other income 645,833 136,662 Total other income 849,258 136,662 Income before income tax (benefit) provision 261,435 195,655 Income tax (benefit) provision ( 91,779 ) ( 456,491 ) Net income $ 353,214 $ 652,146 Net income per share – basic $ 0.04 $ 0.08 Net income per share – diluted $ 0.04 $ 0.08 Weighted average number of common shares outstanding – basic 7,939,210 7,770,298 Weighted average number of common shares outstanding – diluted 7,945,300 7,781,689 Consolidated statements of comprehensive income: Net income $ 353,214 $ 652,146 Other comprehensive income (loss): Foreign currency translation adjustments 26,608 ( 273,707 ) Comprehensive income $ 379,822 $ 378,439 See accompanying notes to consolidated financial statements F-4 PAID, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Accumulated Accrued Other Common Stock Common Additional Comprehensive Accumulated Treasury Stock Shares Amount Stock Bonus Paid-in Capital Income Deficit Shares Amount Total Balance, January 1, 2022 7,807,103 $ 7,807 $ - $ 72,691,201 $ 590,067 $ ( 70,322,550 ) ( 33,840 ) $ ( 57,847 ) $ 2,908,678 Foreign currency translation adjustment - - - - ( 273,707 ) - - - ( 273,707 ) Share-based compensation expense - - 82,180 65,308 - - - - 147,488 Repurchase of common stock for treasury - - - - - - ( 109,797 ) ( 106,993 ) ( 106,993 ) Option exercise 20,000 20 - 19,480 - - - - 19,500 Issuance of common stock for compensation 13,021 13 - 24,987 - - - - 25,000 Net income - - - - - 652,146 - - 652,146 Balance December 31, 2022 7,840,124 7,840 82,180 72,800,976 316,360 ( 69,670,404 ) ( 143,637 ) ( 164,840 ) 3,372,112 Foreign currency translation adjustment - - - - 26,608 - - - 26,608 Issuance of common stock for accrued bonus 46,961 47 ( 82,180 ) 82,133 - - - - - Issuance of common stock for signing bonus 250,000 250 - 273,188 - - - - 273,438 Issuance of common stock for bonus 13,889 14 - 24,986 - - - - 25,000 Share-based compensation expense - - 84,576 320,747 - - - - 405,323 Option exercise 3,500 3 - 3,409 - - - - 3,412 Net income - - - - - 353,214 - - 353,214 Balance December 31, 2023 8,154,474 $ 8,154 $ 84,576 $ 73,505,439 $ 342,968 $ ( 69,317,190 ) ( 143,637 ) $ ( 164,840 ) $ 4,459,107 See accompanying notes to consolidated financial statements F-5 PAID, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 2022 Cash flows from operating activities: Net income $ 353,214 $ 652,146 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 309,972 325,940 Amortization of operating lease right-of-use assets 29,831 35,337 Provision for bad debts, net - 36,845 Accretion of discount on note receivable ( 270,833 ) ( 104,167 ) Gain on write off of other payables - ( 32,495 ) Share-based compensation 703,761 172,488 Deferred income taxes ( 99,914 ) ( 77,128 ) Interest and default income accrued on note receivable ( 578,425 ) - Changes in assets and liabilities: Accounts receivable ( 32,319 ) ( 331 ) Prepaid expenses and other current assets 19,495 5,916 Accounts payable ( 160,488 ) 122,833 Uncertain tax position liability 7,288 ( 380,719 ) Accrued expenses ( 19,128 ) 78,517 Contract liabilities 2,025 2,731 Operating lease obligations ( 28,963 ) ( 36,501 ) Net cash provided by operating activities 235,516 801,412 Cash flows from investing activities: Issuance of note receivable - ( 1,500,000 ) Net cash used in investing activities - ( 1,500,000 ) Cash flows from financing activities: Proceeds from option exercise 3,412 19,500 Repurchase of common stock - ( 106,993 ) Net cash provided by (used in) financing activities 3,412 ( 87,493 ) Effect of exchange rate changes on cash and cash equivalents 26,245 ( 266,358 ) Net change in cash and cash equivalents 265,173 ( 1,052,439 ) Cash and cash equivalents, beginning of year 1,787,248 2,839,687 Cash and cash equivalents, end of year $ 2,052,421 $ 1,787,248 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Income taxes $ 856 $ 1,356 Interest $ - $ - SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS Issuance of common shares in settlement of accrued common stock bonus $ 82,180 $ - Adjustment to operating lease right-of-use assets and operating lease obligations due to lease amendment $ 20,620 $ - See accompanying notes to consolidated financial statements F-6 PAID, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 NOTE 1. ORGANIZATION PAID, Inc. (“PAID”, the “Company”, “we”, “us”, or “our”) 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. 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. Paid offers a robust platform enabling small and medium businesses to launch websites via our catalog of templates. Our platform includes a wide array of features such as mobile editing, search engine optimization, collaboration tools, pre-designed templates, and can be integrated with multiple platforms. PaidCart serves as a comprehensive solution for small and medium businesses looking to expand their online sales through multiple channels. It provides a centralized system to manage sales across various platforms, with additional functionalities for currency and language management, promotional sales, and abandoned cart recovery. PaidPayments and PaidShipping seamlessly interface with PaidCart to facilitate the checkout and shipping processes. Operating as a Payment Facilitator since 2019, PaidPayments provides businesses with a secure and efficient way to conduct online transactions including a virtual terminal, invoicing capability, subscriptions processing, checkout pages, and a point-of-sale system with support for USD, CAD, and EUR currencies. PaidShipping delivers a solution to quote, process, generate labels, dispatch and track courier and LTL shipments all from a single interface. We offer savings through partnerships with leading carriers. It includes a multi-courier comparison tool, integrations with eCommerce platforms and branded tracking. NOTE 2. LIQUIDITY AND MANAGEMENT ’ S PLANS As of December 31, 2023, the Company reported cash and cash equivalents of $ 2,052,421 and had working capital of $ 2,912,950 . The Company has reported operating loss of ($ 587,823 ) and generated cash flows from operations of $ 235,516 for the year ended December 31, 2023 and has an accumulated deficit of $ 69,317,190 at December 31, 2023. Management believes that the Company has adequate cash resources to fund operations during the next 12 months after the filing of this annual report on Form 10-K. 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. 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 2025 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. 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. F-7 Geographic Concentrations The Company conducts business in the U.S. and Canada. For customers headquartered in their respective countries, the Company derived approximately 99 % of its revenues from Canada and 1 % from the U.S. during the years ended December 31, 2023 and 2022. At December 31, 2023 and 2022, the Company maintained 100 % of its net property and equipment in Canada. Comprehensive Income (Loss) Comprehensive income (loss) includes all changes in equity (net assets) during a period from non-owner sources. For the years ended December 31, 2023 and 2022, 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 and note 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, 2023 and 2022, the Company’s financial instruments include cash and cash equivalents, accounts receivable, note receivable, accounts payable, and accrued expenses. The carrying amount of cash and cash equivalents, accounts receivable, note 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. F-8 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, 2023, 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 accounts receivable 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. During the years ended December 31, 2023 and 2022, the Company recorded a bad debt expense of $ 0 and $ 36,845 , respectively. For the years ended December 31, 2023 and 2022, no revenues from any one individual customer accounted for more than 10% of the total revenues. As of December 31, 2023, there was one customer that accounted for more than 10% of the accounts receivable balance and for the year ended December 31, 2022 there were no customers that accounted for more than 10% of the accounts receivable balance. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of three to eight years. Any leasehold improvements are depreciated at the lesser of the useful life of the asset or the lease term. Equipment purchased under finance leases is amortized on a straight-line basis over the estimated useful life of the asset or the term of the lease, whichever is shorter. Expenditures for repairs and maintenance are charged to expense as incurred. Right-of-Use Assets A right-of-use asset represents a lessee’s right to use a leased asset for the term of the lease. Our right-of-use assets consist of an operating lease for office space. 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 over 15 years. Long-Lived Assets The Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the fair value of the related asset. No impairment charges were recognized during the years ended December 31, 2023 and 2022. There can be no assurance, however, that market conditions will not change or demand for the Company’s services will continue, which could result in impairment of long-lived assets in the future. Revenue Recognition The Company generates revenues principally from fees for coordinating shipping services, sales of shipping calculator subscriptions, brewery management software subscriptions, merchant processing services and client services (see Note 4). F-9 Cost of Revenues Cost of revenues includes carrier services, web hosting, data storage, 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, 2023 and 2022, advertising expenses totaled $ 263,565 and $ 247,549 , respectively, and are included in general and administrative expenses in the accompanying consolidated statements of income and comprehensive income. 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 Company recorded $ 84,576 for share-based bonus payments related to 2023 which were approved by the Board of Directors on February 22, 2024 during the year ended December 31, 2023. The Company recorded $ 82,180 for share-based bonus payments accrued in 2022 during the year ended December 31, 2022. The shares of common stock were issued to the CEO/CFO, one additional officer and one employee. 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 income and comprehensive income for the years ended December 31, 2023 and 2022 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, 2023 and 2022, no excess tax benefits for tax deductions related to share-based awards were recognized from any stock options exercised in the years ended December 31, 2023 and 2022 that would have resulted in a reclassification from cash flows from operating activities to cash flows from financing activities. Income Taxes The Company accounts for income taxes and the related accounts under the liability method. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax bases of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Therefore, the Company has recorded a full valuation allowance against the net deferred tax assets. The Company’s income tax provision includes state minimum taxes. F-10 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 (see Note 11). The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company is subject to taxation in the U.S., and Canada and various state jurisdictions. Income (Loss) Per Common Share Basic income (loss) per share represent income (loss) divided by the weighted-average number of common shares outstanding during the period. Diluted income (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. For the year ended December 31, 2023 and 2022, there were approximately 6,100 and 11,400, respectively, dilutive shares that were included in the diluted income per share. The following is a reconciliation of the numerators and denominators of the basic and diluted income (loss) per share computations for the years ended December 31: 2023 2022 Numerator: Net income $ 353,214 $ 652,146 Denominator: Basic weighted-average shares outstanding 7,939,210 7,770,298 Effect of dilutive securities 6,090 11,391 Diluted weighted-average shares outstanding 7,945,300 7,781,689 Net income per share – basic $ 0.04 $ 0.08 Net income per share – diluted $ 0.04 $ 0.08 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, 2023, the Company operated in the following four reportable segments: a) Client services; b) Merchant processing services; c) Shipping coordination and label generation services; and d) 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 maker is the Chief Executive Officer/Chief Financial Officer. The following table compares total revenues for the years indicated. Years Ended December 31, 2023 December 31, 2022 Client services $ 33,938 $ 47,345 Merchant processing services 65,167 40,153 Shipping coordination and label generation services 16,465,724 16,498,431 Total revenues, net $ 16,564,829 $ 16,585,929 F-11 The following table compares total income (loss) from operations for the years indicated. Years Ended December 31, 2023 December 31, 2022 Client services $ 13,303 $ ( 37,993 ) Merchant processing services 19,079 ( 4,434 ) Shipping coordination and label generation services ( 388,040 ) 273,363 Corporate operations ( 232,165 ) ( 171,943 ) Total income (loss) from operations $ ( 587,823 ) $ 58,993 During 2023 and 2022, the Company recorded depreciation and amortization expense of $ 309,972 and $ 325,940 , respectively, which was solely related to the shipping coordination and label generations service segment of the Company. Reclassifications Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the segment reporting for the years ended 2023 and 2022, to consolidate revenue reporting for smaller segments of the Company. Recent Accounting Pronouncements In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments, (“ASU 2016-13”), supplemented by subsequent accounting standards updates. The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13, as amended, is effective for fiscal years beginning after December 15, 2022. We adopted ASU 2016-13 on January 1, 2023. As of December 31, 2023, the Company has $205,647 of accounts receivable and notes receivable of $2,453,425. Based on the nature of our accounts receivable and the process of granting credit and collecting debt, we have determined that there are no expected credit losses for our accounts receivable. The Company has one note receivable and is a senior secure lender with an absolute obligation. Consideration has been taken into the contractual obligation, the valuation of the assets and the senior position of the repayment. We have determined that there are no expected credit losses for our note receivable. The adoption of this standard did not have a material impact on our consolidated financial statements or disclosures. Specifically, our estimate of expected credit losses as of December 31, 2023, using our expected credit loss evaluation process described above, resulted in no adjustments to the provision for credit losses and no cumulative-effect adjustment to accumulated deficit on the adoption date of the standard. Accounting Standard Update 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). In December 2023, the FASB issued ASU 2023-09, which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the disclosure requirements related to the new standard . In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which provides guidance to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about reportable segment’s expenses. The new guidance must be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and retrospective application is required for all periods presented. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures. NOTE 4. REVENUE FROM CONTRACTS WITH CUSTOMERS 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 scheduled a pickup. Customers with pickups after the end of the reporting period are recorded as contract liabilities on the condensed consolidated balance sheets. The service is offered to consumers via an online registration and allows users to create a shipping label using a credit card on their account (all customers must have a valid credit card on file to process shipments on the ShipTime platform). For shipping calculator revenues and brewery management software revenues, the Company recognizes subscription revenue on a monthly basis. Shipping calculator customers’ renewal dates are based on their date of installation and registration of the shipping calculator line of products. The timing of the revenue recognition and cash collection may vary within a given quarter and the deposits for future services are recorded as contract liabilities on the condensed consolidated balance sheets. Brewery management software subscribers are billed monthly at the first of the month. All payments are made via credit card for the following month. Merchant processing revenue consists of fees a seller pays us to process their payment transactions and is recognized upon authorization of a transaction. Revenue is recognized net of estimated refunds, which are reversals of transactions initiated by sellers. We act as the merchant of record for our sellers, which puts us in their shoes with respect to card networks and puts the risk for refunds and chargebacks on us. The gross transaction fees collected from sellers is recognized as revenue as we are the primary obligor to the seller and are responsible for processing the payment, have latitude in establishing pricing with respect to the sellers and other terms of service, have sole discretion in selecting the third party to perform the settlement, and assume the credit risk for the transaction processed. F-12 Revenue Disaggregation The Company operates in four reportable segments (see Note 3). Performance Obligations At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Revenue is recognized when the performance obligation has been met, which is when the customer has successfully prepared a shipping label and had a pickup for shipping coordination and label generation services. The Company considers control to have transferred at that time because the Company has a present right to payment at that time, the Company has provided the shipping label, and the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the shipping label. For arrangements under which the Company provides a subscription for 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 $ 205,647 and $ 169,074 at December 31, 2023 and 2022, respectively. Generally, the Company does not have material amounts of contract assets since revenue is recognized as control of goods is transferred or as services are performed. F-13 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 $ 15,382 and $ 13,020 at December 31, 2023 and 2022, respectively. During the years ended December 31, 2023 and 2022, the Company recognized revenues of $ 13,020 and $ 11,154 , respectively, related to contract liabilities outstanding at the beginning of each year. NOTE 5. NOTE RECEIVABLE On October 13, 2022, the Company entered in a Securities Purchase Agreement (“SPA”) with respect to a secured $ 1,875,000 convertible note (“Convertible Note”) made by Embolx, Inc. (“Noteholder”), a California corporation. The Convertible Note was purchased at a 20 % ($ 375,000 ) original issue discount and is subject to a 9 -month maturity, after which, if unpaid will then carry a 20 % interest rate. The Company has recognized $ 270,833 in other income related to accretion of the discount on the Convertible Note for the year ended December 31, 2023 in addition to a $ 375,000 , 20 % non-payment penalty and interest due on the note of $ 203,425 . The Company has the option to convert the Convertible Note into shares of common stock of the Noteholder. The Convertible Note is secured by substantially all assets of the Noteholder. Under the SPA, the Company has a right to purchase additional notes and receive warrants on the same terms for a total potential investment amount of $ 2,000,000 with an additional over-allotment option of $ 500,000 as defined in the SPA. As additional consideration, the Company received a 5 -year warrant to purchase shares of common stock of the Noteholder. The shares are subject to certain piggyback registration rights under a Registration Rights Agreement. The warrant is offered at 50 % of the original principal amount and will be valued at the price per share of common stock paid in the first liquidity event following October 19, 2022. The warrants expire five years from the original issue date. As of July 19, 2023 the note was in default and carried an additional 20 % penalty and 20 % interest resulting in $ 578,425 of other income which has been recognized in the Company’s consolidated financial statements. The Company amended and replaced the note and terminated the warrants as of March 26, 2024. The terms on the amended note receivable include a 25 % original issue discount and is subject to a 9 month maturity with a new 60 day extension option. The Company does not believe there is any impairment to the note receivable due to its secured position on the assets of Embolx and its expectation that the amounts will be recoverable if and when Embolx consummates a financial or merger transaction which is expected to happen in 2024. NOTE 6. PROPERTY AND EQUIPMENT At December 31, property and equipment consisted of the following: 2023 2022 Computer equipment and software $ 140,091 $ 139,769 Office furniture and equipment 67,976 66,644 Website development costs 398,907 396,977 606,974 603,410 Accumulated depreciation ( 596,296 ) ( 579,923 ) $ 10,678 $ 23,487 Depreciation expense of property and equipment for the years ended December 31, 2023 and 2022 amounted to $ 13,116 and $ 14,900 , respectively. NOTE 7. 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. F-14 In addition, the Company has various intangible assets from past business combinations. At December 31, 2023, intangible assets consisted of the following: Patents Trade Name Technology & Software Customer Relationships Total Gross carrying amount $ 16,000 $ 807,420 $ 599,404 $ 4,746,242 $ 6,169,066 Accumulated amortization ( 16,000 ) ( 807,420 ) ( 599,404 ) ( 2,323,652 ) ( 3,746,476 ) $ - $ - $ - $ 2,422,590 $ 2,422,590 At December 31, 2022, intangible assets consisted of the following: Patents Trade Name Technology & Software Customer Relationships Total Gross carrying amount $ 16,000 $ 789,212 $ 587,776 $ 4,644,033 $ 6,037,021 Accumulated amortization ( 16,000 ) ( 789,212 ) ( 587,776 ) ( 1,980,722 ) ( 3,373,710 ) $ - $ - $ - $ 2,663,311 $ 2,663,311 Amortization expense of intangible assets for the years ended December 31, 2023 and 2022 was $ 296,856 and $ 311,809 , respectively. Amortization of intangible assets for the next five years ending December 31 are as follows: Year Ended December 31, 2024 $ 302,166 2025 302,166 2026 302,166 2027 302,166 2028 302,166 Total 5-year amortization $ 1,510,830 NOTE 8. ACCRUED EXPENSES At December 31, accrued expenses consist of the following: 2023 2022 Payroll and related costs $ 238,161 $ 195,803 Professional and consulting fees - 3,685 Royalties 40,075 40,075 Accrued cost of revenues 119,737 168,657 Sales tax 22,228 22,228 Other 410 410 Total $ 420,611 $ 430,858 NOTE 9. 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 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 members, 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 and this claim was dismissed on November 9, 2023. In July 2022, Mr. Pratt amended the complaint to dispute the proper authorization of a stock bonus that was awarded to the Company’s CEO in March 2021. The Company has not recorded a reserve as the outcome of these matters cannot be determined. F-15 Indemnities and Guarantees The Company has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain actions or transactions. The Company indemnifies its directors, officers, employees and agents, as permitted under the laws of the State of Delaware. In connection with its facility lease, the Company has agreed to indemnify its lessor for certain claims arising from the use of the facilities. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying consolidated balance sheets. NOTE 10. SHAREHOLDERS ’ EQUITY Preferred Stock The Company’s amended Certificate of Incorporation authorizes the issuance of 20,000,000 shares of blank-check preferred stock at $ 0.001 par value. The Board of Directors will be authorized to fix the designations, rights, preferences, powers and limitations of each series of the preferred stock. The Company filed a Certificate of Designations effective on December 30, 2016 which sets aside 5,000,000 shares of Preferred Stock as Series A Preferred Stock. The Series A Preferred Stock carries a coupon payment obligation of 1.5 % of the liquidation value per share ($ 3.03 ) per year in cash or additional Series A Preferred Stock, calculated by taking the 30-day average closing price for a share of common stock for the month immediately preceding the coupon payment date which is made annually. The Series A Preferred Stock has no voting or conversion rights. If purchased, redeemed, or otherwise acquired (other than conversion), the preferred stock may be reissued. As of December 31, 2023 and 2022, there are no outstanding shares of Series A Preferred Stock. Common Stock In February 2020, ShipTime Canada amended its rights to exchange one share of ShipTime Canada stock from 45 PAID common shares and 311 PAID preferred shares to 356 PAID common shares. The Company made available to its ShipTime Canada exchangeable preferred shareholders the one-time option to convert existing book entry preferred shares and exchangeable rights to preferred shares into PAID common shares. As a result, certain ShipTime exchangeable shareholders exercised their rights to receive 1,461,078 shares of PAID Series A Preferred Stock for 1,461,078 shares of PAID common stock. At the same time, the Company made available to its Series A Preferred Stock shareholder the option to exchange existing Series A preferred shares for PAID common shares. The exchange was offered on a one-to-one basis. Shareholders holding 1,015,851 shares of Series A Preferred Stock exchanged such shares for 1,015,851 shares of PAID common stock. Furthermore, because of the amended exchange rights, the Company reflected an additional exchange of PAID Series A Preferred Stock shares totaling 2,089,298 to PAID common shares, representing the additional amount of PAID common shares that will be issued to the ShipTime shareholders upon the exchange. In total, the Company has reserved for future issuance of 2,106,808 shares of PAID common stock with respect to the remaining 5,918 exchangeable shares to be issued as a result of the ShipTime acquisition which are considered issued and outstanding as of December 31, 2023 for financial reporting purposes. During the second quarter of 2022, the Company issued 13,021 shares valued at $ 1.92 per share for a total share-based compensation expense of $ 25,000 to one employee as bonus compensation which is included in share-based compensation in the consolidated statements of income and comprehensive income for the year ended December 31, 2022. The shares were issued pursuant to the exemption for registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of the SEC’s Regulation D thereunder. F-16 On March 21, 2023, the Company’s Board of Directors authorized the issuance of 46,961 bonus shares of PAID common stock to the CEO/CFO, one additional officer and one employee for services rendered during 2022. This bonus was valued at $ 82,180 based on the closing price of the Company’s common stock at March 20, 2023 and was issued in March 2023. This bonus was recorded in accrued common stock bonus in shareholders’ equity as of December 31, 2022. The Board of Directors also authorized the issuance of an additional 250,000 shares to the CEO/CFO as a renewal bonus valued at $ 437,500 . $ 218,750 of share-based compensation expense was recognized immediately as 125,000 of the bonus shares are immediately vested. The remaining $ 218,750 of share-based compensation expense was recognized ratably during 2023 as 125,000 of the bonus shares are subject to repurchase if the CEO/CFO were to terminate employment during the period ended January 1, 2024. The Company recorded $ 437,500 of share-based compensation expense for the year ended December 31, 2023 in connection with these additional shares. On February 22, 2024 the Board authorized the issuance of 54,559 bonus shares of PAID common stock to the CEO/CFO, one additional officer and one employee for services rendered during 2023. This bonus was valued at $ 84,576 based on the closing price of the Company’s common stock at February 21, 2024 and was issued in February 2024. This bonus was recorded in accrued common stock bonus in shareholders’ equity as of December 31, 2023. On March 21, 2023, the Company’s Board of Directors approved the terms of the employment agreement for David Scott, the Company’s COO. Per the terms of the agreement, the Company issued 13,889 shares of PAID common stock to the COO. This compensation was valued at $ 25,000 based on the closing price of the Company’s common stock at March 31, 2023 and the shares were issued on April 10, 2023. The Company recorded $ 25,000 of share-based compensation expense in connection with the additional compensation. Share-Based Incentive Plans During the years ended December 31, 2023 and 2022, 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. On March 23, 2018, the Board of Directors voted to approve the 2018 Stock Option Plan which reserves 450,000 non-qualified stock options to be granted to employees. The Company has three additional stock option plans that include both incentive and non-qualified stock options to be granted to certain eligible employees, non-employee directors, or consultants of the Company. On November 10, 2020, the board voted to increase the 2018 Stock Option Plan from 450,000 options to 900,000 options. On October 14, 2022, the Company received a notice of exercise of options to purchase 20,000 common shares of the Company’s stock. The options were exercised at $ 0.975 per share and the Company received proceeds of $ 19,500 . On May 12, 2023, the Company received a notice of exercise of options to purchase 3,500 common shares of the Company’s stock from one board member and one employee. The options were exercised at $ 0.975 per share and the Company received proceeds of $ 3,412 . Active Plans: 2018 Plan On March 23, 2018, the Company adopted the 2018 Non-Qualified Stock Option Plan (the “2018 Plan”). The purpose of the 2018 Plan is to provide long-term incentives and rewards to those employees of the Company, and any other individuals, whether directors, consultants or advisors who are in a position to contribute to the long-term success and growth of the Company. The options granted have a 10 -year contractual term and have a vesting period that ranges from one hundred percent on the date of grant to fully vest over a two -year period. There are currently 501,000 shares reserved for future issuance under this plan. Information with respect to stock options granted under this plan during the year ended December 31, 2023 is as follows: Number of shares Weighted average exercise price per share Options outstanding at January 1, 2023 314,000 $ 3.17 Granted 85,000 1.75 Cancelled/Expired - - Exercised - - Options outstanding at December 31, 2023 399,000 $ 2.87 F-17 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, 2023 is as follows: Number of shares Weighted average exercise price per share Options outstanding at January 1, 2023 14,000 $ 0.98 Granted - - Cancelled - - Exercised ( 2,000 ) 0.98 Options outstanding at December 31, 2023 12,000 $ 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 to $ 3.30 per share, to acquire the number of shares of the Company’s common stock equal to their gross compensation divided by the fair value of the stock on the date of grant. The options granted have a 10 -year contractual term and have vesting periods that range from one hundred percent on the date of grant to one-third immediately, one-third vesting in 18 months and the final one-third vesting in 36 months from the date of the grant. There are no shares reserved for issuance under this plan. Information with respect to stock options granted under this plan during the year ended December 31, 2023 is as follows: Number of shares Weighted average exercise price per share Options outstanding at January 1, 2023 43,000 $ 3.00 Granted - - Cancelled ( 500 ) 0.98 Exercised ( 1,500 ) 0.98 Options outstanding at December 31, 2023 41,000 $ 3.10 Fair value of issuances The Company granted 85,000 options to purchase Company stock during the year ended December 31, 2023. The fair value of the Company’s 2023 option grants under the 2018, 2012, and 2011 Plans was estimated at the date of grant using the Black-Scholes-Merton model with the following weighted average assumptions (see below). 2023 Expected term (based upon historical experience) (in years) 5.0 Expected volatility 87 % Expected dividends None Risk free interest rate 3.73 % F-18 For the years ended December 31, 2023 and 2022, the Company recorded total share-based compensation expense related to the common stock bonuses, other stock issuances, and stock options of $ 703,761 and $ 172,488 , respectively, which is recorded in share-based compensation expense in the accompanying consolidated statements of income and comprehensive income. The Company has unrecognized share-based compensation expense of $ 5,826 for options outstanding as of December 31, 2023 which will be recognized over the weighted average period of approximately 0.6 years. Information pertaining to options outstanding and exercisable at December 31, 2023 is as follows: Options Outstanding Options Exercisable Exercise Prices Number of shares Weighted Average Remaining contractual Life (In Years) Number of shares Weighted Average Remaining contractual Life (In Years) $ 0.98 15,500 1.53 15,500 1.53 $ 1.75 85,000 9.23 85,000 9.23 $ 1.91 10,000 7.25 6,667 7.25 $ 2.21 7,000 7.45 4,666 7.45 $ 2.68 5,300 7.87 3,533 7.87 $ 2.89 105,000 6.87 105,000 6.87 $ 2.92 52,500 5.13 52,500 5.13 $ 3.00 52,500 5.62 52,500 5.62 $ 3.30 37,500 3.75 37,500 3.75 $ 3.50 3,000 4.76 3,000 4.76 $ 4.10 78,700 4.23 78,700 4.23 452,000 6.08 444,566 6.06 Summary of all stock option plans activity during the year ended December 31, 2023 is as follows: Number of Shares Weighted Average Price Weighted Average Remaining Contractual Life (In Years) Aggregate Intrinsic Value Options outstanding at January 1, 2023 371,000 $ 3.07 Granted 85,000 1.75 Cancelled/Expired ( 500 ) 0.98 Exercised ( 3,500 ) 0.98 Options outstanding and expected to vest at December 31, 2023 452,000 $ 2.84 6.08 $ 7,363 Options exercisable at December 31, 2023 444,566 $ 2.85 6.06 $ 7,363 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 at December 31, 2023. The aggregate intrinsic value of the options exercised during the years ended December 31, 2023 and 2022 was $ 2,228 and $ 25,300 , respectively. NOTE 11. INCOME TAXES The Company’s income (loss) before income tax (benefit) provision includes the following components for the years ended December 31: 2023 2022 U.S. $ 649,079 $ ( 77,704 ) Foreign ( 387,644 ) 273,359 $ 261,435 $ 195,655 F-19 The Company is subject to taxation in the U.S., Canada, and Massachusetts. The (benefit) provision for income taxes for the years ended December 31 are summarized below: 2023 2022 Current: Federal $ - $ - State 856 1,356 Foreign 13,536 ( 364,879 ) Total current 14,392 ( 363,523 ) Deferred: Federal - - State - - Foreign ( 106,173 ) ( 92,968 ) Total deferred ( 106,173 ) ( 92,968 ) Income tax (benefit) provision $ ( 91,779 ) $ ( 456,491 ) A reconciliation of income taxes computed by applying the statutory U.S. income tax rate to the Company’s income (loss) before income tax (benefit) provision to the income tax (benefit) provision is as follows for the years ended December 31: 2022 2021 U.S. federal statutory tax rate 21.00 % 21.00 % State tax benefit, net 18.87 % 5.62 % Stock compensation 6.49 % 18.56 % Foreign rate differential ( 8.10 )% - % Attributes expiration 1.33 % 17.06 % Returns to Provision ( 1.13 )% ( 257.75 )% Other 13.76 % 30.65 % NOL Adjustment ( 60.74 )% 295.28 % Unrecognized tax benefit ( 9.65 )% 361.72 % GILTI 69.12 % 156.50 % Interest and penalties - % - % Valuation allowance ( 86.23 )% ( 882.41 )% Effective income tax rate ( 35.28 )% ( 233.77 )% 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: 2023 2022 Deferred taxes: NOLs $ 7,267,720 $ 7,495,858 Inventory and other reserves 31,340 31,340 Stock based compensation expense 223,680 196,700 Lease liability 3,753 5,883 Accruals 14,213 14,695 Other 96 96 Total deferred tax assets 7,540,802 7,744,572 Depreciation and amortization ( 606,765 ) ( 668,359 ) Right-of-use assets ( 3,753 ) ( 6,112 ) Valuation allowance ( 7,552,852 ) ( 7,778,053 ) Net deferred tax liabilities $ ( 622,568 ) $ ( 707,952 ) F-20 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 $ 225,000 and $ 1,727,000 in 2023 and 2022, respectively. As of December 31, 2022, the Company had net operating loss carryforwards for federal income tax purposes of approximately $ 31,990,000 . Of the total amount approximately $ 902,000 were generated after January 1, 2018, and therefore will not expire but can only be used to offset 80 percent of future taxable income. The remaining amount of approximately $ 31,088,000 expires beginning in the year 2024. As of December 31, 2023, the Company had net operating loss carryforwards for state income tax purposes of approximately $ 8,370,000 which expire beginning in the year 2031. As of December 31, 2023, the Company also had Canada net operating loss carryforwards of $ 1,796,000 which expire beginning in the year 2039. Utilization of the net operating losses may be subject to substantial annual limitation due to federal and state ownership change limitation provided by the Internal Revenue Code and similar state provisions. Such annual limitations could result in the expiration of the net operating losses and credits before their utilization. The Company has not performed an analysis to determine the limitation of the net operating loss carryforwards. A valuation allowance of 100 % has been established in respect of the deferred income tax assets due to the uncertainty of the Company’s utilization of such deferred tax assets for the U.S. federal and state on each of the Company’s consolidated balance sheets at December 31, 2023 and 2022. The evaluation of uncertainty in a tax position is a two-step process. The first step involves recognition. The Company determines whether it's more likely than not that a tax position will be sustained upon tax examination including any resolution of any related appeals or litigation, based on only the technical merits of the position. The technical merits of a tax position are derived from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the consolidated financial statements. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the consolidated financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with a taxing authority. Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering facts and circumstances, including progress of tax audits, developments in case law and closing of statutes of limitation. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2023 and 2022: 2023 2022 Gross unrecognized tax benefits at the beginning of the year $ 691,675 $ - Increases related to current year positions - - Increases (decreases) related to prior year positions 15,957 691,675 Expiration of unrecognized tax benefits - - Gross unrecognized tax benefits at the end of the year $ 707,632 $ 691,675 F-21 The amount of unrecognized tax benefits that would impact the Company’s effective tax rate, if recognized, is $ 733,798 (including estimated penalties and interest). The income tax provision at December 31, 2023 reflects a full accounting of tax filings under ASC subtopic 740-10. The Company 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 the tax authorities for years before 2020. Generally, the tax years remain open for examination by the federal and Massachusetts authorities under a three-year statute of limitation. In addition, the Company's tax years starting 2004 and 2011 are subject to limited examination by the United States and Massachusetts authorities, respectively, due to the carryforward of unutilized net operating losses. ShipTime is subject to taxation in Canada and Ontario. The foreign subsidy is generally subject to examination for 4 years following the year in which the tax obligation originated. ShipTime is not currently under examination by the local tax authority. The Company recognizes interest and penalties related with income taxes, as estimated or incurred, as part of the income tax provision. As of December 31, 2023 and 2022 the Company accrued $ 26,165 and $ 16,064 of interest and penalties related to foreign income taxes. The Company does not believe its unrecognized tax benefits will change significantly during the next twelve months. NOTE 12. LEASES We have an operating lease for our corporate office in Canada. Our lease has a remaining lease term of eight months. Future renewal options are not likely to be executed as of the balance sheet date and 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 office space in our business. The components of lease expense for the years ended December 31, were as follows: 2023 2022 Operating lease cost $ 29,290 $ 39,324 Supplemental cash flow information related to leases for the years ended December 31, was as follows: 2023 2022 Cash paid for amounts included in leases: Operating cash flows from operating leases $ 30,896 $ 38,355 Supplemental balance sheet information related to leases was as follows: December 31, 2023 December 31, 2022 Operating leases: Operating lease right-of-use assets $ 14,161 $ 23,063 Current portion of operating lease obligations $ 14,162 $ 22,199 Operating lease obligations, net of current portion - - Total operating lease liabilities $ 14,162 $ 22,199 Year Ended December 31, 2023 Weighted Average Remaining Lease Term Operating lease (in years) 0.7 Weighted Average Discount Rate Operating lease 9.0 % F-22 A summary of future minimum payments under non-cancellable operating lease commitment as of December 31, 2023 is as follows: Years ending December 31, Total 2024 $ 14,644 Total lease liabilities 14,644 Less amount representing interest ( 482 ) Total 14,162 Less current portion ( 14,162 ) $ - NOTE 13. SUBSEQUENT EVENTS On February 22, 2024, the Board of Directors approved the allocation of the 2023 bonus accrual to be paid out in cash and shares of which $ 84,567 has been recorded as share-based compensation expense for the year ended December 31, 2023. Option compensation for the board was also approved by the Board in the amounts of 10,000 common stock options per committee head from 5,000 common stock options per committee head. A total of 54,559 shares of common stock were issued to officers and one employee in February 2024. The Board of Directors has approved the granting of common stock options to five employees totaling 20,360 valued at $ 31,558 with a three -year vesting period. On March 26, 2024 the Company amended its Note with Embolx to include an additional $ 500,000 investment and a 25 % Original Issue Discount on the note balance which includes accrued interest and penalties through March 25, 2024. 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. F-23