PAID INC 10-K

Item 3. Legal Proceedings   From time to time we may be a party to various legal proceedings arising in the ordinary course of our business. Our management is not aware of any litigation outstanding, threatened or pending as of the date hereof by or against us or our properties which we believe would be material to our financial condition or results of operations, except with respect to a dispute related to its non-renewal of the employment agreement with Mr. Allan Pratt, the Company's former CEO, in which Mr. Pratt appears to be treating it as a termination which would trigger a two-year severance payment.   Item 4. Mine Safety Disclosure   Not applicable. PART II   Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   Our common stock, par value $0.001 per share, is presently quoted on the OTC Pink operated by the OTC Markets Group Inc., on the OTCPINK under the symbol "PAYD".   The following table sets forth the high and low bid information for our common stock as reported by OTCPINK for the eight quarters ended December 31, 2019 (retroactively to reflect the reverse stock split). The quotations from the OTCPINK reflect inter-dealer prices without retail mark-up, mark-down, or commission and may not represent actual transactions.     2019   High     Low   Quarter ended March 31, 2019   $ 3.50     $ 2.69   Quarter ended June 30, 2019   $ 3.26     $ 2.55   Quarter ended September 30, 2019   $ 3.55     $ 2.69   Quarter ended December 31, 2019   $ 3.50     $ 2.52   2020   High     Low   Quarter ended March 31, 2020   $ 2.95     $ 2.49   Quarter ended June 30, 2020   $ 3.25     $ 2.10   Quarter ended September 30, 2020   $ 5.45     $ 2.33   Quarter ended December 31, 2020   $ 3.36     $ 2.02                    As of March 31, 2021, there were approximately 873 holders of record of our common stock. Because many of the shares are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of individual stockholders represented by these holders of record.   We have not previously paid cash dividends on our common stock, and intend to utilize current resources to operate the business; thus, it is not anticipated that cash dividends will be paid on our common stock in the foreseeable future.     -11- Table of Contents     Exchangeable Shares                  Holders of our subsidiary’s exchangeable shares have the same dividend and distribution rights as holders of Company shares, and if Company shares are subdivided or in the event of a Company stock dividend, the exchangeable shares will be equally subdivided, as exchangeable shares are intended to be economically the same as shares of common or preferred stock of the Company. The Company will have a “liquidation call right” in the event of proposed liquidation, dissolution or winding up of ShipTime Canada Inc.  Absent prior events, the Company will redeem the exchangeable shares on the fifth anniversary whereby the Company will redeem the exchangeable shares for shares of the Company’s preferred stock and common stock.  By agreement, exchangeable shares also may be purchased by ShipTime Canada Inc. for cancellation.  The Company also has a right to call the shares in the event of a change in the applicable laws.                  The holders of exchangeable shares have an “automatic exchange right” in the event of any bankruptcy or insolvency or in general, related proceedings, of ShipTime Canada Inc. or the Company.  The exchangeable shares would at such time be converted automatically into that number of shares of common stock and preferred stock of the Company at the agreed upon conversion ratio. Moreover, Callco will have an overriding call right to purchase some or all of the exchangeable shares. This mechanism will be triggered with the automatic exchange right and is necessary to comply with Canadian tax laws. The exercise of this call right does not alter the outcome of the exchangeable share transaction.   Under a Support Agreement, the Company is required to treat holders of Exchangeable Shares substantially similar, or economically equivalent, to holders of Company stock.  As such, under the Support Agreement, the Company cannot declare or pay any dividend or other distribution on Company stock unless ShipTime Inc. simultaneously declares or pays the dividend or distribution on the Exchangeable Shares and has sufficient money or other assets to meet these requirements. In turn, ShipTime Inc. would effect a corresponding dividend or distribution of its securities related to the Exchangeable Shares.  The Company also undertakes to advise ShipTime Inc. of the declaration of dividend or distribution, among other similar events, and to cooperate with it to effect the dividend or distribution as of the same record and effective date.   The Company is also required in this case to segregate funds to pay for the dividend, and to reserve sufficient number of shares to permit the exchange of the Exchangeable Shares into the required number of Company shares of common stock and preferred stock.  The Support Agreement is also binding on any successor to the Company and with respect to any successor transaction.    Equity Compensation Plan Information       Number of Securities To be Issued Upon Exercise of Outstanding Options, Warrants and Rights     Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights     Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)       (a)     (b)     (c)   Equity Compensation Plans Approved by Security Holders     16,000     $ 23.33       -   Equity Compensation Plans Not Approved by Security Holders     387,790     $ 3.24       591,210   Total     403,790     $ 3.81       591,210     See Note 10, Notes to Consolidated Financial Statements for the years ended December 31, 2020 and 2019 included in Part IV, Item 15, of this Annual Report, for a discussion of the material features of the stock options, warrants and related stock plans.    Item 6. Se l ected Financial Data   As a smaller reporting company, the Company is not required to provide the information for this Item 6.       -12- Table of Contents     Item 7. Manage m ent's Discussion and Analysis of Financial Condition and Results of Operations   Forward Looking Statements   This Annual Report on Form 10-K contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) regarding the Company and its business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates", "could", "may", "should", "will", "would", and similar expressions or variations of such words are intended to identify forward-looking statements in this report. Additionally, statements concerning future matters such as the development of new services, technology enhancements, purchase of equipment, credit arrangements, possible changes in legislation and other statements regarding matters that are not historical are forward-looking statements.   Although forward-looking statements in this Annual Report reflect the good faith judgment of the Company's management, such statements can only be based on facts and factors currently known by the Company. Consequently, forward-looking statements are inherently subject to risks, contingencies and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in this report. Although the Company believes that its plans, intentions and expectations reflected in these forward-looking statements are reasonable, the Company can give no assurance that its plans, intentions or expectations will be achieved. For a more complete discussion of these risk factors, see Item 1A, "Risk Factors.”     For example, the Company's ability to maintain a positive cash flow and to become profitable may be adversely affected as a result of a number of factors that could thwart its efforts. These factors include the Company's inability to successfully implement the Company's business and revenue model, higher costs than anticipated, the Company's inability to sell its products and services to a sufficient number of customers, the introduction of competing products or services by others, the Company's failure to attract sufficient interest in, and traffic to, its sites, the Company's inability to complete development of its products, the failure of the Company's operating systems, and the Company's inability to increase its revenues as rapidly as anticipated.   Overview   ShipTime Inc. has developed a SaaS based application, which focuses on the small to medium business segment. This offering allows members to quote, process, generate labels, dispatch and track courier and LTL shipments all from a single interface. The application provides customers with a choice of today’s leading couriers and freight carriers all with discounted pricing allowing members to save on every shipment. ShipTime can also be integrated into on-line shopping carts to facilitate sales via e-commerce. We actively sell directly to small businesses and through long standing partnerships with selected associations throughout Canada.  Our focus in 2021 will be to significantly grow this portion of our business.   PAID, Inc. (the “Company”) has developed AuctionInc, which is a suite of online shipping and tax management tools assisting businesses with e-commerce storefronts, shipping solutions, tax calculation, inventory management, and auction processing. The product does have tools to assist with other aspects of the fulfillment process, but the main purpose of the product is to provide accurate shipping and tax calculations and packaging algorithms that provide customers with the best possible shipping and tax solutions.   BeerRun Software is a brewery management and Alcohol and Tobacco Tax and Trade Bureau tax reporting software. Small craft brewers can utilize the product to manage brewery schedules, inventory, packaging, sales and purchasing. Tax reporting can be processed with a single click and is fully customizable by state or providence. The software is designed to integrate with QuickBooks accounting platforms by using our powerful sync engine. We currently offer two versions of the software BeerRun and BeerRun Light which excludes some of the enhanced features of BeerRun without disrupting the core functionality of the software.   PaidPayments provides commerce solutions to small - and medium-sized businesses by enabling them to sell their goods and services, accept payment, and create repeat sales though an online payment processing solution. The Company has operated as a Payment Facilitator since 2019, which enables our merchants to get the benefit of instant boarding and discounted rates. Our platform provides all aspects required for payment processing, including merchant boarding, underwriting, fraud monitoring, settlement, funding to the sub-merchant, and monthly reporting and statements. The Company controls all of these necessary aspects in the payment process and is then able to supply a one-step boarding process for our partners and value-added resellers. This capability also provides cost advantages, rapid response to market needs, simplified processes for boarding business and a seamless interface for our merchant customers.           -13- Table of Contents     Critical Accounting Policies    Our significant accounting policies are more fully described in Note 3 to our consolidated financial statements. However, certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management; as a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management makes estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. Those estimates and judgments are based upon our historical experience, the terms of existing contracts, our observance of trends in the industry, information that we obtain from our customers and outside sources, and on various other assumptions that we believe to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies include:   Revenue Recognition   The Company generates revenue principally from the sales related to the label generation services, shipping calculator services, brewery management software subscriptions, merchant processing services, and client services.   The Company recognizes revenues in accordance with the FASB ASC Topic 606. Accordingly, the Company recognizes revenues when the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.     For label generation service revenues the Company recognizes revenue when a customer has successfully prepared a shipping label and had a pickup. The service is offered to consumers via an online registration and allows users to create a shipping label using a credit card on their account (all customers must have a valid credit card on file to process shipments on the ShipTime platform).   For shipping calculator revenues and brewery management software and other subscription-based revenues, the Company recognizes subscription revenue on a monthly basis. Shipping calculator customers’ renewal dates are based on their date of installation and registration of the shipping calculator line of products. The timing of the revenue recognition and cash collection may vary within a given quarter and the deposits for future services are recorded as contract liabilities on the consolidated balance sheets. Brewery management software subscribers are billed monthly at the first of the month. All payments are made via credit card for the month following.   For payment processing services, the Company recognizes revenue based on daily transactions by our partners and merchants. Customers process credit card payments for sales and remit fees based on the number of transactions and percent of the processed amounts. The merchant bank deposits the funds to the customer net of fees. The remainder of the fees withheld is disbursed to the Company on a daily basis, net of interchange and other transactional charges.   Foreign Currency     The currencies of ShipTime, the Company’s international subsidiary, are in Canadian dollars. Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at December 31, 2020. Results of operations and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities is included as a component of shareholders’ equity in accumulated other comprehensive income.   Long-Lived Assets   The Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the fair value of the related asset. There can be no assurance, however, that market conditions will not change or demand for the Company’s services will continue, which could result in additional impairment of long-lived assets in the future.        -14- Table of Contents     Share- Based Compensation   The Board of Directors has on occasion voted to award stock options or common shares/preferred shares to employees or directors. The price at which the option shares may be purchased is based on the fair market value of the shares on the date of the agreement. Each recipient’s option agreement may differ; the vesting terms may vary from fully vested immediately to one-third immediately, one-third vesting in 18 months and the final one-third vesting in 36 months from the date of the grant or one-third immediately, one-third vesting on January 1, 2019 and one-third vesting on January 1, 2020. Historically the options granted have had a 10-year term. If the recipient’s employment or relationship with the Company is terminated the options recipient may be allowed up to three months to exercise their options. Option compensation is calculated by using the Black-Scholes-Merton option pricing model to estimate the fair value of these share-based awards.   Leases   A right-of-use asset represents a lessee’s right to use a leased asset for the term of the lease. Our right-of-use assets generally consist of an operating lease for a building. Right-of-use assets are measured initially at the present value of the lease payments, plus any lease payments made before a lease began and any initial direct costs, such as commissions paid to obtain a lease. Right-of-use assets are subsequently measured at the present value of the remaining lease payments, adjusted for incentives, prepaid or accrued rent, and any initial direct costs not yet expensed.     We have an operating lease for our corporate offices in Canada and finance leases for furniture and equipment. Our leases have remaining lease terms of six months to thirty-two months, and our primary operating leases include options to extend the leases for four years. Future renewal options that are not likely to be executed as of the balance sheet date are excluded from right-of-use assets and related lease liabilities.   We report operating leased assets, as well as operating lease current and noncurrent obligations on our balance sheets for the right to use the building in our business. Our finance leases represent furniture and office equipment; we report the furniture and equipment, as well as finance lease current and noncurrent obligations on our balance sheet.   Generally, interest rates are stated in our leases for equipment. When no interest rate is stated in a lease, however, we review the interest rates implicit in our recent finance leases to estimate our incremental borrowing rate. We determine the rate implicit in a lease by using the most recent finance lease rate, or other method we think most closely represents our incremental borrowing rate.   Results of Operations   Comparison of the years ended December 31, 2020 and 2019   The following discussion compares the Company's results of operations for the year ended December 31, 2020 with those for the year ended December 31, 2019. The Company's consolidated financial statements and notes thereto included elsewhere in this Annual Report contain detailed information that should be referred to in conjunction with the following discussion.   Revenues   The following table compares total revenue for the periods indicated.        Years ended December 31,       2020     2019     % Change   Client services   $ 3,541     $ 19,395       (82 )% Shipping calculator services     27,845       148,035       (81 )% Brewery management software     114,881       193,150       (41 )% Merchant processing services     425,839       2,011       21,071 % Shipping coordination and label generation services     12,348,683       10,185,704       21 % Total revenues   $ 12,920,789     $ 10,548,295       22 %       -15- Table of Contents     Revenues increased 22% in 2020 primarily from the continued growth of the shipping coordination and label generation services and the addition of merchant processing services to the Company’s revenue stream.   Client services revenues decreased $15,854 or 82% to $3,541 compared to $19,395 in 2019. The decrease was attributable to depleting inventory of our movie posters available for auction.   Shipping calculator services revenues decreased $120,190 or 81% to $27,845 compared to $148,035 in 2019. The decrease was attributed to discontinuance of billable services for a portion of the AuctionInc products. The Company is preparing to launch a new platform where the new clients will be migrated to.                 Brewery management software revenues decreased $78,269 or 41% to $114,881 in 2020 compared to $193,150 in 2019. The decrease is attributable to the additional competition in the brewery management software industry and the limited marketing to new clients.   Merchant processing services is a new segment for the Company launched in late 2019. This segment has contributed to the overall growth of the Company increasing $423,828 to $425,839 in 2020 from $2,011 in 2019. These services also have a higher gross margin and gross profit. They will continue to be a source of growth for the Company.   Shipping coordination and label generation service revenues increased $2,162,979 or 21% to $12,348,683 in 2020 compared to $10,185,704 in 2019. The increase is attributable to the increase in marketing efforts along with the impact of COVID-19 on the small businesses and their ability to sell and ship online.   Gross Profit   Gross profit increased $364,548 or 13% to $3,111,289 in 2020 compared to $2,746,741 in 2019. Gross margin decreased 2 percentage points to 24% in 2020 from 26% in 2019. The decrease in gross margin was partially due to the increase in revenue from our shipping label generation services which are offered at a lower margin.   Operating Expenses   Total operating expenses in 2020 were $5,242,763 compared to $3,458,774 in 2019, an increase of $1,783,989 or 52%. The increase is mainly due to the share-based compensation for 2020.   Other Income/Expense, net   Net other income in 2020 was $21,128 compared to $991,840 in the same period of 2019, a decrease of $970,712. This is primarily attributable to the gain recorded on the elimination of the stock price guarantee in 2019.   Net Income (Loss)   The Company reported a net loss in 2020 of $(2,232,553) compared to a net income of $282,011 for the same period in 2019. The basic loss per common share in 2020 represents $(0.41) while the basic net income per common share in 2019 represents $0.06.   Inflation   The Company believes that inflation has not had a material effect on its results of operations.       -16- Table of Contents     Operating Cash Flows   A summarized reconciliation of the Company's net income (loss) to cash provided by operating activities for the years ended December 31, 2020 and 2019 is as follows:       2020     2019   Net income (loss)   $ (2,232,553 )   $ 282,011   Provision for bad debts     20,125       -   Depreciation and amortization     488,745       490,250   Amortization of operating lease right-of-use assets     28,545       22,850   Share-based compensation     2,452,701       407,974   Other income from stock price guarantee     -       (880,553 ) Deferred income taxes     (120,835 )     (73,208 ) Gain on sale of property and equipment     (739 )     -   Unrealized loss on stock price guarantee     -       (3,688 ) Changes in current assets and liabilities     464,820       (230,103 ) Net cash provided by operating activities   $ 1,100,809     $ 15,533     Working Capital and Liquidity   The Company had cash and cash equivalents of $1,644,210 on December 31, 2020 compared to $475,881 at December 31, 2019. The Company had working capital of $218,615 as of December 31, 2020 compared to a working capital deficit of $397,891 at December 31, 2019, an improvement of $616,506. The improvement in working capital is primarily attributed to the cash on hand at year end.   Management believes that the Company has adequate cash resources to fund operations during the next 12 months. In addition, management continues to explore opportunities and has organized additional resources to monetize its patents. However, there can be no assurance that anticipated growth in new business will occur, and that the Company will be successful in launching new products and services. Management continues to seek alternative sources of capital to support the growth of future operations.       Item 7A. Qu a ntitative and Qualitative Disclosure about Market Risk   As a smaller reporting company, the Company is not required to provide the information for this Item 7A.