UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2016March 31, 2017
COMMISSION FILE NUMBER 0-28720
 
(Exact Name of Registrant as Specified in its Charter)
  
  
DELAWARE73-1479833
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
 
200 Friberg Parkway, Westborough, Massachusetts 01581
(Address of Principal Executive Offices) (Zip Code)
 
(617) 861-6050
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒     No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
Yes ☒     No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):
    
    
Large accelerated filer  Accelerated Filer
Non-accelerated filerSmaller reporting company  
(Do not check if a smaller reporting company)Emerging Growth Company☐ 


If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
Yes ☐     No ☒
 
As of November 2, 2016,May 12, 2017, the issuer had outstanding 10,989,6081,098,657 shares of its Common Stock.
 

 
 
 
PAID, INC.
FORM 10-Q
 
TABLE OF CONTENTS
 
 
 
  
    
  
1
    
  
2
    
  
3
    
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 1511
    
 1914
    
 1914
    
 
 20
15
    
 20
15
    
 20
15
    
 2015
    
 2015
    
 2015
    
 2115
    
 
 2216
 
 
-i-
 
 
PART I – FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
PAID, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
March 31,
2017
(Unaudited)
 
 
December 31,
2016
(Audited)
 
ASSETS
 
September 30,
 2016
 
 
December 31,
2015
 
 
 
 
 
(Unaudited)
 
 
(Unaudited)
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $121,013 
 $123,913 
 $344,050 
 $339,562 
Accounts receivable, net
  22,850 
  26,696 
  74,786 
  39,314 
Other receivables
  - 
  1,026 
Funds held in trust
  172,531 
  169,082 
Prepaid expenses and other current assets
  14,192 
  57,394 
  67,086 
  57,383 
Advanced royalties, net
  - 
  5,000 
Total current assets
  158,055 
  213,003 
  658,453 
  606,367 
    
    
Property and equipment, net
  6,735 
  8,833 
  88,467 
  92,552 
Intangible assets, net
  201,797 
  276,878 
  5,753,701 
  5,956,771 
Goodwill
  9,989,685 
Total assets
 $366,587 
 $498,714 
 $16,490,306 
 $16,645,375 
    
    
LIABILITIES AND SHAREHOLDERS’ DEFICIT
    
    
LIABILITIES AND SHAREHOLDERS' EQUITY
    
Current liabilities:
    
    
Accounts payable
 $114,757 
 $95,441 
 $622,476 
 $563,860 
Note payable
  - 
  24,202 
  10,200 
  17,850 
Capital leases
  - 
  3,097 
Due to related parties
  144,911 
  169,697 
Capital leases - current portion
  7,633 
  7,655 
Accrued expenses
  972,150 
  1,001,359 
  1,003,236 
  977,891 
Deferred revenues
  7,027 
  6,768 
  239,708 
  238,040 
Total current liabilities
  2,028,164 
  1,974,993 
Long term liabilities:
    
Capital leases - net of current portion
  27,241 
  28,933 
Deferred tax liability
  1,260,369 
Total liabilities
 $1,093,934 
 $1,130,867 
  3,315,774 
  3,264,295 
Commitments and contingencies
    
Shareholders' equity:
    
Preferred Stock, $0.001 par value, 20,000,000 shares authorized 3,825,000 shares issued and outstanding at March 31, 2017 and December 31, 2016; liquidation value of $11,581,000 as of March 31, 2017 and December 31, 2016
  3,825 
Common stock, $0.001 par value, 25,000,000 shares authorized; 1,648,960 issued and outstanding at March 31, 2017 and December 31, 2016
  1,649 
Additional paid-in capital
  68,782,432 
Accumulated other comprehensive loss
  (3,175)
  - 
Accumulated deficit
  (55,610,199)
  (55,406,826)
Total shareholders' equity
  13,174,532 
  13,381,080 
    
    
Shareholders’ deficit
    
Common stock, $0.001 par value, 11,000,000 shares authorized; 10,989,608 shares and 8,932,466 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
  10,991 
  8,932 
Additional paid-in capital
  54,637,915 
  54,418,160 
Accumulated deficit
  (55,376,253)
  (55,059,245)
Total shareholders' deficit
  (727,347)
  (632,153)
    
Total liabilities and shareholders' deficit
 $366,587 
 $498,714 
Total liabilities and shareholders' equity
 $16,490,306 
 $16,645,375 
 
See accompanying notes to condensed consolidated financial statements
 
 
-1-
 
 
PAID, INC.
CONDENSED CONSOLIDATED STATEMENTSSTATEMENTS OF OPERATIONSOPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)

 
Three Months Ended
 
 
Nine Months Ended
 
    Three Months Ended
 
September 30, 2016
 
 
September 30, 2015
 
 
September 30, 2016
 
 
September 30, 2015
 
 
March 31,
2017
 
 
March 31,
2016
 
Revenues
 $127,246 
 $46,191 
 $391,009 
 $139,593 
Revenues, net
 $1,589,682 
 $133,779 
Cost of revenues
  6,023 
  12,676 
  18,231 
  32,470 
  1,099,160 
  6,827 
Gross profit
  121,223 
  33,515 
  372,778 
  107,123 
  490,522 
  126,952 
    
    
Operating expenses
  217,845 
  218,377 
  779,174 
  733,062 
  689,740 
  266,332 
Loss from operations
  (96,622)
  (184,862)
  (406,396)
  (625,939)
  (199,218 
  (139,380 
    
    
Other income (expense):
    
    
Interest expense
  (229)
  (148)
  (679)
  (634)
  (2,261 
  (257 
Other income
  4,345 
  - 
  62,333 
  - 
Write down of other receivables
  - 
  (108,961)
  - 
  (108,961)
Other income, net
  6,895 
  53,500 
Unrealized gain (loss) on stock price guarantee
  (12,812)
  (376,007)
  28,541 
  (345,542)
  (8,339)
  75,025 
Total other income (expense), net
  (8,696)
  (485,116)
  90,195 
  (455,137)
  (3,705)
  128,268 
    
    
Loss before provision for income taxes
  (105,318)
  (669,978)
  (316,201)
  (1,081,076)
  (202,923 
  (11,112 
Provision for income taxes
  - 
  18 
  807 
  974 
  450 
  807 
Net loss
 $(105,318)
 $(669,996)
 $(317,008)
 $(1,082,050)
 $(203,373 
 $(11,919 
    
    
Net loss per share – basic and diluted
 $(0.01)
 $(0.10)
 $(0.03)
 $(0.16)
Loss per share - basic and diluted
 $(0.12)
 $(0.01)
Weighted average number of common shares outstanding - basic and diluted
  10,989,608 
  6,875,481 
  10,552,696 
  6,859,444 
  1,648,960 
  967,407 
    
Comprehensive loss:
    
Net loss
 $(203,373 
 $(11,919 
Other comprehensive income (loss):
    
Foreign currency translation adjustments
  (3,175 
  - 
Comprehensive loss
 $(206,548 
 $(11,919)
 
See accompanying notes to condensed consolidated financial statements
 
 
-2-
 
PAID, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASHCASH FLOWS
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31,
(Unaudited)
 
2016
 
 
2015
 
 
2017
 
 
2016
 
Cash flows from operating activities:
 
 
 
 
 
 
Net loss
 $(317,008)
 $(1,082,050)
 $(203,373)
 $(11,919)
Adjustments to reconcile net loss to cash and cash equivalents used in operating activities:
    
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
    
Depreciation and amortization
  77,179 
  9,662 
  212,898 
  25,727 
Gain on sale of property and equipment
  (2,179)
  - 
Write down of other receivables
 
  108,961 
Share-based compensation
  41,814 
  150,999 
  - 
  10,720 
Unrealized gain or loss on stock price guarantee
  (28,541)
  345,542 
Unrealized (gain) loss on stock price guarantee
  8,339 
  (75,025)
Write-off of other receivables:
  1,040 
  - 
Changes in assets and liabilities:
    
    
Accounts receivable
  3,846 
  (73)
  (35,480)
  3,442 
Other receivables
  - 
  (53,500)
Prepaid expenses and other current assets
  43,202 
  25,961 
  (10,711)
  16,959 
Advanced royalties
  5,000 
  - 
  - 
  5,000 
Deposits and other assets
  - 
  11,055 
Accounts payable
  19,316 
  (86,751)
  52,972 
  9,692 
Accrued expenses
  (668)
  (3,771)
  17,268 
  3,544 
Deferred revenues
  259 
  (889)
  (155)
  (825)
Net cash and cash equivalents used in operating activities
  (157,780)
  (521,354)
Cash flow from investing activities
    
Proceeds from the sale of property and equipment
  2,179 
  - 
Net cash and cash equivalents provided by investing activities
  2,179 
  - 
Net cash provided by (used in) operating activities
  42,798 
  (66,185)
    
Cash flows from investing activities:
    
Purchase of fixed assets
  (5,037)
  - 
Net cash used in investing activities
  (5,037)
  - 
    
Cash flows from financing activities:
    
    
Payments on capital leases
  (3,097)
  (11,291)
  (262)
  (2,964)
Payments on note payable
  (24,202)
  - 
  (7,650)
  (9,042)
Proceeds from the exercise of common stock warrants
  180,000 
  195,000 
  - 
  180,000 
Net cash and cash equivalents provided by financing activities
  152,701 
  183,709 
Payments on amounts due to related parties
  (26,290)
  - 
Net cash (used in) provided by financing activities
  (34,202)
  167,994 
Effect of exchange rate changes on cash and cash equivalents
  929 
  - 
    
Net change in cash and cash equivalents
  (2,900)
  (337,645)
  4,488 
  101,809
    
    
Cash and cash equivalents, beginning of period
  123,913 
  651,318 
  339,562 
  123,913 
    
    
Cash and cash equivalents, end of period
 $121,013 
 $313,673 
 $344,050 
 $225,722 
    
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
    
    
Income taxes paid
 $807 
 $974 
Interest paid
 $679 
 $634 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
    
Issuance of previously subscribed common stock
 $- 
 $25,000 
Cash paid during the period for:
    
Income taxes
 $450 
 $807 
Interest
 $2,261 
 $257 
    
 
See accompanying notes to condensed consolidated financial statements
 
 
-3-
 
 
PAID, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2016March 31, 2017
 
Note 1. Organization and Significant Accounting Policies
 
PAID, Inc. (“PAID”, the “Company”, “we”, “us”, “our”) has developed AuctionInc, which is a suite of online shipping and tax management tools assisting businesses with e-commerce storefronts, shipping solutions, tax calculation, inventory management, and auction processing. The product has tools to assist with other aspects of the fulfillment process, but the main purpose of the product is to provide accurate shipping and tax calculations and packaging algorithms that provide customers with the best possible shipping and tax solutions.
 
BeerRun Software is a brewery management and Alcohol and Tobacco Tax and Trade Bureau tax reporting software. Small craft brewers can utilize the product to manage brewery schedules, inventory, packaging, sales and purchasing. Tax reporting can be processed with a single click and is fully customizable by state or providence.province. The software is designed to integrate with QuickBooks accounting platforms by using our powerful sync engine. We currently offer two versions of the software BeerRun and BeerRun Light which excludes some of the enhanced features of BeerRun without disrupting the core functionality of the software. Additional features include Brewpad and Kegmaster and can be added on to the base product. Craft brewing is on the rise in the United StatesNorth America and we feel that there is a large potential to grow this portion of our business.
 
SpiritRun is a product of BeerRun and is designed specifically for distilleries. This product was recently released, and we feel that there with additional marketing and visibility in the distillery industry, SpiritRun has the right core resources to be a valuable tool in distilleries around the United States.
ShipTime Inc. has developed a SaaS based application, which focuses on the small business 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 ecommerce. We actively sell directly to small businesses and through long standing partnerships with selected associations throughout Canada. 
 
General Presentation and Basis of Consolidated Financial Statements
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and to the rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 20152016, that was filed on March 30, 2016.31, 2017.
 
In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited consolidated financial statements, and these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2016.2017.
 
On October 7, 2015,November 9, 2016, the board of directors agreed to effectuate a reverse split of the Company’s common stock.immediately followed by a forward split. The process was completed with FINRA on November 13, 2015.January 23, 2017. As a result of the split every fiftyten shares of common stock outstanding prior to the reverse split were consolidated into one share, reducing the number of common shares outstanding on the effective date from 446,623,30010,989,608 to 8,932,466.1,098,960. All share and per share information onin this Form 10-Q has been retroactively adjusted to reflect the reverse stock split.
 
 
-4-
 
 
Going Concern and Management's Plan
 
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has continued to incur losses, although it has taken significant steps to reduce them. For the ninethree months ended September 30, 2016,March 31, 2017, the Company reported a net loss of $317,008.$203,373. The Company has an accumulated deficit of $55,376,253 at September 30, 2016$55,610,199 and used $157,780has a working capital deficit of cash and cash equivalents in operations for the nine months ended September 30, 2016.$(1,369,711) as of March 31, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
 
Management feels that AuctionInc, BeerRun and SpiritRunthe addition of ShipTime’s services will bereturn a beneficial portion of our business and provide more opportunity for growth.valuable impact on the Company’s growth in the near future. The costs of doing business have been and will be significantly reduced in hopes of eliminating the net loss and providing positive cash flow from operations.
On September 1, 2016operations as a result of the first quarter’s operations is a significant indicator of our successful transition to the new shipping services. In addition to the existing services provided, ShipTime will launch products that are complementary to the current offering of AuctionInc, BeerRun and SpiritRun. Combined, the Company entered into an amalgamation agreement with emergeIT. The amalgamation is contingent on the approval of certain proposals by the shareholdersbelieves that all segments of the Company. See Note 6.operations will benefit from ShipTime.
 
Although there can be no assurances, the Company believes that the above management plan will be sufficient to meet the Company's working capital requirements through the end of 2016.2017 and will have a positive impact on the Company for 2017 and future years.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of PAID, Inc. and its wholly owned subsidiarysubsidiaries, PAID Run, LLC.LLC and ShipTime, Inc. All intercompany accounts and transactions have been eliminated.
 
Use of EstimatesForeign Currency
 
The preparationcurrencies of ShipTime, the condensed consolidated financial statementsCompany’s international subsidiary, are in conformity with GAAP requires management to make estimatesCanadian dollars. Foreign currency denominated assets and assumptions that affectliabilities are translated into U.S. dollars using the reported amountsexchange rates in effect at March 31, 2017. Results of operations and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by the Company’s management include, but are not limited to the collectability of accounts receivable, the recoverability of long-lived assets, the valuation of deferred tax assets and liabilities, and the estimated fair value of the royalty and advance guarantee, and share-based transactions. Actual results could materially differ from those estimates.
Fair Value Measurements
The Company measures the fair value of certain of its financial assets on a recurring basis. A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
-5-
At September 30, 2016 and December 31, 2015, the Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, capital leases, note payable and accrued expenses. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, capital leases, note payable and accrued expenses approximate fair value due to the short-term maturities of these instruments.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an initial maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At September 30, 2016, the Company had no amounts in these accounts in excess of the FDIC limit. 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. Management believes that it has invested in high credit quality institutions for which the Company has not experienced any loss in its accounts and believes it is not exposed to any significant credit risk related to these accounts.
The Company extends credit based on an evaluation of the customer's financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts. At both September 30, 2016 and December 31, 2015, the Company has recorded an allowance for doubtful accounts of $40,609.
For the nine months ended September 30, 2016, and September 30, 2015 no revenues from any one individual client accounted for more than 10% of total revenues. These revenues were generated primarily from the sales of our line of AuctionInc products, brewery management software and merchandising and fulfillment services.
Advanced Royalties
Advanced royalties represent amounts the Company has advanced to certain clients and are recoupable against future royalties earned by the clients. Advances are issued in either cash or shares of the Company’s common stock and advanced amounts are calculated based on the clients’ projected earning potential over a fixed period of time. Advances made by issuing stock or common stock options are recorded at their fair value on the date of issue. If the shares do not reach the required price per share, the Company has the option of issuing additional shares or making cash payment of the difference between the sales price and the fair value of the stock. The Company records a liability for the difference between the fair value of the stock and the guaranteed sales price amount, which is included as a component of shareholders’ equity in accrued expenses in the accompanying condensed consolidated balance sheets. The change in fair value of the stock price guarantee is recorded in the accompanying condensed consolidated statements of operations.
-6-
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of 3 to 5 years. Any leasehold improvements are depreciated at the lesser of the useful life of the asset or the lease term. Equipment purchased under capital leases is amortized on a straight-line basis over the estimated useful life of the asset or the term of the lease, whichever is shorter.
Intangible Assets
Intangible assets consist of patents, client lists and brewery and distillery management software which are being amortized on a straight-line basis over their estimated useful life. Currently there are intangible assets that are being amortized over 3 and 17 years.accumulated other comprehensive income (loss).
 
Long-Lived Assets
 
The Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the fair value of the related asset. No impairment charges were incurred during the ninethree months ended September 30, 2016March 31, 2017 and 2015.2016. There can be no assurance, however, that market conditions will not change or demand for the Company’s services will continue, which could result in impairment of long-lived assets in the future.
 
Revenue Recognition
The Company generates revenue principally from fees for shipping services, sales of shipping calculator subscriptions, brewery management software subscriptions, and entertainmentclient services.
 
The Company recognizes revenues in accordance with the FASB ASC Topic 605. Accordingly, the Company recognizes revenues when there is persuasive evidence that an arrangement exists, product delivery and acceptance have occurred, the sales price is fixed or determinable, and collectability of the resulting receivable is reasonably assured.
ShipTime recognizes revenues primarily from fees for shipping services. Customers use an online tool to calculate shipping and generate a shipping label. The majority of the transactions are paid via credit card when the label is generated. Revenues are recognized when the customer completes the online transaction.
-5-
 
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 payments for shipping calculator services are made via credit card for the month preceding the service and are recorded as deferred revenues until the service has been provided. Brewery management software subscribers are billed on a calendar month at the first of the month with payments processed via credit card for the month following.
 
EntertainmentClient services revenues include web development and design, creative services, marketing services and general business consulting services. For contracts that are of a short duration and fixed price, revenue is recognized when there are no significant obligations and upon acceptance by the customer of the completed project. Revenues on longer-term fixed price contracts are recognized using the percentage-of-completion method. Services that are performed on a time and material basis are recognized as the related services are performed.
Cost of Revenues
Cost of revenues includes web hosting, data storage, and commissions.
-7-
Operating Expenses
Operating expenses include indirect related expenses, including credit card processing fees, payroll, travel, facility costs, and other general and administrative expenses.
Advertising
Advertising costs are charged to expense as incurred. For the three months ending September 30, 2016 and 2015 advertising expense totaled $0 and $7,180, and for nine months ended September 30, 2016 and 2015, advertising expense totaled $6,874 and $20,282, respectively. These expenses are included in operating expenses in the accompanying condensed consolidated statements of operations.
Share-Based Compensation
The Company grants options to purchase the Company’s common stock to employees, directors and consultants under stock option plans. The benefits provided under these plans are share-based payments that the Company accounts for using the fair value method.
The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option pricing model (“Black-Scholes 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 and other factors. 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 condensed consolidated statements of operations for the nine months ended September 30, 2016 and 2015 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. The estimated 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 September 30, 2016 and 2015, no excess tax benefits for tax deductions related to share-based awards were recognized from stock options exercised in the nine months ended September 30, 2016 and 2015 that would have resulted in a reclassification from cash flows from operating activities to cash flows from financing activities.
Income Taxes
The Company accounts for income taxes and the related accounts under the liability method. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax bases of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Therefore, the Company has recorded a full valuation allowance against the net deferred tax assets. The Company’s income tax provision consists of state minimum taxes.
-8-
The Company recognizes any uncertain income tax positions on income tax returns at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had $0 accrued for interest and penalties on the Company’s accompanying condensed consolidated balance sheets at September 30, 2016 and December 31, 2015.
The Company is subject to taxation in the U.S. and various state jurisdictions. The Company’s tax years for 2012 and forward for federal and 2011 and forward for state purposes are subject to examination by the U.S., Massachusetts and New Jersey tax authorities due to the carry-forward of unutilized net operating losses. The Company does not foresee material changes to its gross uncertain income tax position liability within the next twelve months.
 
Earnings (Loss) Per Common Share
 
Basic earnings (loss) per share represent income (loss) available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income (loss) that would result from the assumed issuance. The potential common shares that may be issued by the Company relate to outstanding stock options and have been excluded from the computation of diluted earnings (loss) per share because they would reduce the reported loss per share and therefore have an anti-dilutive effect.
 
For the three months ended September 30,March 31, 2017 and 2016, and 2015 and the nine months ended September 30, 2016 and 2015, there were approximately 323,00063,000 and 8,000 and 340,000 and 32,000,189,000, respectively, dilutive shares that were excluded from the diluted earnings (loss) per share as their effect would have been antidilutive for the period then ended.
 
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 threefour reportable segments are managed separately based on fundamental differences in their operations. At September 30, 2016,March 31, 2017, the Company operated in the following threefour reportable segments (see below):segments:
 
a. 
Entertainment services,
b. 
Shipping calculator services, and
c. 
Brewery management software.
a.Client services
b.Shipping calculator services
c.Brewery management software
d.Shipping and label generation services
 
The Company evaluates performance and allocates resources based upon operating income. The accounting policies of the reportable segments are the same as those described in this summary of significant accounting policies. The Company’s chief operating decision maker ismakers are the President, Chief Executive Officer and Chief Financial Officer.
 
 
-9--6-
 
 
The following table compares total revenue for the periods indicated.
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
Three Months Ended
 
 
September 30,
2016
 
 
September 30,
2015
 
 
September 30,
2016
 
 
September 30,
2015
 
 
March 31,
2017
 
 
March 31,
2016
 
Entertainment services
 2,275 
 $6,398 
 $12,937 
 $21,044 
Clientt services$
  13,409 
 $6,004 
Shipping calculator services
  46,141 
  39,793 
  135,862 
  118,549 
  56,306 
  45,459 
Brewery management software
  78,830 
  - 
  242,210 
  - 
  77,841 
  82,316 
Shipping services
  1,442,126 
  - 
Total revenue
 $127,246 
 $46,191 
 $391,009 
 $139,593 
 $1,589,682 
 $133,779 
 
The following table compares total loss from operations for the periods indicated.
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
Three Months Ended
 
 
September 30,
2016
 
 
September 30,
2015
 
 
September 30,
2016
 
 
September 30,
2015
 
 
March 31,
2017
 
 
March 31,
2016
 
Entertainment services
 3,404 
 $4,572 
 $11,971 
 $15,078 
Client services$
  10,157 
 $4,562 
Shipping calculator services
  (110,655)
  (189,434)
  (442,629)
  (641,017)
  (256,607)
  (152,385)
Brewery management software
  10,629 
  - 
  24,262 
  - 
  12,279 
  8,443 
Shipping services
  34,953 
  - 
Total loss from operations
 $(96,622)
 $(184,862)
 $(406,396)
 $(625,939)
 $(199,218)
 $(139,380)
 
Recent Accounting Pronouncements
 
In MarchFebruary 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which addresses certain aspects of accounting for share-based payment award transactions. This guidance will be effective in the first quarter of fiscal year 2017 and early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on its condensed consolidated financial statements.
In February 2016, the FASB issued ASU(“ASU”) 2016-02, Leases, which requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. While the Company is still evaluating ASU 2016-02, the Company expects the adoption of ASU 2016-02 to have a material effect on the Company’s financial condition due to the recognition of the lease rights and obligations as assets and liabilities. The Company does not expect ASU 2016-02 to have a material effect on the Company’s results of operations and cash flows.
 
In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial statements. This guidance will be effective in the first quarter of fiscal year 2019 and early adoption is not permitted. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.
 
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In August 2014,March 2016, the FASB issued ASU 2014-15, Presentation2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which the Company elected to adopt in the first quarter of Financial Statements-Going Concern. Currently, there is no2017. The Company has evaluated the impact of this guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue asand has determined that it did not have a going concern or to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigatingmaterial effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date thaton the financial statements are issued (or available to be issued). The amendments infor this ASU are effective for the reporting periods ending after December 15, 2016 and early application is permitted. Management is currently assessing the impact the adoption of ASU 2014-15 will have on our condensed consolidated financial statements.quarter.
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This updated guidance supersedes the current revenue recognition guidance, including industry-specific guidance. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual periods beginning after December 15, 2016, and early adoption is not permitted. In July 2015, the FASB decided to delay the effective date of ASU 2014-09 until December 15, 2017. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The Company is currently evaluating which transition method it will adopt and the expected impact of the updated guidance, but does not believe the adoption of the updated guidance will have a significant impact on its condensed consolidated financial statements.
 
-7-
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the definition of a business. The amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The guidance in this update is effective for fiscal years beginning after December 15, 2017, and interim periods within those years.
In January 2017, the FASB also issued ASU 2017-04, Intangibles - Goodwill and other (Topic 350): Simplifying the test for goodwill impairment. The amendments in this Update remove the second step of the current goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This guidance is effective for impairment tests in fiscal years beginning after December 15, 2019.
Note 2. Accrued Expenses
 
Accrued expenses are comprised of the following:
 
 
September 30,
2016
 
 
December 31,
2015
 
 
(unaudited)
 
 
(audited)
 
 
March 31,
2017
(unaudited)
 
 
December 31,
2016
(audited)
 
Payroll and related costs
 $3,018 
 $3,686 
 $3,147
 
 $3,136 
Royalties
  51,838 
  51,838 
Stock price guarantee
  858,041 
  913,582 
  875,742 
  867,403 
Other
  32,252 
  32,253 
  72,509 
  55,514 
Total
 $972,150 
 $1,001,359 
 $1,003,236 
 $977,891 
 
Note 3. Acquisitions and Intangible Assets
The Company has a patentholds 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.
On January 29, 2008, the Company was granted a patent for a technique for facilitating advanced, rapid, accurate estimation of shipping costs across multiple shipping carriers and shipping options between buyer and seller in an online auction. Since that time the Company has received four additional patents. These patents help facilitate rapid and accurate estimation of shipping costs across multiple shipping carriers and also include real-time calculation of shipping. Further continuations include the addition of shipping calculation with taxes and enhanced shipping promotions.
 
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On October 7, 2015, the Company, through a newly formed limited liability company named PAID Run, LLC, entered into an asset purchase agreement to purchase assets related to BeerRun Software and SpiritRun Software and related intellectual property. The purchase price and additional development for these assets was $297,500, which include all of the client lists, along with all rights, benefits and privileges associated with the software and intellectual property, associated contracts, and books and records.
At September
On December 30, 2016, the Company completed a merger with ShipTime Inc. and its subsidiary to acquire assets related to the technology, client base and other intellectual property. The Company engaged an outside independent third party valuation firm to assist in establishing a value for the ShipTime Inc.
At March 31, 2017 and December 31, 2015,2016, intangible assets consisted of the following:
 
 
September 30,
2016
 
 
December 31,
2015
 
 
March 31,
2017
 
 
December 31,
2016
 
Patents
 $16,000 
 $16,000 
Software
  83,750 
  83,750 
Client list
  213,750 
Trade Name
  797,000 
Technology
  509,000 
Client list / relationship
  4,687,750 
Accumulated amortization
  (111,703)
  (36,622)
  (339,799)
  (136,729)
 $201,797 
 $276,878 
 $5,753,701 
 $5,956,771 
 
Amortization expensesexpense of intangible assets for all subsidiaries for the ninethree months ended September 30,March 31, 2017, and 2016 were $75,801. Estimated future annual amortization expense is approximately $100,000 for each year through 2018was $203,070 and $900 for 2019.$100,107, respectively.
 
-8-
Goodwill
Of the total estimated purchase price, $9,989,685 was allocated to goodwill and is attributable to expected synergies between the combined companies, including the ability for the combined companies to estimate and process shipping calculations and support eCommerce shopping cart platforms in addition to the acquired workforce. Goodwill represents the excess of the purchase price of the acquired business over the estimated fair value of the underlying net tangible and intangible assets acquired. In the event the Company determines that the value of goodwill has become impaired, it will incur an accounting charge for the amount of the impairment during the fiscal quarter in which the determination is made. None of the goodwill is expected to be deductible for income tax purposes.
Pro Forma Financial Information
The following table presents the Company’s unaudited pro forma results (including ShipTime) for the period ended March 31, 2016 as though the companies had been combined as of the beginning of the period presented.
The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each period presented, nor is it indicative of results of operations which may occur in the future. The unaudited pro forma results presented include amortization charges for intangible assets and eliminations of intercompany transactions.
For the Period
Ended March 31,
2016 
Total Revenues
$1,424,934
Net loss
$(173,666)
Note 4. Commitments and Contingencies
Note Payable
On
In October 2, 2015,2016, the Company entered into a $35,677$30,000 note payable with a financial institution. The term of the note wasis for a period of one year and wasis payable in 10 monthly installments of $3,089$2,632 at an interest rate of 6.35%3%. The balance due on the note payable as of September 30, 2016March 31, 2017 was $10,200.
Due to Related Parties
During the growth and development of ShipTime, two notes were issued. One note issued was issued at an 8% interest rate and is due to mature in December 31, 20152017. A second note was $0issued in 2014 with a 6% interest rate and $24,202, respectively. Thewas due to mature in June 2014; the second note payable was repaidoutstanding is currently due for re-negotiation as it is in full during the third quarter of 2016.default.
 
Stock Price Guarantee
 
In connection with the Company’s advance royalties with a client, the Company guaranteed that shares of common stock would sell for at least $6.00$60.00 per share as adjusted for the reverse stock split.  If the shares are not at the required $6.00$60.00 per share when they are sold, the Company has the option of issuing additional shares at their fair value or making a cash paymentpayments for the difference between the guaranteed price per share and the fair value of the stock.  As of September 30, 2016March 31, 2017 and December 31, 2015,2016, the stock price guarantee was $885,041$875,742 and $913,582,$867,403, respectively, as the Company’s stock price was below $6.00$60.00 per share at September 30, 2016March 31, 2017 and December 31, 2015,2016, although some or all of the stock may already be sold and no longer subject to a guaranty and any required payment would be disputed by the Company. For the ninethree months ended September 30,March 31, 2017 and 2016, the Company recorded an unrealized (loss)/gain on the stock price guarantee of $28,541 and for the nine months ended September 30, 2015, the Company recorded an unrealized loss on stock price guarantee of ($345,542).8,339) and $75,025, respectively.
 
 
-12--9-
 
 
Legal Matters
 
In the normal course of business, the Company periodically becomes involved in litigation. As of September 30, 2016,March 31, 2017, in the opinion of management, the Company had no pending litigation that would have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.
The Company commenced on December 20, 2013 patent infringement litigation against eBay, Inc. (Paid, Inc. v. eBay, Inc.; CV No. 4:13-cv-40151-TSH) in the United States District Court for the District of Massachusetts Central Division.  This litigation has been settled pursuant to a Confidential Settlement and License Agreement dated March 11, 2016.  Under the agreement, the Company received $53,500, which has been recorded in other income in the condensed consolidated statements of operations, after costs as full and final payment for such settlement of the lawsuit and non-exclusive licensing of the Company’s patents.  The payment was received in full in April 2016.
 
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,leases, the Company has agreed to indemnify its lessorlessors 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.agreements. 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 5. Shareholder’s Deficit
 
CommonPreferred Stock
 
From January 1, 2016 through September 30,                On December 19, 2016, the Company issuedfiled an amendment to its Certificate of Incorporation to authorize the issuance of 20,000,000 shares of blank-check preferred stock at $.001 par value, of which 3,825,000 shares have been reserved for future issuance. 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 totalCertificate of 2,057,142Designations effective on December 30, 2016 which sets aside 5,000,000 shares of Preferred Stock as Series A Preferred Stock. The Series A Preferred Stock holders have no voting rights and have an aggregate liquidation value of approximately $11,581,000. The Series A Preferred Stock also carries a coupon payment obligation of 1.5% per year calculated by taking the 30-day average closing price for an equal number of shares of common stock for gross proceedsthe month immediately preceding the coupon payment date, which is made annually. Payout of $180,000the coupon may be made out of existing cash or in shares of Series A Preferred stock of the Company. The Series A Preferred Stock have no voting or conversion rights. If purchased, redeemed, or otherwise acquired (other than conversion), the preferred stock may be reissued.
Common Stock
In November 2016, the majority shareholders approved an amendment to the Company’s Certificate of Incorporation to increase the Company’s authorized shares of common stock from 1,100,000 to 25,000,000, to issue up to 2,000,000 shares of blank check preferred stock and to make effective, a reverse stock split at a range of 1 for 500 through 1 for 3,000 immediately followed by a forward split of the exerciseoutstanding common stock at an exchange rate of warrants.50 for 1 through 300 for 1 to reduce the number of authorized shares of the Company’s common stock, subject to the Board of Directors’ discretion.
In January 2017, the Company completed a reverse split of 1-for 3,000 immediately followed by a forward split of 300 for 1. As a result of the split every ten shares of common stock outstanding were consolidated into one share, reducing the number of common shares outstanding on the effective date from 10,989,608 to 1,098,960. All share and per share information on this Form 10-Q has been retroactively adjusted to reflect the reverse stock split.
The Company has authorized and reserved for future issuance 550,000 shares of common stock and 3,850,000 shares of preferred stock with respect to the exchangeable shares issued as a result of the merger.
 
Share-based Incentive Plans
During the period ended September 30, 2016,March 31, 2017, 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. 90,000There were no stock options were granted, to board members and an employee on April 1 and June 13, 2016.exercised, canceled or expired during the three months ended March 31, 2017.
 
During the period ended September 30, 2016, the board of directors approved the repricing of outstanding stock options held by members of the board, management, employee and former employee to $0.0975 per share. The expense related to the repricing was not significant. In addition to the repricing of the outstanding options the board approved to vest any outstanding unvested options for two employees.
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Note 6. Amalgamation Agreement
 On September 1, 2016, the Company entered into an amalgamation agreement with emergeIT Inc., an Ontario corporation to acquire emergeIT and two new PAID subsidiaries (“Amalgamation Agreement”).  emergeIT (which does business as “ShipTime”) is a cloud-based shipping platform bringing individuals and small and medium sized businesses together with many of the world’s leading carriers to save time and money. emergeIT generates monthly recurring revenue through transactions and “software as a service” offerings.  It currently serves in excess of 30,000 members in North America with plans to expand its services into Europe and then worldwide.  The amalgamation, or merger, requires shareholder approval and is expected to close, upon receipt of approval, in the fourth quarter of 2016.  
Note 7.6. Subsequent Events
 
The Company has evaluated subsequent events through the filing date of this Form 10-Q, and have determined that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto, other than as disclosed herein.
 
On November 9, 2016, the Company submitted its proxy to solicit approval from its shareholders of the Amalgamation Agreement. The results of solicitation have not been determined as of the date of the filing of this Form 10-Q.
 
-14--10-
 
 
ITEM 2.
MMANAGEMENT'SANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOPERATIONS.
 
Forward Looking Statements
 
This Quarterly Report on Form 10-Q 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 CompanyPAID, Inc. (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 quarterly 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", in the Company's Form 10-K for the fiscal year ended December 31, 20152016 that was filed on March 30, 2016.31, 2017.
 
For example, the Company's ability to achieve 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 site, 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. If the Company is not profitable in the future, it will not be able to continue its business operations
 
Except as required by applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise. Readers are urged to review carefully and to consider the various disclosures made by the Company in this Quarterly Report, which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
 
Overview
 
PAID,ShipTime Inc. (the “Company”)has developed a SaaS based application, which focuses on the small business 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 ecommerce. We actively sell directly to small businesses and through long standing partnerships with selected associations throughout Canada.  Our focus in 2017 will be to significantly grow this portion of our business.
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.
 
 
-15--11-
 
 
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.province. The software is designed to integrate with QuickBooks accounting platforms by using our powerful sync engine. We currently offer two versions of the software BeerRun and BeerRun Light which excludes some of the enhanced features of BeerRun without disrupting the core functionality of the software. Additional features include Brewpad and Kegmaster and can be added on to the base product. Craft brewing is on the rise in the United StatesNorth America and we feel that there is a large potential to grow this portion of our business.
 
Significant Accounting Policies
 
Our significant accounting policies are more fully described in Note 3 to our consolidated financial statements included in our Form 10-K filed on March 30, 2016,31, 2017, as updated and amended in Note 1 of the Notes to Condensed Consolidated Financial Statements included herein. However, certain of our accounting policies, most notably with respect to revenue recognition, 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.
 
Results of Operations
 
Comparison of the three months ended September 30,March 31, 2017 and 2016 and 2015.
 
The following discussion compares the Company's results of operations for the three months ended September 30, 2016March 31, 2017 with those for the three months ended September 30, 2015.March 31, 2016. The Company's condensed consolidated financial statements and notes thereto included elsewhere in this quarterly 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.
 
 Three months Ended
September 30, 
 
 
  Three months Ended March 31,
 
 
2016
 
 
 2016
 
 
 % Change
 
 
2017
 
 2016 
 
% change
 
Entertainment services
 $2,275 
 $6,398 
  (64)%
Client services
 $13,409 
 $6,004 
  123
%
Brewery management software
  78,830 
  - 
  100%
  77,841 
  82,316 
  (5)%
Shipping services
  1,442,126 
  - 
  100%
Shipping calculator services
  46,141 
  39,793 
  16%
  56,306 
  45,459 
  24%
Total revenues
 $127,246 
 $46,191 
  175%
 $1,589,682 
 $133,779 
  108%
    
Revenues increased 175%1088% in the thirdfirst quarter primarily from the additionacquisition of athe new segment of the Companyour business that provides brewery management softwareshipping services.
-16-
 
Entertainment service revenues decreased $4,123increased $7,405 or 64%123% to $2,275$13,409 in the thirdfirst quarter of 20162017 compared to $6,398$6,004 in 2015.2016. This decreaseincrease is a result of our reducedhigher volume of movie poster auction sales in the thirdfirst quarter.
-12-
 
Brewery management software revenues decreased $4,475 to $77,841 in 2017 from $82,316 in 2016. The decrease in revenues is due to the loss of a small amount of larger clients offset against new clients that are a new addition tosigning up on our revenue sources in 2016 resulting in an increase of revenues by $78,830.lower tiered service plan.
 
Shipping calculator services revenue increased $6,348$10,847 or 16%24% to $46,141$56,306 in the thirdfirst quarter of 20162017 compared to $39,793.$45,459.  The increase was largely due to a significant increase in volume and an adjusted price plan for one of the second phase of our price increases that were implemented in 2016.largest clients.
 
Gross Profit
 
Gross profit increased $87,708$363,570 or 262%286% in the thirdfirst quarter of 20162017 to $121,223$490,522 compared to $33,515$126,952 in 2015.2016. Gross margin increased 22decreased 64 percentage points to 95%31% from 73%95% in the thirdfirst quarter of 2015.2016. The increasedecrease in gross margin was mainly due to the limited number of costscost associated with ourthe new brewery management softwaresegment of shipping services andthat the decreased fees as a result of changing to a new hosting provider.Company now offers.
 
Operating Expenses
 
Total operating expenses in the thirdfirst quarter 2017 were $689,740 compared to $266,332 in the first quarter 2016, were $217,845 comparedan increase of $423,408 or 159%. The increase is primarily due to $218,377 in the third quarter 2015, a decreaseincreased personnel development and advertising expenses associated with the operations of $532 or 0%.ShipTime Canada.
 
Other Income (Expense),Income/Expense, net
 
Net other income (expense) in the thirdfirst quarter of 20162017 was ($8,696)3,705) compared to ($485,116)$128,268 in the same period of 2015,2016, a decreasechange of $476,420 or 98%.$131,793. This is primarily attributable to the unrealized loss on stock price guarantee of $12,812$8,339 in the thirdfirst quarter of 20162017 compared to $376,007a gain of $75,025 in the same period of 2015.2016. The Company also recorded a $53,000 gain on the settlement of litigation with eBay in the first quarter of 2016.
 
Net Loss
 
The Company realized a net loss in the thirdfirst quarter of 20162017 of ($105,318)203,373) compared to a net loss of ($669,996)11,919) for the same period in 2015.2016. The loss for the thirdfirst quarter of 20162017 and 20152016 represent ($0.10) per share.
Comparison of the nine months ended September 30, 20160.12) and 2015
The following discussion compares the Company's results of operations for the nine months ended September 30, 2016 with those for the nine months ended September 30, 2015. The Company's condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report contain detailed information that should be referred to in conjunction with the following discussion.
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Revenues
The following table compares total revenue for the periods indicated.
 
 
 Nine Months Ended
September 30,
 
 
 
2016
 
 
 2015
 
 
% Change
 
Entertainment services
 $12,937 
 $21,044 
  (39)%
Brewery management software
  242,210 
  - 
  100%
Shipping calculator services
  135,862 
  118,549 
  15%
Total revenues
 $391,009 
 $139,593 
  180%
Revenues increased 180% primarily from the additional revenue generated by the brewery management software services.
Entertainment service revenues decreased $8,107 or 39% to $12,937 compared to $21,044 in 2015. This decrease is a result of our lower than average movie poster auctions.
Brewery management software revenues are a new addition to our revenue sources in 2016 resulting in an increase of revenues by $242,210.
Shipping calculator services revenue increased $17,313 or 15% to $135,862 compared to $118,549.  The increase was largely due to the addition of newly developed products for the AuctionInc platform and a price increase that went into effect in 2016.
Gross Profit
Gross profit increased $265,655 or 248% to $372,778 compared to $107,123 in 2015. Gross margin increased 18 percentage points to 95% from 77% in 2015. The increase in gross margin was mainly due to the increase in revenues and limited number of costs associated with our new brewery management software services.
Operating Expenses
Total operating expenses in 2016 were $779,174 compared to $733,062 in 2015, an increase of 6%. The increase is partly due to the increased expense associated with the operations of the brewery management software segment and an increase in professional fees in 2016 related to the amalgamation agreement with emergeIT.
Other Income (Expense), net
Net other income in 2016 was $90,195 compared to an expense of ($455,137) in the same period of 2015, an increase of $545,332. This is primarily attributable to the write down of other receivables and the effects of the stock price recorded on the guarantee in 2015.
Net Loss
The Company realized a net loss in 2016 of ($317,008) compared to a net loss of ($1,082,050) for the same period in 2015. The loss for 2016 and 2015 represent ($0.03) and ($0.16)0.01) per share, respectively.
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Cash Flows from Operating Activities
 
A summarized reconciliation of the Company's net loss to cash and cash equivalents used in operating activities for the ninethree months ended September 30,March 31, 2017 and 2016 and 2015 is as follows:
 
 
2016
 
 
2015
 
 
2017
 
 
 2016
 
Net loss
 $(317,008)
 $(1,082,050)
 $(203,373
 $(11,919
Depreciation and amortization
  77,179 
  9,662 
  212,898 
  25,727 
Gain on sale of property and equipment
  (2,179)
  - 
Write down of other receivable
  - 
  108,961 
Share-based compensation
  41,814 
  150,999 
  - 
  10,720 
Unrealized gain on stock price guarantee
  (28,541)
  345,542 
Unrealized loss (gain) on stock price guarantee
  8,339 
  (75,025)
Write-off of other receivables
  1,040 
  - 
Changes in current assets and liabilities
  70,955 
  (54,468)
  23,894 
  (15,688)
Net cash used in operating activities
 $(157,780)
 $(521,354)
Net cash provided by (used in) operating activities
 $42,798 
 $(66,185)
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Working Capital and Liquidity
 
The Company had cash and cash equivalents of $121,013$344,050 at September 30, 2016,March 31, 2017, compared to $123,913$339,562 at December 31, 2015.2016. The Company had a negative working capital of ($935,879)$(1,369,711) at September 30, 2016, a decreaseMarch 31, 2017, an increase of $18,015$1,085 compared to ($917,864)$(1,368,626) at December 31, 2015.2016. The decreaseincrease in working capitaldeficit is attributable to the decreaseincrease in accounts payable associated with the valueservices provided to the ShipTime clients. The increase to the cash and cash equivalents is due to an increase in revenues associated with the new segment of the stock price and its effect on the stock price guarantee liability.our operations.
 
The Company may need an infusion of additional capital to fund anticipated operating costs over the next 12 months. Although there is substantial doubt about the Company’s ability to continue as a going concern,months, however, management believes that the Company has adequate cash resources to fund operations during the next 12 months. However, thereoperations. There can be no assurance that anticipated growth in new business will occur, and that the Company will be successful in substantially increasing its revenues. Management continues tolaunching new products and services. If necessary, management will seek alternative sources of capital to support operations.
 
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
As a smaller reporting company, the Company is not required to provide the information for this Item 3.
 
ITEM 4.    CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
The Company's management, including the President and Chief Executive Officer of the Company as its principal executive officer, and the Chief Financial Officer of the Company, as its principal financial officer,officers have 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 President, Chief Executive Officer, and Chief Financial Officer both have concluded that, as of September 30, 2016,March 31, 2017, 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 and financial officer,officers, as appropriate to allow timely decisions regarding required disclosure.
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The Company has identified six material weaknesses in internal control over financial reporting as described in the Company's Form 10-K for the year ended December 31, 2015.2016.
 
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the quarter ended September 30, 2016March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
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PART II - OTHER INFORMATION
 
ITEM 1.     LEGAL PROCEEDINGS
 
In the normal course of business, the Company periodically becomes involved in litigation.  As of September 30, 2016,March 31, 2017, in the opinion of management, the Company had no material pending litigation other than ordinary litigation incidental to the business.
 
The Company commenced on December 20, 2013 patent infringement litigation against eBay, Inc. (Paid, Inc. v. eBay, Inc.; CV No. 4:13-cv-40151-TSH) in the United States District Court for the District of Massachusetts Central Division.  This litigation has been settled pursuant to a Confidential Settlement and License Agreement dated March 11, 2016.  Under the agreement, the Company received $53,500 after costs as full and final payment for such settlement of the lawsuit and non-exclusive licensing of the Company’s patents. The payment was received in full in April 2016. 
ITEM 1A.     RISK FACTORS
 
There are no material changes for the risk factors previously disclosed on Form 10-K for the year ended December 31, 2015.2016.
 
ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.There were no issuances of unregistered securities during the three months ended March 31, 2017.
 
ITEM 3.     DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4.     MINE SAFETY DISCLOSURES
 
Not Applicable.
 
ITEM 5.     OTHER INFORMATION
 
None.
 
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ITEM 6.     EXHIBITS
 
Exhibit No.
  Exhibit Number
 Description
31.1 CEO Certification required under Section 302 of Sarbanes-Oxley Act of 2002
31.2 CFO Certification required under Section 302 of Sarbanes-Oxley Act of 2002
32 CEO and CFO Certification required under Section 906 of Sarbanes-Oxley Act of 2002
101.INS 101.INS XBRL
Instance Document (filed herewith)
101.SCH XBRL
Taxonomy Extension Schema (filed herewith)
101.CAL XBRL
Taxonomy Extension Calculation Linkbase (filed herewith)
 101.DEF XBRL
Taxonomy Extension Definition Linkbase (filed herewith)
101.LAB XBRL
Taxonomy Extension Label Linkbase (filed herewith)
101.PRE XBRL
Taxonomy Extension Presentation Linkbase (filed herewith)

 
-21--15-
 
 
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.
Registrant   
   
Date: November 14, 2016
By:

/s/                                                        W. Austin Lewis, IV
W. Austin Lewis, IV, President, CEO and CFO
(Principal Executive, Financial and Accounting Officer)
   
Allan Pratt, Chief Executive Officer
By:
/s/                                                        
Date: May 12, 2017W. Austin Lewis, IV, Chief Financial Officer
 
 
 
-22--16-
 
 
LIST OF EXHIBITS

 
Exhibit No.
  Exhibit Number
 Description
31.1 CEO Certification required under Section 302 of Sarbanes-Oxley Act of 2002
31.2 CFO Certification required under Section 302 of Sarbanes-Oxley Act of 2002
32 CEO and CFO Certification required under Section 906 of Sarbanes-Oxley Act of 2002
101.INS 101.INS XBRL
Instance Document (filed herewith)
101.SCH XBRL
Taxonomy Extension Schema (filed herewith)
101.CAL XBRL
Taxonomy Extension Calculation Linkbase (filed herewith)
 101.DEF XBRL
Taxonomy Extension Definition Linkbase (filed herewith)
101.LAB XBRL
Taxonomy Extension Label Linkbase (filed herewith)
101.PRE XBRL
Taxonomy Extension Presentation Linkbase (filed herewith)
 

 
 
-23--17-