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.

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.

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.

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.

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.

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.

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.

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.

 

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.

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.

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:

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.

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 January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial statements. This guidance will be effective in the first quarter of fiscal year 2019 and early adoption is not permitted. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This updated guidance supersedes the current revenue recognition guidance, including industry-specific guidance. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual periods beginning after December 15, 2016, and early adoption is not permitted. In July 2015, the FASB decided to delay the effective date of ASU 2014-09 until December 15, 2017. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The Company 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.

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 October 7, 2015, the Company, through a newly formed limited liability company named PAID Run, LLC, entered into an asset purchase agreement to purchase assets related to BeerRun Software and SpiritRun Software and related intellectual property. The purchase price and additional development for these assets was $297,500, which include all of the client lists, along with all rights, benefits and privileges associated with the software and intellectual property, associated contracts, and books and records.

On December 30, 2016, the Company completed a merger with ShipTime Inc. and its subsidiary to acquire assets related to the technology, client base and other intellectual property. The Company engaged an outside independent third party valuation firm to assist in establishing a value for the ShipTime Inc.

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.

 

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.

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.

 

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 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.

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.

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.

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.

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.

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.

 

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.

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.

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 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.

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.

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 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.

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.

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.

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.

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:

 

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.

As a smaller reporting company, the Company is not required to provide the information for this Item 3.

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.

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.

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.

There are no material changes for the risk factors previously disclosed on Form 10-K for the year ended December 31, 2015.2016.