NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2019
N
ote 1. Organization and Significant
Accounting Policies
PAID,
Inc. (“PAID”, the “Company”,
“we”, “us”, or “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 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. The light
version 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. During 2018, the software was upgraded to create a
better user experience.
ShipTime Canada
Inc. has developed a SaaS-based application, which focuses on the
small and medium business segments. This offering allows members to
quote, process, generate labels, dispatch and track courier and LTL
shipments all from a single interface. The application provides
customers with a choice of today’s leading couriers and
freight carriers all with discounted pricing allowing members to
save on every shipment. ShipTime can also be integrated into
on-line shopping carts to facilitate sales via e-commerce. We
actively sell directly to small and medium businesses and through
long standing partnerships with selected associations throughout
Canada.
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 with 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, 2018 that was filed on April 1, 2019.
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 2019.
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 six months ended June 30, 2019, the Company reported a net loss
of $235,233. The Company has an accumulated deficit of $67,525,591
and has a working capital deficit of $1,427,549 as of June 30,
2019. These factors raise substantial doubt about the
Company’s ability to continue as a going
concern.
Management feels
that the addition of the new PAID platform of services in addition
to the continued growth of ShipTime’s services will return a
valuable impact on the Company’s success in the near future.
The ongoing positive cash flow from 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 in the United States that are complementary to
the current offerings.
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 and will have a positive impact on the Company for
2019 and future years.
Principles of Consolidation
The
condensed consolidated financial statements include the accounts of
PAID, Inc. and its wholly owned subsidiaries, PAID Run, LLC and
ShipTime Canada, Inc. All intercompany accounts and transactions
have been eliminated.
Foreign Currency
The
currency of ShipTime, the Company’s international subsidiary,
is in Canadian dollars. Foreign currency denominated assets and
liabilities are translated into U.S. dollars using the exchange
rates in effect at June 30, 2019 and December 31, 2018. Results of
operations and cash flows are translated using the average exchange
rates throughout the period. The effect of exchange rate
fluctuations on translation of assets and liabilities is included
as a separate component of shareholders’ equity in
accumulated other comprehensive income.
Geographic Concentrations
The
Company conducts business in the U.S. and Canada. For customers
headquartered in their respective countries, the Company derived
approximately 96% of its revenues from Canada and 4% from the U.S.
during the three months ended June 30, 2019, compared to 95% from
Canada and 5% from the U.S. during the three months ended June 30,
2018. For the six months ended June 30, 2019, the Company derived
96% of its revenues from Canada and 4% from the U.S. compared to
94% from Canada and 6% from the U.S. during the same period in
2018.
At June
30, 2019, the Company maintained 100% of its property and equipment
net of accumulated depreciation in Canada.
Right of Use Assets
A
right-of-use asset represents a lessee’s right to use a
leased asset for the term of the lease. Our right-of-use assets
generally consist of an operating lease for a
building.
Right-of-use assets
are measured initially at the present value of the lease payments,
plus any lease payments made before a lease began and any initial
direct costs, such as commissions paid to obtain a
lease.
Right-of-use assets
are subsequently measured at the present value of the remaining
lease payments, adjusted for incentives, prepaid or accrued rent,
and any initial direct costs not yet expensed.
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 recognized during
the three and six months ended June 30, 2019 and 2018. 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 coordinating
shipping services, sales of shipping calculator subscriptions,
brewery management software subscriptions, and client
services.
Nature of Goods and Services
For
label generation service revenues the Company recognizes revenue
when a customer has successfully prepared a shipping label and
scheduled a pickup. Customers with pickups after the end of the
reporting period are recorded as contract liabilities on the
condensed consolidated balance sheets. The service is offered to
consumers via an online registration and allows users to create a
shipping label using a credit card on their account (all customers
must have a valid credit card on file to process shipments on the
ShipTime platform). ShipTime, in partnership with the Canadian
Federation of Independent Businesses (“CFIB”), offered
a cash rebate to its customers. Revenues were recognized net of the
cash rebates, which were held in “funds held in trust”
account in the accompanying condensed consolidated balance sheets.
The cash rebates are available for twelve months for future use.
Rebate revenue is recognized when the rebate is used.
Beginning in 2018,
customers were offered airline miles as a reward in lieu of a cash
rebate. As a result, the CFIB allowed the Company to release the
funds held in trust for unused customer rebates back to cash and
cash equivalents. As the Company transitioned from cash rebates to
airline mile rewards, customers were allowed to convert their
existing cash rebate balances to airline miles at the rate of 10
miles per $1 of rebates. For the three and six months ended June
30, 2019, the Company recognized $2,516 and $8,066, respectively,
of other income related to these conversions as the cost of the
exchanged airline miles was less than the value of the cash rebates
exchanged. Unused airline miles are recorded in prepaid expenses
and other current assets in the accompanying condensed consolidated
balance sheets. During the second quarter of 2019 the prepaid miles
purchased to be awarded to customers were scheduled to expire.
Aeroplan granted permission for a one-time transfer of the balance
of the prepaid miles to the Company’s Aeroplan account. As a
result, the Company recorded an expense in the amount of
$32,102.
For
shipping calculator revenues and brewery management software
revenues, the Company recognizes subscription revenue on a monthly
basis. Shipping calculator customers’ renewal dates are
based on their date of installation and registration of the
shipping calculator line of products. The timing of the revenue
recognition and cash collection may vary within a given quarter and
the deposits for future services are recorded as contract
liabilities on the condensed consolidated balance sheets. Brewery
management software subscribers are billed monthly at the first of
the month. All payments are made via credit card for the month
following.
Revenue Disaggregation
The
Company operates in four reportable segments (see
below).
Performance Obligations
At
contract inception, an assessment of the goods and services
promised in the contracts with customers is performed and a
performance obligation is identified for each distinct promise to
transfer to the customer a good or service (or bundle of goods or
services). To identify the performance obligations, the Company
considers all of the goods or services promised in the contract
regardless of whether they are explicitly stated or are implied by
customary business practices. Revenue is recognized when the
performance obligation has been met, which is when the customer has
successfully prepared a shipping label and scheduled a pickup for
shipping coordination and label generation services. The Company
considers control to have transferred at that time because the
Company has a present right to payment at that time, the Company
has provided the shipping label, and the customer is able to direct
the use of, and obtain substantially all of the remaining benefits
from the shipping label.
For
arrangements under which the Company provides a subscription for
shipping calculator services and brewery management software, the
Company satisfies its performance obligations over the life of the
subscription, typically twelve months or less.
The
Company has no shipping and handling activities related to
contracts with customers.
Significant Payment Terms
Pursuant to the
Company’s contracts with its customers, amounts are collected
up front primarily through credit/debit card transactions.
Accordingly, the Company determined that its contracts with
customers do not include extended payment terms or a significant
financing component.
Variable Consideration
In some
cases, the nature of the Company’s contracts may give rise to
variable consideration, including rebates and cancellations or
other similar items that generally decrease the transaction
price.
Variable
consideration is estimated at the most likely amount that is
expected to be earned. Estimated amounts are included in the
transaction price to the extent it is probable that a significant
reversal of cumulative revenue recognized will not occur when the
uncertainty associated with the variable consideration is resolved.
Estimates of variable consideration and determination of whether to
include estimated amounts in the transaction price are based
largely on an assessment of the anticipated performance and all
information (historical, current and forecasted) that is reasonably
available.
Revenues are
recorded net of variable consideration, such as rebates and
cancellations.
Warranties
The
Company’s products and services are provided on an “as
is” basis and no warranties are included in the contracts
with customers. Also, the Company does not offer separately priced
extended warranty or product maintenance contracts.
Contract Assets
Typically, the
Company has already collected revenue from the customer at the time
it has satisfied its performance obligation. Accordingly, the
Company has only a small balance of accounts receivable, totaling
$134,219 and $87,718 as of June 30, 2019 and December 31, 2018,
respectively. Generally, the Company does not have material amounts
of contract assets since revenue is recognized as control of goods
is transferred or as services are performed.
Contract Liabilities (Deferred Revenue)
Contract
liabilities are recorded when cash payments are received in advance
of the Company’s performance (including rebates). Contract
liabilities were $97,739 and $144,221 at June 30, 2019 and
December 31, 2018, respectively. During the three and six months
ended June 30, 2019, the Company recognized revenues of $3,045 and
$46,482, respectively, related to contract liabilities outstanding
at the beginning of the year.
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 June 30, 2019 and 2018 and the six months ended June
30, 2019 and 2018, there were approximately 50,000 and 61,000, and
51,000 and 62,000, respectively, dilutive shares that were excluded
from the diluted earnings (loss) per share as their effect would
have been antidilutive for the periods then
ended.
The
Company computes its loss applicable to common shareholders by
adding/subtracting dividends on preferred stock, including
undeclared or unpaid dividends if cumulative, and any deemed
dividends or discounts on redeemed preferred stock from its
reported net loss and reports the same on the face of the condensed
consolidated statements of operations and comprehensive
loss.
Segment Reporting
The
Company reports information about segments of its business in its
annual consolidated financial statements and reports selected
segment information in its quarterly reports issued to
shareholders. The Company also reports on its entity-wide
disclosures about the products and services it provides and reports
revenues and its major customers. The Company’s four
reportable segments are managed separately based on fundamental
differences in their operations. At June 30, 2019, the Company
operated in the following four reportable segments:
|
a.
|
Client
services
|
|
b.
|
Shipping
calculator services
|
|
c.
|
Brewery
management software
|
|
d.
|
Shipping
coordination 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 makers are the Chief Executive Officer and Chief
Financial Officer.
The
following table compares total revenue for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
Client
services
|
$
13,076
|
$
5,182
|
$
16,118
|
$
10,565
|
|
Shipping calculator
services
|
41,235
|
45,569
|
75,964
|
93,695
|
|
Brewery management
software
|
51,218
|
70,960
|
107,287
|
143,023
|
|
Shipping
coordination and label generation services
|
2,609,968
|
2,214,749
|
4,805,148
|
4,087,113
|
|
Total
revenues
|
$
2,715,497
|
$
2,336,460
|
$
5,004,517
|
$
4,334,396
|
The
following table compares total loss from operations for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
Client
services
|
$
9,836
|
$
3,943
|
$
12,190
|
$
8,132
|
|
Shipping calculator
services
|
(49,283
)
|
(113,177
)
|
(201,868
)
|
(548,436
)
|
|
Brewery management
software
|
13,191
|
(10,608
)
|
33,798
|
(10,837
)
|
|
Shipping
coordination and label generation services
|
(1,098
)
|
(70,349
)
|
(82,096
)
|
(155,154
)
|
|
Total loss from
operations
|
$
(27,354
)
|
$
(190,191
)
|
$
(237,976
)
|
$
(706,295
)
|
Reclassifications
Certain
amounts were reclassified in the accompanying condensed
consolidated statements of operations and comprehensive loss for
the three and six months ended June 30, 2018 in order to conform to
the current period presentation.
Recent Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“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.
The
Company adopted the new lease standard (ASC 842) on January 1,
2019. We used the modified retrospective approach, which allowed us
to make our transition adjustments at January 1, 2019.
We
currently have two finance leases for office furniture and
equipment. We maintain a lease inventory for those leased assets,
which are currently reported on our consolidated balance sheets and
we continue to report them on our consolidated balance sheet under
the new standard. We have reported one material operating lease on
our consolidated balance sheet beginning January 1, 2019, which
resulted in recording operating lease right-of-use assets and
operating lease obligations of approximately $84,000. We determined
that no adjustment to equity was necessary related to
implementation of the new lease standard.
The
Company elected certain practical expedients and as permitted did
not reassess whether existing contracts are or contain leases, the
lease classification and initial direct costs for any existing
leases. As part of practical expedients selected the Company also
used hindsight in determining lease terms. The Company has lease
agreements with lease and non-lease components, which are accounted
for as a single lease component. Leases with an initial term of
twelve months or less are not recorded on the balance sheet as we
recognize lease expense for these leases on a straight-line basis
over the lease term.
Note 2. Accrued Expenses
Accrued
expenses are comprised of the following:
|
|
|
|
|
|
(unaudited)
|
|
|
Payroll and related
costs
|
$
10,603
|
$
169,691
|
|
Professional and
consulting fees
|
410
|
2,100
|
|
Royalties
|
51,838
|
51,838
|
|
Stock price
guarantee
|
888,570
|
884,241
|
|
Other
|
169,024
|
160,763
|
|
Total
|
1,120,445
|
$
1,268,633
|
Note 3. Acquisitions and Intangible Assets
The
Company holds several patents for the real-time calculation of
shipping costs for items purchased through online auctions using a
zip code as a destination location indicator. It includes shipping
charge calculations across multiple carriers and accounts for
additional characteristics of the item being shipped, such as
weight, special packaging or handling, and insurance costs. These
patents help facilitate rapid and accurate estimation of shipping
costs across multiple shipping carriers and also include real-time
calculation of shipping.
In
addition, the Company has various other intangibles from past
business combinations.
At June
30, 2019 and December 31, 2018, intangible assets consisted of the
following:
|
|
|
|
|
Patents
|
$
16,000
|
$
16,000
|
|
Software
|
83,750
|
83,750
|
|
Trade
Name
|
815,908
|
785,038
|
|
Technology
|
521,075
|
501,360
|
|
Client list /
relationship
|
4,793,898
|
4,620,599
|
|
Accumulated
amortization
|
(1,997,732
)
|
(1,715,974
)
|
|
|
$
4,232,899
|
$
4,290,773
|
Amortization
expense of intangible assets for the six months ended June 30, 2019
and 2018 was $235,643 and $424,674, respectively.
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. During the year ended 2018, the Company determined
that the value of goodwill was impaired and recorded a full loss on
the impairment of $10,354,172.
Note 4. Commitments and Contingencies
Notes Payable
In
2017, the Company entered into two notes payable with a shareholder
to repurchase common and preferred shares. The first note was for a
period of one year for CAD $120,000 with payment terms of twelve
equal installments of CAD $10,328 at an interest rate of 6%. The
second note was an interest-free seven-month note for CAD $70,992
with payment terms of one payment of CAD $10,000 followed by six
equal installments of CAD $10,165. Both of these notes were paid in
full in 2018.
In
January 2018, the Company entered into a note payable with a
shareholder to repurchase common and preferred shares. The note was
an interest-free, eight-month note for CAD $66,708 with payment
terms of one payment of CAD $10,000 followed by eight equal
installments of CAD $8,101. This note was paid in full in the third
quarter of 2018. In April 2018, the Company entered into a note
payable with a shareholder to repurchase common and preferred
shares. The note was an interest-free, fifteen-month note for CAD
$72,500. The Company made payments on this note in the amount of
CAD $31,726. The balance of CAD $40,774 on this note was offset in
the third quarter of 2018 against a note receivable to the same
party (see below). In August 2018, the Company entered into a note
payable with a shareholder to repurchase common and preferred
shares. The note was an interest-free, six-month note for CAD
$122,400 with payment terms of six equal installments of CAD
$20,400. This note was paid in full in the first quarter of
2019.
Related Party Note Payable
In June
2017, the Company agreed to make monthly payments of CAD $5,000 to
related parties for seven months followed by monthly payments of
CAD $15,000 with one final payment in March 2018 at which point the
note was paid in full.
Notes Receivable
In
April 2018, the Company entered into an agreement with a third
party to develop software to assist with the growth of the
e-commerce platform. The agreement contained a loan to a third
party in the amount of $144,000 to be loaned by the Company in
eighteen installments of which CAD $40,744 was actually loaned
during 2018.
During
the third quarter of 2018, the Company cancelled the agreement and
called the CAD $40,774 note with the third party developer. As a
result, the balance of the note receivable was offset against the
CAD $72,500 note payable for the repurchase of common and preferred
shares issued to the same party (see above), and no balance on the
note receivable was due.
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 $60.00 per share as adjusted for the
reverse stock split. If the shares are not at the required
$60.00 per share when they are sold, the Company has the option of
issuing additional shares at their fair value or making cash
payments for the difference between the guaranteed price per share
and the fair value of the stock. As of June 30, 2019 and
December 31, 2018, the maximum value of the stock price guarantee
was $888,570 and $884,241, respectively, as the Company’s
stock price was below $60.00 per share at June 30, 2019 and
December 31, 2018, 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 six months ended June 30,
2019 and 2018, the Company recorded an unrealized gain (loss) on
stock price guarantee of ($4,329) and $8,498,
respectively.
Legal Matters
In the
normal course of business, the Company periodically becomes
involved in litigation. As of June 30, 2019, 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.
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 leases, the Company has agreed to indemnify its
lessors 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 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 condensed consolidated balance sheets.
Note 5. Shareholders’ Equity
Preferred Stock
On
December 19, 2016, the Company filed an amendment to its
Certificate of Incorporation to authorize the issuance of
20,000,000 shares of blank-check preferred stock at $0.001 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 Certificate of Designations effective on December
30, 2016 which sets aside 5,000,000 shares of Preferred Stock as
Series A Preferred Stock. The Series A Preferred Stock holders have
no voting rights and have an aggregate liquidation value of
$11,727,972 at June 30, 2019. The Series A Preferred Stock also
carries a coupon payment obligation of 1.5% of the liquidation
value per share ($3.03) per year in cash or additional Series A
preferred Stock, calculated by taking the 30-day average closing
price for an equal number of shares of common stock for the month
immediately preceding the coupon payment date, which is made
annually. The Company paid the 2017 coupon payment due to
shareholders in the second quarter of 2019 in the amount of
$163,236. For the six month periods ended June 30, 2019 and 2018,
the estimated portion of the annual coupon is $90,892 and $82,959,
respectively, which has been added to the liquidation value of the
preferred stock. The Series A Preferred Stock has no voting or
conversion rights. If purchased, redeemed, or otherwise acquired
(other than conversion), the preferred stock may be
reissued.
During
the second quarter of 2019, the Company issued 653,866 preferred
shares in the form of compensation to employees. The value of the
share issuance is $83,221.
Common Stock
The
Company has authorized and reserved for future issuance 480,880
shares of common stock and 3,347,304 shares of preferred stock with
respect to the remaining exchangeable shares to be issued as a
result of the ShipTime acquisition by the Company in
2016.
Share Repurchase
In
January 2018, the Company entered into an agreement to repurchase
109 exchangeable shares of ShipTime common stock. The total shares
exchanged in this transaction were 4,905 common shares and 33,899
preferred shares of the Company. The allocated discount on the
repurchase of the preferred stock was $1.87 per share and has been
recorded in accumulated deficit, and was added to the net loss
available to common shareholders. The repurchase of the common
shares was recorded at an allocated cost of $1.59 per share. In
April 2018, the Company entered in a second agreement with a
shareholder to purchase 120 exchangeable shares of ShipTime common
stock. The total shares exchanged in this transaction were 5,400
common shares and 37,320 preferred shares of the Company. The
discount on the repurchase of preferred stock was $1.90 per share
and has been recorded in accumulated deficit, and was added to the
net loss available to common shareholders. The repurchase of the
common shares was recorded at an allocated cost of $1.58 per share.
In August 2018, the Company entered in an additional agreement with
a shareholder to purchase 200 exchangeable shares of ShipTime
common stock. The total shares exchanged in this transaction were
9,000 common shares and 62,200 preferred shares of the Company. The
discount on the repurchase of preferred stock was $1.87 per share
and has been recorded in accumulated deficit, and was added to the
net loss available to common shareholders. The repurchase of the
common shares was recorded at an allocated cost of $1.58 per share.
There were no share purchases during the six months ended June 30,
2019.
Share-based Incentive Plans
The
Company has a 2018 Stock Option Plan which reserves 450,000
non-qualified stock options to be granted to employees. The Company
has three additional stock option plans that include both incentive
and non-qualified stock options to be granted to certain eligible
employees, non-employee directors, or consultants of the Company.
The Company granted 15,000 stock options to one employee during the
quarter ended March 31, 2019. The options have vesting period of
one-third immediately, one-third in 18 months, and one-third in 36
months from the date of the grant, they expire if not exercised
within ten years from grant date, and the exercise price is $2.92
per share. The Company granted 1,245 stock options to one employee
during the quarter ended June 30, 2019. The options have vesting
period of one-third immediately, one-third in 18 months, and
one-third in 36 months from the date of the grant, they expire if
not exercised within ten years from grant date, and the exercise
price is $3.50 per share. During the second quarter of 2019, the
Company recorded a reversal of unvested stock option expense for
the termination of a non-employee consultant’s 25,000 stock
options totaling $44,167 and $43,067 of stock compensation expense
related to the vesting of applicable options granted in 2019 and
prior years. For the three and six month period ended June 30,
2019, the Company recorded ($1,100) and $57,740 of stock
compensation expense related to the vesting of applicable options
granted in 2019 and prior years, net of the reversal discussed
above.
Note 6. Leases
We have
an operating lease for our corporate offices in Canada and finance
leases for furniture and equipment. Our leases have remaining lease
terms of twenty-one months to fifty months, and our primary
operating leases include options to extend the leases for four
years. Future renewal options that are not likely to be executed as
of the balance sheet date are excluded from right-of-use assets and
related lease liabilities.
We
report operating leased assets, as well as operating lease current
and noncurrent obligations on our balance sheets for the right to
use the building in our business. Our finance leases represent
furniture and office equipment; we report the furniture and
equipment, as well as finance lease current and noncurrent
obligations on our balance sheet.
Generally, interest
rates are stated in our leases for equipment. When no interest rate
is stated in a lease, however, we review the interest rates
implicit in our recent finance leases to estimate our incremental
borrowing rate. We determine the rate implicit in a lease by using
the most recent finance lease rate, or other method we think most
closely represents our incremental borrowing rate.
The
components of lease expense were as follows:
|
|
Three Months Ended
June 30, 2019
|
Six
Months Ended
June
30, 2019
|
|
Operating lease
cost
|
$
5,653
|
$
11,306
|
|
|
|
|
|
Finance lease
cost:
|
|
|
|
Amortization of
leased assets
|
$
2,670
|
$
5,253
|
|
Interest on lease
liabilities
|
431
|
932
|
|
Total finance lease
cost
|
$
3,091
|
$
6,185
|
Supplemental
cash flow information related to leases was as
follows:
|
|
Six
Months Ended
June
30, 2019
|
|
Cash paid for
amounts included in leases:
|
|
|
Operating cash
flows from operating leases
|
$
10,954
|
|
Operating cash
flows from finance leases
|
$
932
|
|
Financing cash
flows from finance leases
|
$
4,281
|
|
|
|
|
Right-of-use assets
obtained in exchange for lease obligations:
|
|
|
Operating
leases
|
$
-
|
|
Finance
leases
|
$
-
|
Supplemental
balance sheet information related to leases was as
follows:
|
|
|
|
Operating
leases:
|
|
|
Operating lease
right-of-use assets
|
$
79,275
|
|
Current portion of
operating lease obligations
|
$
16,492
|
|
Operating lease
obligations, net of current portion
|
63,136
|
|
Total operating
lease liabilities
|
$
79,628
|
|
|
|
|
Finance
leases:
|
|
|
Property and
equipment, at cost
|
$
52,527
|
|
Accumulated
depreciation
|
(31,515
)
|
|
Property and
equipment, net
|
$
21,012
|
|
|
|
|
Current portion of
finance lease obligations
|
$
9,364
|
|
Finance lease
obligations, net of current portion
|
7,796
|
|
Total finance lease
liabilities
|
$
17,160
|
|
|
Six
Months Ended
June
30, 2019
|
|
Weighted Average
Remaining Lease Term
|
|
|
Operating
lease
|
4.2 years
|
|
Finance
leases
|
1.8 years
|
|
|
|
|
Weighted Average
Discount Rate
|
|
|
Operating
lease
|
9.0
%
|
|
Finance
leases
|
9.7
%
|
Upon
adoption of the new lease standard, discount rates used for
existing leases were established at January 1, 2019.
A
summary of future minimum payments under non-cancellable operating
lease commitment as of June 30, 2019 is as follows:
|
Years ending
December 31,
|
|
|
2019 (remaining
months)
|
$
11,261
|
|
2020
|
22,522
|
|
2021
|
22,522
|
|
2022
|
22,522
|
|
2023
|
15,015
|
|
Total lease
liabilities
|
$
93,842
|
|
Less
amount representing interest
|
(14,214
)
|
|
Total
|
79,628
|
|
Less
current portion
|
(16,492
)
|
|
|
$
63,136
|
The
following is a schedule of minimum future rentals on the
non-cancelable finance leases as of June 30, 2019:
|
Year ending
December 31,
|
|
|
2019 (remaining
months)
|
$
5,224
|
|
2020
|
10,447
|
|
2021
|
2,792
|
|
Total minimum
payments required:
|
18,463
|
|
Less amount
representing interest:
|
(1,303
)
|
|
Present value of
net minimum lease payments:
|
17,160
|
|
Less current
portion
|
(9,364
)
|
|
|
$
7,796
|
Disclosures related to periods prior to adoption of ASC
842
Minimum
future lease payments under lease obligations as of December 31,
2018 are as follows:
|
Year Ended December
31,
|
|
|
|
2019
|
$
10,222
|
$
29,779
|
|
2020
|
10,222
|
38,202
|
|
2021
|
2,736
|
38,202
|
|
2022
|
-
|
38,202
|
|
2023
|
-
|
25,477
|
|
Total future
minimum lease payments
|
23,180
|
$
169,862
|
|
Less amount
representing interest
|
(2,484
)
|
|
|
Present value of
net minimum lease payment
|
20,696
|
|
|
Less current
portion
|
(8,580
)
|
|
|
|
$
12,116
|
|
Note
7. Subsequent Events
The
Company has evaluated subsequent events through the filing date of
this Form 10-Q, and has 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.