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 March 31, 20182019 and December 31, 2017,2018, the maximum value of the stock price guarantee was $872,215$890,654 and $880,713,$884,241, respectively, as the Company’s stock price was below $60.00 per share at March 31, 20182019 and December 31, 2017,2018, 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 three months ended March 31, 20182019 and 2017,2018, the Company recorded an unrealized gain (loss) on stock price guarantee of ($6,414) and $8,498, and ($8,339), respectively.
Legal Matters
In the normal course of business, the Company periodically becomes involved in litigation. As of March 31, 2018,2019, 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. Revenue from Contracts with Customers
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which modifies how all entities recognize revenue. Topic 606 introduces a five-step model to achieve its core principle 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. We adopted Topic 606 on January 1, 2018 and have evaluated the Company’s current revenue recognition process in comparison to the adoption of Topic 606. The Company reviewed the principles of Topic 606 by taking into consideration the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Due to the nature of the Company’s product offerings and contracts associated with those products, the Company’s deliverables do not fluctuate and its revenue recognition is consistent.
The Company adopted Topic 606 on January 1, 2018 using the modified retrospective transition method. The adoption of Topic 606 did not have a material effect on the Company’s financial statements or results of operations, and no cumulative catch-up adjustment to the opening balance of retained earnings was required. The Company used the related practical expedients to not disclose the transaction price allocated to remaining unsatisfied obligations and when the Company expects to recognize the related revenue.
Nature of Goods and Services
For label generation service revenues the Company recognizes revenue when a customer has successfully prepared a shipping label and had 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. ShipTime, in partnership with the Canadian Federation of Independent Businesses, offers a rebate to its customers. Revenues are recognized net of the rebates, which are held in “funds held in trust” account in the accompanying condensed consolidated balance sheets. The rebate is held in the trust account for twelve months for future use. Rebate revenue is recognized when the rebate is used. All clients must have a valid credit card on file to process shipments on the ShipTime platform.
For shipping calculator revenues and brewery management software revenues, the Company recognizes subscription revenue on a monthly basis. Shipping calculator customers’ renewal dates are based on their date of installation and registration of the shipping calculator line of products. The timing of the revenue recognition and cash collection may vary within a given quarter and the deposits for future services are recorded as contract liabilities on the condensed consolidated balance sheets. Brewery management software subscribers are billed monthly at the first of the month. All payments are made via credit card for the month following.
Revenue Disaggregation
The Company operates in four reportable segments – see Note 2
Performance Obligations
At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Revenue is recognized when the performance obligation has been met, which is when the customer has successfully prepared a shipping label and had a pickup for shipping coordination and label generation services. The Company considers control to have transferred at that time because the Company has a present right to payment at that time, the Company has provided the shipping label, and the customer is able to direct the use of, and obtain substantially all of the remaining benefits from the shipping label.
For arrangements under which the Company provides a subscription for 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, we have already collected revenue from the customer at the time we have satisfied our performance obligation. Accordingly, our contract assets consist of only a small balance of accounts receivable, totaling $29,404 and $38,287 as of March 31, 2018 and December 31, 2017, respectively. Generally, we do not have material amounts of other 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 $262,629 and $279,250 at March 31, 2018 and December 31, 2017, respectively.
Practical Expedients and Exemptions
The Company has elected the following practical expedients allowed under Topic 606:
●
Payment terms with the Company’s customers, which are one year or less, are not considered a significant financing component.
●
The Company’s performance obligations on its orders are generally satisfied within one year from a given reporting date and, therefore, the Company has omitted disclosure of the transaction price allocated to remaining performance obligations on open orders.
Note 6. Shareholder’s5. 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 $11,205,591$11,843,287 at March 31, 2018.2019. 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. Payout of the coupon may be made out of existing cash or in shares of Series A Preferred stock of the Company. For the three-month periodsthree month period ended March 31, 20182019 and 2017,March 31, 2018, the estimated portion of the annual coupon is $6,228$42,971 and $6,454,$41,903, respectively, which has been added to the liquidation value of the preferred stock as the Company does not anticipate paying the coupon in cash.stock. 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 outstanding common stock at an exchange rate of 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 have been retroactively adjusted to reflect the reverse stock split.
The Company has authorized and reserved for future issuance 495,280480,880 shares of common stock and 3,446,8243,347,304 shares of preferred stock with respect to the remaining exchangeable shares to be issued as a result of the ShipTime acquisition.
acquisition by the Company in 2016.
Share Repurchase
During 2017, the Company entered into three agreements to repurchase exchangeable shares of ShipTime common stock. Each ShipTime exchangeable share exchanges into 311 preferred shares and 45 common shares of the Company. The total shares exchanged in these transactions were 14,535 common shares and 100,453 preferred shares. The allocated discount on the repurchase of the preferred stock was $1.77 per share of preferred stock and has been recorded in accumulated deficit, and was added to the net loss available to common stockholders in accordance with ASC 260-10-S99-2. The repurchase of the common shares was recorded at an allocated cost of $1.83 per share.
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 waswere 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 stockholders.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.
Share-based Incentive Plans
During the period ended March 31, 2018, the Board of Directors voted to approve theThe 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 183,70015,000 stock options to employees and consultantsone employee during the three monthsquarter ended March 31, 2018.2019. The options have vesting periodsperiod of one-third immediately, one-third in 18 months, and over a two-year period,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 $4.10$2.92 per share. As a result of the issuance, the Company recorded share-based compensation expense of $356,354 duringFor the quarter ended March 31, 2018.2019, the Company recorded $58,840 of stock compensation expense related to the vesting of applicable options granted in 2019 and prior years.
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 March 31, 2019 |
Operating lease cost | $5,653
|
| |
Finance lease cost: | |
Amortization of leased assets | $2,583 |
Interest on lease liabilities | 501
|
Total finance lease cost | $3,084
|
Supplemental cash flow information related to leases was as follows:
| Three Months Ended March 31, 2019 |
Cash paid for amounts included in leases: | |
Operating cash flows from operating leases | $5,477 |
Operating cash flows from finance leases | $501
|
Financing cash flows from finance leases | $2,121 |
| |
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 | $81,773 |
Current portion of operating lease obligations | $15,665 |
Operating lease obligations, net of current portion | 66,282 |
Total operating lease liabilities | $81,947 |
| |
Finance leases: | |
Property and equipment, at cost | $51,655 |
Accumulated depreciation | (28,410) |
Property and equipment, net | $23,245
|
| |
Current portion of finance lease obligations | $9,776 |
Finance lease obligations, net of current portion | 9,263 |
Total finance lease liabilities | $19,039 |
| Three Months Ended March 31, 2019 |
Weighted Average Remaining Lease Term | |
Operating lease | |
Finance leases | |
| |
Weighted Average Discount Rate | |
Operating lease | 9.0%
|
Finance leases | 9.8%
|
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 March 31, 2019 is as follows:
Years ending December 31, | |
2019 (remaining months) | $16,759 |
2020 | 22,608 |
2021 | 22,608 |
2022 | 22,608 |
2023 | 15,072 |
Total lease liabilities | $99,654 |
Less amount representing interest | (17,707) |
Total | 81,947 |
Less current portion | (15,665) |
| $66,282 |
The following is a schedule of minimum future rentals on the non-cancelable finance leases as of March 31, 2019:
| |
2019 (remaining months) | $7,835 |
2020 | 10,444 |
2021 | 2,793 |
Total minimum payments required: | 21,072 |
Less amount representing interest: | (2,033) |
Present value of net minimum lease payments: | 19,039 |
Less current portion | (9,776) |
| $9,263 |
Disclosures related to periods prior to adoption of ASC 842
Minimum future lease payments under capital 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.
ITEM 2. | MANAGEMMAENT'SNAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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 PAID, 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, 20172018 that was filed on March 30, 2018.April 1, 2019.
For example, the Company's ability to achievemaintain 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 operationsoperations.
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
ShipTime Canada Inc. ShipTime’s platform provides its members with the ability to quote, process, track and dispatch shipments while getting preferred rates on packages and skidded (LTL) freight shipments throughout North America and around the world. In addition to these features, ShipTime also provides what it refers to as “Heroic Multilingual Customer Support.” In this capacity, ShipTime acts as an advocate on behalf of its clients in resolving matters concerning orders and shipping. With an increasing focus and service offering for e-commerce merchants, which include online shopping carts, inventory management, payment services, client prospecting and retention software, ShipTime can help merchants worldwide grow and scale their businesses. ShipTime generates monthly recurring revenue through transactions and “software as a service” (SAAS) offerings. It currently serves in excess of 30,00050,000 members in North America and has plans to expand its services into Europe and then worldwide.
AuctionInc Software. AuctionInc 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 application was designed to focus on real-time carrier calculated shipping rates and tax calculations. 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. 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 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 continues to grow in the United States and we feel that there is considerable potential to grow this portion of our business.
Paid products are in development and include PaidCart PaidApp and PaidWeb.PaidPayments. These additional offerings will provide a full e-commerce solution for small businesses.
Significant Accounting Policies
Our significant accounting policies are more fully described in Note 3 to our consolidated financial statements for the years ended December 31, 20172018 and 20162017 included in our Form 10-K filed on March 30, 2018,April 1, 2019, as updated and amended in Note 1 of the Notes to Condensed Consolidated Financial Statements included herein. In addition, we adopted the new revenue recognition standard on January 1, 2018 as discussed in Note 5 of the Notes to Condensed Consolidated Financial Statements with no effect to current or past amounts recognized as revenue. Also, we adopted the new lease standard as required by ASU 2016-02. 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 March 31, 20182019 and 20172018.
The following discussion compares the Company's results of operations for the three months ended March 31, 20182019 with those for the three months ended March 31, 2017.2018. 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 March 31, | Three months Ended March 31, |
| | | | | | |
Client services | $5,383 | $13,409 | (60)% | $3,042 | $5,383 | (43)% |
Brewery management software | 72,063 | 77,841 | (7)% | 56,069 | 72,063 | (22)% |
Shipping coordination and label generation services | 1,872,364 | 1,442,126 | 30% | 2,195,180 | 1,872,364 | 17% |
Shipping calculator services | 48,126 | 56,306 | (15)% | 34,729 | 48,126 | (28)% |
Total revenues | $1,997,936 | $1,589,682 | 26% | $2,289,020 | 1,997,936 | 15% |
Revenues increased 26%15% in the first quarter primarily from the growth of our shipping coordination and label generation services.
Client service revenues decreased $8,026$2,341 or 60%43% to $5,383$3,042 in the first quarter of 20182019 compared to $13,409$5,383 in 2017.2018. This decrease is a result of the diminishingdepleted inventory available for sale inof our movie posterposters resulting in fewer auctions.
Brewery management software revenues decreased $5,778$15,994 to $56,069 in 2019 from $72,063 in 2018 from $77,841 in 2017.2018. The decrease in revenues is due to a reduced number of new clients and an increase in competition.
Shipping coordination and label generation service revenues increased $322,816 or 17% to $2,195,180 in the first quarter of 2019 compared to $1,872,364 in 2018. The increase is attributable to the increased marketing, new corporate partnerships and brand recognition for this segment of our business.
Shipping calculator services revenue decreased $8,180$13,397 or 15%28% to $48,126$34,729 in the first quarter of 20182019 compared to $56,306$48,126 in 2017.2018. The decrease was primarily due to a decline in new customers and the projected transition to the new e-commerce shopping cart offering.
Shipping coordination and label generation service revenues increased $430,238 or 30% to $1,872,364 in During 2018, the first quarterCompany discontinued offering several e-commerce shipping calculator plugins with the anticipation of 2018 compared to $1,442,126 in 2017. The increase is attributable to the increased marketing for this segment of our business.a new offering.
Gross Profit
Gross profit increased $98,788$72,635 or 24%14% in the first quarter of 20182019 to $589,102 compared to $516,467 compared to $417,679 in 2017.2018. Gross margin remainsremained at 26% for the first quarter of 2019 and 2018. The steady gross margin remains unchanged aspercent is a result of the fixed markups onconsistency of our carrier rates for the shipping coordination and label generation services that the Company offers.
Operating Expenses
Total operating expenses in the first quarter 20182019 were $1,032,571$799,724 compared to $616,897$1,032,571 in the first quarter of 2017, an increase2018, a decrease of $415,674$232,847 or 67%23%. The increasedecrease is primarily due to the growth in personnel in addition to the optionstock based compensation of $356,354$58,840 in the first quarter of 2019 compared to $356,354 in 2018.
Other Income/Expense, net
Net other income (expense) in the first quarter of 20182019 was $7,534($864) compared to ($3,705)$7,534 in the same period of 2017,2018, a change of $11,239.$8,398. This is primarily attributable to change in the unrealized gain on stock price as it relates to the guarantee of $8,498 in the first quarter of 2018 compared to a loss of $8,339 in the same period of 2017.
liability.
Net Loss
The Company realized a net loss in the first quarter of 20182019 of ($509,370)211,986) compared to a net loss of ($203,373)509,370) for the same period in 2017.2018. The net loss available to common stockholdersshareholders for the first quarter of 20182019 and 20172018 represent ($0.28)0.16) and ($0.13)0.30) per share, respectively.
Cash Flows from Operating Activities
A summarized reconciliation of the Company's net loss to cash and cash equivalents provided by operating activities for the three months ended March 31, 20182019 and 20172018 is as follows:
| | |
Net loss | $(211,986) | $(509,370) |
Depreciation and amortization | 125,562 | 220,288 |
Amortization of operating lease right-of-use assets | 3,748 | - |
Share-based compensation | 58,840 | 356,354 |
Unrealized loss (gain) on stock price guarantee | 6,414 | (8,498) |
Changes in current assets and liabilities | 49,187 | (13,348) |
Net cash provided by operating activities | $31,765 | 45,426 |
| | |
Net loss | $(509,370) | $(203,373) |
Depreciation and amortization | 220,288 | 212,898 |
Share-based compensation | 356,354 | - |
Unrealized loss (gain) on stock price guarantee | (8,498) | 8,339 |
Write-off of other receivable | - | 1,040 |
Changes in current assets and liabilities | (4,972) | 23,894 |
Net cash provided by operating activities | $53,802 | $42,798 |
Working Capital and Liquidity
The Company had cash and cash equivalents of $449,482$645,985 at March 31, 2018,2019, compared to $535,520$632,331 at December 31, 2017.2018. The Company had a negative working capital of $1,313,033$1,428,527 at March 31, 2018, an improvement2019, a change of $811$63,851 compared to $1,313,844$1,364,676 at December 31, 2017.2018. The decreaseincrease in working capital deficit is attributable to the improved revenues and expense management associated with ShipTime Canada.additional accounts payable related to seasonal activity. The decrease to theincrease in cash and cash equivalents is due to an increase in expenses in addition to the cash used incontinued growth of the repurchase of common and preferred shares.
Company.
The Company may need an infusion of additional capital to fund anticipated operating costs over the next 12 months, however, management believes that the Company has adequate cash resources to fund operations. There can be no assurance that anticipated growth will occur, and that the Company will be successful in launching 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 Chief Executive Officer of the Company and the Chief Financial Officer of the Company, as its principal financial 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 Chief Executive Officer, and Chief Financial Officer both have concluded that, as of March 31, 2018,2019, 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 officers, as appropriate to allow timely decisions regarding required disclosure.
The Company has identified sixnumerous material weaknesses in internal control over financial reporting as described in the Company's Form 10-K for the year ended December 31, 2017.2018.
Changes in Internal Control over Financial Reporting
There was no changewere several changes in our internal control over financial reporting during the quarter ended March 31, 20182019. The Company has implemented policies and procedures to assure that has materially affected, orthere is reasonably likelya segregation of duties, evaluation of financial reporting and ongoing monitoring of activities. The Company continues to materially affect, ourevaluate the internal controlcontrols over financial reporting.reporting and is working toward implementation of corporate governance, increased communication and updates to control documents and documentation of all procedures.
PARPARTT II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGSPROCEEDINGS
In the normal course of business, the Company periodically becomes involved in litigation. As of March 31, 2018,2019, in the opinion of management, the Company had no material pending litigation other than ordinary litigation incidental to the business.
ITEM 1A. RISK FACTORSFACTORS
There are no material changes for the risk factors previously disclosed on Form 10-K for the year ended December 31, 2017.2018.
ITEM 2. UNREGISTEREDUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no issuances of unregistered securities during the three months ended March 31, 2018.2019.
ITEM 3. DEFAULTSDEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINEMINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
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CEO Certification required under Section 302 of Sarbanes-Oxley Act of 2002