Attached files
| file | filename |
|---|---|
| EX-99.3 - ADDITIONAL EXHIBITS - PAID INC | ex99-3.htm |
| EX-99.1 - AUDITED FINANCIAL STATEMENTS - PAID INC | ex99-1.htm |
| 8-K/A - AMENDMENT TO FORM 8-K - PAID INC | payd8ka_dec232016.htm |
EXHIBIT
99.2
emergeIT Inc.
Balance Sheets
|
|
September 30, 2016
(unaudited)
|
December 31,
2015
|
|
Assets
|
|
|
|
Current
|
|
|
|
Cash
|
$356,489
|
$50,870
|
|
Accounts receivable (Note
4)
|
54,335
|
19,564
|
|
Due from related party (Note
5)
|
956
|
9,650
|
|
Prepaid expenses and other
assets
|
25,745
|
10,000
|
|
Funds held in trust
|
212,735
|
212,735
|
|
|
650,260
|
302,819
|
|
Capital assets (Note
6)
|
78,960
|
10,418
|
|
Development costs (Note
7)
|
42,414
|
126,023
|
|
|
$771,633
|
$439,260
|
|
|
|
|
|
Liabilities and Shareholders'
Deficiency
|
|
|
|
|
||
|
Accounts payable and accrued
liabilities
|
$704,610
|
$637,922
|
|
Due to related parties (Note
8)
|
259,752
|
497,298
|
|
Convertible promissory note (Note
9)
|
557,301
|
174,628
|
|
Deferred revenue
|
306,096
|
296,894
|
|
Deposits
|
-
|
-
|
|
|
1,827,759
|
1,606,742
|
|
Shareholders'
deficiency
|
|
|
|
Common shares (Note
10)
|
561,165
|
561,165
|
|
Warrants (Note 9)
|
269,880
|
269,880
|
|
Additional paid in
capital
|
345,320
|
345,320
|
|
Deficit
|
(2,232,491)
|
(2,343,847)
|
|
|
(1,056,126)
|
(1,167,482)
|
|
|
$771,633
|
$439,260
|
-1-
emergeIT Inc.
Unaudited Statements of Operations
and Comprehensive Loss
|
|
Jan 1, 2016 to
September 30, 2016
|
Jan 1, 2015 to
September 30, 2015
|
|
Revenue
|
$5,498,349
|
$3,823,074
|
|
Cost of sales
|
3,905,804
|
3,010,289
|
|
Gross Profit
|
1,592,545
|
812,785
|
|
Expenses
|
|
|
|
Advertising and
promotion
|
142,839
|
230,505
|
|
Amortization
|
29,361
|
132,184
|
|
Foreign exchange loss
|
-
|
3,558
|
|
Interest and bank
charges
|
289,047
|
41,859
|
|
Occupancy costs
|
22,149
|
11,500
|
|
Software Development
Fees
|
94,149
|
15,723
|
|
Office and general
|
46,444
|
26,658
|
|
Professional fees
|
651,061
|
178,464
|
|
Salaries and benefits
|
167,245
|
160,366
|
|
Telephone
|
11,089
|
11,528
|
|
Travel
|
27,805
|
19,036
|
|
|
1,481,189
|
831,381
|
|
Other income (loss)
|
-
|
(26,655)
|
|
|
111,356
|
(45,251)
|
|
Deficit, beginning of the
period
|
(2,343,847)
|
(2,089,772)
|
|
Deficit, end of the
period
|
$(2,232,491)
|
$(2,135,023)
|
-2-
emergeIT Inc.
Unaudited Statements of Cash
Flows
|
|
Jan 1, 2016 to
September 30,
2016
|
Jan 1, 2015 to
September 30,
2015
|
|
Cash provided by (used
in) Operating activities
|
|
|
|
Net income (loss) for the
period
|
$111,356
|
$(45,251)
|
|
Items not involving
cash
|
|
|
|
Amortization
|
6,403
|
3,863
|
|
Interest accretion on convertible
debt
|
|
|
|
Changes in non-cash working capital
balances
|
|
|
|
Accounts receivable
|
(34,771)
|
(41,345)
|
|
Prepaid expenses and other current
assets
|
(6,095)
|
(170,064)
|
|
Accounts payable and accrued
liabilities
|
66,688
|
(187,040)
|
|
Deferred revenue
|
9,202
|
174,511
|
|
Deposits and other
assets
|
(956)
|
68,729
|
|
Intangible Assets,
net
|
83,609
|
93,934
|
|
|
235,436
|
(102,663)
|
|
Investing
activities
|
|
|
|
Property and Equipment
additions
|
(74,944)
|
-
|
|
|
(74,944)
|
|
|
Financing
activities
|
|
|
|
Due to related
parties
|
(237,546)
|
86,029
|
|
Issuance of convertible debt and
warrants
|
382,673
|
-
|
|
|
145,127
|
86,029
|
|
Increase (decrease) in cash during the
period
|
305,619
|
(16,634)
|
|
Cash(bank
indebtedness), beginning of period
|
50,870
|
(28,853)
|
|
Cash
(bank indebtedness), end of period
|
$356,489
|
$(45,487)
|
-3-
emergeIT Inc.
Notes to Unaudited Financial
Statements
For the period ended September 30, 2016
and 2015
1. Summary of Significant Accounting
Policies
a. Nature of Business
emergeIT
Inc. (the "Company") was incorporated under the Ontario Business
Corporations Act on April 15, 2008, and is primarily involved in
the creation of software solutions related to the cost effective
management of shipping activities.
b. Basis of
Accounting
The Company
has prepared its financial statements in accordance with accounting
principles generally accepted in the United States of America
("GAAP").
c. Revenue
Recognition
Revenue
consists primarily of fees for shipping services provided to
customers.
Revenue is recognized when goods are
delivered, services are rendered and when collection is reasonably
assured. When the risks and rewards of ownership have not
transferred or if all significant acts have not been completed,
fees received in advance are included in deferred
revenue.
d. Capital Assets
Capital
assets are stated at cost less accumulated amortization.
Amortization is based on the estimated useful life of the asset as
follows:
Equipment
30%
declining balance
Furniture
20%
declining balance
e. Development Costs
The Company
capitalizes certain development costs incurred in connection with
its internal-use software. These capitalized costs are primarily
related to its proprietary commerce solutions that is hosted by the
Company and accessed by its customers. Costs incurred in the
preliminary stages of development are expensed as incurred. Once an
application has reached the development stage, direct internal and
external costs are capitalized until the software is substantially
complete and ready for its intended use. Maintenance and training
costs are expensed as incurred. Internal-use software development
costs are amortized on a straight-line basis over its estimated
useful life of 4 years.
-4-
emergeIT Inc.
Notes to Unaudited Financial
Statements
For the period ended September 30, 2016
and 2015
1. Summary of Significant Accounting
Policies (continued)
f.
Impairment of Long-Lived Assets
The Company
accounts for the impairment of long-lived assets in accordance with
Accounting Standards Codification ("ASC") 360¬10, "Accounting
for the Impairment of Long-Lived Assets." This statement requires
that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the assets' carrying
amounts may not be recoverable. For assets that are to be held and
used, impairment is recognized when the estimated undiscounted cash
flows associated with the asset or groups of assets is less than
the carrying values.
If impairment exists, an adjustment is
made to write the asset down to its fair value, and a loss is
recorded as the difference between the carrying value and fair
value. Fair values are determined based on quoted market values,
discounted cash flows or internal and external appraisals, as
applicable. Assets to be disposed of are carried at the lower of
carrying value and estimated net realizable value. During the
period ended September 30, 2016, there was no impairment of
long-lived assets.
-5-
emergeIT Inc.
Notes to Unaudited Financial
Statements
For the period ended September 30, 2016
and 2015
1. Summary of Significant Accounting
Policies (continued)
g.
Income Taxes
The Company
accounts for income taxes in accordance with the provisions of ASC
740, “Income Taxes,” which requires that the Company
recognize deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined on the basis of the
difference between the tax bases of assets and liabilities and
their respective financial reporting amounts (“temporary
differences”) at enacted tax rates in effect for the years in
which the temporary differences are expected to reverse. A
valuation allowance is established for deferred tax assets for
which realization is uncertain.
In accordance with ASC 718,
“Stock Compensation,” and ASC 505,
“Equity,” the Company has made a policy decision
related to intra-period tax allocation, to account for utilization
of windfall tax benefits based on provisions in the tax law that
identify the sequence in which amounts of tax benefits are used for
tax purposes (i.e., tax law ordering).
Uncertain tax positions are accounted for
in accordance with ASC 740, “Income Taxes,” which
prescribes a comprehensive model for the manner in which a company
should recognize, measure, present and disclose in its financial
statements all material uncertain tax positions that the company
has taken or expects to take on a tax return. ASC 740 applies to
income taxes and is not intended to be applied by analogy to other
taxes, such as sales taxes, value-add taxes, or property taxes. The
Company reviews its nexus in various tax jurisdictions and the
Company’s tax positions related to all open tax years for
events that could change the status of its ASC 740 liability, if
any, or require an additional liability to be recorded. Such events
may be the resolution of issues raised by a taxing authority,
expiration of the statute of limitations for a prior open tax year
or new transactions for which a tax position may be deemed to be
uncertain. Those positions, for which management’s assessment
is that there is more than a 50 percent probability of sustaining
the position upon challenge by a taxing authority based upon its
technical merits, are subjected to the measurement criteria of ASC
740. The Company records the largest amount of tax benefit that is
greater than 50 percent likely of being realized upon ultimate
settlement with a taxing authority having full knowledge of all
relevant information. Any ASC 740 liabilities for which the Company
expects to make cash payments within the next twelve months are
classified as “short term.”
-6-
emergeIT Inc.
Notes to Unaudited Financial
Statements
For the period ended September 30, 2016
and 2015
1. Summary of Significant Accounting
Policies (continued)
h. Investment Tax Credits
Investment tax credits, which are
earned as a result of incurring qualifying research and development
expenditures, are accounted for using the cost reduction method.
Under this method, investment tax credits are treated as a
reduction of the relevant asset account or expenses in the period
that the credits become available and there is reasonable assurance
that they will be realized
i. Financial
Instruments
Financial
instruments are recorded at fair value when acquired or issued and
subsequently measured at cost or amortized cost less impairment, if
applicable. Financial assets are tested for impairment when changes
in circumstances indicate the asset could be impaired. Transaction
costs on the acquisition, sale or issue of financial instruments
are charged to the financial instrument for those measured at
amortized cost.
j. Stock Option Plan
The Company
applies the provisions of (ASC) ASC 718, “Stock
Compensation,” which requires companies to measure all
employee stock-based compensation awards using a fair value method
and record such expense in their financial statements. The Company
recognizes stock-based compensation ratably on a straight-line
basis over the shorter of the vesting or requisite service periods.
The use of this valuation model involves assumptions that are
judgmental and highly sensitive in the determination of
compensation expense and include the expected life of the option,
stock price volatility, risk-free interest rate, dividend yield,
and exercise price.
The fair value of stock options issued to
directors, officers, employees and consultants is determined upon
the date of grant and recognized as compensation expense over the
vesting period for directors, officers or employees and over the
period of service for consultants with a corresponding credit to
additional paid in capital.
When options are exercised, the
corresponding paid-in capital and the proceeds received by the
Company are credited to share capital. If stock options are
repurchased from directors, officers or employees, the excess of
the consideration paid over the carrying amount of the stock or
stock options repurchased is charged to contributed surplus and/or
deficit.
-7-
emergeIT Inc.
Notes to Unaudited Financial
Statements
For the period ended September 30, 2016
and 2015
1. Summary of Significant Accounting
Policies (continued)
k. Government
Assistance
The Company
received government assistance based on certain eligibility criteria for project support.
Government assistance was accounted for using the cost reduction
method. Under the cost reduction method, government assistance
relating to eligible expenditures is accounted for as a reduction
of expenses in the year during which the expenditures are incurred,
provided there is reasonable assurance of
realization.
l. Use of Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses
for the reporting period. The financial statement items requiring
the use of management estimates are the investment tax credits
receivable, income taxes, the asset lives used in computing
amortization, capitalization of development costs, recoverability
of deferred income tax assets, future customer rebates, and the
fair value of warrants and stock options. Actual results could
differ from those estimates.
m. Comprehensive
Income
(ASC) ASC
220, “Comprehensive Income,” establishes standards for
reporting and displaying comprehensive income and its components in
the consolidated financial statements.
n. Subsequent
Events
On
December 30, 2016 emergeIT and PAID effectuated the merger as
described in the 8-K filing dated December 23,
2016
-8-
emergeIT Inc.
Notes to Unaudited Financial
Statements
For the period ended September 30, 2016
and 2015
2. Going Concern
At September 30, 2016, the Company has
negative working capital of $871,403 and an accumulated deficit of
$2,232,491. As a result, there are material uncertainties that
raise substantial doubt as to whether the entity will have the
ability to continue as a going concern. The Company requires
continued support from shareholders and creditors and continues to
seek opportunities to obtain financing. However, there is no
certainty that these and other strategies will be sufficient to
permit the Company to continue as a going concern in the
foreseeable future.
The financial statements have been
prepared on a going concern basis in accordance with accounting
standards in the United States, which assumes that the Company will
continue in operation for the foreseeable future and be able to
realize its assets and discharge its liabilities and commitments in
the normal course of business. These financial statements do not
reflect adjustments that might be necessary and material, including
the carrying value of assets and liabilities, the reported revenue
and expenses and the balance sheet classifications used if the
going concern assumption were not appropriate.
3. Recent accounting
pronouncements
In May 2014, the FASB issued amended
guidance on revenue recognition which will be effective for us
beginning January 1, 2019 and can be applied retrospectively or as
a cumulative effect adjustment as of the date of adoption. Early
adoption is not permitted. The amended guidance requires entities
to recognize revenue when it transfers promised goods or services
to customers in an amount that reflects the consideration to which
the company expects to be entitled in exchange for those goods or
services. We are currently assessing the impact the adoption of the
amended guidance will have on our Financial
Statements.
In August 2014, the FASB issued amended
guidance which defines management's responsibility to evaluate
whether there are conditions or events that raise substantial doubt
about the entity’s ability to continue as a going concern and
to provide related disclosures. Currently, this evaluation is only
an auditor requirement. Specifically, the amendments (1) provide a
definition of the term “substantial doubt,” (2) require
an evaluation every reporting period, (3) provide principles for
considering the mitigating effect of management’s plans, (4)
require certain disclosures when substantial doubt is alleviated as
a result of the consideration of management’s plans, (5)
require an express statement and other disclosures when substantial
doubt is not alleviated, and (6) require an assessment for a period
of one year after the date that financial statements are issued.
This amended guidance will be effective for us beginning January 1,
2016. We are currently assessing the impact the adoption of the
amended guidance will have on our Financial
Statements.
-9-
emergeIT Inc.
Notes to Unaudited Financial
Statements
For the period ended September 30,
2016 and 2015
4. Accounts
Receivable
The balance of allowance for doubtful
accounts at September 30, 2016 is $nil.
5. Due from related
party
The balance is due from a shareholder,
non-interest bearing and due on demand. However the balance due to
the same shareholder exceeds this balance and a future offset has
been proposed.
6. Capital assets
|
|
September 30,
2016
|
|
|
|
Cost
|
Accumulated
Amortization
|
|
Equipment
|
$29,226
|
$16,427
|
|
Furniture
|
71,385
|
5,224
|
|
|
$100,611
|
$21,651
|
|
Net book value
|
|
$78,960
|
7. Development Costs
|
|
September 30,
2016
|
|
|
|
Cost
|
Accumulated
Amortization
|
|
|
$455,681
|
$413,267
|
|
Net book value
|
|
$42,414
|
-10-
emergeIT Inc.
Notes to Unaudited Financial
Statements
For the period ended September 30, 2016
and 2015
8. Due to related
parties
At September 30, 2016, the balances due
to related parties consist of the following:
|
|
September 30, 2016
|
|
|
|
|
Promissory note to shareholder John
Smith
|
$159,735
|
|
The note bears interest at 12% with
Repayment by December 2017 *
|
|
|
Promissory note to Helen
Kurluk
|
100,000
|
|
The note bears interest at 6% with no
fixed terms of repayment
|
|
|
Due to Pratt Family
Trust
|
17
|
|
Amount is non-interest bearing and due on
demand
|
|
|
Total
|
$259,752
|
* The loan from Shareholder
John Smith of $143,000 is scheduled to be paid in full by December
2017. An interest of 12% was applied to the loan from inception to
September 2016 then the interest was reduced to 8% from July 2016
to December 2017. One lump sum payment of $30,000 was paid in July
2016 then an equal installment of $11,600 every month going forward
to December 2017.
-11-
emergeIT Inc.
Notes to Unaudited Financial
Statements
For the period ended September 30, 2016
and 2015
9. Convertible Promissory
Note
In October 2015, the Company issued two
convertible promissory notes for proceeds of $557,301. The notes
bear interest at 12% with a maturity date of December 30, 2016. The
notes are convertible into Common Stock at a 10% discount to the
price of shares issued in a reverse merger transaction, a qualified
financing or a deemed valuation at maturity. In addition, upon
conversion or maturity, the note holders will receive warrants with
a five year life for $557,301
of common stock with an exercise price at
a 10% discount to the price of shares issued in a reverse merger
transaction, a qualified financing or a deemed valuation at
maturity.
The relative fair value of the warrants
was determined to be $269,880 using the Black-Scholes option
pricing model and the following assumptions: volatility –
80%; estimated life – 5 years; dividend yield 0%; discount
rate – 1.5%.
The notes also have a beneficial
conversion feature. A beneficial conversion feature is measured by
comparing the effective conversion price, after considering the
relative fair value of detachable instruments to the fair value of
the common shares at the commitment date to be received upon
conversion. This amount was determined to be $145,320 and is
amortized over the period from the date of issuance to the maturity
date of the note.
As a result, the notes were initially
valued at $0 net of debt discount of $557,301.
$337,559 of debt discount and $28,006 of
interest was recognized in the period ending September 30,
2016.
10. Share Capital and Stock-Based
Compensation
Share
Capital
Authorized
Unlimited Class A Common
shares
Unlimited Class B Common
shares
Unlimited Class A Special
shares
Unlimited Class B Special
shares
Unlimited Class C Special
shares
|
|
September 30, 2016
|
|
Issued
|
|
|
7,000 Class A Common
shares
|
$160,057
|
|
3,137 Class B Common
shares
(March 31, 2015 –
3,000)
|
401,108
|
|
|
$561,165
|
Stock-Based
Compensation
In 2011 and 2013, the Company provided
two contractors with the right to acquire 1,138 common shares. The
rights have fully vested and are exercisable upon certain
triggering events or at the discretion of the Board of Directors.
The fair value of these rights were determined to be
$nil.
-12-
emergeIT Inc.
Notes to Unaudited Financial
Statements
For the period ended September 30, 2016
and 2015
11. Financial
Instruments
Fair value
The Company accounts for certain
financial assets and liabilities at fair value following the
provisions of ASC 820. This Topic applies to certain assets and
liabilities that are being measured and reported on a fair value
basis. The Topic defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands
disclosure about fair value measurements. This Topic enables the
reader of the financial statements to assess the inputs used to
develop those measurements by establishing a hierarchy for ranking
the quality and reliability of the information used to determine
fair values. The statement requires that financial assets and
liabilities carried at fair value be classified and disclosed in
one of the following three categories:
Level
1
quoted
market prices in active markets for identical assets or
liabilities
Level
2
observable
market based inputs or unobservable inputs that are corroborated by
market data
Level
3
unobservable inputs that are not
corroborated by market data
The fair values of cash, accounts
receivable, accounts payable and accrued liabilities, and due from
and to related parties approximate their carrying values due to the
short term nature of these financial
instruments.
Credit risk
The Company is exposed to credit risk on
the accounts receivable from its customers. The risk is reduced by
credit policies that include regular monitoring of the
debtor’s payment history and performance. The Company
establishes an allowance for doubtful accounts that corresponds to
the specific credit risk of its customers, historical trends and
other information on the state of the economy.
The Company’s cash is also subject
to credit risk. The Company limits its exposure to credit risk by
maintaining cash with major financial
institutions.
Currency risk
The Company earns revenue and incurs
expenses denominated in U.S. dollars and Canadian dollars, and is
exposed to foreign exchange risk from fluctuations in these foreign
currency rates on monetary working capital
balances.
Liquidity risk
Liquidity risk is the risk that the
Company encounters difficulty in meeting its obligations associated
with financial liabilities. Liquidity risk includes the risk that,
as a result of operational liquidity requirements, the Company will
not have sufficient funds to settle a transaction on the due date;
will be forced to sell financial assets at a value which is less
than what they are worth; or may unable to settle or recover
financial assets. Liquidity risk arises from bank indebtedness,
accounts payable and accrued liabilities, due to related parties,
convertible promissory note and commitments.
The Company continues to focus on
maintaining adequate liquidity to meet operating working capital
requirements and capital expenditures.
-13-
emergeIT Inc.
Notes to Unaudited Financial
Statements
For the period ended September 30, 2016
and 2015
12. Income Taxes
The tax effect of significant components
of the Company’s deferred income tax assets and liabilities
is as follows:
|
|
September 30, 2016
|
|
Temporary differences
|
$40,000
|
|
Loss carryforwards and other
deductions
|
378,500
|
|
Deferred income tax asset before
allowance
|
418,500
|
|
Valuation allowance
|
(418,500)
|
|
Deferred income tax
asset
|
$-
|
For income tax purposes, the Company has
non-capital losses which can be applied to reduce future
years’ taxable income totaling approximately $1,423,500
(March 31, 2015 - $1,344,500). These losses expire between 2030 and
2035. The Company also has a Scientific Research and Experimental
Development Expenditure pool balance of approximately $74,000
(March 31, 2015 - $83,700) which may be used to reduce future
year’s taxable income. The expenditure pool can be carried
forward indefinitely.
A valuation allowance of 100% has been
established in respect of the net deferred income tax assets due to
the uncertainty of the Company’s utilization of such deferred
tax assets.
The income tax provision at December 31,
2015 and March 31, 2015 reflects a full accounting of tax filings
under ASC Subtopic 740-10. The Company is not currently under any
Canadian Revenue Agency, provincial, local or foreign jurisdiction
tax examinations. The Company recognizes interest and penalties, as
estimated or incurred, as general and administrative
expense.
There have been no unrecognized tax
benefits as a result of tax positions taken in the current or prior
years, and accordingly there are no unrecognized tax benefits that
would affect the effective tax rate, nor are there are any
situations where it is reasonably possible that the unrecognized
tax benefit will change significantly within twelve months of the
reporting date. As of December 31, 2015, the Company has no
unrecognized tax exposure (March 31, 2015 -
none).
The Company is subject to taxation in
Canada and Ontario. As of December 31, 2015, the Company’s
tax years for 2011 through 2014 are subject to examination by tax
authorities.
13. Commitment
The Company has an agreement with a
partner to pay $10,000 per quarter until August 31, 2018 in
relation to the promotion of the Company’s services to their
members.
-14-