Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal
year ended December 31,
2016
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition
period from ________________ to ________________
Commission file number: 0-20660
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PAYBOX CORP
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(Exact
name of registrant as specified in its charter)
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Delaware
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11-2895590
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer
Identification No.)
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500 East Broward Boulevard, Suite 1550
Fort Lauderdale, Florida
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33394
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s telephone number, including area
code: (954)
510-3750
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Title of each class
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Name of each exchange on which registered
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Common
Stock, par value $.0001
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OTC
– QB
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Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ☐
No ☑
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit
and post such files). Yes ☑ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☐
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Smaller
reporting company
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☑
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
The aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the closing
price as of the last business day of the registrant’s most
recently completed second fiscal quarter was approximately
$4,931,412.
As of
March 13, 2017, there were 13,153,160 shares of the
registrant’s Common Stock outstanding.
PAYBOX CORP
(Formerly Direct Insite Corp.)
TABLE OF CONTENTS
PART
I.
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1-7
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ITEM
1. BUSINESS
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1
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ITEM
1A. RISK FACTORS
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7
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ITEM
1B. UNRESOLVED STAFF COMMENTS
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7
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ITEM
2. PROPERTIES
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7
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ITEM
3. LEGAL PROCEEDINGS
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7
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ITEM
4. MINE SAFETY DISCLOSURES
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7
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PART
II.
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8-16
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ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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8
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ITEM
6. SELECTED FINANCIAL DATA
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8
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ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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8
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ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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15
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ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
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15
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ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
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15
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ITEM
9A. CONTROLS AND PROCEDURES
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16
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ITEM
9B. OTHER INFORMATION
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16
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PART
III.
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17-26
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ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
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17
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ITEM
11. EXECUTIVE COMPENSATION
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20
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ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
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24
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ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR
INDEPENDENCE
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25
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ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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25
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PART
IV.
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27-30
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ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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27
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EXHIBIT
INDEX
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27
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SIGNATURES
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31
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PART I
Item
1.
BUSINESS
FORWARD-LOOKING STATEMENTS
All
statements other than statements of historical fact included in
this Form 10-K including, without limitation, statements under,
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” regarding our financial
position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements.
When used in this Form 10-K, words such as
“anticipate”, “believe”,
“estimate”, “expect”, “intend”
and similar expressions, as such words or expressions relate to us
or our management, identify forward-looking statements. Such
forward-looking statements are based on the beliefs of management,
as well as assumptions made by, and information currently available
to, our management. Actual results could differ materially from
those contemplated by the forward-looking statements as a result of
certain factors including but not limited to, fluctuations in
future operating results, technological changes or difficulties,
management of future growth, expansion of international operations,
current economic conditions, the risk of errors or failures in our
software products, dependence on proprietary technology,
competitive factors, risks associated with potential acquisitions,
the ability to recruit personnel, and dependence on key personnel.
Such statements reflect the current views of management with
respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to the operations, results
of operations, growth strategy and liquidity. All subsequent
written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their
entirety by this paragraph.
OVERVIEW
Paybox
Corp, originally named Unique Ventures, Inc., (hereinafter referred
to at times as “Paybox”, “our”,
“we”, or the “Company”) was incorporated
under the laws of the State of Delaware on August 27, 1987. We
consummated our initial public offering in 1992. In May 1990, we
changed our name to Computer Concepts, Inc. and in August 2000, we
changed our name to Direct Insite Corp. In September 2016, we
changed our name to Paybox Corp to align the corporate name and
brand with the Company’s globally deployed Working Capital
Management Platform, PAYBOX®.
Our
Business
Paybox
operates as a software as a service provider (“SaaS”)
that provides a powerful unified working capital management
platform for Order-to-Cash and Procure-to-Pay processes that
facilitate over $160 billion worth of transactions annually between
more than 375,000 companies worldwide.
The
flagship component of Paybox’s unified working capital
management platform is PAYBOX®, an
Order-to-Cash process that provides an innovative receivables
automation solution which combines electronic invoicing, online
approvals and adjustments, Payment Card Industry
(“PCI”)-compliant electronic payments, and integration
with any legacy accounting, enterprise resource planning
(“ERP”) or lockbox system. PAYBOX is sold both through
banks to corporate users of their treasury management and lockbox
services, and directly to corporations. Banks and corporations use
PAYBOX to reduce Days Sales’ Outstanding, lower costs, and
improve straight-through accounts receivables (“AR”)
posting.
Paybox’s
unified working capital management platform also provides a
powerful component that transforms Procure-to-Pay processes. The
component delivers end-to-end capabilities for supplier
registration, invoice capture, electronic invoicing, workflow,
electronic payments, discount management, spend management, and
business intelligence. The platform is uniquely suited for
financial shared services environments.
Paybox’s
clients include IBM, Siemens, Hewlett Packard Enterprise Services,
Saint Gobain, Carlson Wagonlit Travel, and one of the world’s
largest financial institutions.
1
Our
revenue comes from (i) recurring, on-going services that are billed
monthly; and (ii) non-recurring, professional services derived from
the configuration of our software platform.
HP
Enterprise Services (“HPE”) accounted for approximately
21.5%, 33% and 38% of our revenue for the years ended December 31,
2016, 2015 and 2014, respectively. As of December 31, 2016, we had
one principal contract remaining with HPE providing e-invoice
services, which contract expires in June 2018. The contracts may be
terminated by either party on ninety days’ advance written
notice. As disclosed in our Current Reports on Form 8-K filed with
the SEC on November 23, 2015 and February 19, 2016, we were
notified by HPE that one of its clients, representing approximately
3.0% and 14.7% of our revenue for the years ended December 31, 2016
and 2015, respectively, was terminating its contract with HPE
effective February 23, 2016. Despite efforts to negotiate a direct
contractual agreement with this client, the client ultimately
decided to terminate its use of our services, and accordingly, the
Company has not recorded revenue from this client after February
2016. We were further notified by HPE in August 2016 that another
of its clients, representing 4.5% and 6.3% of our revenue for the
years ended December 31, 2016 and 2015, respectively, was
terminating its contract with HPE effective August 15, 2016, and
accordingly, the Company has not recorded revenue from this client
after August 2016.
International
Business Machines, Inc. (“IBM”), representing
approximately 42.5%, 37.3% and 38.1% of our revenue for the years
ended December 31, 2016, 2015 and 2014, respectively, utilizes our
suite of services to allow its customers from around the globe to
receive, analyze, dispute and cost allocate all of their invoice
data in their local language and currency via the internet. We have
two principal contracts with IBM to provide e-invoice services for
substantially all of IBM’s operating units. Both of these
contracts were extended for a one-year period, through December 31,
2017, and are renewable annually thereafter. The contracts may be
terminated by either party with one hundred eighty days’
advance written notice. As noted in our Current Reports on Form 8-K
filed with the SEC on March 3, 2017, we were notified by IBM that
one of these contracts will be terminated on September 1, 2017.
Approximately 35.1% and 31.3% of the Company’s revenues were
attributable to this agreement with IBM in the years ended December
31, 2016 and 2015, respectively. It is possible that the Company
may continue to provide certain services relating to this agreement
on a month-to-month basis following termination, but there can be
no assurances that the Company will continue to provide such
services to this client.
We have
two other customers, representing approximately 24.0%, 18.1% and
13.0% combined of our revenue for the years ended December 31,
2016, 2015 and 2014, respectively. These customers both utilize our
accounts payable automation solution and are contracted with us
through September 2019 and December 2019, respectively
PRODUCTS AND SERVICES
Paybox
provides a unified working capital management platform for
Order-to-Cash and Procure-to-Pay processes.
Order-to-Cash: PAYBOX®
Paybox’s
flagship solution is a working capital management platform, called
PAYBOX. PAYBOX combines capabilities for: e-invoicing, online
approvals and adjustments, electronic payments, and integration
with ERP, AR, and lockbox systems.
In
November 2014, Paybox successfully launched PAYBOX for a global
bank client. The bank is using PAYBOX to provide white-label
accounts receivable automation to a leading consumer goods
provider. The bank is now marketing PAYBOX to its treasury
management client base.
2
PAYBOX’s
end-to-end approach to order-to-cash helps businesses accelerate
Days Sales Outstanding (“DSO”), reduce receivables
costs, improve straight-through AR posting, and increase visibility
into financial information.
PAYBOX
is a modular, “Reverse Lockbox” solution that
integrates with legacy ERP, AR, lockbox (including remote deposit
capture and mobile capture solutions) or treasury systems to
provide a building block for an integrated receivables
strategy.
PAYBOX
streamlines receivables processes end-to-end by
combining:
●
Invoice
Presentment: Enables billers to present invoices in any format
required by payers, including electronic invoicing, invoice network
integration, and print. Payers access electronic invoices via a
password-protected mailbox on the PAYBOX portal.
●
Online Adjustments
& Approvals: Replicates a payer’s workflow to allow for
online review, adjustment, and approval of invoices. Payers also
can attach supplemental information (such as images of damaged
items) for disputes, and manage credits. Billers receive real-time
updates on adjusted invoices.
●
Electronic
Payments: Enables payers to control the amount they pay, the
payment type, and the settlement date. Payers can upload discount
schedules and set rules for how payments are made. PAYBOX is
PCI-compliant and supports most payment types.
●
Integration:
Provides a remittance file for reconciliation and posting. PAYBOX
is ERP-agnostic, and Paybox is an SAP-Certified Business Partner.
Additionally, the PAYBOX platform was developed to coexist with
legacy lockbox processing platforms.
●
Downstream
Financing: Facilitates dynamic discount and supply chain
financing.
Paybox
rounds out its PAYBOX offering with a third-party print/mail
partnership to manage the paper-to-electronic transition all firms
face.
PAYBOX
is delivered exclusively as a SaaS offering.
Although
corporations can purchase PAYBOX directly from Paybox, we also sell
PAYBOX through banks as a white-labeled solution. The flexibility
of PAYBOX helps banks accelerate their integrated receivables
strategy. A bank could, for example, use PAYBOX as an e-invoicing
and electronic payments solution for commercial clients, while
interfacing with wholesale lockbox to offer an integrated
receivables solution later on.
Procure-to Pay: e-invoice Automation for Accounts
Payable
Paybox’s
e-invoice Management for Accounts Payable increases accounts
payable productivity by streamlining and automating manual supplier
invoice validation, inquiry and approval processes.
Paybox’s
Procure-to-Pay service is focused on providing the following
significant business benefits:
●
Eliminate manual
invoice validation processes
●
Improve on-time
payments and the ability to capture early payment
discounts
3
●
Increase supplier
e-invoice submission
●
Reduce Accounts
Payable call center traffic
●
Enhance supplier
relationships and overall ease of business
Supplier Self-Service Portal
Paybox’s
Procure-to-Pay service offering includes a supplier self-service
portal and e-invoice presentment capability that is able to reduce
call center traffic by resolving inquiries without human
intervention. Paybox’s online portal allows suppliers to
access their invoice status, invoice line items, attachments,
payment status, and other relevant billing information on their own
time, at any time and without having to call or wait for
support.
Supplier Electronic Invoice Submission
Suppliers are able
to submit their invoices via electronic formats and/or adapters,
including web form entry, supplier networks, spreadsheet upload,
and ERP adapters such as Oracle, SAP, Great Plains, or legacy
billing systems. Suppliers can also perform a purchase order
‘flip’ function where customer orders can be used to
automatically generate preliminary bills for review and release for
payment.
Invoice Matching and Workflow Exception Handling
Paybox’s
Procure-to-Pay service allows Accounts Payable administrators the
ability to configure robust invoice validation business rules where
inbound supplier invoices can be automatically matched against
orders, variable consumption reports, or other business documents.
Noncompliant invoices and line items are flagged and routed for
exception workflow handling.
Vendor Boarding and Supplier Services
A key
component of deploying Procure-to-Pay services is to assure that
suppliers register with such services and are properly
‘boarded’ into the Procure-to-Pay environment. Paybox
provides a complete set of suppliers’ services such as
webinars, training materials, and help services embedded within the
service offering. Additionally, Paybox provides vendor boarding
campaigns which include statistical analysis of vendor invoice
submission, and calling and email programs that effectively
communicate the buyer’s strategic direction to the suppliers
requiring their participation.
Invoice Approval & Payment
Once
invoices have been validated they can be routed to the Accounts
Payable financial system for disbursement or paid within the Paybox
self-service portal. The service fully integrates with all of the
major ERP systems, ensuring seamless system
interoperability.
Audit and Traceability
Paybox’s
Procure-to-Pay and Order-to-Cash service offerings support a
complete audit log whereby all internal and external user actions
are logged, tracked and presented in views of user activity
history. At any time, authorized administrators can review online
user activity and monitor user adoption.
4
SALES AND MARKETING
Channels to Market
Paybox
has two primary marketing channels: (i) direct: through our sales
representatives; and (ii) indirect: through strategic partners,
like HPE. These channels are supported by a technical sales support
group.
Direct
Our
direct sales organization consists of senior sales associates
complemented by sales support resources. The sales associates and
support resources are primarily responsible for qualifying direct
opportunities. Sales associates engage in direct sales activities
that include business value analysis and alignment, capabilities
demonstrations, procurement and contract management. Paybox’s
executive management team is actively involved with and complements
Paybox’s direct sales organization.
Indirect
Paybox
continues to pursue and utilize both reseller agreements and
strategic partnerships as tools in our effort to acquire new
customers and revenue streams and in certain instances enhance our
current offerings to existing accounts. Paybox has executed
reseller agreements with several business partners, such as HPE,
who provide Business Process Outsourcing/Financial Services and
offer our Accounts Payable/Accounts Receivable Automation and
Payment services to their existing clients, or in certain cases we
develop and deploy a dual go-to-market strategy to new clients.
Paybox has formed strategic partnerships with several business
partners who provide inbound mail drop boxes, paper scanning
services, image capture, image and document routing and reporting
services and in certain other cases, both software and financial
certification and verification services. The utilization of both
these reseller agreements and strategic partnerships is a critical
and cost effective way to be introduced to new customers and
potential revenue streams. Further, Paybox is able to leverage the
investment of our partners to combine and enhance the Paybox suite
of products that can be introduced and sold to the
market.
The
successful launch of PAYBOX in 2014 created a partnership with
Paybox’s global bank client. As a result of such partnership,
PAYBOX has been introduced to the global bank’s existing and
potential customers and the Company expects that will continue in
the future.
Technical Sales Support and Post-Sales Account
Management
Paybox
has a pre-sales support staff and adds post-sales support to the
existing client services management group as it secures new
business. This group is responsible for technical sales
presentations, developing proposals and pricing, contract
administration and post-implementation account relationship
management.
Certified Partnerships
In
2010, Paybox achieved SAP partner certification. As a result of the
certified integration, Invoices On-Line (“IOL”) now
provides seamless interoperability with more than twenty different
business objects supported by SAP ERP systems. This allows Paybox
SAP customers the ability to automate and extend their
Procure-to-Pay or Order-to-Cash processes to the cloud, including
purchase order distribution, invoice receipt and validation,
workflow, and electronic payments.
5
RESEARCH AND DEVELOPMENT
The
computer software industry is characterized by rapid technological
change, which requires ongoing development and maintenance of
software products. It is customary for modifications to be made to
a software product as experience with its use grows or changes in
manufacturers’ hardware and software so require.
We
believe that our research and development staff, many with
extensive experience in the industry, represents a significant
competitive advantage. As of December 31, 2016, our research and
development group consisted of 14 employees. Further, when needed,
we retain the services of independent professional consultants. We
seek to recruit highly qualified employees, and our ability to
attract and retain such employees is expected to be a principal
factor in our success in maintaining a leading technological
position. For the years ended December 31, 2016, 2015 and
2014, research and development expenses were approximately
$1,367,000, $1,560,000 and $1,738,000, respectively. An additional
$107,000, $194,000 and $474,000 were accounted for as capitalized
software in 2016, 2015 and 2014, respectively. We believe that
continued investments in research and development are required in
order to remain competitive.
COMPETITION
We
believe our competitors may provide some or all of the services we
provide to the marketplace. Our competitors offer some of the
various components or functions in Accounts Receivable Automation,
Accounts Payable Automation and Payments Processing. Our primary
competitors include Ariba, Inc., Basware Corporation, Billtrust,
Bottomline Technologies, Corcentric Cloud Solutions, LLC, Direct
Commerce Inc., Genpact Limited, Taulia Inc., and Tradeshift Inc.,
among others.
Many of
our current and potential competitors have greater name
recognition, larger installed customer bases, longer operating
histories, and substantially greater financial, technical and
marketing resources than Paybox. We cannot assume that current and
potential competitors will not develop products that may be or may
be perceived to be more effective or responsive to technological
change than are our current or future products or that our
technologies and products will not be rendered obsolete by such
developments. Increased competition could result in price
reductions, reduced margins or loss of market share.
EMPLOYEES
We have
37 employees, of whom 32 were full-time, all in the United States,
including 24 in production, development and technical support (20
full-time), 3 in sales and marketing, 5 in technical sales support
and post-sales management, and 5 in corporate finance and
administration. Our future success will depend in part upon our
continued ability to attract and retain highly skilled and
qualified personnel. We believe that our relations with our
employees are good, and we have no collective bargaining agreements
with any labor unions.
INTELLECTUAL PROPERTY
We rely
on proprietary knowledge and employ various methods, including
confidentiality agreements, to protect our software code, concepts,
ideas and documentation of our proprietary technology. We own a
copyright for Invoices on-Line (IOL), and trademarks for Direct
Insite® and
PAYBOX®.
Despite
our efforts, unauthorized parties may attempt to copy aspects of
our products, obtain and use information that we regard as
proprietary or misappropriate our copyrights, trademarks, trade
dress and similar proprietary rights. In addition, the laws of some
foreign countries do not protect proprietary rights to as great an
extent as do the laws of the United States. Our means of protecting
our proprietary rights may not be adequate. In addition, our
competitors might independently develop similar technology or
duplicate our products or circumvent any patents or our other
intellectual property rights.
6
AVAILABLE INFORMATION
We make
available free of charge our filings with the Securities and
Exchange Commission (the “SEC”), including our annual
report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as
soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. Copies of our filings
with the SEC are also available on the SEC’s website at
www.sec.gov.
Our
principal executive office is located at 500 East Broward
Boulevard, Suite 1550, Fort Lauderdale, Florida 33394. Our
telephone number is (954) 510-3750. Our website is
www.gopaybox.com. The information on, or that can be accessed
through, our website is not incorporated by reference into this
annual report and should not be considered to be a part of this
annual report.
Item
1A.
RISK
FACTORS
Not
Applicable.
Item
1B.
UNRESOLVED
STAFF COMMENTS
Not
Applicable.
Item
2.
DESCRIPTION
OF PROPERTIES
As of
December 31, 2016, we maintained leased facilities in the locations
listed below:
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Annual
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Description
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Location
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Square
Footage
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Lease
Term
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Rental
Cost
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Corporate
office
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Ft.
Lauderdale, FL
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5,806
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02/08/13
– 07/31/18
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$198,000
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Co-location
facility
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Miami,
FL
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Note 1
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8/18/16
– 08/17/17
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$
121,000
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Co-location
facility
|
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Amsterdam,
Netherlands
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Note 2
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11/1/14
– 10/31/18
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$
87,000
|
Note 1. The co-location facility in Miami, Florida provides rack
space for our computer equipment and the rental is not based on
square footage used.
Note 2. The Amsterdam data center is utilized for enterprise cloud
services and no physical property is allocated.
Item
3.
LEGAL
PROCEEDINGS
We are
not currently involved in any legal or regulatory proceeding, or
arbitration, the outcome of which is expected to have a material
adverse effect on our business, and no such proceedings are
contemplated.
Item
4.
MINE
SAFETY DISCLOSURES
Not
Applicable.
7
PART II
Item
5.
MARKET
FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER
PURCHASES OF EQUITY SECURITIES
(a)
Market Information
Our
common stock is traded on the OTC QB under the symbol
“DIRI” through November 11, 2016, and since then has
traded under the symbol “PBOX”. The following table
sets forth the high and low closing prices for our common stock by
the quarters indicated:
|
Closing Stock
Price
|
|
|
High
|
Low
|
Year ended
December 31, 2016:
|
|
|
1st
Quarter
|
$0.74
|
$0.43
|
2nd
Quarter
|
$0.76
|
$0.56
|
3rd
Quarter
|
$0.69
|
$0.33
|
4th
Quarter
|
$0.56
|
$0.30
|
|
|
|
Year ended December
31, 2015:
|
|
|
1st
Quarter
|
$0.90
|
$0.72
|
2nd
Quarter
|
$1.18
|
$0.74
|
3rd
Quarter
|
$1.09
|
$0.86
|
4th
Quarter
|
$0.97
|
$0.54
|
(b)
As of March 13,
2017 there were 2,514 stockholders of record of our common
stock.
(c)
In 2016 and 2015,
the Company paid no dividends to stockholders. Further dividend
policy will be determined by our Board of Directors based on our
earnings, financial condition, capital requirements and other then
existing conditions. It is anticipated that cash dividends will not
be paid to the holders of our common stock in the foreseeable
future.
Item 6. SELECTED FINANCIAL DATA
Not
Applicable.
Item
7.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The
Company was incorporated under the laws of the State of Delaware on
August 27, 1987. We consummated our initial public offering in
1992. In May 1990, we changed our name from Unique Ventures, Inc.
to Computer Concepts, Inc., in August 2000, we changed our name to
Direct Insite Corp., and in September 2016, we changed our name to
Paybox Corp to align the corporate name and brand with the
Company’s globally deployed Working Capital Management
Platform, PAYBOX®.
Paybox
operates as a SaaS provider, providing best practice financial
supply chain automation and workflow efficiencies within the
Order-to-Cash and Procure-to-Pay processes. Specifically,
Paybox’s global e-invoice management services automate
complex manual business processes such as e-invoice presentment,
online approval and dispute handling, order matching,
consolidation, and e-payment processing in a business-to-business
transaction based “fee for services” business
model.
8
Through
the automation and workflow of Order-to-Cash and Procure-to-Pay
processes and the presentation of invoices, orders, and attachment
data via a self-service portal, Paybox is helping our customers
reduce manual invoice-to-order reconciliation costs, reduce the
frequency of inquiries and disputes, reduce days’ sales
outstanding, improve cash flow, increase competitiveness, and
improve customer satisfaction.
Paybox
is currently delivering service and business value across the
Americas, Europe, and Asia, including more than 100 countries, in
35 currencies and 17 languages. Paybox processes more than
$160 billion in invoice value annually on behalf of our
clients. Paybox processes, distributes and hosts millions of
invoices, purchase orders, and supporting attachment documents,
making them accessible on-line with an internet self-service
portal. Suppliers, customers, and internal departments, such as
Finance and Accounting or Customer Service users, can easily access
their business documents. For more than ten years, Paybox has built
a track record in automating some of the most demanding financial
environments, including the global shared services environments for
some of the world's largest companies.
HPE
accounted for approximately 21.5% and 33% of our revenue for the
years ended December 31, 2016 and 2015, respectively. As of
December 31, 2016, we had one remaining principal contract with HPE
providing e-invoice services. This contract terminates in June
2018. The contract may be terminated by either party with ninety
days’ advance written notice. In November 2015, we were
notified by HPE that one of its clients, representing approximately
3.0% and 14.7% of our revenue for the years ended December 31, 2016
and 2015, respectively, was terminating its contract with HPE
effective February 23, 2016. As disclosed in our Current Report on
Form 8-K filed with the SEC on February 19, 2016, despite efforts
to negotiate a direct contractual agreement with this client, the
client ultimately decided to terminate its use of our services, and
accordingly, the Company has not recorded revenue after February
2016 in connection with this contract. We were further notified by
HPE in August 2016 that another of its clients, representing 4.5%
and 6.3% of our revenue for the years ended December 31, 2016 and
2015, respectively, was terminating its contract with HPE effective
August 15, 2016, and accordingly, the Company has not recorded
revenue from this client after August 2016.
IBM,
representing approximately 42.5% and 37.3% of our revenue for the
years ended December 31, 2016 and 2015, respectively, utilizes
our suite of services to allow its customers from around the globe
to receive, analyze, dispute and cost allocate all of their invoice
data in their local language and currency via the internet. We have
two principal contracts with IBM to provide e-invoice services for
substantially all of IBM’s operating units. During December
2016, both of these contracts were extended for a one-year period,
through December 31, 2017, and are renewable annually thereafter.
These contracts may be terminated on one hundred eighty days’
advance written notice. In February 2017, we were notified by IBM
that they are terminating one of their contracts with us effective
September 1, 2017. Approximately 35.1% and 31.3% of the
Company’s revenues were attributable to this agreement with
IBM in the years ended December 31, 2016 and 2015, respectively. We
are in active discussions with IBM to continue providing a portion,
if not all, of the level of services historically provided but
there can be no assurances that such discussions will result in the
continuing of services to this client.
We have
two other customers, representing approximately 24.0% and 18.1%
combined of our revenue for the years ended December 31, 2016 and
2015, respectively. These customers both utilize our accounts
payable automation solution and are contracted with us through
September 2019 and December 2019, respectively.
9
SEASONALITY/QUANTITY FLUCTUATIONS
Revenue
from SaaS ongoing services generally is not subject to fluctuations
or seasonal flows. However, revenue derived from custom engineering
services have a tendency to fluctuate significantly based on
customer demand.
Other
factors, including, but not limited to, new service introductions,
domestic and global economic conditions, customer budgetary
considerations, and the timing of product upgrades may create
fluctuations. As a result, our operating results for any quarter
are not necessarily indicative of results for any future
period.
OUR CRITICAL ACCOUNTING POLICIES
Our
financial statements and the notes to our financial statements
contain information that is pertinent to management’s
discussion and analysis and use of estimates. The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities. Management bases its estimates on historical
experience and on various other assumptions that are believed to be
reasonable 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. On a
continual basis, management reviews its estimates utilizing
currently available information, changes in facts and
circumstances, historical experience and reasonable assumptions.
After such reviews, and if deemed appropriate, those estimates are
adjusted accordingly. Actual results may vary from these estimates
and assumptions under different and/or future circumstances.
Management considers an accounting estimate to be critical
if:
●
it requires
assumptions to be made that were uncertain at the time the estimate
was made; and
●
changes in the
estimate, or the use of different estimating methods that could
have been selected, could have a material impact on the
Company’s results of operations or financial
condition.
The
following critical accounting policies have been identified that
affect the more significant judgments and estimates used in the
preparation of our financial statements. We have discussed the
application of these critical accounting policies with our Audit
Committee. The following critical accounting policies are not
intended to be a comprehensive list of all of the Company’s
accounting policies or estimates.
Revenue Recognition
We
record revenue in accordance with Accounting Standards Codification
(“ASC”) 605, Revenue
Recognition, and SEC Staff Accounting Bulletin Topic 13,
Revenue Recognition in Financial
Statements. Revenue is recognized when it is both earned and
realizable, that is, when the following criteria are
met:
●
persuasive evidence
of arrangements exist;
●
delivery has
occurred or services have been rendered;
●
the seller’s
price is fixed and determinable; and
●
collectability is
reasonably assured.
10
The
following are the specific revenue recognition policies for each
major category of revenue.
Recurring (Ongoing Services)
We
provide transactional data processing services through our SaaS
software solutions to our customers. The customer is charged a
monthly fixed rate on a per transaction basis or a fixed fee based
on monthly transaction volumes. Revenue is recognized as the
services are provided.
Non-Recurring (Professional Services)
We
provide non-recurring engineering services to our customers, which
may include initial or additional development, modification, and
customization services to our software platform. Such services are
billed based on: (i) hourly rates; or (ii) milestone billings. For
hourly billed services, revenue is recognized when work is
performed. For milestone billed services, revenue is recognized
when the project milestone has been accepted by the customer. We do
not sell software licenses, upgrades or enhancements, or
post-contract customer services.
Income Taxes
We
account for income taxes using the asset and liability method. This
method requires the determination of deferred tax assets and
liabilities based on the differences between the financial
statement and income tax basis of assets and liabilities, using
enacted tax rates. Additionally, net deferred tax assets are
adjusted by a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some portion or
all of the net deferred tax assets will not be realized. We review
positive and negative evidence in conjunction with our expected
taxable income for future periods to determine if it is more likely
than not that it will be able to utilize the tax benefits related
to net operating loss carry-forwards in future tax
years.
In
addition, we expect to provide a valuation allowance on the
remaining future tax benefits until we can sustain a level of
profitability that demonstrates our ability to utilize the
remaining assets, or other significant positive evidence arises
that suggests our ability to utilize the remaining
assets.
The
future realization of a portion of the reserved deferred tax assets
related to tax benefits associated with the exercise of stock
options, if and when realized, will not result in a tax benefit in
the statement of income, but rather will result in an increase in
additional paid-in capital. We will continue to re-assess its
reserves on deferred income tax assets in future periods on a
quarterly basis.
Stock-Based Compensation
We
account for stock-based compensation in accordance with ASC 718,
Compensation - Stock Compensation (“ASC 718”). ASC 718
establishes accounting for stock-based awards exchanged for
employee services. Under the provisions of ASC 718, stock-based
compensation cost is measured at the grant date, based on the fair
value of the award, and is recognized as expense over the
employee’s requisite service period (generally the vesting
period of the equity grant) using the straight-line
method.
The
fair value of the Company’s common stock options are
estimated using the Black Scholes-Merton option-pricing model with
the following assumptions: expected volatility, dividend rate, risk
free interest rate, and the expected life. We calculate the
expected volatility using the historical volatility over the most
recent period equal to the expected term and evaluates the extent
to which available information indicate that future volatility may
differ from historical volatility. The expected dividend rate is
zero as the Company does not expect to pay or declare any cash
dividends on common stock. The risk-free rates for the expected
terms of the stock options are based on the U.S. Treasury yield
curve in effect at the time of the grant.
We have
not experienced significant exercise activity on stock options. We
determine the expected term of its stock option awards issued using
the simplified method. The simplified method assumes each vesting
tranche of the award has a term equal to the midpoint between when
the award vests and when the award expires.
11
In
accordance with ASC 718, excess tax benefits realized from the
exercise of stock-based awards are classified in cash flows from
financing activities. The future realization of the reserved
deferred tax assets related to these tax benefits associated with
the exercise of stock options will result in a credit to additional
paid-in capital if the related tax deduction reduces taxes payable.
We have elected the “with and without approach”
regarding ordering of windfall tax benefits to determine whether
the windfall tax benefit did reduce taxes payable in the current
year. Under this approach, the windfall tax benefit would be
recognized in additional paid-in-capital only if an incremental tax
benefit is realized after considering all other benefits presently
available.
Impairment of Long-Lived Assets
ASC
360, Plant, Property, and
Equipment, requires management judgments regarding the
future operating and disposition plans for marginally performing
assets, and estimates of expected realizable values for assets to
be sold. We account for our long-lived assets in accordance with
ASC 360 for purposes of determining and measuring impairment. It is
our policy to review the value assigned to the Company’s long
lived assets, to determine if they have been permanently impaired
by adverse conditions whenever events or circumstances indicate the
related carrying amount may not be recoverable. If required, an
impairment charge would be recorded based on an estimate of future
discounted cash flows.
In
order to test for recoverability, we would compare the sum of an
undiscounted cash flow projection from the related long-lived
assets to the net carrying amount of such assets. Considerable
management judgment is necessary to estimate undiscounted future
operating cash flows and fair values and, accordingly, actual
results could vary significantly from such estimates.
Capitalization
of Internally Developed Software
In
November 2014, we released the first phase of PAYBOX®, a next
generation version of our accounts receivable platform. It was
designed for a global bank client and will be available to all
Order-to-Cash process customers. According to ASC 350-40,
Intangibles-Goodwill and
Other-Internal-Use Software, we are able to capitalize the
costs associated with the application development stage of a
project. We started amortizing capitalized costs of this first
phase when the software was ready for use and placed in service in
November 2014. The capitalized costs are being amortized on a
straight-line basis over the estimated five-year useful life of the
software. As additional functionality is added, costs incurred are
capitalized in accordance with ASC 350-40. During 2016, in
accordance with professional standards the Company had been
deferring precontract costs software development costs that were
determined to be directly associated with specific anticipated
contracts for which recovery is possible. Although we renewed our
contract with IBM in December 2016, we were notified in February
2017 of their intention to terminate one of our contracts effective
September 2017. We have therefore expensed all costs capitalized
during the year ($372,000) during the fourth quarter of
2016.
12
RESULTS OF OPERATIONS
The
following is a summary of our operating results for the years ended
December 31, 2016 and 2015 (in thousands):
|
2016
|
2015
|
Increase
(Decrease)
|
|
Revenues:
|
|
|
|
|
Recurring
|
$5,303
|
$6,745
|
$(1,442)
|
(21.4) %
|
Non-recurring
|
1,209
|
1,266
|
(57)
|
(4.5)%
|
Total
revenues
|
6,512
|
8,011
|
(1,499)
|
(18.7)%
|
|
|
|
|
|
Operating costs and
expenses:
|
|
|
|
|
Operations,
research and development
|
3,015
|
3,389
|
(374)
|
(11.0)%
|
Sales and
marketing
|
1,468
|
1,417
|
51
|
3.6%
|
General and
administrative
|
2,091
|
2,321
|
(230)
|
(9.9)%
|
Amortization and
depreciation
|
230
|
289
|
(59)
|
(20.4)%
|
Total operating
costs and expenses
|
6,804
|
7,416
|
(612)
|
(8.3)%
|
|
|
|
|
|
Operating income
(loss)
|
(292)
|
595
|
(887)
|
(100%)+
|
Other expense,
net
|
(263)
|
(4)
|
(259)
|
(100%)+
|
|
|
|
|
|
Income (loss)
before provision for income taxes
|
(555)
|
591
|
(1,146)
|
(100%)+
|
Provision for
income taxes
|
(916)
|
(23)
|
(893)
|
(100%)+
|
|
|
|
|
|
Net income
(loss)
|
$(1,471)
|
$568
|
$(2,039)
|
(100%)+
|
Revenues
For the
year ended December 31, 2016, revenue decreased $1,499,000, or
18.7%, to $6,512,000 compared to $8,011,000 in 2015. Recurring
revenue decreased $1,442,000, or 21.4%, to $5,303,000 in 2016 from
$6,745,000 in 2015. This was primarily due to the loss of two
significant channel partner customers during 2016. Non-recurring
revenue decreased by $57,000, or 4.5%, to $1,209,000 in 2016 from
$1,266,000 in 2015 primarily due to the non-recurrence of certain
prior year customer-requested modifications, partially offset by
higher scanning fees.
Operating Costs and Expenses
Costs
of operations, research and development decreased by $374,000, or
11.0%, to $3,015,000 for the year ended December 31, 2016 compared
to $3,389,000 in 2015. These costs consist principally of salaries
and related expenses for software development, programming, custom
engineering, network services, and quality control and assurance.
Also included are costs for purchased services, network costs,
costs of the production co-location facilities and other expenses
directly related to our custom engineering and SaaS services.
The decrease was primarily due to
reduced salary expense resulting from lower headcount ($274,000), a
decrease in subcontractor usage and lower cloud license fees,
partially offset by higher scanning charges. Salary costs of
approximately $372,000 that had been deferred as precontract costs
earlier in 2016 were expensed in the fourth quarter of 2016 due to
the notification of termination of one of the IBM
contracts.
Sales
and marketing costs increased by approximately $51,000, or 3.6%, to
$1,468,000 for the year ended December 31, 2016 from $1,417,000 for
the comparable prior year period, primarily due to a lower
consulting and professional fees, partially offset by increased
trade show and marketing expenses, resulting from a more targeted
marketing approach.
General
and administrative costs decreased by $230,000, or 9.9%, to
$2,091,000 for the year ended December 31, 2016, compared to
$2,321,000 in 2015, primarily due
to lower compensation-related costs.
13
Amortization and
depreciation expense decreased by $59,000, or 20.4%, to $230,000
for the year ended December 31, 2016 compared to $289,000 in 2015,
as the amortization of internally developed software costs were
offset by existing assets that became fully depreciated during the
year.
Operating Income (Loss)
For the
year ended December 31, 2016, we had an operating loss of $292,000,
compared to operating income of $595,000 for the year ended
December 31, 2015, a decrease of $887,000. The loss reflects the
lower revenue that resulted from the loss of two significant
channel partner customers as discussed above.
Other Expense, net
Other
expense, net for the year ended December 31, 2016, was $263,000
compared to $4,000 in 2015, an increase of $259,000. The costs were
related to the Company’s potential reverse stock split as
disclosed on Form 8-K in December 2016.
Provision for Income Taxes
We had
a provision for income taxes in 2016 of $916,000, compared with
$23,000 in 2015, resulting from an additional valuation allowance
against our deferred tax asset, resulting from revised projections
of taxable income for future periods.
Net Income (Loss)
For the
year ended December 31, 2016, we had a net loss of $1,471,000
compared to net income of $568,000 for the year ended December 31,
2015. The change resulted from the operating loss, the costs of the
Company’s potential reverse stock split and the additional
valuation allowance against our deferred tax asset.
Financial Condition and Liquidity
As of December 31, 2016, the Company had total stockholders’
equity of $3,758,000, working capital of $2,377,000 and an
accumulated deficit of $112,538,000. The Company’s cash
decreased by $29,000 during the year ended December 31, 2016, to
$2,346,000 on hand as of December 31, 2016, while accounts
receivable decreased by $169,000 to $1,275,000.
Cash
provided by operating activities for the year ended December 31,
2016 was $154,000, and primarily consisted of: (i) net loss of
$1,471,000; (ii) non-cash valuation allowance against deferred tax
asset of $916,000; (iii) non-cash charges for amortization and
depreciation of $230,000; (iv) non-cash stock-based compensation
expense of $145,000; (v) a decrease in accounts receivable of
$169,000; and (vi) increases in accounts payable and accrued
liabilities of $144,000.
Cash
provided by operating activities for the year ended December 31,
2015 was $1,732,000, and primarily consisted of: (i) net income of
$568,000; (ii) non-cash charges for amortization and depreciation
of $289,000; (iii) non-cash stock-based compensation expense of
$213,000; and (iv) a decrease in accounts receivable of $963,000,
partially offset by decreases in accounts payable and accrued
liabilities of $217,000 and in deferred revenue of $52,000, and an
increase in prepaid expenses and other current assets of
$25,000.
Cash
used in investing activities was $172,000 and $203,000 for the
years ended December 31, 2016 and 2015, respectively, due
primarily to capitalization of internally developed software in
both years.
14
Cash
used in financing activities was $11,000 and $25,000 for the years
ended December 31, 2016 and 2015, respectively, reflecting payments
on capital leases.
As a
result of these operating, investing and financing activities, cash
decreased by $29,000 to $2,346,000 at December 31, 2016, compared
to a cash increase of $1,504,000 to $2,375,000 at December 31,
2015.
The
Company’s primary source of liquidity is cash generated from
operations. We believe that our current cash balance along with
cash generated from operations, will meet our liquidity needs for
the next twelve months from the filing of this annual report. No
assurances can be given, however, that this will be the case. If
the Company moves forward with its intended reverse stock split as
described in the Form 8-K filed as of December 19, 2016, it is
expected that substantial cost savings will be derived. Should we
require more liquidity than our current cash balances and cash
generated from operations will provide, we believe we could obtain
additional liquidity through debt or equity financing.
The
Company does not have any material commitments for capital
expenditures.
Net Operating Loss Carry Forwards
At
December 31, 2016, the Company has federal and state net operating
loss carryforward (“NOLs”) remaining of approximately
$25 million and $329,000, respectively, which may be available to
reduce taxable income, if any. Due to changes in certain state tax
laws, the previous state NOL of $20 million may no longer be
utilized by the Company. Remaining federal net operating loss carry
forwards expire from 2019 through 2036. However, Internal Revenue
Code Section 382 rules limit the utilization of NOLs upon an
ownership change of a company. During 2016, we performed an
evaluation as to whether an ownership change had taken place. We
believe that there has been no ownership change as such term is
defined in Section 382. If it is determined that an ownership
change has taken place, utilization of the NOLs will be subject to
limitations in future periods, which could eliminate a substantial
portion of the future income tax benefits of the NOLs.
During
2016, the Company reviewed previous positive and negative evidence
and also reviewed its expected taxable income for future periods
and concluded it is more likely than not that approximately
$280,000 of tax benefits relating to NOLs will be
utilized.
Off-Balance Sheet Arrangements
The
Company has no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on its
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors.
Item 7A.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
Applicable.
Item
8.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements are included beginning on page
F-1.
Item
9.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
15
Item
9A.
CONTROLS
AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of
the end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer, of our
disclosure controls and procedures (as defined in Rule 13a-15(e)
and Rule 15d-15(e) of the Exchange Act). The term disclosure
controls and procedures means controls and other procedures of the
Company that are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits
under the Exchange Act of 1934 is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s
rules and forms. Based upon this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as of December
31, 2016, our disclosure controls and procedures were
effective.
Management’s Annual Report on Internal Control over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule
13a-15(f) under the Exchange Act. Internal control over financial
reporting is a process designed by, or under the supervision of,
the Company’s principal executive and principal financial
officers, and effected by the Board of Directors, management, and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with United States
Generally Accepted Accounting Principles (“U.S. GAAP”)
including those policies and procedures that: (i) pertain to the
maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of
the company, (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with U.S. GAAP and that receipts and
expenditures are being made only in accordance with authorizations
of management and directors of the Company, and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
policies and procedures may deteriorate.
Under
the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer,
we have assessed the effectiveness of our internal control over
financial reporting as of December 31, 2016. In making this
assessment, our management used the criteria described in
Internal Control —
Integrated Framework issued in 2013 by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this
assessment and those criteria, our management concluded that the
Company did maintain effective internal control over financial
reporting as of December 31, 2016.
Changes in Internal Control Over Financial Reporting
There
were no changes in internal controls during the quarter ended
December 31, 2016 that have materially affected or are reasonably
likely to materially affect the Company’s internal controls
over financial reporting.
Item
9B.
OTHER
INFORMATION
None.
16
PART III
Item
10.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
As of
March 15, 2017, the names, ages and positions of the directors,
executive officers and key employees of the Company are as
follows:
|
|
|
|
|
|
Director
|
Name
|
|
Age
|
|
Position
|
|
Since
|
Matthew
E. Oakes
|
|
54
|
|
Chairman
of the Board of Directors, Chief Executive Officer and
President
|
|
2011
|
James
A. Cannavino(1)
|
|
72
|
|
Director
|
|
2000
|
Paul
Lisiak(1)(2)
|
|
43
|
|
Director
|
|
2012
|
Thomas
C. Lund(3)
|
|
73
|
|
Director
|
|
2011
|
John J.
Murabito(1)
|
|
61
|
|
Director
|
|
2011
|
Lowell
Rush
|
|
60
|
|
Chief
Financial Officer, Secretary and Treasurer
|
|
|
(1)
Member of the Audit Committee
(2)
Member of the Governance and Nominating Committee
(3)
Member of the Compensation Committee
Matthew E. Oakes was appointed Chairman
of the Board of Directors on June 3, 2014. He has held the position
of Chief Executive Officer since May 25, 2011 and has served as President since
March 2009. He previously held the position of Executive Vice
President and Chief Operating Officer from August 2006, and
Executive Vice President – Client Services since November of
2002. Prior to joining the Company, Mr. Oakes served for three
years as the Chief Operating Officer for Direct Media Networks a
New York based e-commerce and technology company. He held executive
positions in Westinghouse Communities Inc. including Managing
Director of Operations. Mr. Oakes received a Juris Doctorate of Law
from Nova Southeastern University and a Bachelor’s Degree in
Business from Cornell University. Prior to attending Cornell
University, he served with the United States Marine Corps in the
Special Operations Group of the 3rd Marine Division and as a Marine
Drill Instructor at the Marine Corp Recruit Depot, Paris Island,
South Carolina. As President and Chief Executive Officer, Mr. Oakes
brings to the Board an intimate knowledge of the Company’s
business and a management perspective. Mr. Oakes has shaped the
corporate vision of Paybox and is focused on driving strategic
business growth for the Company. He leads the organization in the
development and execution of all business processes and operations,
and drives constant improvement initiatives to ensure complete
client satisfaction.
17
James A. Cannavino has been a director
since March 2000, served as Chairman of the Board from March 2000
to May 2011, and served as Chief Executive Officer from December
2002 to May 2011. From September 1997 to April 2000 he was the
non-executive Chairman of Softworks, Inc. (a then wholly owned
subsidiary of the Company), which went public and was later sold to
EMC. Mr. Cannavino was also the Chief Executive Officer and
Chairman of the Board of Directors of CyberSafe, Inc., a
corporation specializing in network security, from April 1998 to
July 2001. In August 1995, he was appointed as President and Chief
Operating Officer of Perot Systems Corporation and in 1996 was
elected to serve as Chief Executive Officer through July 1997.
Prior to that, he served as a Senior Vice President at IBM,
responsible for strategy and development. Mr. Cannavino held
various positions at IBM for over thirty years beginning in 1963.
He also served on the IBM Corporate Executive Committee and
Worldwide Management Council, and on the Board of IBM’s
integrated services and solutions company. Mr. Cannavino presently
serves on the Boards of 1-800 Flowers, after 30 years as a Board
member is now an emeritus Board member of the National Center for
Missing and Exploited Children, and is the Chairman of the Board of
the International Center for Missing and Exploited Children. He
recently was the Chairman of the Board of Marist College in
Poughkeepsie, New York and continues to serve on the Board. Mr.
Cannavino brings to our Board knowledge and experience regarding
our history and operations and, generally, the computer software
industry, finance and capital markets.
Paul Lisiak has been a director since
May 2012 and is the Managing Partner of Metropolitan Equity
Partners, which employs a special situation investment strategy
with a particular focus on financial services. Prior thereto,
he was a member of the Global High Yield team at Lazard Asset
Management. Mr. Lisiak graduated with a BA in Economics from
the University of Pennsylvania and was an English Speaking Union
Fellow. He is currently a board member of CreditMax, Paybox
Corp (PBOX.QB), New Credit America and Next Level Finance
Partners. He is also an observer at BizFi.com. Mr. Lisiak brings to our
Board experience in finance and management oversight, as well as
the perspective of the Companyís largest outside stockholder,
whom he represents.
Thomas C. Lund has been a director since
May 2011 and is the founder and Chief Executive Officer of Lund
Capital Group, a private commercial real estate company that has
holdings in various regions across the U.S. Prior to founding Lund
Capital Group in 2000, Mr. Lund, in 1981, founded Customer
Development Corporation (“CDC”), a company specializing
in database management and marketing for financial institutions and
other various companies around the world and that he sold in 1998.
Mr. Lund is widely known as a pioneer of database marketing. In
1987, CDC was honored by Inc. Magazine as the 8th fastest growing
privately held company in the country. Mr. Lund, who is credited
worldwide with many technical and creative innovations in the
database marketing industry, also received the coveted
“High-Tech Entrepreneur of the Year” award by
Entrepreneur Magazine. In addition to Mr. Lund’s
business interests, he and his wife are active philanthropists. Mr.
Lund brings to the Board extensive experience in marketing and
business growth, which is especially important as the Company seeks
to expand its customer base.
18
John J. Murabito has been a director
since May 2011 and served as Chairman of the Board from May 2011 to
May 2012. From November 2001 through February 2011, Mr. Murabito
was Chief Executive Officer of Hapoalim Securities USA, Inc. and
its predecessor companies, including Investec (US) Inc., an
affiliate of the Investec Group, an international banking group. In
his role as Chief Executive Officer of Investec (US) Inc., Mr.
Murabito oversaw a firm with approximately 1,000 employees and $1
billion of assets. Mr. Murabito successfully restructured the
company’s US operations, including the acquisition and
disposition of businesses, to enhance stockholder value. Mr.
Murabito was a Managing Director in Information Technology at the
National Securities Clearing Corporation and served as deputy Chief
Information Officer for this essential US securities industry
clearing utility. Previously, Mr. Murabito was a general partner in
the investment advisor Weiss Peck & Greer responsible for
information technology and portfolio administration. Mr. Murabito
spent ten years with the investment bank Dillon Read & Company,
including as Chief Information Officer. Mr. Murabito earned a
Masters of Business Administration from the Wharton School at the
University of Pennsylvania. Mr. Murabito’s nearly thirty
years of experience with investment banking and operations bring to
the Board strong and effective knowledge of corporate governance,
executive management and finance.
Lowell Rush joined Paybox as acting
Chief Financial Officer in October 2013, and was appointed its
Chief Financial Officer, Secretary and Treasurer in
December 2013. Prior to joining the Company, Mr.
Rush held positions as Chief Operating Officer of Cosmetic
Dermatology, Inc. from 2011 to 2013, Vice President / Chief
Financial Officer of Bijoux Terner from 2008 to 2010, and Chief
Financial Officer of Little Switzerland, Inc. from 2006 to 2008, in
addition to various financial management roles at Sunglass Hut
International, Burger King Corp. and Knight-Ridder. He began his
career with Big Four firms Ernst & Young and Deloitte &
Touche. Mr. Rush is a Certified Public Accountant with a Bachelor
of Science degree in Accounting from the State University of New
York at Buffalo, and holds an Executive Masters of Business
Administration degree in International Business from the University
of Miami. Mr. Rush has more than 35 years of experience, primarily
in financial management and operational development. He is
experienced in strategic planning and implementation, SEC
compliance and reporting, cost reduction and avoidance, and
corporate development. He plays a key role in leading Paybox's
financial organization as the Company continues to execute upon its
growth strategy and explore new strategic opportunities.
As
noted in our Current Reports on Form 8-K filed with the SEC on
March 15, 2017, Lowell Rush, the Company’s Chief Financial
Officer, has announced his resignation effective March 31,
2017.
Term of Office and Family Relationships
All
directors hold office until the next annual meeting of shareholders
or until their respective successors are elected or until their
earlier death, resignation or removal. Executive officers are
appointed by and serve at the discretion of our Board of Directors.
There are no family relationships between any of our directors or
executive officers. As noted in our Current Reports on Form 8-K
filed with the SEC on March 15, 2017, Lowell Rush, the
Company’s Chief Financial Officer, has announced his
resignation effective March 31, 2017.
Section 16(a) Beneficial Ownership Reporting
Compliance
Pursuant to Section
16(a) of the Exchange Act and the rules thereunder, the
Company’s executive officers and directors and persons who
own more than 10% of a registered class of the Company’s
equity securities are required to file with the SEC reports of
their ownership of, and transactions in, the Company's common
stock.
19
Code of Ethics
Paybox
adopted a Corporate Code of Business Ethics in 2004 that applies to
all employees, officers and directors. It is broad in scope and is
intended to foster honest and ethical conduct, including accurate
financial reporting, compliance with laws and the like. In
addition, in 2005 the Company adopted an additional “Code of
Ethics – Chief Executive and Chief Financial Officers”
to comply with the Sarbanes-Oxley Act and the regulations of the
SEC. This code is posted on our internet website at
http://www.gopaybox.com/code-of-ethics/.
Audit Committee and Audit Committee Financial Expert
The
Board has a standing Audit Committee. The Board has determined that
each Director who serves on the Audit Committee is independent, as
that term is defined by NASDAQ Listing Rule 5605(a)(2). From
January 1, 2016 to December 31, 2016, the Audit Committee consisted
of John Murabito, Paul Lisiak, and James Cannavino. The Board has
determined that Messrs. Murabito, who currently serves as Chairman
of the Audit Committee, Lisiak and Cannavino each qualify as an
Audit Committee financial expert, as that term is defined in
applicable regulations of the SEC.
Item
11.
EXECUTIVE
COMPENSATION
The
following table sets forth the annual and long-term compensation
with respect to the Principal Executive Officer (“PEO”)
and Chief Financial Officer for the years ended December 31, 2016
and 2015.
Summary
Compensation Table
|
|||||||
|
|
|
|
|
Options
|
All
Other
|
|
|
|
|
Salary
|
Bonus
|
Awards
|
Compensation
|
TOTAL
|
Name
|
|
Years
|
($)
|
($)
|
($)(1)
|
($)(2)
|
($)
|
Matthew E.
Oakes
|
|
2016
|
$295,000
|
$–
|
$–
|
$35,771
|
$330,771
|
President, Chief
Executive Officer, Chairman of the Board (PEO) (3)
|
|
2015
|
$295,000
|
$102,500
|
$–
|
$33,875
|
$431,375
|
|
|
|
|
|
|
|
|
Lowell M.
Rush
|
|
2016
|
$210,000
|
$10,000
|
$–
|
$–
|
$220,000
|
Chief Financial
Officer (4)
|
|
2015
|
$202,500
|
$45,000
|
$44,100
|
$–
|
$291,600
|
1. This represents
the fair value of the award as of the grant date in accordance with
FASB ASC Topic 718. See assumptions used in determining the fair
value in Note 6 to the financial statements.
2. All other
compensation represents the value of
corporate lodging for Mr. Oakes.
3.
Mr. Oakes was appointed Chairman of the Board on June 3, 2014,
Chief Executive Officer on May 25, 2011 and President on March 18,
2009. Mr. Oakes does not receive compensation for his service as a
Director of the Company.
4.
Mr. Rush was appointed Chief Financial Officer, Secretary and
Treasurer on December 19, 2013. As noted in our Current Reports on
Form 8-K filed with the SEC on March 15, 2017, Lowell Rush, the
Company’s Chief Financial Officer, has announced his
resignation effective March 31, 2017.
Employment Agreements
The
Company had an employment agreement with Matthew E. Oakes, Chief
Executive Officer and Chairman of the Board of Directors, for a
term effective June 1, 2013 through December 31, 2016. On February
20, 2016, Mr. Oakes’ employment agreement was superseded by a
new employment agreement extending the term through December 31,
2017. The agreement provides for a base salary of $24,583 per
month, discretionary and annual incentive bonuses based on the
Company’s performance in achieving prescribed revenue and
earnings before interest and taxes (“EBIT”) targets.
The agreement also provides for reimbursement of all out-of-pocket
expenses reasonably incurred by him in the performance of his
duties hereunder and certain severance benefits in the event of
termination prior to the expiration date. If Mr. Oakes is
terminated without cause or resigns from employment for “good
reason” (as defined within Mr. Oakes’ employment
agreement), he would receive one year of base salary and COBRA
coverage at the Company’s expense. The Company shall continue
to provide corporate lodging to Mr. Oakes through the term of his
agreement.
20
Outstanding Equity Awards at Fiscal Year End
The
following table provides information concerning outstanding
options, unvested stock and equity incentive plan awards for the
named executives as of December 31, 2016:
|
Option
Awards
|
||||
Name
|
Number of
Securities Underlying Unexercised Options -
Exercisable
|
Number of
Securities Underlying Unexercised Options -
Unexercisable
|
Equity Incentive
Plan Awards: Number of Underlying Unexercised Unearned
Options
|
Option Exercise
Price
|
Option
Expiration Date
|
Matthew E.
Oakes
|
210,000
|
--
|
--
|
$1.15
|
01/01/2017
|
Lowell
Rush
|
60,000
|
20,000(1)
|
--
|
$1.50
|
12/19/2018
|
|
30,000
|
60,000(2)
|
--
|
$0.90
|
03/31/2020
|
(1)
These options vest
over a four-year period: (i) 20,000 vesting on December 19, 2014,
and (ii) 1,667 vesting each month over 36 months beginning on
January 19, 2015.
(2)
These options vest
over a three-year period: 30,000 vesting on each of March 31, 2016,
2017, and 2018.
Equity Compensation Plan Information
We
maintain various stock plans under which options vest and shares
are awarded at the discretion of our Board of Directors or its
Compensation Committee. The purchase price of the shares under the
plans and the shares subject to each option granted is not less
than the fair market value on the date of the grant. The term of
each option is generally five years and is determined at the time
of the grant by our Board of Directors or the Compensation
Committee. The participants in these plans are officers, directors,
employees and consultants of the Company and its
affiliates.
The
Company has three plans under which stock options are currently
outstanding: the 2003-A Stock Option/Stock Issuance Plan, the 2004
Stock Option/Stock Issuance Plan (both of which have expired and no
future grants may be issued), and the 2014 Option/Stock Issuance
Plan. On June 3, 2014, the stockholders approved the 2014
Option/Stock Issuance Plan for 1,200,000 shares. This plan expires
in ten years. Both options and stock may be granted under this
plan. The 2014 Plan continues the general purpose of the 2004
Plan.
Options
granted under each plan may be incentive stock options qualified
under Section 422 of the Internal Revenue Code or non-qualified
stock options. Under the terms of the plan, the exercise price of
options granted under the plan will be the fair market value at the
date of the grant. Prices for incentive stock options granted to
employees who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the
options to be granted are determined at the date of the grant by
the Compensation Committee of the Board of Directors. Stock options
granted under the plans may become exercisable in one or more
installments in the manner and at the time or times specified by
the committee. Options granted under the plans expire not later
than five years from the date of grant.
21
The
following table summarizes certain information concerning each of
the plans.
Plan
|
Expiration
|
Original Number
of Shares
|
Options Granted,
Net of Forfeitures During 2016
|
Options
Outstanding at December 31, 2016
|
Restricted Stock
Granted and Unissued
|
Shares Available
for Grant at December 31, 2016
|
2003-A
Plan
|
April 1,
2013
|
975,000
|
—
|
210,000
|
—
|
—
|
2004
Plan
|
August 20,
2014
|
1,200,000
|
—
|
169,999
|
—
|
—
|
2014
Plan
|
June 3,
2024
|
1,200,000
|
—
|
90,000
|
503,933
|
606,067
|
Directors’ Compensation
The
following table provides the compensation earned by our
non-employee Directors for the year ended December 31,
2016.
Name
|
Fees Earned or
Paid in Cash
($)
|
Stock
Awards
($)
|
Nonqualified
Deferred Compensation Earnings
($)
|
Total
($)
|
James A. Cannavino
(1)
|
--
|
$26,824
|
$10,000
|
$36,824
|
Paul Lisiak
(2)
|
$10,000
|
$26,824
|
$--
|
$36,824
|
Thomas C. Lund
(3)
|
--
|
$26,824
|
$10,000
|
$36,824
|
John J. Murabito
(4)
|
--
|
$26,824
|
$10,000
|
$36,824
|
Footnotes
(1)
Mr. Cannavino has
been a Director since 2000 and a member of the Audit Committee
since May 25, 2011. As of December 31, 2016, Mr. Cannavino had
226,189 shares of deferred and non-issued stock.
(2)
Mr. Lisiak has been
a Director, member of the Audit Committee, and Chairman of the
Governance and Nominating Committee since May 21, 2012. As of
December 31, 2016, Mr. Lisiak had 168,491 shares of deferred and
non-issued stock.
(3)
Mr. Lund was a
Director and member of the Compensation Committee since May 25,
2011. As of December 31, 2016, Mr. Lund had 234,677 shares of
deferred and non-issued stock.
(4)
Mr. Murabito has
been a Director since May 25, 2011, and has been Chairman
of the Audit Committee since May 21, 2012. As of
December 31, 2016, Mr. Murabito had 283,605 shares of deferred
and non-issued stock.
22
Narrative Disclosure to Director Compensation Table
Effective June 3,
2014, the compensation of the Directors, other than the Chairman of
the Board, includes an annual fee of $10,000 payable in cash. In
lieu of cash, a Director may elect to receive stock, distributed
quarterly in arrears, with the number of shares distributed each
quarter determined by dividing $2,500 by the average closing price
in the last five trading days of each respective quarter. At the
beginning of each calendar year, Directors additionally receive
$25,000 in restricted stock vesting daily over two years, with the
number of shares equal to $25,000 divided by the average closing
price of the stock in the five prior trading days to year-end. The
Chairman of the Board is not compensated.
In
January 2008, the Company adopted a Deferred Compensation Plan for
Directors whereby the Directors may elect to defer their
compensation until January 15th of the year following such
director’s termination of services as director. The Company
also reimburses Directors for reasonable expenses incurred in
attending Board and Committee meetings.
23
Item
12.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
following table sets forth the beneficial ownership of shares of
voting stock of the Company, as of March 1, 2017, (i) each person
known by the Company to beneficially own more than 5% of the shares
of outstanding common stock, based solely on filings with the SEC,
(ii) each of the Company’s executive officers and directors
and (iii) all of the Company’s executive officers and
directors as a group. Except as otherwise indicated, all shares are
beneficially owned, and the persons named as owners hold investment
and voting power:
Name of Beneficial Owner (1)
|
Amount of Common Stock Beneficially Owned
|
Rights to Acquire Beneficial Ownership Through Exercise of Options
and Warrants Within 60 Days
|
Total Beneficially Owned as % of Outstanding Shares
|
Metropolitan
Equity Partners, LLC (2)
|
1,782,703
|
–
|
14.4%
|
James
Cannavino (3)
|
2,654,479
|
8,021
|
19.6%
|
Thomas
C. Lund (4)
|
2,506,753
|
8,021
|
18.5%
|
Paul
Lisiak (5)
|
1,953,101
|
8,021
|
14.4%
|
Matthew
E. Oakes
|
404,993
|
210,000
|
4.5%
|
John
J. Murabito (6)
|
425,183
|
8,021
|
3.2%
|
Lowell
M. Rush
|
-
|
93,333
|
*
|
All
Officers and Directors as a Group (7 persons)
|
7,944,509
|
335,418
|
60.9%
|
* =
Less than 1%
Footnotes
(1)
Unless otherwise
indicated, the address of all Beneficial Owners is c/o Paybox,
Inc., 500 East Broward Boulevard, Suite 1550, Fort Lauderdale, FL
33394.
(2)
The address of
Metropolitan Equity
Partners, LLC is 70 East 55th Street,
15th
Floor, New York, NY 10022. Amount includes 214,211 shares owned by
Metropolitan MEIH19, LP.
(3)
Includes 267,767
shares of restricted stock that have fully vested but not been
issued and 8,021 shares of restricted stock that are expected to
vest within 60 days.
(4)
Includes 236,419
shares of restricted stock that have fully vested but not been
issued, and 8,021 shares of restricted stock that are expected to
vest within 60 days.
(5)
Includes 1,782,703
shares of common stock held by Metropolitan Equity Partners, LLC,
170,398 shares of restricted stock that have fully vested but not
been issued and 8,021 shares of restricted stock that are expected
to vest within 60 days. Mr. Lisiak serves as Managing Partner of Metropolitan
Equity Partners, LLC, which is the Manager of Metropolitan GP
Holdings, LLC, Series METVP II ("MetGP II") and Metropolitan GP
Holdings, LLC, Series MEIH19 ("MetGP"). MetGP II is the general
partner of Metropolitan Venture Partners II, L.P. ("MetVP II") and
MetGP is the general partner of Metropolitan MEIH19, LP
("MEIH19"). In addition, Mr. Lisiak is one the members of
the board of directors of the general partner of Metropolitan
Venture Partners, L.P.
(6)
Includes 285,183
shares of restricted stock that have fully vested but not been
issued and 8,021 shares of restricted stock that are expected to
vest within 60 days.
24
The
following table sets forth certain information as of December 31,
2016, for all compensation plans (a description of which can be
found under Item 11 of this report), including individual
compensation arrangements under which equity securities of the
Company are authorized for issuance.
Securities Authorized for Issuance Under Equity Compensation
Plans
|
Number of
Securities to be Issued Upon Exercise of Outstanding
|
Weighted Average
Exercise Price Per Share of Outstanding
|
Number of
Securities Available for Future Issuance Under Equity
Compensation
|
|
Options
|
Options
|
Plans
|
Equity compensation
plans approved by security holders
|
469,999
|
$1.16
|
606,067
|
Item
13.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Director Independence
The
Board has affirmatively determined that each Director other than
Mr. Oakes, is independent under the independence standards set
forth in NASDAQ Listing Rule 5605(a)(2). The Board has standing
Audit, Compensation, and Governance and Nominating Committees, each
of whose members is also independent under the independence
standards set forth in NASDAQ Listing Rule 5605(a)(2).
Item
14.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The
following is a summary of the aggregate fees for professional
services rendered to us by Marcum LLP, our independent auditors,
for the fiscal years ended December 31, 2016 and 2015:
|
2016
|
2015
|
Audit Fees
(1)
|
$121,000
|
$132,000
|
Tax Fees
(2)
|
$12,000
|
$7,000
|
All Other Fees
(3)
|
$25,000
|
$23,000
|
(1)
Audit Fees in 2016
and 2015 consisted of aggregate fees billed and to be billed for
professional services rendered for the audit of our annual
financial statements, review of the interim financial statements
included in quarterly reports, and consents issued in connection
with registration statements or services that are normally provided
by the independent auditors in connection with statutory and
regulatory filings or engagements.
(2)
Tax Fees in 2016
and 2015 consisted of the aggregate fees billed for professional
services rendered for tax compliance, tax advice, and tax planning,
including fees related to the preparation of federal and state
income tax returns.
(3)
Other Fees in 2016
and 2015 consisted of the aggregate fees billed for professional
services rendered for the examination of controls and issuance of
an SSAE 16 Type II report related to the Company’s global
electronic invoice management system.
25
The
Audit Committee has responsibility for the appointment,
compensation and oversight of the work of the independent auditor.
As part of this responsibility, the Audit Committee must
pre-approve all permissible services to be performed by the
independent auditor.
The
Audit Committee has adopted an auditor pre-approval policy which
sets forth the procedures and conditions pursuant to which
pre-approval may be given for services performed by the independent
auditor. Under the policy, the Audit Committee must give prior
approval for any amount or type of service within four categories:
audit, audit-related, tax services or, to the extent permitted by
law, other services that the independent auditor provides. Prior to
the annual engagement, the Audit Committee may grant general
pre-approval for independent auditor services within these four
categories at maximum pre-approved fee levels. During the year,
circumstances may arise when it may become necessary to engage the
independent auditor for additional services not contemplated in the
original pre-approval and, in those instances, such service will
require separate pre-approval by the Audit Committee if it is to be
provided by the independent auditor. For any pre-approval, the
Audit Committee will consider whether such services are consistent
with the SEC’s rules on auditor independence, whether the
auditor is best positioned to provide the most cost effective and
efficient service and whether the service might enhance the
Company’s ability to manage or control risk or improve audit
quality. The Audit Committee may delegate to one or more of its
members authority to approve a request for pre-approval provided
the member reports any approval so given to the Audit Committee at
its next scheduled meeting.
26
PART IV
Item 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
(a)
1.
The financial
statements listed in the index to the Financial
Statements.
None.
2.
Exhibits:
Exhibit
Number
|
|
Description
|
|
3.1
|
(a)
|
|
Certificate of Incorporation, as amended. (Incorporated by
reference to Exhibit 3(a) of Form S-1 Registration Statement).
(1)
|
|
(b)
|
|
Certificate of Amendment (Change in Name) (Incorporated by
reference to Exhibit 3(a) of Form S-1 Registration Statement).
(1)
|
|
(c)
|
|
Certificate of Amendment (Change in Name) (Incorporated by
reference to Exhibit 3(a) of Form S-1 Registration Statement).
(1)
|
|
(d)
|
|
Certificate of Amendment (Authorizing Increase in Shares of Common
Stock) (Incorporated by reference to Exhibit 3 (i) (d) to Form 10-K
for the year ended 1995).
|
|
(e)
|
|
Certificate of Amendment (Authorizing one for ten reverse-stock
split as of March 30, 1998) (Incorporated by reference to
Form S-1 Registration Statement). (1)
|
|
(f)
|
|
Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock filed October 3, 2002 (Incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form
8-K dated October 17, 2002).
|
|
(g)
|
|
Certificate of Amendment of Certificate of Designation, Preferences
and Rights of Series A Convertible Preferred Stock filed December
20, 2002 (Incorporated by reference to Exhibit 3.2 of Company's
Current Report on Form 8-K filed January 7, 2003).
|
|
(h)
|
|
Certificate of Amendment of Certificate of Designation, Preferences
and Rights of Series A Convertible Preferred Stock filed January 2,
2003 (Incorporated by reference to Exhibit 3.3 to the Company's
Current Report on Form 8-K filed January 17, 2003).
|
|
(i)
|
|
Certificate of Designation, Preferences and Rights of Series B
Redeemable Preferred Stock filed December 10, 2003 (Incorporated by
reference to Exhibit 3(i) to the Company’s Annual Report on
Form 10-KSB filed April 14, 2004).
|
|
(j)
|
|
Certificate of Designation, Preferences and Rights of Series C
redeemable Preferred Stock filed December 16, 2003 (Incorporated by
reference to Exhibit 3(j) to the Company’s Annual Report on
Form 10-KSB filed April 14, 2004).
|
|
(k)
|
|
Certificate of Amendment of Certificate of Designation, Preferences
and Rights of Series C Preferred Stock filed March 29,
2005.
|
|
3.2
|
|
By-Laws. (Incorporated by reference to Exhibit 3(d) to the
Company’s Form S-1 Registration Statement). (1)
|
|
4.1
|
|
Form of Common Stock Certificate. (Incorporated by reference to
Exhibit 4 to the Company’s Form S-1 Registration Statement).
(1)
|
|
4.2
|
|
Securities Purchase Agreement between the Company, Sigma
Opportunity Fund, LLC and Metropolitan Venture Partners II, LP
(Incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K filed March 31, 2005).
|
27
Exhibit
Number
|
|
Description
|
|
10.1
|
|
|
2003 Stock Option /Stock Issuance Plan (Incorporated by reference
to Exhibit 10.8 to the Company’s Form 10-K filed on April 15,
2003).
|
10.2
|
|
|
2003A Stock Option /Stock Issuance Plan (Incorporated by reference
to the Company’s Definitive Proxy Statement on Schedule 14A
filed May 6, 2003).
|
10.3
|
|
|
2004 Stock Option /Stock Issuance Plan (Incorporated by reference to the Company’s
Definitive Proxy Statement on Schedule 14A filed November 20,
2006).
|
10.4
|
|
|
2014 Stock Incentive Plan (Incorporated by reference to the
Company’s Definitive Proxy Statement on Schedule 14A filed
May 5, 2014).
|
10.5
|
|
|
2008 Directors’ Deferred Compensation Plan (Incorporated by
reference to Exhibit 10.4 to the
Company’s Form 10-K filed on March 26,
2013).
|
10.6
|
|
|
Stock Purchase and Registration Rights Agreement between the
Company and Metropolitan Venture Partners II, L.P. dated as of
September 25, 2002 (Incorporated by reference to Exhibit 10.1 of
the Company’s Current Report on Form 8-K dated
September 25, 2002).
|
10.7
|
|
|
Stock Purchase and Registration Rights Agreement between the
Company and Metropolitan Venture Partners II, L.P. dated as of
December 24, 2002 (Incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K dated
December 24, 2002).
|
10.8
|
|
|
Amendment letter dated January 29, 2004 to the Statement of Work
between IBM Corporation and the Company, portions of the Exhibit
have been omitted pursuant to a request for confidential treatment.
(Incorporated by reference to Exhibit 10.28 to the Company’s
S-1 registration statement filed on February 19,
2009).
|
10.9
|
|
|
Worldwide Invoices On-Line (IOL) Appendix A Payments and Fees for
Ongoing Support (OCS)-Invoice Processing, Archiving, and Attachment
Processing and Non-Recurring Engineering (NRE) between
International Business Machines Corporation and the Company dated
December 1, 2008; portions of the Exhibit have been omitted
pursuant to a request for confidential treatment. (Incorporated by
reference to Exhibit 10.29 to the Company’s S-1
registration statement filed on February 19, 2009).
|
10.1
|
|
|
Master Services Agreement #EDS-2004-01-2005 dated May 7, 2004
between Electronic Data Systems Corporation and the Company,
portions of the Exhibit have been omitted pursuant to a request for
confidential treatment. (Incorporated by reference to
Exhibit 10.30 to the Company’s S-1 registration
statement filed on February 19, 2009).
|
10.11
|
|
|
Statement of Work #EDS-2007-05-01 dated May 8, 2007 between
Electronic Data Systems Corporation and the Company, portions of
the Exhibit have been omitted pursuant to a request for
confidential treatment. (Incorporated by reference to
Exhibit 10.31 to the Company’s S-1 registration
statement filed on February 19, 2009).
|
10.12
|
|
|
Master Services Agreement EIAP (OGS) Amendment (#8) dated June 27,
2007 between Electronic Data Systems Corporation and the Company,
portions of the Exhibit have been omitted pursuant to a request for
confidential treatment. (Incorporated by reference to Exhibit 10.32
to the Company’s S-1 registration statement filed on February
19, 2009).
|
28
Exhibit
Number
|
|
Description
|
|
10.13
|
|
|
Statement of Work #EDS-2008-05-07 dated May 7, 2008 between
Electronic Data Systems Corporation and the Company, portions of
the Exhibit have been omitted pursuant to a request for
confidential treatment. (Incorporated by reference to
Exhibit 10.33 to the Company’s S-1 filed registration
statement filed on February 19, 2009).
|
10.14
|
|
|
Master Services Agreement MIAP (OGS) Amendment (#10) dated August
21, 2008 between Electronic Data Systems Corporation and the
Company, portions of the Exhibit have been omitted pursuant to a
request for confidential treatment. (Incorporated by reference to
Exhibit 10.34 to the Company’s S-1 registration statement
filed on February 19, 2009).
|
10.15
|
|
|
Agreement dated as of April 28, 2011 by and among Metropolitan
Venture Partners II, L.P., Metropolitan Venture Partners
(Advisors), L.P., Metropolitan Venture Partners Corp., Michael
Levin, Tall Oaks Group LLC, Lawrence D. Hite, Thomas C. Lund, Carol
A. Lund, Craig W. Thomas, Bradley M. Tirpak, John J. Murabito,
Philip Summe and S.A.V.E. Partners III, LLC, James A. Cannavino and
the Company, (Incorporated by reference to Exhibit 10 to the
Company’s Form 8-K filed on April 29, 2011).
|
10.16
|
|
|
Employment Agreement effective January 1, 2015 (Incorporated by
reference to the Company’s Current Report on Form 8-K filed
on February 24, 2015).
|
10.17
|
|
|
Office Lease Agreement between the Company and CTA Partners, L.P.,
dated October 24, 2012 (Incorporated by reference to Exhibit
10.17 to the Company’s Form 10-K filed on March 26,
2013).
|
10.18
|
|
|
Agreement, dated October 28, 2013, by and between the Company and
International Business Machines Corporation (Incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed October 20, 2013).
|
31.1
|
|
|
Certification pursuant to Rules 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 – Chief Executive
Officer.
|
31.2
|
|
|
Certification pursuant to Rules 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 – Chief Financial
Officer.
|
32.1
|
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 –
Chief Executive Officer.
|
32.2
|
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 –
Chief Financial Officer.
|
29
Exhibit
Number
|
|
Description
|
|
101
|
|
|
Financial
Statement from the Annual Report on Form 10-K of the Company for
the year ended December 31, 2016, formatted in Extensible Business
Reporting Language (XBRL): (i) Balance Sheets as of December 31,
2016 and 2015; (ii) Statements of Operations for the years ended
December 31, 2016 and 2015; (iii) Statements of Stockholders'
Equity for the years ended December 31, 2016 and 2015; and (iv)
Statements of Cash Flows for the years ended December 31, 2016 and
2015.*
|
Footnotes
(1)
Filed with Form
S-1, Registration Statement of the Company Reg. No 3-47322 and
incorporated herein by reference.
*
Pursuant to Rule
406T of Regulation S-T, the XBRL related information in Exhibit 101
to this Annual Report on Form 10-K shall not be deemed
“filed” for purposes of Section 18 of the Exchange Act,
or otherwise subject to liability of that section and shall not be
incorporated by reference into any filing or other document
pursuant to the Securities Act, except as shall be expressly set
forth by specific reference in such filing or
document.
30
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized on the 29 day of March, 2017.
|
PAYBOX
CORP
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
Matthew E. Oakes, Chief Executive Officer |
|
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 29,
2017:
|
|
|
President, Chief
Executive Officer and
|
|
Matthew E.
Oakes
|
|
|
Chairman of the
Board of Directors
|
|
|
|
|
|
|
|
|
|
Chief Financial
Officer, Secretary and Treasurer
|
|
Lowell Rush |
|
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
|
|
|
|
|
|
|
|
Director |
|
James A.
Cannavino
|
|
|
|
|
|
|
|
|
|
|
|
|
Director |
|
Paul Lisiak |
|
|
|
|
|
|
|
|
|
|
|
|
Director |
|
Thomas C. Lund |
|
|
|
|
|
|
|
|
|
|
|
|
Director |
|
John J. Murabito |
|
|
|
|
31
PAYBOX CORP
(Formerly Direct Insite Corp.)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
TABLE OF CONTENTS
Report of Independent Registered Public Accounting
Firm
|
F-2
|
|
|
Financial Statements
|
|
|
|
Balance Sheets as of December 31, 2016 and 2015
|
F-3
|
|
|
Statements of Operations for the years ended
December 31, 2016 and 2015
|
F-4
|
|
|
Statement of Stockholders’ Equity for the years
ended
December 31, 2016 and 2015
|
F-5
|
|
|
Statements of Cash Flows for the years ended
December
31, 2016 and 2015
|
F-6
|
|
|
Notes to Financial Statements
|
F-7 through F-22
|
F-1
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Audit Committee of the Board of Directors and Stockholders
of Paybox
Corp
We have
audited the accompanying balance sheets of Paybox Corp (formerly
Direct Insite Corp.) (the “Company”) as of December 31,
2016 and 2015 and the related statements of operations,
stockholders’ equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paybox Corp as
of December 31, 2016 and 2015 and the results of its operations and
its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.
/s/ Marcum LLP
Marcum
LLP
Fort
Lauderdale, FL
March
29, 2017
F-2
PAYBOX CORP
(Formerly Direct Insite Corp.)
BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31, 2016 AND 2015
|
2016
|
2015
|
Assets
|
|
|
Current
assets:
|
|
|
Cash and cash
equivalents
|
$2,346
|
$2,375
|
Accounts
receivable
|
1,275
|
1,444
|
Prepaid expenses
and other current assets
|
395
|
405
|
Total current
assets
|
4,016
|
4,224
|
Property and
equipment, net
|
876
|
934
|
Deferred tax
assets
|
280
|
1,195
|
Other
assets
|
225
|
247
|
Total noncurrent
assets
|
1,381
|
2,376
|
Total
assets
|
$5,397
|
$6,600
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
Current
liabilities:
|
|
|
Accounts payable
and accrued expenses
|
$1,613
|
$1,468
|
Current portion of
capital lease obligations
|
--
|
11
|
Deferred
rent
|
26
|
37
|
|
|
|
Total current
liabilities
|
1,639
|
1,516
|
Total
liabilities
|
1,639
|
1,516
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
Stockholdersí
equity:
|
|
|
Preferred stock,
$0.0001 par value; 2,000,000 shares authorized; none issued or
outstanding
|
--
|
--
|
Common stock,
$0.0001 par value; 50,000,000 shares authorized;13,138,007 and 12,979,536 shares issued
and 13,098,080 and
12,939,609 shares outstanding in 2016 and 2015,
respectively
|
1
|
1
|
Additional paid-in
capital
|
116,623
|
116,478
|
Accumulated
deficit
|
(112,538)
|
(111,067)
|
Common stock in
treasury, at cost;24,371
shares in 2016 and 2015
|
(328)
|
(328)
|
Total stockholders'
equity
|
3,758
|
5,084
|
Total liabilities
and stockholders' equity
|
$5,397
|
$6,600
|
See
notes to financial statements.
F-3
PAYBOX
CORP
(Formerly Direct Insite Corp.)
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
FOR THE YEARS ENDED
DECEMBER 31, 2016 AND 2015
|
2016
|
2015
|
Revenues:
|
|
|
Recurring
|
$5,303
|
$6,745
|
Non-recurring
|
1,209
|
1,266
|
Total
revenues
|
6,512
|
8,011
|
Operating costs and
expenses:
|
|
|
Operations,
research and development
|
3,015
|
3,389
|
Sales and
marketing
|
1,468
|
1,417
|
General and
administrative
|
2,091
|
2,321
|
Amortization and
depreciation
|
230
|
289
|
Total operating
costs and expenses
|
6,804
|
7,416
|
Operating income
(loss)
|
(292)
|
595
|
Other
expense
|
(263)
|
(4)
|
Income (loss)
before provision for income taxes
|
(555)
|
591
|
Provision for
income taxes
|
(916)
|
(23)
|
Net income
(loss)
|
$(1,471)
|
$568
|
|
|
|
Basic income (loss)
per share
|
$(0.11)
|
$0.04
|
|
|
|
Diluted income
(loss) per share
|
$(0.11)
|
$0.04
|
|
|
|
Basic weighted
average common shares outstanding
|
12,989
|
12,846
|
|
|
|
Diluted weighted
average common shares outstanding
|
12,989
|
12,865
|
See
notes to financial statements.
F-4
PAYBOX CORP
(Formerly Direct Insite Corp.)
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(in thousands)
|
|
Additional
|
|
|
|
|
|
Common
Stock
|
Paid-In
|
Accumulated
|
Treasury
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Stock
|
Total
|
Balance January 1,
2015
|
12,720
|
$1
|
$116,161
|
$(111,635)
|
$(328)
|
$4,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock in settlement of accrued directors' fees
|
112
|
--
|
104
|
--
|
--
|
104
|
Employee stock
based compensation expense
|
--
|
--
|
126
|
--
|
--
|
126
|
Common stock issued
or issuable for directors' fees
|
108
|
--
|
87
|
--
|
--
|
87
|
Net
income
|
--
|
--
|
--
|
568
|
--
|
568
|
|
|
|
|
|
|
|
Balance December
31, 2015
|
12,940
|
1
|
116,478
|
(111,067)
|
(328)
|
5,084
|
|
|
|
|
|
|
|
Employee stock
based compensation expense
|
--
|
--
|
37
|
--
|
--
|
37
|
Common stock issued
or issuable for directors' fees
|
158
|
--
|
108
|
--
|
--
|
108
|
Net
loss
|
--
|
--
|
--
|
(1,471)
|
--
|
(1,471)
|
Balance
December 31, 2016
|
13,098
|
$1
|
$116,623
|
$(112,538)
|
$(328)
|
$3,758
|
See
notes to financial statements.
F-5
PAYBOX CORP
(Formerly Direct Insite Corp.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(in thousands)
|
2016
|
2015
|
Cash flows from
operating activities:
|
|
|
Net income
(loss)
|
$(1,471)
|
$568
|
Adjustments to
reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
Amortization and
depreciation
|
230
|
289
|
Deferred
taxes
|
916
|
-
|
Stock-based
compensation expense
|
145
|
213
|
Deferred rent
expense
|
(11)
|
(7)
|
Changes in
operating assets and liabilities:
|
|
|
Accounts
receivable
|
169
|
963
|
Prepaid expenses
and other current assets
|
32
|
(25)
|
Accounts payable
and accrued expenses
|
144
|
(217)
|
Deferred
revenue
|
-
|
(52)
|
Total
adjustments
|
1,625
|
1,164
|
Net cash provided
by operating activities
|
154
|
1,732
|
|
|
|
Cash flows from
investing activities:
|
|
|
Purchases of
property and equipment
|
(65)
|
(9)
|
Capitalization of
internally developed software
|
(107)
|
(194)
|
Net cash used in
investing activities
|
(172)
|
(203)
|
|
|
|
Cash flows from
financing activities:
|
|
|
Repayment of
capital lease obligations
|
(11)
|
(25)
|
Net cash used in
financing activities
|
(11)
|
(25)
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
(29)
|
1,504
|
Cash and cash
equivalents - beginning
|
2,375
|
871
|
Cash and cash
equivalents - ending
|
$2,346
|
$2,375
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
Cash paid for
interest
|
$3
|
$5
|
Cash paid for
income taxes
|
$-
|
$23
|
|
|
|
Schedule of
non-cash investing and financing activities:
|
|
|
Issuance of common
stock in settlement of accrued directors' fees
|
$-
|
$104
|
See
notes to financial statements.
F-6
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 1 – Nature of Business
Paybox
Corp (“Paybox” or the “Company”) operates
as a Software as a Service provider (“SaaS”), providing
financial supply chain automation and workflow efficiencies within
the Procure-to-Pay and Order-to-Cash processes. Specifically,
Paybox’s global electronic invoice (“e-invoice”)
management services automate complex manual business processes such
as invoice validation, order matching, consolidation, dispute
handling, and e-payment processing in a business-to-business
transaction based “fee for services” business
model.
On
September 26, 2016, the Company changed its name from Direct Insite
Corp. to Paybox Corp to align the corporate name and brand with the
Company’s globally deployed Working Capital Management
Platform, PAYBOX®.
The
Company’s revenue comes from (i) recurring, on-going services
that are billed monthly and (ii) non-recurring, professional
services derived from the configuration of the Company’s
software platform.
Throughout the
year, the Company operated redundant data centers in Miami, Florida
and Amsterdam, Netherlands.
As
described in Note 9, the Company has four major customers (one of
which had separate contracts with multiple companies) that
accounted for 88.0% and 88.3% of the Company’s revenue for
the years ended December 31, 2016 and 2015, respectively. Loss of
any of these customers, or any of the separate contracts under a
main customer, could have a material effect on the
Company.
In
November 2015, the Company was notified by HP Enterprise Services
(“HPE”) that one of its clients, representing
approximately 3.0% and 14.7% of our revenue for the years ended
December 31, 2016 and 2015, respectively, was terminating its
contract with HPE effective February 23, 2016. Despite efforts to
negotiate a direct contractual agreement with this client, the
client ultimately decided to terminate its use of the
Company’s services, and accordingly, the Company has not
recorded revenue from this client after February 2016. The Company
was further notified by HPE in August 2016 that another of its
clients, representing 4.5% and 6.3% of our revenue for the years
ended December 31, 2016 and 2015, respectively, was terminating its
contract with HPE effective August 15, 2016, and accordingly, the
Company has not recorded revenue from this client after August
2016.
In
February 2017, the Company was notified by International Business
Machine Corporation (“IBM”) that IBM was terminating
the larger of two agreements with the Company effective September
1, 2017. The agreement had been scheduled to expire on December 31,
2017, and IBM exercised its right under the agreement to terminate
on 180 days advance notice. Approximately 35.1% and 31.3% of the
Company’s revenue in 2016 and 2015, respectively, was
attributable to this agreement. Although there can be no
assurances, it is possible that the Company may continue to provide
certain services in this agreement on a month-to-month basis
following termination.
During
2016 and the early part of 2017, the Company has signed several
contracts to provide its services to new customers. Management
believes that our current cash balance along with cash generated
from operations, will meet our liquidity needs for a minimum of the
next twelve months from the filing of this annual
report.
F-7
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 2 – Summary of Significant Accounting
Policies
Use of Estimates
In
preparing financial statements in conformity with accounting
principles generally accepted in the United States of America
(“GAAP”), management makes estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenue
and expenses during the reporting period.
Management bases
its estimates on historical experience and on various assumptions
that are believed to be reasonable 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. The most significant estimates are
used in the accounting related to stock based compensation, the
valuation allowance on deferred tax assets and capitalized
internally developed software. Actual results could differ from
those estimates.
Revenue Recognition
The
Company records revenue in accordance with Accounting Standards
Codification (“ASC”) 605, Revenue Recognition (“ASC
605”), and SEC Staff Accounting Bulletin Topic 13,
Revenue Recognition in Financial
Statements. Revenue is recognized when it is both earned and
realizable, that is, when the following criteria are
met:
● persuasive evidence
of arrangements exist;
● delivery has
occurred or services have been rendered;
● the seller’s
price is fixed and determinable; and
● collectability is
reasonably assured.
The
following are the specific revenue recognition policies for each
major category of revenue.
Recurring
(Ongoing Services)
The
Company provides transactional data processing services through its
SaaS software solutions to its customers. The customer is charged a
monthly fixed rate on a per transaction basis or a fixed fee based
on monthly transaction volumes. Revenue is recognized as the
services are provided.
Non-Recurring
(Professional Services)
The
Company provides non-recurring engineering services to its
customers, which may include initial or additional development,
modification, and customization services to the Company’s
software platform. Such services are billed based on: (i) hourly
rates; or (ii) milestone billings. For hourly billed services,
revenue is recognized when work is performed. For milestone billed
services, revenue is recognized when the project milestone has been
accepted by the customer. The Company does not sell software
licenses, upgrades or enhancements, or post-contract customer
services.
F-8
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 2 – Summary of Significant Accounting Policies
(continued)
Cost of Revenue
Cost of
revenue in the statements of operations is included in operations,
research and development costs and exclusive of amortization and
depreciation which is shown separately. Professional Service costs
related to uncompleted milestones are deferred and included in
other current assets, when applicable. The Company expenses
research and development costs as incurred except for costs in
connection with the internally developed software, which are
capitalized during the application development stage. For the years
ended December 31, 2016 and 2015, research and development
expenses were approximately $1,367,000 and $1,560,000,
respectively.
Property and Equipment
Property and
equipment are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the terms of the
respective leases or the service lives of the related assets,
whichever is shorter.
Capital
lease assets are amortized over the shorter of the lease term or
the service life of the related assets.
Internally Developed Software
The Company
released the first phase of PAYBOX®, a next
generation version of its accounts receivable platform in November
2014. It was designed for a global bank and is available to all
Order-to-Cash process customers. According to ASC 350-40,
Intangibles-Goodwill and
Other-Internal-Use Software (“ASC 350-40”), the
Company is able to capitalize the costs associated with the
application development stage of a project. The Company started
amortizing capitalized costs when the software was ready for use
and placed in service in November 2014. The capitalized costs are
being amortized on a straight-line basis over the estimated
five-year useful life of the software. As additional functionality
is added, costs incurred are capitalized in accordance with ASC
350-40. Precontract software development costs are generally
charged to operating costs and expensed as incurred, however, in
accordance with professional standards the Company defers
precontract costs when such costs are directly associated with
specific anticipated contracts for which recovery is probable.
Amortization of such costs is on a straight-line basis over the
estimated term of the associated contracts when it is ready for use
and placed in service. Although the Company renewed its contract
with IBM in December 2016, the Company was notified in February
2017 of their intention to terminate one contract effective
September 2017 (see Note 1). The Company has therefore written off
all costs capitalized during 2016 ($372,000) during the fourth
quarter of 2016. The costs are primarily included in operations,
research and development in the accompanying statement of
operations.
Impairment of Long-Lived Assets
ASC
360, Property, Plant and
Equipment (“ASC 360”) requires management
judgment regarding the future operating and disposition plans for
marginally performing assets, and estimates of expected realizable
values for assets to be sold. The Company accounts for its
long-lived assets in accordance with ASC 360 for purposes of
determining and measuring impairment. It is the Company’s
policy to review the value assigned to its long lived assets, to
determine if they have been permanently impaired by adverse
conditions whenever events or circumstances
indicate the related carrying amount may not be recoverable. If
required, an impairment
charge would be recorded based on an estimate of future discounted
cash flows. In order to test for recoverability, the Company would
compare the sum of an undiscounted cash flow projection from the
related long-lived assets to the net carrying amount of such
assets.
F-9
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 2 – Summary of Significant Accounting Policies
(continued)
Impairment of Long-Lived Assets (continued)
Considerable
management judgment is necessary to estimate undiscounted future
operating cash flows and fair values and, accordingly, actual
results could vary significantly from such estimates. There were no
impairment charges recognized during the years ended December 31,
2016 and 2015.
Income Taxes
The
Company accounts for income taxes using the asset and liability
method. This method requires the determination of deferred tax
assets and liabilities based on the differences between the
financial statement and income tax basis of assets and liabilities,
using enacted tax rates. Additionally, net deferred tax assets are
adjusted by a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some portion or
all of the net deferred tax assets will not be realized. In
addition, the Company expects to provide a valuation allowance on
the remaining future tax benefits until it can sustain a level of
profitability that demonstrates its ability to utilize the
remaining assets, or other significant positive evidence arises
that suggests its ability to utilize the remaining assets. The
future realization of a portion of its reserved deferred tax assets
related to tax benefits associated with the exercise of stock
options, if and when realized, will not result in a tax benefit in
the statement of operations, but rather will result in an increase
in additional paid-in capital. The Company will continue to
re-assess its reserves on deferred income tax assets in future
periods on a quarterly basis.
Earnings Per Share
The
Company displays earnings per share in accordance with ASC 260,
Earnings Per Share
(“ASC 260”). ASC 260 requires dual presentation of
basic and diluted earnings per share (“EPS”). Basic EPS
is computed by dividing net income (loss) by the weighted average
number of common shares outstanding for the period. Diluted EPS
includes the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock.
For the year ended
December 31, 2016, the Company’s potentially dilutive
securities were not included in the computation of diluted loss per
share because their impact was anti-dilutive due to the net loss
for the year.
F-10
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 2 – Summary of Significant Accounting Policies
(continued)
Earnings Per Share
(continued)
The
computation of basic and diluted EPS for the year ended December
31, 2015 (in thousands, except per share amounts) is as
follows:
|
Net
Income
|
Shares
|
Per
Share
|
|
Numerator
|
Denominator
|
Amount
|
Basic Earnings Per
Share
|
|
|
|
Net
income
|
$568
|
12,846
|
$0.04
|
Effect of Dilutive
Securities
|
|
|
|
Options
|
–
|
2
|
|
Restricted
stock
|
–
|
17
|
|
Diluted Earnings
Per Share
|
$568
|
12,865
|
$0.04
|
Securities that
could potentially dilute basic EPS in the future, that were not
included in the computation of diluted EPS because to do so would
have been anti-dilutive for the periods presented, consist of the
following (in thousands):
|
Year Ended December 31,
|
|
Anti-Dilutive
Potential Common Shares
|
2016
|
2015
|
Options
|
503
|
575
|
Restricted
stock
|
124
|
8
|
|
|
|
Total Anti-Dilutive
Potential Common Shares
|
627
|
583
|
Cash and Cash Equivalents
The
Company considers all investments with original maturities of three
months or less to be cash equivalents.
Allowance for Doubtful Accounts
The
allowance for doubtful accounts reflects management’s best
estimate of probable losses inherent in the accounts receivable
balance. Management determines the allowance based on known
troubled accounts, historical experience, and other currently
available evidence.
Management performs
ongoing credit evaluations of its customers and adjusts credit
limits based upon payment history and the customer's current credit
worthiness, as determined by the review of their current credit
information. Collections and payments from customers are
continuously monitored. While such bad debt expenses have
historically been within expectations and allowances established,
the Company cannot guarantee that it will continue to experience
the same credit loss rates that it has in the past. At December 31,
2016 and 2015, an allowance for doubtful accounts is not provided
since, in the opinion of management, all accounts are deemed
collectible. If the financial condition of customers were to
deteriorate, resulting in an impairment of their ability to make
payments, allowances may be required.
F-11
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 2 – Summary of Significant Accounting Policies
(continued)
Stock-Based Compensation
The
Company accounts for stock-based compensation in accordance with
ASC 718, Compensation - Stock
Compensation (“ASC 718”). ASC 718 establishes
accounting for stock-based awards exchanged for employee services.
Under the provisions of ASC 718, stock-based compensation cost is
measured at the grant date, based on the fair value of the award,
and is recognized as expense over the employee’s requisite
service period (generally the vesting period of the equity grant)
using the straight-line method.
The
fair value of the Company’s common stock options is estimated
using the Black Scholes-Merton option-pricing model with the
following assumptions: expected volatility, dividend rate, risk
free interest rate; and the expected life. The Company calculates
the expected volatility using the historical volatility over the
most recent period equal to the expected term and evaluates the
extent to which available information indicates that future
volatility may differ from historical volatility. The expected
dividend rate is zero as the Company does not expect to pay or
declare any cash dividends on common stock. The risk-free rates for
the expected terms of the stock options are based on the U.S.
Treasury yield curve in effect at the time of the
grant.
The
Company has not experienced significant exercise activity on stock
options. The Company determines the expected term of its stock
option awards issued using the simplified method. The simplified
method assumes each vesting tranche of the award has a term equal
to the midpoint between when the award vests and when the award
expires.
In
accordance with ASC 718, excess tax benefits realized from the
exercise of stock-based awards are classified in cash flows from
financing activities. The future realization of the reserved
deferred tax assets related to these tax benefits associated with
the exercise of stock options will result in a credit to additional
paid-in capital if the related tax deduction reduces taxes payable.
The Company has elected the “with and without approach”
regarding ordering of windfall tax benefits to determine whether
the windfall tax benefit did reduce taxes payable in the current
year. Under this approach, the windfall tax benefit would be
recognized in additional paid-in-capital only if an incremental tax
benefit is realized after considering all other benefits presently
available.
Fair Value of Financial Instruments
The
carrying value of the Company’s accounts receivable and
accounts payable approximates their fair value due to the
short-term maturity of such instruments. The carrying value of
capital lease obligations approximate their fair value because the
terms of these instruments approximate prevailing market
rates.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and accounts receivable.
The Company has cash deposits in excess of the maximum amounts
insured by FDIC at December 31, 2016.
The
Company performs ongoing credit evaluations of its customers’
financial condition and, generally, requires no collateral from its
customers. Concentrations of credit risk with respect to accounts
receivable and revenue are disclosed in Note 9.
F-12
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 2 – Summary of Significant Accounting Policies
(continued)
Recently Issued and Adopted Accounting Pronouncements
In August 2014, the
FASB issued ASU 2014-15, Presentation of Financial Statements - Going
Concern (Subtopic 205-40): Disclosure of Uncertainties about an
Entity's Ability to Continue as a Going Concern (“ASU
2014-15”). ASU 2014-15 is intended to define management's
responsibility to evaluate whether there is substantial doubt about
an entity's ability to continue as a going concern and to provide
related footnote disclosures. Specifically, ASU 2014-15 provides a
definition of the term substantial doubt and requires an assessment
for a period of one year after the date that the financial
statements are issued (or available to be issued). It also requires
certain disclosures when substantial doubt is alleviated as a
result of consideration of management's plans and requires an
express statement and other disclosures when substantial doubt is
not alleviated. The new standard will be effective for reporting
periods beginning after December 15, 2016, with early adoption
permitted. Management has not early adopted this standard. We do
not expect the adoption of this guidance to have a material impact
on our financial statements.
In
March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation:
Improvements to Employee Share-Based Payment Accounting,
which changes how companies account for certain aspects of
share-based payments to employees. The new guidance requires all
income tax effects of awards to be recognized in the income
statement when the awards vest or are settled, allows an employer
to repurchase more of an employee's shares than previously allowed
for tax withholding purposes without triggering liability
accounting, allows a company to make a policy election to account
for forfeitures as they occur, and eliminates the requirement that
excess tax benefits be realized before companies can recognize
them. The new guidance also requires excess tax benefits and tax
shortfalls to be presented on the cash flow statement as an
operating activity rather than as a financing activity, and
clarifies that cash paid to a tax authority when shares are
withheld to satisfy its statutory income tax withholding obligation
are to be presented as a financing activity. The standard is
effective for financial statements issued for fiscal years
beginning after December 15, 2016, and interim periods within those
fiscal years. Early adoption is permitted. The Company is still
evaluating the overall effect the standard will have on the
financial statements and related disclosures.
Several
ASUs were issued that modified ASU 2014-09, Revenue from Contracts with Customers
(“Topic 606”). Topic 606 supersedes nearly all
existing revenue recognition guidance under GAAP. The core
principle of Topic 606 is to recognize revenues when promised goods
or services are transferred to customers in an amount that reflects
the consideration that is expected to be received for those goods
or services. Topic 606 defines a five-step process (ASC
606-10-05-4(a) through 4 (e)) to achieve this core principle and,
in doing so, it is possible more judgment and estimates may be
required within the revenue recognition process than are required
under existing GAAP, including identifying performance obligations
in the contract, estimating the amount of variable consideration to
include in the transaction price and allocating the transaction
price to each separate performance obligation, among others. Topic
606 also provides guidance on the recognition of costs related to
obtaining customer contracts.
During
2016 we began discussions that addressed the potential impact Topic
606 would have on the financial statements. Assessment to the
impact on the financial statements will include an evaluation of
the five steps outlined in ASC 606-10-05-4 (a) through (e) of 2016
along with enhancement of disclosures that will be required under
paragraphs 606-10-50-1 through 50-21. We are still evaluating the
overall effect the standard will have on the financial statements
and related disclosures.
Topic
606 is effective for Paybox on January 1, 2018 using either of two
methods: (1) retrospective application of Topic 606 to each prior
reporting period presented with the option to elect certain
practical expedients as defined within Topic 606 or (2)
retrospective application of Topic 606 with the cumulative effect
of initially applying Topic 606 recognized at the
date of initial application and providing certain additional
disclosures as defined per Topic 606. Paybox has not yet selected a
transition method.
F-13
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 2 – Summary of Significant Accounting Policies
(continued)
Recently Issued and Adopted Accounting Pronouncements
Management does not
believe that any other recently issued, but not yet effective
accounting standards, if currently adopted, would have a material
effect on the financial statements.
Note 3 – Property and Equipment
Property and
equipment consist of the following as of December 31, 2016 and
2015:
|
2016
|
2015
|
|
(in
thousands)
|
|
Computer equipment
and purchased software (3 years)
|
$1,434
|
$1,378
|
Internally
developed software either placed or not yet placed in service (3 -
5 years)
|
1,208
|
1,101
|
Furniture and
fixtures and leasehold improvements (5 – 7
years)
|
168
|
159
|
|
2,810
|
2,638
|
Less: accumulated
depreciation and amortization
|
(1,934)
|
(1,704)
|
Property and
equipment, net
|
$876
|
$934
|
Depreciation and
amortization expense related to property and equipment for the
years ended December 31, 2016 and 2015 was approximately $230,000
and $289,000, respectively.
Note 4 – Accounts Payable and Accrued Expenses
Accounts payable
and accrued expenses consist of the following as of December 31,
2016 and 2015:
|
2016
|
2015
|
|
(in
thousands)
|
|
Trade accounts
payable
|
$361
|
$262
|
Sales taxes
payable
|
539
|
539
|
Accrued
directors’ fees
|
407
|
377
|
Other payables and
accrued expenses
|
306
|
290
|
Total Accounts
Payable and Accrued Expenses
|
$1,613
|
$1,468
|
Note 5 – Capital Lease Obligations
The
Company had equipment under two capital lease obligations which
expired at various times through June 2016. At December 31, 2015,
the Company had outstanding future minimum payments of
approximately $11,000 that were paid off in 2016. The implied
annual interest rates related to these capital leases ranged from
7.4% to 8.9%. Amortization of assets under capital leases is
included in depreciation expense.
F-14
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 6 – Stockholders’ Equity
Preferred Stock
The
Company has 2,000,000 authorized preferred shares of which none
were issued and outstanding at December 31, 2016 and
2015.
Common Stock, Options and Stock Grants
Year
Ended December 31, 2016
During
the year ended December 31, 2016, 161,812 restricted common shares
were granted to Directors with an aggregate grant date fair value
of approximately $100,000. During the year ended December 31, 2016,
approximately 158,471 restricted common shares with an aggregate
grant date fair value of approximately $108,000
vested.
During
the year ended December 31, 2016, no options were awarded. During
the year December 31, 2016, the Company recognized
approximately $37,000 of expense related to the vesting of
outstanding stock options. For the year ended December 31, 2016,
options to acquire 20,000 shares of common stock with a weighted
average exercise price of $1.20 expired unexercised, and options to
acquire 110,000 shares of common stock with a weighted average
exercise price of $1.60 were forfeited.
Year
Ended December 31, 2015
During
the year ended December 31, 2015, 135,136 restricted common shares
were granted to Directors with an aggregate grant date fair value
of approximately $100,000. During the year ended December 31, 2015,
approximately 108,064 restricted common shares with an aggregate
grant date fair value of approximately $87,000 vested.
During
the year ended December 31, 2015, the Company issued 111,602 shares
of restricted common stock pursuant to the Company’s
Directors’ Deferred Compensation Plan dated January 1, 2008.
These shares were issued to settle approximately $104,000 of
accrued directors’ fees to two former directors for past
services.
During
the year ended December 31, 2015, 90,000 options were awarded to an
officer. These options vest over three years with one-third vesting
at the end of each of the three years. These options expire after a
five-year term. The Company estimated the grant date fair value of
the stock options using the Black-Scholes-Merton option model and
the following assumptions: volatility of 90%, risk free rate of
0.89%, dividend rate of zero, and expected term of 3.75 years. The
grant date fair value of the stock options issued was determined to
be approximately $44,100. During the year ended December
31, 2015, the Company recognized approximately $126,000 of
expense related to the vesting of outstanding stock options. For
the year ended December 31, 2015, options to acquire 20,980 shares
of common stock with a weighted average exercise price of $1.16
expired unexercised, and options to acquire 18,020 shares of common
stock with a weighted average exercise price of $1.34 were
forfeited.
F-15
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 6 – Stockholders’ Equity (continued)
Common Stock, Options and Stock Grants (continued)
Stock Option Plans
The
Company has granted options under multiple stock-based compensation
plans that do not differ substantially in the characteristics of
the awards. Nonqualified and incentive stock options have
been granted to directors, officers and employees of the Company
under the Company’s stock option plans. Options
generally vest over three to four years and expire five years from
the date of the grant. On June 3, 2014, the Company’s
stockholders approved the adoption of the 2014 Stock Incentive Plan
(the “2014 Plan”). The 2014 Plan replaces the
2004 Stock Option/Stock Issuance Plan which expired on August 20,
2014. The 2014 Plan provides for the grant of non-qualified
stock options, incentive stock options, and stock appreciation
rights, shares of restricted stock, stock units and shares of
unrestricted stock. Eligible participants include officers,
employees and directors. The aggregate number of shares
authorized for issuance under the 2014 Plan is 1,200,000, and is
subject to adjustment as described in the 2014 Plan. There
are 606,067 shares available for issue under the 2014 plan. Awards
that expire or are cancelled without delivery of shares generally
become available for issuance under the plans.
|
Shares
(in
thousands)
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual Term
(in
years)
|
Aggregate
Intrinsic Value (in thousands)
|
Outstanding at
January 1, 2016
|
600
|
$1.24
|
2.10
|
$--
|
Expired
|
(20)
|
$1.20
|
--
|
$--
|
Forfeited
|
(110)
|
$1.60
|
--
|
$--
|
Outstanding at
December 31, 2016
|
470
|
$1.16
|
1.03
|
$--
|
Exercisable at
December 31, 2016
|
390
|
$1.16
|
0.39
|
$--
|
The
following is a summary of stock option activity for the year ended
December 31, 2016, relating to all of the Company’s
common stock option plans (share amounts are in
thousands):
F-16
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 6 – Stockholders’ Equity (continued)
Stock Option plans (continued)
The
fair values of the stock options granted were estimated on the date
of grant using the Black-Scholes-Merton option-pricing model that
uses the following weighted-average assumptions for the year ended
December 31, 2015:
|
2015
|
Expected
term
|
3.75
years
|
Expected
volatility
|
90%
|
Expected dividend
yield
|
--
|
Risk-free interest
rate
|
0.9%
|
The
following table summarizes stock option information as of December
31, 2016:
|
|
|
|
Weighted
Average
|
|
|
|
|
Number
Outstanding
|
|
Remaining
|
|
Options
Exercisable
|
Exercise
Prices
|
|
(in
thousands)
|
|
Contractual
Life
|
|
(in
thousands)
|
$0.90
|
|
90
|
|
3.25
years
|
|
30
|
$1.15
|
|
300
|
|
0.12
years
|
|
300
|
$1.50
|
|
80
|
|
1.97
years
|
|
60
|
Total
|
|
470
|
|
1.03
years
|
|
390
|
As of
December 31, 2016, there was approximately $30,000 of unrecognized
compensation costs related to stock options outstanding that will
be recognized as expense over a weighted average period of 1.17
years.
Restricted Stock Grants
A
summary of activity related to the Company’s non-vested stock
grants for the year ended December 31, 2016 is presented
below:
Non-Vested
Shares
|
Shares
(in
thousands)
|
Weighted-Average
Grant Date Fair
Value
|
Non-Vested at
January 1, 2016
|
78
|
$0.74
|
Granted
|
162
|
$0.62
|
Vested
|
(159)
|
$0.68
|
Non-Vested
at December 31, 2016
|
81
|
$0.64
|
The
future expected expense for non-vested shares is approximately
$75,000 and will be recognized on a straight-line basis over the
period from January 1, 2017 through December 31,
2017.
F-17
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 7 – Income Taxes
The
Company accounts for income taxes in accordance with ASC 740 which
prescribes a recognition threshold and measurement process for
financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. ASC 740 also
provides guidance on de-recognition, classification, interest and
penalties, accounting in interim period, disclosure and transition.
There were no unrecognized tax benefits as of December 31, 2016 and
2015.
The
Company has identified its federal tax return and its state tax
return in Florida as “major” tax jurisdictions, as
defined in ASC 740, Income
Taxes. Based on the Company’s evaluation, it has been
concluded that there are no significant uncertain tax positions
requiring recognition in the Company’s financial statements.
The Company’s evaluation was performed for tax years ended
2013 through 2016, the only periods subject to examination. The
Company believes that its income tax positions and deductions will
be sustained upon audit and does not anticipate any adjustments
that will result in a material change to its financial position.
The Company has elected to classify interest and penalties incurred
on income taxes, if any, as income tax expense. No interest or
penalties on income taxes have been recorded during the years ended
December 31, 2016 and 2015. The Company does not expect its
unrecognized tax benefit position to change during the next twelve
months. Management is currently unaware of any issues under review
that could result in significant payments, accruals or material
deviations from its position.
The
following table summarizes components of the provision for (benefit
from) current and deferred income taxes for the years ended
December 31, 2016 and 2015:
|
2016
|
2015
|
|
(in
thousands)
|
|
Current
|
|
|
Federal
|
$0
|
$0
|
State
and other
|
1
|
25
|
|
|
|
Total
Current
|
1
|
25
|
|
|
|
Deferred
|
|
|
Federal
|
827
|
(2)
|
State
and other
|
88
|
(0)
|
|
|
|
Total
Deferred
|
915
|
(2)
|
|
|
|
Provision for
Income Taxes
|
$916
|
$23
|
F-18
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 7 – Income Taxes (continued)
The
following table summarizes the significant differences between the
U.S. Federal statutory tax rate and the Company’s effective
tax rate for financial statement purposes for the years ended
December 31, 2016 and 2015:
|
2016
|
2015
|
|
|
|
U.S. Federal
Statutory Tax Rate
|
34.0%
|
34.0%
|
Permanent
items
|
(19.0)%
|
2.0%
|
State
taxes
|
2.0%
|
4.0%
|
Expiration of
capital loss carryforward
|
(93.0)%
|
(0.0)%
|
Impact of change in
state tax laws on net operating losses
|
(165.0)%
|
-
|
Change in valuation
allowance
|
76.0%
|
(36.0)%
|
|
|
|
Totals
|
(165.0)%
|
4.0%
|
The tax
effects of temporary differences that give rise to deferred tax
assets and liabilities as of December 31, 2016 and 2015 are
summarized as follows:
|
2016
|
2015
|
|
(in
thousands)
|
|
Deferred Tax
Assets
|
|
|
Net
operating loss carryforwards
|
$8,622
|
$9,410
|
Tax
credit carryforwards
|
347
|
347
|
Fixed
and intangible assets
|
(182)
|
(92)
|
Charitable
contributions
|
1
|
-
|
Value
of stock options and stock compensation
|
501
|
453
|
Deferred
rent
|
10
|
14
|
Capital
loss carryforward
|
-
|
517
|
Accruals
|
153
|
142
|
|
9,452
|
10,791
|
Valuation
Allowance
|
(9,172)
|
(9,596)
|
|
|
|
Deferred Tax
Assets, Net
|
$280
|
$1,195
|
F-19
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 7 – Income Taxes (continued)
The
change in the valuation allowance for deferred tax assets for the
years ended December 31, 2016 and 2015 are summarized as
follows:
|
2016
|
2015
|
|
(in
thousands)
|
|
Beginning
Balance
|
$9,596
|
$9,824
|
Change in
Allowance
|
(424)
|
(228)
|
|
|
|
Ending
Balance
|
$9,172
|
$9,596
|
As of
December 31, 2016, the Company has federal and state net operating
loss carryforward (“NOLs”) remaining of approximately
$25 million and $329,000, respectively, which may be available to
reduce taxable income, if any. Due to changes in certain state tax
laws, the previous state NOL of $20 million may no longer be
utilized by the Company. None of the federal NOLs expired in 2016
or 2015. The remaining federal net operating loss carryforwards
expire from 2019 through 2036. However, Internal Revenue Code
Section 382 rules limit the utilization of NOLs upon an ownership
change of a company. During 2016, the Company performed an
evaluation as to whether an ownership change had taken place.
Management believes that there has been no ownership change as such
applies to Section 382. However, if it is determined that an
ownership change has taken place, either historically or in the
future, utilization of its NOLs will be subject to limitations,
which could eliminate a substantial portion of the future income
tax benefits of the NOLs. The NOL carryforward as of December 31,
2016 included approximately $1,193,000 related to windfall tax
benefits for which a benefit would be recorded in additional
paid-in capital if and when realized.
During
2016, the Company reviewed previous positive and negative evidence
and also reviewed its expected taxable income for future periods
and concluded it is more likely than not that approximately
$280,000 of tax benefits relating to NOLs will be
utilized.
Note 8 – Commitments and Contingencies
Operating Leases
Operating leases
are primarily for office space, data centers, equipment and
automobiles.
On
October 24, 2012, the Company entered into a 66-month lease,
effective February 8, 2013, for 5,806 square feet of office space
in downtown Ft. Lauderdale, Florida.
At
December 31, 2016, the future minimum lease payments under
operating leases are summarized as follows:
Year Ending
December 31,
|
Amount
|
|
|
2017
|
$496,000
|
2018
|
225,000
|
Total
|
$721,000
|
Rent
expense approximated $444,000 and $510,000 for the years ended
December 31, 2016 and 2015, respectively.
F-20
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 8 – Commitments and Contingencies
(Continued)
Employment Agreements
The
Company had an employment agreement with Matthew E. Oakes, Chief
Executive Officer and Chairman of the Board of Directors, for a
term effective June 1, 2013 through December 31, 2016. On February
20, 2016, Mr. Oakes’ employment agreement was superseded by a
new employment agreement extending the term through December 31,
2017. The agreement provides for a base salary of $24,583 per
month, discretionary and annual incentive bonuses based on the
Company’s performance in achieving prescribed revenue and
earnings before interest and taxes (“EBIT”) targets.
The agreement also provides for reimbursement of all out-of-pocket
expenses reasonably incurred by him in the performance of his
duties hereunder and certain severance benefits in the event of
termination prior to the expiration date. If Mr. Oakes is
terminated without cause or resigns from employment for “good
reason” (as defined within Mr. Oakes’ employment
agreement), he would receive one year of base salary and COBRA
coverage at the Company’s expense. The Company shall continue
to provide corporate lodging to Mr. Oakes through the term of his
agreement.
Note 9 – Major Customers
Four
customers, HP Enterprise Services (“HPE”),
International Business Machines Corp. (“IBM”), Saint
Gobain Shared Services Corp. (“SGSS”) and one other
customer, accounted for a significant portion of the
Company’s revenues as follows (see Note 1):
|
%
of Total Revenues
Year Ended December
31,
|
|
|
2016
|
2015
|
HPE Customer
A
|
3.0%
|
14.7%
|
HPE Customer
B
|
14.0
|
11.9
|
HPE Customer
C
|
4.5
|
6.3
|
Total
HPE
|
21.5%
|
32.9%
|
IBM
|
42.5
|
37.3
|
SGSS
|
10.1
|
7.8
|
Other Major
Customer
|
13.9%
|
10.3%
|
Total Major
Customers
|
88.0%
|
88.3%
|
Others
|
12.0
|
11.7
|
Total
|
100.0%
|
100.0%
|
As
of December 31, 2016 and 2015, HPE and IBM, along with two other
major customers, accounted for a significant portion of the
Company’s accounts receivable as follows (in
thousands):
|
December 31,
|
|
|
2016
|
2015
|
Total
HPE
|
$225
|
$389
|
IBM
|
453
|
467
|
Two
Other Major Customers
|
321
|
395
|
Total
|
$999
|
$1,251
|
F-21
PAYBOX
CORP
(Formerly Direct Insite
Corp.)
NOTES
TO FINANCIAL STATEMENTS
Note 10 – Subsequent Events
The
Company’s management evaluated subsequent events through the
time of the filing of this report on Form 10-K. Other than
information disclosed in Note 1 to the financial statements, the
Company’s management is not aware of any significant events
that occurred subsequent to the balance sheet date but prior to the
filing of this report that would have a material impact on its
financial statements.
F-22