| Significant Accounting Policies | Note
2 - Significant Accounting Policies Basis
of Presentation The
accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the
instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”).
Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been
condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not
include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations,
or cash flows. It is management’s opinion, however, that the accompanying unaudited interim condensed consolidated financial
statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the
financial position, operating results and cash flows for the periods presented. The
accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s
Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC, which contains the audited financial statements
and notes thereto, together with Management’s Discussion and Analysis, for the years ended December 31, 2016 and 2015. The
financial information as of December 31, 2016 is derived from the audited financial statements presented in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2016. The interim results for the nine months ended September 30, 2017
are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any future interim periods. Principles
of Consolidation The
accompanying unaudited interim condensed consolidated financial statements include the accounts of uSell and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Segment
Information Operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation
by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance.
The Company’s chief operating decision maker is its Chief Executive Officer. The Company and its Chief Executive Officer
view the Company’s operations and manage its business as one operating segment. Use
of Estimates The
preparation of unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect
of a condition, situation or set of circumstances that existed at the date of the unaudited interim condensed consolidated financial
statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming
events. Accordingly, the actual results could differ significantly from our estimates. Accounts
Receivable Accounts
receivable represent obligations from the Company’s customers and are recorded net of allowances for cash discounts, doubtful
accounts, and sales returns. The Company’s policy is to reserve for uncollectible accounts based on its best estimate of
the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable
to determine whether an allowance for doubtful accounts is necessary based on an analysis of past due accounts and other factors
that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged
to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance
for doubtful accounts was $1,600 at September 30, 2017 and December 31, 2016. Inventory,
net Inventory,
comprised of all finished goods, is stated at the lower of cost (average cost method) or net realizable value. Inventory is recorded
net of allowances. Allowances
for slow-moving or obsolete inventory are provided based on historical experience of a variety of factors, including sales volume,
product life and levels of inventory at the end of the period. The provision for slow-moving for inventory amounted to $0 and
$384,000 for the three months ended September 30, 2017 and 2016, respectively, and $0 and $563,000 for the nine months ended September
30, 2017 and 2016, respectively. Substantially
all of the Company’s inventory purchases are paid for before inventory is received in the Company’s warehouse. Prepaid
inventory amounted to approximately $737,000 and $221,000 at September 30, 2017 and December 31, 2016, respectively, and is included
in inventory, net in the accompanying condensed consolidated balance sheets. Revenue
Recognition Revenue
is recognized when all of the following conditions exist: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred,
(3) the sales price is fixed or determinable, and (4) collectability is reasonably assured. Principal
Device Revenue The
Company, through We Sell Cellular, generates revenue from the sales of its cellular telephones and related equipment. The Company
recognizes revenue “FOB shipping point” on such sales. Delivery to the customer is deemed to have occurred when the
customer takes title to the product. Generally, title passes to the customer when the products leave the Company’s warehouse.
Payment terms generally require payment once an order is placed. The Company allows customers to return product within 30 days
of shipment if the product is defective. Allowances for product returns are recorded as a reduction of sales at the time revenue
is recognized based on historical data. The estimate of the allowance for product returns amounted to approximately $370,000 and
$130,000 at September 30, 2017 and December 31, 2016, respectively, and is recorded in accrued expenses in the accompanying condensed
consolidated balance sheets. Agent
Commission Revenue Sellers
on the Company’s uSell.com website are shown a list of offers from third party buyers interested in purchasing their devices.
If a seller chooses one of these offers, the seller will ship their device directly to the buyer. The buyer is then responsible
for testing the device, servicing the customer, and ultimately paying the seller for the device or returning it. The Company charges
a commission to the buyers only when the seller sends in a device and is successfully paid for it. As such, the Company recognizes
Agent Commission Revenue upon payment to the seller. Fulfillment
Revenue The
Company offers fulfillment services on behalf of its buyers for the items sold using the Agent Commission Revenue approach outlined
above. The Company acts as the agent in these fulfillment services transactions, passing orders booked by its buyers to its third
party fulfillment vendor, who then assembles the kits and mails them directly to the sellers. The Company earns a standard fee
from its buyers and recognizes revenue upon shipment of the kits to the sellers. The Company evaluated the presentation of revenue
on a gross versus net basis and determined that since the Company performs as an agent without assuming the risks and rewards
of ownership of the goods, revenue should be reported on a net basis. Advertising
Revenue Advertising
revenues primarily come from payments for text-based sponsored links and display advertisements. Generally, the Company’s
advertisers pay the Company on a cost per click, or CPC basis, which means advertisers pay only when someone clicks on one of
their advertisements, or on a cost per thousand impression basis, or CPM. Paying on a CPM basis means that advertisers pay the
Company based on the number of times their advertisements appear on the Company’s websites or mobile applications. Advertising
revenue is recognized as income when the advertising services are rendered. Deferred
revenue represents amounts billed to customers or payments received from customers prior to providing services and for which the
related revenue recognition criteria have not been met. Shipping
and Handling Costs The
Company follows the provisions of Accounting Standards Codification (“ASC”) Topic 605-45 regarding shipping and handling
costs. Shipping and handling costs included in cost of revenue were approximately $146,000 and $108,000 for the three months ended
September 30, 2017 and 2016, respectively, and approximately $468,000 and $336,000 for the nine months ended September 30, 2017
and 2016, respectively. Advertising Advertising
costs are expensed as they are incurred and are included in sales and marketing expenses. Advertising expense amounted to approximately
$7,000 and $11,000 for the three months ended September 30, 2017 and 2016, respectively, and approximately $31,000 and $41,000
for the nine months ended September 30, 2017 and 2016, respectively Concentration
of Credit Risk Financial
instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The
Company minimizes credit risk associated with cash by periodically evaluating the credit quality of its primary financial institutions.
At times, the Company’s cash may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation
(“FDIC”) insurance limit. At September 30, 2017 and December 31, 2016, the Company had not experienced losses on these
accounts and management believes the Company is not exposed to significant risks on such accounts. Concentrations
of credit risk with respect to accounts receivables is minimal due to the large number of customers comprising the Company’s
customer base and generally short payment terms. Fair
Value of Financial Instruments Financial
instruments, including cash and cash equivalents, accounts receivable and accounts payable are carried at cost,
which management believes approximates fair value due to the short-term nature of these instruments. The fair value of debt approximates
its carrying amounts as a market rate of interest is attached to the repayment. Net
Loss per Share Basic
loss per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number
of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives
effect to all dilutive potential of shares of common stock outstanding during the period, including stock options and warrants,
using the treasury stock method, and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS
excludes all dilutive potential of shares of common stock if their effect is anti-dilutive. The
computation of diluted EPS excludes the common stock equivalents of the following potentially dilutive securities because their
inclusion would be anti-dilutive:
Three
and Nine Months Ended September
30,
2017 2016
Unvested
Restricted Stock 141,666 255,000
Vested and Unvested
Restricted Stock Units 743,020 743,020
Stock Options 503,667 468,896
Stock
Warrants 797,083 802,520
2,185,436 2,269,436 Recent
Accounting Pronouncements In
May 2014, the Financial Accounting Standard Board (the “FASB”) issued ASU No. 2014-09, “Revenue from Contracts
with Customers” (“ASU 2014-09”). ASU 2014-09 provides guidance for revenue recognition and affects any entity
that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial
assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific
guidance. The core principle of ASU 2014-09 is the recognition of revenue when a company transfers promised goods or services
to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those
goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, companies will need
to use more judgment and make more estimates than under the current guidance. These may include 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. ASU 2014-09 was initially effective for fiscal years beginning after December 15,
2016 and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting
the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii)
a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which
includes additional footnote disclosures). Early adoption is not permitted. The Company will adopt the standard on January 1,
2018. The Company performed an initial review of the requirements of the standard and is monitoring the activity of the FASB and
the transition resource group as it relates to specific interpretive guidance that may impact the Company. The Company is currently
completing detailed review of its revenue recognition methods to determine necessary adjustments to existing accounting policies
and procedures and to support an evaluation of the standard’s impact on its consolidated financial statements and disclosures
included within the notes to the consolidated financial statements. Based on reviews performed, the Company does not expect its
revenues to be materially impacted by the implementation of this guidance. Additionally, the new guidance will require enhanced
disclosures, including additions to the Company’s revenue recognition policies to identify performance obligations to customers
and significant judgments in measurement and recognition. The Company may identify other impacts from the implementation of this
guidance as it continues its assessment. In
July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory” simplifying the measurement
of inventory. The guidance requires an entity to measure inventory at the lower of cost or net realizable value, which consists
of estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and
transportation. The new guidance eliminates unnecessary complexity that exists under current “lower of cost or market”
guidance. For public entities, ASU No. 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The guidance is to be applied prospectively as of the beginning of an interim or annual reporting
period, with early adoption permitted. The Company adopted the methodologies prescribed by ASU 2015-11 as of January 1, 2017.
The adoption of ASU 2015-11 did not have a material effect on the Company’s financial position or results of operations. In
March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting” (“ASU 2016-09”). ASU 2016-09 was issued as part of the FASB’s simplification initiative
and affects all entities that issue share-based payment awards to their employees. The amendments in this update cover such areas
as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of
cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still
qualify for equity classification and the classification of those taxes paid on the statement of cash flows. ASU 2016-09 is effective
for annual and interim periods beginning after December 15, 2016. This guidance can be applied either prospectively, retrospectively
or using a modified retrospective transition method, depending on the area covered in this update. The Company adopted the methodologies
prescribed by ASU 2016-09 as of January 1, 2017. The adoption of ASU 2016-09 did not have a material effect on the Company’s
financial position or results of operations. In
May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting
“(“ASU 2017-09”). ASU 2017-09 provides clarity and reduces both (i) diversity in practice and (ii) cost and
complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of
a share-based payment award. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of
a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for all
annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted.
The Company is currently evaluating the impact of adopting this guidance. |
