| 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. | Note 2 – Summary of Significant Accounting Policies Basis of Presentation The accompanying
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”). Principals of Consolidation The accompanying
consolidated financial statements include the accounts of uSell and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. The operating results for We Sell Cellular are included in the
consolidated financial statements from the effective date of acquisition of October 26, 2015. 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 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 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 these estimates. Cash and Cash Equivalents All highly liquid
investments with an original maturity of 90 days or less when purchased are considered to be cash equivalents. Cash equivalents
are stated at cost, which approximates market value. Cash equivalents generally consist of money market accounts. 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 and $14,300 at December 31, 2016 and 2015 respectively. Inventory, net Inventory, comprised
of all finished goods, is stated at the lower of cost (average cost method) or market. 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 allowance for slow-moving or obsolete inventory amounted to $115,000 and
$0 at December 31, 2016 and 2015, 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 $221,000 and $133,000 at December 31, 2016 and 2015, respectively, and is included in inventory,
net in the accompanying consolidated balance sheets. Property and Equipment Property and equipment
represent costs associated with leasehold improvements, software, and computer and office equipment. Property and equipment is
stated at cost less accumulated depreciation and amortization. Depreciation on property and equipment is calculated on the straight-line
basis over the estimated useful lives of the related assets, which typically range from three to five years. Leasehold improvements
are amortized over the shorter of the estimated useful lives or the remaining lease term. Maintenance and repairs are expensed
as incurred; expenditures that enhance the value of property or extend their useful lives are capitalized. When assets are sold
or returned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included
in income. Capitalized Technology Costs In accordance with
Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software, the Company capitalizes certain external and
internal computer software costs incurred during the application development stage. The application development stage generally
includes software design and configuration, coding, testing and installation activities. Training and maintenance costs are expensed
as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional
functionality. Capitalized technology costs are amortized over the estimated useful lives of the software assets on a straight-line
basis, generally not exceeding three years. Business Combinations ASC 805, Business
Combinations (“ASC 805”), applies the acquisition method of accounting for business combinations to all acquisitions
where the acquirer gains a controlling interest, regardless of whether consideration was exchanged. ASC 805 establishes principles
and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired,
the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the business combination. Accounting for acquisitions requires
the Company to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-date fair
values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date
fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately
value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement.
As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments
to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement
period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments
are recorded to the consolidated statements of comprehensive loss. Goodwill and
Intangible Assets The Company accounts
for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”).
ASC 350 requires that goodwill and other intangibles with indefinite lives should be tested for impairment annually or on an interim
basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. Goodwill is tested
for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (December
31 for the Company) and between annual tests if an event occurs or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying value. In evaluating goodwill for impairment, the Company has the option
to first assess qualitative factors to determine whether further impairment testing is necessary. Among other relevant events and
circumstances that affect the fair value of reporting units, the Company considers individual factors such as macroeconomic conditions,
changes in the Company’s industry and the markets in which the Company operates, as well as the Company’s historical
and expected future financial performance. If the Company concludes that it is more likely than not that a reporting unit's fair
value is less than its carrying value, recoverability of goodwill is evaluated using a two-step process. The first step involves
a comparison of the fair value of each of reporting unit with its carrying amount. If a reporting unit’s carrying amount
exceeds its fair value, the second step is performed. The second step involves a comparison of the implied fair value and carrying
value of that reporting unit’s goodwill. To the extent that a reporting unit’s carrying amount exceeds the implied
fair value of its goodwill, an impairment loss is recognized. The valuation of
fair value for reporting units is determined based on a discounted future cash flow model that uses six years of projected cash
flows and a terminal value based on growth assumptions. Rates used to discount cash flows are dependent upon interest rates and
the cost of capital based on the Company’s industry and capital structure, adjusted for equity and size risk premiums based
on market capitalization. Estimates of future cash flows are dependent on the Company’s knowledge and experience about past
and current events and assumptions about conditions expected to exist, including long-term growth rates, capital requirements and
useful lives. The Company’s estimates of cash flows are also based on historical and future operating performance, economic
conditions and actions the Company expects to take. In making its assessments
of fair value, the Company relies on its knowledge and experience about past and current events and assumptions about conditions
expected to exist in the future. These assumptions are based on a number of factors, including future operating performance, economic
conditions, actions the Company expects to take and present value techniques. There are inherent uncertainties related to these
factors and management’s judgment in applying them to the analysis of goodwill impairment. It is possible that assumptions
underlying the impairment analysis will change in such a manner that impairment in value may occur in the future. There was no
impairment of goodwill as of December 31, 2016 and 2015. Intangible assets
represent customer relationships and trade names/trademarks related to We Sell Cellular. Finite lived assets are amortized on a
straight-line basis over the estimated useful lives of the assets. Indefinite lived intangible assets are not amortized, but instead
are subject to annual impairment evaluation. The Company periodically
reviews the carrying values of its intangible assets and other long-lived assets when events or changes in circumstances indicate
that it is more likely than not that their carrying values may exceed their fair values, and records an impairment charge when
considered necessary. When circumstances indicate that an impairment of value may have occurred, the Company tests such assets
for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of such assets and
their eventual disposition to their carrying amounts. If the undiscounted future cash flows are less than the carrying amount of
the asset, an impairment loss, measured as the excess of the carrying amount of the asset over its estimated fair value, is recognized.
The cash flow estimates used in such calculations are based on estimates and assumptions, using all available information that
management believes is reasonable. Fair value, for purposes of calculating impairment, is measured based on estimated future cash
flows, discounted at a market rate of interest. During the years ended December 31, 2016 and 2015, the Company noted no indicators
of impairment. Debt Issue Costs Debt issuance costs
incurred in connection with the Company’s debt are capitalized and amortized as interest expense over the term of the related
debt. In accordance with Accounting Standards Update (“ASU”) No. 2015-03, “Interest—Imputation of Interest,”
the Company presents debt issuance costs as a reduction from the carrying amount of debt. Convertible Instruments The Company reviews
all of its convertible instruments for the existence of an embedded conversion feature which may require bifurcation, if certain
criteria are met. These criteria include circumstances in which:
a) The economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract,
b) The hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur, and
c) A separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to certain requirements (except for when the host instrument is deemed to be conventional). A bifurcated derivative
financial instrument may be required to be recorded at fair value and adjusted to market at each reporting period end date. In
addition, the Company may be required to classify certain stock equivalents issued in connection with the underlying debt instrument
as derivative liabilities. For convertible
instruments that the Company has determined should not be bifurcated from their host instruments, the Company records discounts
to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between
the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price
embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest
date of redemption. Also when necessary, the Company records deemed dividends for the intrinsic value of conversion options embedded
in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of
the financing transaction and the effective conversion price embedded in the preferred shares. Finally, if necessary,
the Company will determine the existence of liquidated damage provisions. Liquidated damage provisions are not marked to market,
but evaluated based upon the probability that a related liability should be recorded. Common Stock Purchase Warrants and
Derivative Financial Instruments The Company reviews
any common stock purchase warrants and other freestanding derivative financial instruments at each balance sheet date and classifies
them on the consolidated balance sheet as:
a) Equity if they (i) require physical settlement or net-share settlement, or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement), or
b) Assets or liabilities if they (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control), or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses
classification of its common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether
a change in classification between assets and liabilities is required. The Company determined that its outstanding common stock
purchase warrants satisfied the criteria for classification as equity instruments at December 31, 2016 and 2015. The Company also
determined that the Placement Rights satisfied the criteria for classification as derivative financial instruments at December
31, 2015 (see Note 3). Contingent Consideration The Company recognizes
the acquisition-date fair value of contingent consideration as part of the consideration transferred in exchange for the acquiree
or assets of the acquiree in a business combination. The contingent consideration is classified as either a liability or equity
in accordance with ASC 480-10, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity.” If classified as a liability, the liability is remeasured to fair value at each subsequent reporting date until
the contingency is resolved. Increases in fair value are recorded as losses, while decreases are recorded as gains. If classified
as equity, contingent consideration is not remeasured and subsequent settlement is accounted for within equity. 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 $130,000 and $197,000 at December 31, 2016 and
2015, respectively, and is recorded in accrued expenses in the accompanying consolidated balance sheets. Under the Company’s
“Managed by uSell” service on uSell.com, the Company partnered with a third party logistics company to inspect, wipe
and process devices before passing them along to buyers. Under this model, title to a device passes to uSell upon issuance of payment
to the seller, which is generally within one to two days from the receipt of the device at the third party warehouse. Title to
a device is then transferred to the buyer upon shipment to the buyer. Agent Commission Revenue In certain cases,
sellers on the Company’s uSell.com website are shown a larger list of offers directly from third party buyers interested
in purchasing their devices. These offers are shown instead of or in addition to the “Managed by uSell” offer. If
a seller chooses one of these offers, the seller will ship their device directly to the buyer, rather than to the Company’s
third party warehouse. 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 ASC Topic 605-45 regarding shipping and handling costs. Shipping and handling costs included in cost of revenue
were approximately $519,000 and $116,000 for the years ended December 31, 2016 and 2015, respectively. Advertising Advertising costs
are expensed as they are incurred and are included in sales and marketing expenses. Advertising expense amounted to approximately
$50,000 and $1,324,000 for the years ended December 31, 2016 and 2015, respectively. Share-Based Payment Arrangements The Company accounts
for stock options in accordance with ASC 718, “Compensation - Stock Compensation.” ASC 718 requires generally that
all equity awards be accounted for at their “fair value.” This fair value is measured on the grant date for stock-settled
awards, and at subsequent exercise or settlement for cash-settled awards. Fair value is equal to the underlying value of the stock
for “full-value” awards such as restricted stock and performance shares, and is estimated using an option-pricing model
with traditional inputs for “appreciation” awards such as stock options and stock appreciation rights. Costs equal to these
fair values are recognized ratably over the requisite service period based on the number of awards that are expected to vest, or
in the period of grant for awards that vest immediately and have no future service condition. For awards that vest over time, cumulative
adjustments in later periods are recorded to the extent actual forfeitures differ from the Company’s initial estimates: previously
recognized compensation cost is reversed if the service or performance conditions are not satisfied and the award is forfeited.
The expense resulting from share-based payments is recorded in general and administrative expense in the accompanying consolidated
statements of operations. Subsequent modifications
to outstanding awards result in incremental cost if the fair value is increased as a result of the modification. Thus, a value-for-value
stock option repricing or exchange of awards in conjunction with an equity restructuring does not result in additional compensation
cost. Income Taxes The Company complies
with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts,
based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. ASC Topic 740 prescribes
a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken
or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of December 31, 2016. The Company
is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from
its position. The Company may
be subject to potential income tax examinations by federal or state authorities. These potential examinations may include questioning
the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state
tax laws. Management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve
months. The Company’s
policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense.
There were no amounts accrued for penalties or interest as of December 31, 2016. 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 December 31, 2016 and 2015, 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, accounts receivable, accounts payable and accrued expenses 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:
Year
Ended December 31,
2016 2015
Unvested
Restricted Stock 226,666 356,662
Unvested Restricted
Stock Units 743,020 475,000
Stock Warrants 801,250 802,520
Stock
Options 434,998 575,685
2,205,934 2,209,867 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, using the full retrospective
transition method, which may result in a cumulative-effect adjustment for deferred revenue to the opening balance sheet for 2016
and the restatement of the financial statements for all prior periods presented. The Company continues to evaluate the impact of
adoption of this standard on its consolidated financial statements and disclosures. In July 2015, the
FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory” simplifying the measurement of inventory . In September 2015,
the FASB issued ASU 2015-16, “Business Combinations – Simplifying the Accounting for Measurement-Period Adjustments”
(“ASU 2015-16”), which eliminates the current guidance that requires an acquirer in a business combination to account
for measurement-period adjustments retrospectively as if the accounting for the business combination had been completed at the
acquisition date. Instead, under the new guidance, an acquirer recognizes measurement-period adjustments in the period in which
it determines the amount of the adjustment, including the effect on earnings of any amounts that would have been recorded in previous
periods if the accounting had been completed at the acquisition date. ASU 2015-16 does not change the criteria for determining
whether an adjustment qualifies as a measurement-period adjustment or change the length of the measurement period, which cannot
exceed one year from the date of the acquisition. The guidance is effective for annual and interim periods beginning after December
15, 2015, and the guidance is applied prospectively to adjustments to provisional amounts that occur after the adoption date. The
Company adopted ASU 2015-16 as of January 1, 2016. The adoption of this guidance impacted the Company’s accounting for its
measurement-period adjustment in connection with the Well Sell Cellular acquisition during the year ended December 31, 2016, as
described in Note 3. In February 2016,
the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”) . In March 2016, the
FASB issued ASU No. 2016-08, “Revenue from contracts with customers (Topic 606): Principal versus Agent Considerations Reporting
Revenue Gross versus Net” (“ASU 2014-09”). The amendments are intended to improve the operability and understandability
of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and
adding additional illustrative examples to assist in the application of the guidance. The effective date and transition of these
amendments is the same as the effective date and transition of ASU 2014-09. Public entities should apply the amendments in ASU
2014-09 for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. The Company
is currently evaluating the impact of the new guidance on its consolidated financial statements. 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 th |
