| 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, 2017 as filed with the SEC (the 2017 10-K), which contains the audited financial statements
and notes thereto, together with Management’s Discussion and Analysis, for the years ended December 31, 2017 and 2016. The
financial information as of December 31, 2017 is derived from the audited financial statements presented in the 2017 10-K. The interim results for the six months ended June 30, 2018 are
not necessarily indicative of the results to be expected for the year ending December 31, 2018 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. Restricted
Cash The
Company maintains a dedicated bank account with a third party custodian pursuant to which all accounts receivable and Collateral
proceeds (as defined in the NPA) are deposited to this account. The Company can only access funds in this account in accordance
with the terms of the NPA. This account is controlled by the Lender and is presented as restricted cash in the accompanying consolidated
balance sheet. 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 $1,317 at June 30, 2018 and $0 at December 31, 2017. 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 change in the provision for slow-moving inventory amounted
to $0 and $91,000 for the three months ended June 30, 2018 and 2017, respectively, and $8,000 and $30,000 for the six months ended
June 30, 2018 and 2017, respectively. The inventory reserve was $75,000 and $285,000 as of June 30, 2018 and December 31, 2017,
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 $1,078,000 and $474,000 at June 30, 2018 and December 31, 2017, respectively, and is included
in inventory, net in the accompanying condensed consolidated balance sheets. Revenue
Recognition The
Company adopted Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customers”
(“ASC 606”) as of January 1, 2018 using the modified retrospective method. This method allows the Company to apply
ASC 606 to new contracts entered into after January 1, 2018, and to its existing contracts for which revenue earned through December
31, 2017 has been recognized under the guidance in effect prior to the effective date of ASC 606. The revenue recognition processes
the Company applied prior to adoption of ASC 606 align with the recognition and measurement guidance of the new standard, therefore
adoption of ASC 606 did not require a cumulative adjustment to opening equity. Under
ASC 606, a performance obligation is a promise within a contract to transfer a distinct good or service, or a series of distinct
goods and services, to a customer. Revenue is recognized when performance obligations are satisfied and the customer obtains control
of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be
entitled to receive in exchange for goods or services. Under the standard, a contract’s transaction price is allocated to
each distinct performance obligation. To determine revenue recognition for arrangements that the Company determines are within
the scope of ASC 606, the Company performs the following five steps: (i) identifies the contracts with a customer; (ii) identifies
the performance obligations within the contract, including whether they are distinct and capable of being distinct in the context
of the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in
the contract; and (v) recognizes revenue when, or as, the Company satisfies each performance obligation. 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 $340,000 and
$267,000 at June 30, 2018 and December 31, 2017, 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 Shipping
and handling costs included in cost of revenue were approximately $60,000 and $138,000 for the three months ended June 30, 2018
and 2017, respectively, and approximately $123,000 and $322,000 for the six months ended June 30, 2018 and 2017, respectively. Advertising Advertising
costs are expensed as they are incurred and are included in sales and marketing expenses. Advertising expense amounted to approximately
$6,000 and $10,000 for the three months ended June 30, 2018 and 2017, respectively, and approximately $15,000 and $21,000 for
the six months ended June 30, 2018 and 2017, 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 June 30, 2018 and December 31, 2017, 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:
Six
Months Ended June
30,
2018 2017
Unvested
Restricted Stock 97,916 170,000
Vested
and Unvested Restricted Stock Units 476,353 743,020
Stock
Options 429,000 646,998
Stock
Warrants 797,083 797,083
1,800,352 2,357,101 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 adopted the standard on January 1, 2018
using the modified retrospective transition method. The adoption of this standard did not have a material effect on the Company’s
financial position or results of operations. In
August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash
Payments” (“ASU 2016-15”), which eliminates the diversity in practice related to the classification of certain
cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues:
debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon
interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments
made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned
life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial
interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.
ASU 206-15 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. ASU
2016-15 provides for retrospective application for all periods presented. The Company adopted the standard on January 1, 2018.
The adoption of this standard did not have a material effect on the Company’s financial position or results of operations. In
October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740)” (“ASU 2016-16”), which reduces
the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity
asset transfer, other than inventory, when the transfer occurs. ASU 2016-16 is effective for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years, with early adoption permitted using a modified retrospective transition
approach. The Company adopted the standard on January 1, 2018. The adoption of this standard did not have a material effect on
the Company’s financial position or results of operations. In
November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”),
providing specific guidance on the cash flow classification and presentation of changes in restricted cash and restricted cash
equivalents. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively.
The Company adopted the standard on January 1, 2018. Effective with the adoption of the new guidance, the Company changed the
presentation of restricted cash in its consolidated statements of cash flows to conform to the new requirements. In
January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business”
(“ASU 2017-01”). The amendments in ASU 2017-01 clarify the definition of a business with the objective of adding
guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets
or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and
consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within
those periods. The Company adopted the standard on January 1, 2018. The adoption of this standard did not have an 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 adopted the standard on January 1, 2018. The adoption of this standard did not have an effect on the Company’s
financial position or results of operations. In
June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting” (“ASU 2018-07”), which expands the scope of Topic 718 to include all share-based
payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to
all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations
by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used
to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers
as part of a contract accounted for under ASC 606. ASU 2018-07 is effective for annual reporting periods, and interim periods
within those years, beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this guidance
on its condensed consolidated financial statements. |
