UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2019
 
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:   001-34643
 
DropCar, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
98-0204758
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
DropCar, Inc.
1412 Broadway, Suite 2105
New York, New York 10018
(646) 342-1595
(Registrant’s telephone number, including area code)
 
Not Applicable 
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock par value $0.0001 per share
DCAR
The Nasdaq Stock Market
 
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 Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑  No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
☐
 
Accelerated filer
 
☐
Non-accelerated filer
 
☑
 
Smaller reporting company
 
☑
 
 
 
 
Emerging growth company
 
☐
 
If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☑
 
As of November 14, 2019, there were 4,061,882 shares of the registrant’s common stock, $0.0001 par value per share, issued and outstanding.
 

 
 
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
Certain statements in this report contain or may contain forward-looking statements. These statements, identified by words such as “plan,” “anticipate,” “believe,” “estimate,” “should,” “expect” and similar expressions, include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our inability to obtain adequate financing, our inability to expand our business, existing or increased competition, stock volatility and illiquidity, and the failure to implement our business plans or strategies. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this report in its entirety, including but not limited to our financial statements and the notes thereto and the risks described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 3, 2019, as subsequently amended on April 12, 2019, and other reports we file with the SEC. We advise you to carefully review the reports and documents we file from time to time with the SEC, particularly our quarterly reports on Form 10-Q and our current reports on Form 8-K. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
 
 
OTHER INFORMATION
 
When used in this report, the terms, “we,” the “Company,” “our,” and “us” refer to DropCar, Inc., a Delaware corporation (previously named WPCS International Incorporated), and its consolidated subsidiaries.
 
 
 
 
 
 
 
 
2
 
 
TABLE OF CONTENTS
 
 
 
PageNo.
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
 
 
Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
4
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018
5
 
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018
6
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018
7
 
Notes to Condensed Consolidated Financial Statements
8
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
25
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
32
 
 
 
Item 4.
Controls and Procedures.
32
 
 
 
Part II – OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings.
33
 
 
 
Item 1A.
Risk Factors.
34
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
36
 
 
 
Item 3.
Defaults Upon Senior Securities.
36
 
 
 
Item 4.
Mine Safety Disclosures.
36
 
 
 
Item 5.
Other Information.
36
 
 
 
Item 6.
Exhibits.
37
 
 
 
 
Signatures.
38
 
 
 
 
 
 
 
3
 
 
Part I – Financial Information
 
Item 1 – Financial Statements.
 
DropCar, Inc., and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
 
September 30,
 
 
December 31,
 
 
 
2019
 
 
2018
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
Cash
 $2,594,888 
 $4,303,480 
Accounts receivable, net
  176,328 
  295,626 
Prepaid expenses and other current assets
  311,567 
  328,612 
Total current assets
  3,082,783 
  4,927,718 
 
    
    
Property and equipment, net
  28,255 
  39,821 
Capitalized software costs, net
  478,129 
  659,092 
Operating lease right-of-use asset
  3,772 
  - 
Other assets
  3,525 
  3,525 
 
    
    
TOTAL ASSETS
 $3,596,464 
 $5,630,156 
 
    
    
LIABILITIES AND STOCKHOLDERS' EQUITY
    
    
 
    
    
CURRENT LIABILITIES:
    
    
Accounts payable and accrued expenses
 $1,528,797 
 $2,338,560 
Deferred revenue
  304,683 
  253,200 
Total current liabilities
  1,833,480 
  2,591,760 
 
    
    
COMMITMENTS AND CONTINGENCIES
    
    
 
    
    
STOCKHOLDERS' EQUITY:
    
    
Preferred stock, $0.0001 par value, 5,000,000 shares authorized
    
    
Series seed preferred stock, 842,405 shares authorized, zero issued and outstanding
  - 
  - 
Series A preferred stock, 1,963,877 shares authorized, zero issued and outstanding
  - 
  - 
Convertible Series H, 8,500 shares designated, 8 shares issued and outstanding;
  - 
  - 
Convertible Series H-1, 9,488 shares designated, zero shares issued and outstanding
  - 
  - 
Convertible Series H-2, 3,500 shares designated, zero shares issued and outstanding
  - 
  - 
Convertible Series H-3, 8,461 shares designated, 2,189 shares issued and outstanding;
  - 
  - 
Convertible Series H-4, 30,000 shares designated, 5,028 and 26,619 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively;
  1 
  3 
Common stock, $0.0001 par value; 100,000,000 shares authorized, 4,061,882 and 1,633,394 issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
  406 
  163 
Additional paid in capital
  35,192,968 
  32,791,951 
Accumulated deficit
  (33,430,391)
  (29,753,721)
 
    
    
TOTAL STOCKHOLDERS' EQUITY
  1,762,984 
  3,038,396 
 
    
    
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 $3,596,464 
 $5,630,156 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
4
 
 
DropCar, Inc., and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
 
For the Three Months Ended
September 30,
 
 
For the Nine Months Ended
September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
 
 
 
(Restated)
 
 
 
 
 
(Restated)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SERVICE REVENUES
 $1,095,320 
 $1,389,134 
 $3,441,307 
 $4,955,206 
 
    
    
    
    
COST OF REVENUE
  963,692 
  1,789,021 
  3,206,524 
  6,613,583 
 
    
    
    
    
GROSS PROFIT (LOSS)
  131,628 
  (399,887)
  234,783 
  (1,658,377)
 
    
    
    
    
OPERATING EXPENSES
    
    
    
    
Research and development
  43,690 
  60,299 
  161,002 
  238,431 
Selling, general and administrative expenses
  745,827 
  2,690,991 
  3,464,312 
  8,943,389 
Depreciation and amortization
  95,360 
  94,031 
  302,076 
  257,440 
TOTAL OPERATING EXPENSES
  884,877 
  2,845,321 
  3,927,390 
  9,439,260 
 
    
    
    
    
OPERATING LOSS
  (753,249)
  (3,245,208)
  (3,692,607)
  (11,097,637)
 
    
    
    
    
Other income (expense), net
  3,240 
  171 
  15,937 
  (1,081,328)
 
    
    
    
    
LOSS FROM CONTINUING OPERATIONS
  (750,009)
  (3,245,037)
  (3,676,670)
  (12,178,965)
 
    
    
    
    
DISCONTINUED OPERATIONS
    
    
    
    
Income (loss) from operations of discontinued component
  - 
  (83,736)
  - 
  377,207 
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
  - 
  (83,736)
  - 
  377,207 
 
    
    
    
    
NET LOSS
 $(750,009)
 $(3,328,773)
 $(3,676,670)
 $(11,801,758)
 
    
    
    
    
Deemed dividend on exchange of warrants
  - 
  (1,019,040)
  - 
  (1,335,901)
 
    
    
    
    
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
 $(750,009)
 $(4,347,813)
 $(3,676,670)
 $(13,137,659)
 
    
    
    
    
LOSS PER SHARE FROM CONTINUING OPERATIONS:
    
    
    
    
   Basic
 $(0.19)
 $(2.26)
 $(1.09)
 $(9.65)
   Diluted
 $(0.19)
 $(2.26)
 $(1.09)
 $(9.65)
EARNINGS (LOSS) PER SHARE FROM DISCONTINUED OPERATIONS:
    
    
    
    
   Basic
 $-
 
 $(0.06)
 $-
 
 $0.30 
   Diluted
 $-
 
 $(0.06)
 $-
 
 $0.30 
NET LOSS PER SHARE:
    
    
    
    
   Basic
 $(0.19)
 $(3.03)
 $(1.09)
 $(10.41)
   Diluted
 $(0.19)
 $(3.03)
 $(1.09)
 $(10.41)
WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    
    
   Basic
  4,050,006 
  1,434,963 
  3,381,026 
  1,262,409 
   Diluted
  4,050,006 
  1,434,963 
  3,381,026 
  1,262,409 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
5
 
DropCar Inc., and Subsidiaries
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
 
 
 
Series Seed
 
 
Series A
 
 
Series H
 
 
Series H-3
 
 
Series H-4
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
 
Preferred Stock
 
 
Preferred Stock
 
 
Preferred Stock
 
 
Preferred Stock
 
 
Preferred Stock
 
 
Common Stock
 
 
Paid-in
 
 
Accumulated
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
(Deficit)
 
 
Total
 
Balances, January 1, 2019
  - 
  - 
  - 
  - 
  8 
  - 
  2,189 
  - 
  26,619 
  3 
  1,633,394 
  163 
  32,791,951 
  (29,753,721)
  3,038,396 
Issuance of common stock for cash net of costs of $15,000
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  478,469 
  48 
  1,984,953 
  - 
  1,985,001 
Exercise of warrants
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  277,778 
  28 
  16,639 
  - 
  16,667 
Conversion of Series H-4 preferred stock into common stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (21,591)
  (2)
  1,412,420 
  141 
  (139)
  - 
  - 
Stock based compensation for options issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (19,361)
  - 
  (19,361)
Stock based compensation for restricted stock units issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  289,842 
  - 
  289,842 
Stock based compensation for common stock issued to service providers
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  116,666 
  12 
  222,188 
  - 
  222,200 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (1,975,706)
  (1,975,706)
Balance, March 31, 2019
  - 
  - 
  - 
  - 
  8 
  - 
  2,189 
  - 
  5,028 
  1 
  3,918,727 
  392 
  35,286,073 
  (31,729,427)
  3,557,039 
Issuance of common stock upon vesting of restricted stock units
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  244,644 
  24 
  (24)
  - 
  - 
Common stock reserved and retired for excess tax benefits from stock based compensation
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (120,658)
  (12)
  (183,321)
  - 
  (183,333)
Stock based compensation for options issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  44,025 
  - 
  44,025 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (950,955)
  (950,955)
Balance, June 30, 2019
  - 
  - 
  - 
  - 
  8 
  - 
  2,189 
  - 
  5,028 
  1 
  4,042,713 
  404 
  35,146,753 
  (32,680,382)
  2,466,776 
Issuance of common stock upon vesting of restricted stock units
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  31,646 
  3 
  (3)
  - 
  - 
Common stock reserved and retired for excess tax benefits from stock based compensation
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (12,477)
  (1)
  (9,856)
  - 
  (9,857)
Stock based compensation for restricted stock units issued to the board of directors
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  25,000 
  - 
  25,000 
Stock based compensation for options issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  31,074 
  - 
  31,074 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (750,009)
  (750,009)
Balance, September 30, 2019
  - 
 $- 
  - 
 $- 
  8 
 $- 
  2,189 
 $- 
  5,028 
 $1 
  4,061,882 
 $406 
 $35,192,968 
 $(33,430,391)
 $1,762,984 
 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
Balances, January 1, 2018
  275,691 
 $27 
  611,944 
 $61 
  - 
 $- 
  - 
 $- 
  - 
 $- 
  374,285 
 $37 
 $5,115,158 
 $(9,604,897)
 $(4,489,614)
Issuance of common stock for cash
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  10,057 
  1 
  299,999 
  - 
  300,000 
Conversion of debt into common stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  136,785 
  14 
  3,682,488 
  - 
  3,682,502 
Interest on lock-up shares in relation to convertible debt
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  85,571 
  9 
  672,135 
  - 
  672,144 
Exchange of shares in connection with Merger
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  490,422 
  49 
  9,792,174 
  - 
  9,792,223 
Conversion of outstanding Preferred Stock in connection with Merger
  (275,691)
  (27)
  (611,944)
  (61)
  - 
  - 
  - 
  - 
  - 
  - 
  147,939 
  15 
  73 
  - 
  - 
Issuance of Series H preferred stock in connection with Merger
  - 
  - 
  - 
  - 
  8 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
Issuance of Series H-3 preferred stock in connection with Merger
  - 
  - 
  - 
  - 
  - 
  - 
  2,189 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
Issuance of Series H-4 preferred stock and warrants in private placement, net of costs of $101,661
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  25,472 
  3 
  - 
  - 
  5,898,336 
  - 
  5,898,339 
Stock based compensation for options issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  17,210 
  - 
  17,210 
Stock based compensation for restricted stock units issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  275,528 
  - 
  275,528 
Stock based compensation for common stock issued to service providers
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  56,929 
  6 
  447,144 
  - 
  447,150 
Series H-4 preferred stock and warrants issued to service provider
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  1,371 
  - 
  - 
  - 
  - 
  - 
  - 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (4,480,735)
  (4,480,735)
Balance, March 31, 2018 (Restated)
  - 
  - 
  - 
  - 
  8 
  - 
  2,189 
  - 
  26,843 
  3 
  1,301,988 
  131 
  26,200,245 
  (14,085,632)
  12,114,747 
Conversion of accrued interest into common stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  4,518 
    
  159,584 
    
  159,584 
Stock based compensation for options issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  67,306 
  - 
  67,306 
Stock based compensation for restricted stock units issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  808,808 
  - 
  808,808 
Stock based compensation for common stock issued to service providers
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  3,333 
  - 
  31,800 
  - 
  31,800 
Deemed dividend on exchange of merger warrants to Series I warrants and common stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
    
    
  48,786 
  5 
  316,856 
  (316,861)
  - 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (3,992,250)
  (3,992,250)
Balance, June 30, 2018 (Restated)
  - 
  - 
  - 
  - 
  8 
  - 
  2,189 
  - 
  26,843 
  3 
  1,358,625 
  136 
  27,584,599 
  (18,394,743)
  9,189,995 
Issuance of common shares in connection with exercise of H-4 warrants
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  260,116 
  26 
  936,397 
  - 
  936,423 
Stock based compensation for options issued to employees (net of forfeitures)
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (29,960)
  - 
  (29,960)
Stock based compensation for restricted stock units issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  817,696 
  - 
  817,696 
Stock based compensation for common stock issued to service providers
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  6 
  - 
  6 
Deemed dividend on modification of H-4 Warrants and issuance of Series J warrants
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  1,019,034 
  (1,019,040)
  (6)
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (3,328,773)
  (3,328,773)
Balance, September 30, 2018 (Restated)
  - 
 $- 
  - 
 $- 
  8 
 $- 
  2,189 
 $- 
  26,843 
 $3 
  1,618,741 
 $162 
 $30,327,772 
 $(22,742,556)
 $7,585,381 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
 
 
DropCar, Inc., and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 
 
 
For the Nine Months Ended
September 30,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 (Restated)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
Net loss
 $(3,676,670)
 $(11,801,758)
Income from discontinued operations
  - 
  (377,207)
Loss from continuing operations
  (3,676,670)
  (12,178,965)
Adjustments to reconcile net loss to net cash used in operating activities:
    
    
Depreciation and amortization
  307,020 
  257,440 
Amortization of debt discount
  - 
  176,000 
Loss of disposition of asset
  3,695 
  - 
Stock based compensation
 588,056
  2,435,538 
Non-cash interest expense
  - 
  696,013 
Amortization of operating lease right-of-use asset
  19,268 
  - 
Changes in operating assets and liabilities:
    
    
Accounts receivable
  119,298 
  (4,399)
Prepaid expenses and other assets
  7,615 
  (335,514)
Accounts payable and accrued expenses
  (805,038)
  95,756 
Lease liabilities
  (13,610)
  - 
Deferred revenue
  51,483 
  (213,218)
 
    
    
NET CASH USED IN OPERATING ACTIVITIES - CONTINUING OPERATIONS
  (3,398,883)
  (9,071,349)
NET CASH USED IN OPERATING ACTIVITIES - DISCONTINUED OPERATIONS
  - 
  (995,250)
NET CASH USED IN OPERATING ACTIVITIES
  (3,398,883)
  (10,066,599)
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES:
    
    
Purchase of property and equipment
  - 
  (43,108)
Capitalization of software costs
  (118,462)
  (340,608)
Proceeds from sale of fixed asset
  275 
  - 
 
    
    
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS
  (118,187)
  (383,716)
NET CASH PROVIDED BY INVESTING ACTIVITIES - DISCONTINUED OPERATIONS
  - 
  3,875,529 
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
  (118,187)
  3,491,813 
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES:
    
    
Proceeds from the sale of common stock, net
  1,985,001 
  300,000 
Common stock reserved and retired in connection with excess tax benefits paid
  (193,190)
  - 
Proceeds from the sale of Series H-4 preferred stock
  - 
  6,000,000 
Financing costs from the sale of Series H-4 preferred stock and warrants
  - 
  (101,661)
Proceeds from issuance of common stock in connection with exercise of H-4 warrants
  16,667 
  936,423 
 
    
    
NET CASH PROVIDED BY FINANCING ACTIVITIES - CONTINUING OPERATIONS
  1,808,478 
  7,134,762 
NET CASH USED IN FINANCING ACTIVITIES - DISCONTINUED OPERATIONS
  - 
  (36,329)
NET CASH PROVIDED BY FINANCING ACTIVITIES
  1,808,478 
  7,098,433 
 
    
    
Net increase (decrease) in cash
  (1,708,592)
  523,647 
 
    
    
Cash, beginning of period
  4,303,480 
  372,011 
 
    
    
Cash, end of period
 $2,594,888 
 $895,658 
 
    
    
SUPPLEMENTAL CASH FLOW INFORMATION:
    
    
Issuance of common stock for accrued stock based compensation
 $4,724 
 $- 
Assets acquired under operating leases
 $23,040 
 $- 
NON-CASH FINANCING ACTIVITIES:
    
    
Stock issued to WPCS Shareholder in the merger, net of cash received of 4,947,023
 $- 
 $4,845,200 
Series H-4 offering cost paid in H-4 shares and warrants
 $- 
 $568,648 
Stock issued for convertible note payable
 $- 
 $3,682,502 
Stock issued for accrued interest on convertible note payable
 $- 
 $159,584 
Deemed dividends on warrant issuances
 $- 
 $1,335,872 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
7
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
1. The Company
 
The Company is a provider of automotive vehicle support, fleet logistics, and concierge services for both consumers and the automotive industry. Its cloud-based Enterprise Vehicle Assistance and Logistics (“VAL”) platform and mobile application (“app”) assists consumers and automotive-related companies to reduce the costs, hassles and inefficiencies of owning a car, or fleet of cars, in urban centers.
 
In July 2018, the Company launched its Mobility Cloud platform which provides automotive-related businesses with a 100% self-serve SaaS version of its VAL platform to manage their own operations and drivers, as well as customer relationship management (“CRM”) tools that enable their clients to schedule and track their vehicles for service pickup and delivery. The Company’s Mobility Cloud also provides access to private application programming interfaces (“APIs”) which automotive-businesses can use to integrate the Company’s logistics and field support directly into their own applications and processes natively, to create more seamless client experiences. The Company earned de minimis revenues from Mobility Cloud in 2019. The Company did not earn any revenues from Mobility Cloud in 2018.
 
On the enterprise side, original equipment manufacturers (“OEMs”), dealers, and other service providers in the automotive space are increasingly being challenged with consumers who have limited time to bring in their vehicles for maintenance and service, making it difficult to retain valuable post-sale service contracts or scheduled consumer maintenance and service appointments. Additionally, many of the vehicle support centers for automotive providers (i.e., dealerships, including body work and diagnostic shops) have moved out of urban areas thus making it more challenging for OEMs and dealers in urban areas to provide convenient and efficient service for their consumer and business clientele. Similarly, shared mobility providers and other fleet managers, such as rental car companies and car share programs, face a similar urban mobility challenge: getting cars to and from service bays, rebalancing vehicle availability to meet demand in fleeting and de- fleeting vehicles to and from dealer lots, auction sites and to other locations.
 
In July 2018, the Company began assessing demand for a Self-Park Spaces monthly parking plan whereby consumers could designate specific garages for their vehicles to be stored at a base monthly rate, with personal 24/7 access for picking up and returning their vehicle directly, and the option to pay a la carte on a per hour basis for a driver to perform functions such as picking up and returning their vehicle to their front door. This model aligns more directly with how the Company has structured the enterprise Business-to-Business (“B2B”) side of its business, where an interaction with a vehicle on behalf of its drivers typically generates new revenue. The Company consumer Self-Park Spaces plan combined with its on-demand hourly valet service are the only consumer plans offered from September 1, 2018 onwards. Subscriber plans prior to this date continued to receive service on a prorated basis through the end of August 2018. Additionally, the Company is scaling back its DropCar 360 Services on Demand Service (“360 Services”) for the Consumer portion of the market. As a result of this shift, in August 2018, the Company began to significantly streamline its field teams, operations and back office support tied to its pre-September 1, 2018 consumer subscription plans. The scaling back of these services and the discontinuation of the Company’s monthly parking with front door valet (“Steve”) service resulted in a decrease in revenue.
 
To date, the Company operates primarily in the New York metropolitan area. In May, June, and August 2018, the Company expanded operations with its B2B business in San Francisco, Washing DC, and Los Angeles, respectively. These three new market expansions are with an OEM customer.
 
Merger and Exchange Ratio
 
On January 30, 2018, DC Acquisition Corporation (“Merger Sub”), a wholly-owned subsidiary of WPCS International Incorporated (“WPCS”), completed its merger with and into DropCar, Inc. (“Private DropCar”), with Private DropCar surviving as a wholly owned subsidiary of WPCS. This transaction is referred to as the “Merger.” The Merger was effected pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated September 6, 2017, by and among WPCS, Private DropCar and Merger Sub.
 
 
8
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 
As a result of the Merger, each outstanding share of Private DropCar share capital (including shares of Private DropCar share capital issued upon the conversion of outstanding convertible debt) automatically converted into the right to receive approximately 0.3273 shares of WPCS’s common stock, par value $0.0001 per share (the “Exchange Ratio”).
 
Following the closing of the Merger, holders of WPCS’s common stock immediately prior to the Merger owned approximately 22.9% on a fully diluted basis, and holders of Private DropCar common stock immediately prior to the Merger owned approximately 77.1% on a fully diluted basis, of WPCS’s common stock.
 
The Merger has been accounted for as a reverse acquisition under the acquisition method of accounting where Private DropCar is considered the accounting acquirer and WPCS is the acquired company for financial reporting purposes. Private DropCar was determined to be the accounting acquirer based on the terms of the Merger Agreement and other factors, such as relative voting rights and the composition of the combined company’s board of directors and senior management, which was deemed to have control. The pre-acquisition financial statements of Private DropCar became the historical financial statements of WPCS following the Merger. The historical financial statements, outstanding shares and all other historical share information have been adjusted by multiplying the respective share amount by the Exchange Ratio as if the Exchange Ratio had been in effect for all periods presented.
 
Immediately following the Merger, the combined company changed its name from WPCS International Incorporation to DropCar, Inc. The combined company following the Merger may be referred to herein as “the combined company,” “DropCar,” or the “Company.”
 
Discontinued Operations
 
On December 24, 2018, the Company completed the sale of WPCS International – Suisun City, Inc., a California corporation (the “Suisun City Operations”), its wholly-owned subsidiary, pursuant to the terms of a stock purchase agreement, dated December 10, 2018 (the “Purchase Agreement”) by and between the Company and World Professional Cabling Systems, LLC, a California limited liability company (the “Purchaser”). Upon the closing of the sale, the Purchaser acquired all of the issued and outstanding shares of common stock, no par value per share, of Suisun City Operations, for an aggregate purchase price of $3,500,000. The sale of Suisun City Operations represented a strategic shift that has had a major effect on the Company’s operations, and therefore, is presented as discontinued operations in the 2018 unaudited condensed consolidated statement of operations.
 
Trading of Company’s stock
 
The Company’s shares of common stock listed on The Nasdaq Capital Market, previously trading through the close of business on January 30, 2018 under the ticker symbol “WPCS,” commenced trading on The Nasdaq Capital Market, on a post-Reverse Stock Split adjusted basis, under the ticker symbol “DCAR” on January 31, 2018.
 
On August 19, 2019, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating that the Company no longer complies with the minimum stockholders' equity requirement under Nasdaq Listing Rule 5550(b)(1) for continued listing on The Nasdaq Capital Market because the Company's stockholders' equity of $2,466,776, as reported in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, is below the required minimum of $2,500,000, and as of August 15, 2019, the Company does not meet the alternatives of market value of listed securities or net income from continuing operations. 
 
Based on materials submitted to Nasdaq, on October 21, 2019, the Company was granted an extension to regain compliance with Nasdaq Listing Rule 5550(b)(1) until November 29, 2019.
 
If the Company's plan to regain compliance with the minimum stockholders' equity standard is not accepted or if it is accepted but the Company does not regain compliance by the end of the extension granted by Nasdaq, or if the Company fails to satisfy another Nasdaq requirement for continued listing, Nasdaq staff could provide notice that the Company's common shares will become subject to delisting. In such event, Nasdaq rules permit the Company to appeal the decision to reject its proposed compliance plan or any delisting determination to a Nasdaq hearings panel. Accordingly, there can be no guarantee that the Company will be able to maintain its Nasdaq listing.
 
 
9
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 
 
On September 25, 2018, the Company received a notification letter from The Nasdaq Stock Market ("Nasdaq") informing the Company that for the last 30 consecutive business days, the bid price of the Company’s securities had closed below $1.00 per share, which is the minimum required closing bid price for continued listing on The Nasdaq Capital Market pursuant to Listing Rule 5550(a)(2). In order to regain compliance, on March 8, 2019, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a one-for-six reverse stock split of its outstanding shares of common stock. On March 26, 2019, the Company received a notification letter from The Nasdaq Stock Market informing it that it had regained compliance with Listing Rule 5550(a)(2). As a result of the reverse stock split, every six shares of the Company’s outstanding pre-reverse split common stock were combined and reclassified into one share of common stock. Unless otherwise noted, all share and per share data included in these financial statements retroactively reflect the 1-for-6 reverse stock split.
 
On September 6, 2019, DropCar, Inc. (the "Company") received a notification letter from The Nasdaq Stock Market ("Nasdaq") informing the Company that for the last 30 consecutive business days, the bid price of the Company’s securities had closed below $1.00 per share, which is the minimum required closing bid price for continued listing on The Nasdaq Capital Market pursuant to Listing Rule 5550(a)(2).
 
This notice has no immediate effect on the Company's Nasdaq listing; the Company has 180 calendar days, or until March 4, 2020, to regain compliance. To regain compliance, the closing bid price of the Company’s securities must be at least $1.00 per share for a minimum of ten consecutive business days. If the Company does not regain compliance by March 4, 2020, the Company may be eligible for additional time to regain compliance or if the Company is otherwise not eligible, the Company may request a hearing before a Hearings Panel.
  
2.            
Liquidity and Basis of Presentation
 
The Company has a limited operating history and the sales and income potential of its business and market are unproven. As of September 30, 2019, the Company has an accumulated deficit of $33.4 million and has experienced net losses each year since its inception. The Company anticipates that it will continue to incur net losses into the foreseeable future and will need to raise additional capital to continue. The Company’s cash is not sufficient to fund its operations for a 12 month period from the date of these financial statements. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
 
Management’s plan includes raising funds from outside investors. However, there is no assurance that outside funding will be available to the Company, outside funding will be obtained on favorable terms or will provide the Company with sufficient capital to meet its objectives. These financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern.
 
3.            
Basis of Presentation and Summary of Significant Accounting Policies
 
Basis of Presentation and Principles of Consolidation
 
The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements included within the Company’s Form 10-K for the fiscal year ended December 31, 2018, as filed with the SEC on April 3, 2019 and subsequently amended on April 12, 2019.
 
The preparation of the unaudited condensed consolidated financial statements in conformity with these accounting principles 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 financial statements; and the reported amounts of expenses during the reported period. Ultimate results could differ from the estimates of management. The unaudited condensed consolidated financial statements include the accounts of DropCar, Inc. and subsidiaries, all of which are wholly owned. All significant intercompany transactions and balances have been eliminated in consolidation.
 
In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company's financial position and the results of its operations and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature. The results of operations for the three and nine months ended September 30, 2019 may not be indicative of results for the full year.
 
 
10
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
Significant Accounting Policies
 
In February 2016, the FASB issued Accounting Standards Codification (ASC) 842, Leases, which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability. Lessor accounting under the standard is substantially unchanged. Additional qualitative and quantitative disclosures are also required. The Company adopted the standard effective January 1, 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. The Company adopted all practical expedients and elected the following accounting policies related to this standard:
 
●
Short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less; and
 
●
The option to not separate lease and non-lease components for equipment leases.
 
●
The package of practical expedients applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing initial direct costs for any existing leases.
 
Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement.
 
The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, the Company uses a discount rate based on its incremental borrowing rate.
 
Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and general and administrative expenses. Amortization expense for finance (capital) leases is recognized on a straight-line basis over the lease term and is included in cost of sales or general and administrative expenses, while interest expense for finance leases is recognized using the effective interest method.
 
Adoption of this standard resulted in the recognition of operating lease right-of-use assets of approximately $23,000 (including a reclassification from Prepaid expenses of a prepaid lease approximating $9,500) and corresponding lease liabilities of approximately $13,500 on the consolidated balance sheet as of January 1, 2019. The standard did not materially impact operating results or liquidity. Disclosures related to the amount, timing and uncertainty of cash flows arising from leases are included in Note 8, Leases.
 
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share- based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The guidance was adopted effective January 1, 2019, and the adoption of this ASU did not have a material effect on its consolidated financial statements.
 
Aside from the adoption of ASU 2016-02, as described above, there have been no other material changes to the significant accounting policies or recent accounting pronouncements previously disclosed in DropCar, Inc.'s 2018 annual consolidated financial statements included in the Company's Form 10-K for the fiscal year ended December 31, 2018.
 
 
11
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“US GAAP”) requires management to make estimates and assumptions that affect amounts reported therein. Generally, matters subject to estimation and judgement include amounts related to accounts receivable realization, asset impairments, useful lives of property and equipment and capitalized software costs, deferred tax asset valuation allowances, and operating expense accruals. Actual results could differ from those estimates.
 
Revenue Recognition
 
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, codified as ASC 606: Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.
 
Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring the Company’s progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the Company determines the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration the Company expects to be entitled to in exchange for those promised goods or services (i.e., the “transaction price”). In determining the transaction price, the Company considers multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, the Company considers the range of possible outcomes, the predictive value of its past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of the Company’s influence, such as the judgment and actions of third parties.
 
The Company’s contracts are generally designed to provide cash fees to the Company on a monthly basis or an agreed upfront rate based upon demand services. The Company’s performance obligation is satisfied over time as the service is provided continuously throughout the service period. The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing a continuous service to the customer. Contracts with minimum performance guarantees or price concessions include variable consideration and are subject to the revenue constraint. The Company uses an expected value method to estimate variable consideration for minimum performance guarantees and price concessions.
 
Monthly Subscriptions
 
The Company offers a selection of subscriptions and on-demand services which include parking, valet, and access to other services. The contract terms are on a month-to-month subscription contract with fixed monthly or contract term fees. These subscription services include a fixed number of round-trip deliveries of the customer’s vehicle to a designated location. The Company allocates the purchase price among the performance obligations which results in deferring revenue until the service is utilized or the service period has expired.
 
On Demand Valet and Parking Services
 
The Company offers to consumers certain on demand services through its mobile application. The customer is billed at an hourly rate upon completion of the services. Revenue is recognized when the Company had satisfied all performance obligations which is upon completion of the service.
 
 
12
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
DropCar 360 Services on Demand Service
 
The Company offers to consumers certain services upon request including vehicle inspection, maintenance, car washes or to fill up with gas. The customers are charged a fee in addition to the cost of the third-party services provided. Revenue is recognized on a gross basis when the Company had satisfied all performance obligations which is upon completion of the service.
 
On Demand Business-To-Business
 
The Company also has contracts with car dealerships, car share programs and others in the automotive industry transporting vehicles. Revenue is recognized at the point in time all performance obligations are satisfied which is when the Company provides the delivery service of the vehicles.
 
Disaggregated Revenues
 
The following table presents our revenues from contracts with customers disaggregated by revenue source.
 
 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Subscription services
 $790,021 
 $1,118,544 
 $2,248,403 
 $3,758,099 
Services on-demand
  305,299 
  270,590 
  1,192,904 
  1,197,107 
Total revenues (1)(2)
 $1,095,320 
 $1,389,134 
 $3,441,307 
 $4,955,206 
(1)
Represents revenues recognized by all types of services.
(2)
All revenues are generated in the United States.
 
The following presents our revenues from B2C and B2B customers.
 
 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
B2C
 $861,494 
 $1,164,093 
 $2,515,178 
 $4,244,682 
B2B
  233,826 
  225,041 
  926,129 
  710,524 
Total revenues
 $1,095,320 
 $1,389,134 
 $3,441,307 
 $4,955,206 
 
Employee Stock-Based Compensation
 
The Company recognizes all employee share-based compensation as an expense in the financial statements. Equity-classified awards principally related to stock options, restricted stock units (“RSUs”) and equity-based compensation, are measured at the grant date fair value of the award. The Company determines grant date fair value of stock option awards using the Black-Scholes option-pricing model. The fair value of RSUs are determined using the closing price of the Company’s common stock on the grant date. For service-based vesting grants, expense is recognized ratably over the requisite service period based on the number of options or shares. Stock-based compensation is reversed for forfeitures in the period of forfeiture.
 
Income (Loss) Per Share
 
Basic income (loss) per share is computed by dividing net loss attributable to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. In periods when the Company has income, the Company calculates basic earnings per share using the two-class method, if required, pursuant to ASC 260 Earnings Per Share. The two-class method was required effective with the issuance of convertible preferred stock in the past because this class of stock qualified as a participating security, giving the holder the right to receive dividends should dividends be declared on common stock. Under the two-class method, earnings for a period are allocated on a pro rata basis to the common stockholders and to the holders of convertible preferred stock based on the weighted average number of common shares outstanding and number of shares that could be issued upon conversion. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.
 
 
13
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
The following securities were excluded from weighted average diluted common shares outstanding for the three and nine months ended September 30, 2019 and 2018 because their inclusion would have been antidilutive.
 
 
 
As of September 30,
 
 
 
2019
 
 
2018
 
Common stock equivalents:
 
 
 
 
 
 
Common stock options
  380,396 
  156,880 
Series A, H-1, H-3, H-4, I, J and Merger common stock purchase warrants
  585,306 
  585,307 
Series H, H-3, and H-4 Convertible Preferred Stock
  338,069 
  2,739,225 
Restricted shares (unvested)
  - 
  244,643 
Totals
  1,303,771 
  3,726,055 
 
Research and development costs, net
 
Costs are incurred in connection with research and development programs that are expected to contribute to future earnings. Such costs include labor, stock-based compensation, training, software subscriptions, and consulting. These amounts are charged to the condensed consolidated statement of operations as incurred. Total research and development expenses were $43,690 and $60,299 for the three months ended September 30, 2019 and 2018, respectively. Total research and development expenses were $161,002 and $238,431 for the nine months ended September 30, 2019 and 2018, respectively.
 
Recently Issued Accounting Standards
 
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
 
In August 2018, the FASB issued ASU 2018-13, Changes to Disclosure Requirements for Fair Value Measurements, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for the Company beginning January 1, 2020. The Company is currently evaluating the impact this standard will have on the Company’s consolidated financial statements.