REVISION
OF FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 2015
During
the course of preparing the quarterly report on Form 10-Q for the quarter ended September 30, 2015, the Company identified an
error which resulted in the overstatement of its accrued public information fee on the condensed consolidated balance sheet as
of June 30, 2015 and its provision for non-compliance penalty for delinquent regular SEC filings on the condensed consolidated
statements of operations during the three and six months ended June 30, 2015. The reason for the error related to the Company’s
interpretation of a contractual provision. See Note 6 – Accrued Public Information Fee.
The
following tables reconcile the prior period as reported balances to the revised balances:
|
|
June
30, 2015
|
|
|
|
As
Reported
|
|
|
Adjustment
|
|
|
As
Revised
|
|
Condensed
Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
Assets
|
|
$
|
1,942,413
|
|
|
$
|
-
|
|
|
$
|
1,942,413
|
|
Total Assets
|
|
$
|
4,571,529
|
|
|
$
|
-
|
|
|
$
|
4,571,529
|
|
Total Current Liabilities
|
|
$
|
17,244,978
|
|
|
$
|
(1,100,000
|
)
|
|
$
|
16,144,978
|
|
Total Liabilities
|
|
$
|
17,501,491
|
|
|
$
|
(1,100,000
|
)
|
|
$
|
16,401,491
|
|
Total Stockholders'
Deficiency
|
|
$
|
(13,754,962
|
)
|
|
$
|
1,100,000
|
|
|
$
|
(12,654,962
|
)
|
|
|
For
The Three Months Ended
|
|
|
For
The Six Months Ended
|
|
|
|
June
30, 2015
|
|
|
June
30, 2015
|
|
|
|
As
Reported
|
|
|
Adjustment
|
|
|
As
Revised
|
|
|
As
Reported
|
|
|
Adjustment
|
|
|
As
Revised
|
|
Condensed
Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From
Operations
|
|
$
|
(3,159,823
|
)
|
|
$
|
-
|
|
|
$
|
(3,159,823
|
)
|
|
$
|
(6,689,900
|
)
|
|
$
|
-
|
|
|
$
|
(6,689,900
|
)
|
Total Other Income
|
|
|
821,024
|
|
|
|
1,100,000
|
|
|
|
1,921,024
|
|
|
|
669,068
|
|
|
|
1,100,000
|
|
|
|
1,769,068
|
|
Net Loss
|
|
|
(2,338,799
|
)
|
|
|
1,100,000
|
|
|
|
(1,238,799
|
)
|
|
|
(6,020,832
|
)
|
|
|
1,100,000
|
|
|
|
(4,920,832
|
)
|
Less:
Net income attributable to noncontrolling interest
|
|
|
13,257
|
|
|
|
-
|
|
|
|
13,257
|
|
|
|
66,994
|
|
|
|
-
|
|
|
|
66,994
|
|
Net Loss Attributable
to Car Charging Group, Inc.
|
|
|
(2,352,056
|
)
|
|
|
1,100,000
|
|
|
|
(1,252,056
|
)
|
|
|
(6,087,826
|
)
|
|
|
1,100,000
|
|
|
|
(4,987,826
|
)
|
Dividend
attributable to Series C shareholders
|
|
|
(212,400
|
)
|
|
|
-
|
|
|
|
(212,400
|
)
|
|
|
(414,400
|
)
|
|
|
-
|
|
|
|
(414,400
|
)
|
Net Loss Attributable
to Common Shareholders
|
|
$
|
(2,564,456
|
)
|
|
$
|
1,100,000
|
|
|
$
|
(1,464,456
|
)
|
|
$
|
(6,502,226
|
)
|
|
$
|
1,100,000
|
|
|
$
|
(5,402,226
|
)
|
Net Loss Per Share
- Basic and Diluted
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
$
|
(0.07
|
)
|
Weighted Average Number of Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Basic and Diluted
|
|
|
79,139,995
|
|
|
|
|
|
|
|
79,139,995
|
|
|
|
78,489,861
|
|
|
|
|
|
|
|
78,489,861
|
|
|
|
For
The Six Months Ended
|
|
|
|
June
30, 2015
|
|
|
|
As
Reported
|
|
|
Adjustment
|
|
|
As
Revised
|
|
Condensed
Consolidated Statement of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(6,020,832
|
)
|
|
$
|
1,100,000
|
|
|
$
|
(4,920,832
|
)
|
Adjustments to reconcile
net loss to net cash used in operating activities
|
|
$
|
2,374,328
|
|
|
$
|
(1,100,000
|
)
|
|
$
|
1,274,328
|
|
Net Cash Used In Operating
Activities
|
|
$
|
(3,922,444
|
)
|
|
$
|
-
|
|
|
$
|
(3,922,444
|
)
|
Net Cash Used In Investing
Activities
|
|
$
|
(253,452
|
)
|
|
$
|
-
|
|
|
$
|
(253,452
|
)
|
Net Cash Provided By
Financing Activities
|
|
$
|
2,828,415
|
|
|
$
|
-
|
|
|
$
|
2,828,415
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4.
ASSETS AND LIABILITIES TRANSFERRED TO TRUST MORTGAGE – 350 GREEN
On
April 17, 2014, the Company’s Board of Directors executed a resolution to form a trust mortgage relating to 350 Green. On
May 29, 2014, the Company and EVSE Management LLC (“EVSE”) entered into a Management Services Agreement and on June
27, 2014, EVSE purchased certain assets from 350 Green for total consideration of $860,836 which included a note receivable from
Car Charging in the amount of $314,598. On September 8, 2014, the Company entered into an agreement among the trustee of 350 Green,
an attorney, 350 Green and the Company whereby the Company would pay the legal fees incurred in connection with an action brought
by 350 Green against JNS Power and Control Systems, Inc. (“JNS”). On September 30, 2014, the Company (“Assignor”)
entered into an Assignment Agreement with Green 350 Trust Mortgage LLC (“Assignee”), an entity formed by the trustee
for the sole purpose to entering into this transaction, under which Assignor, the sole member of 350 Green, assigned, sold and
transferred 100% of the limited liability company membership interests in 350 Green to Assignee and Assignee accepted such transfer
for nominal consideration of $100.
Through
April 16, 2014, 350 Green was a wholly-owned subsidiary of the Company in which the Company had full control and was consolidated.
Beginning on April 17, 2014, 350 Green was deemed to be a VIE and, therefore, we continued to consolidate 350 Green. On July 8,
2015, the Company and the trustee of 350 Green agreed to settle the note receivable in the amount of $314,598 for $25,000 in full
satisfaction of the note. On September 9, 2015, the United States Court of Appeals for the Seventh Circuit of Chicago, Illinois
affirmed the ruling of the United States District Court for the Northern District of Illinois in the matter of JNS Power &
Control Systems, Inc. v. 350 Green, LLC in favor of JNS. See Note 11 – Commitments and Contingencies – Litigation
for additional details. As a result of the above developments, the Company is in the process of periodically reevaluating the
nature of its interests in 350 Green, including whether or not the Company has achieved full isolation of the assets and memberships
interests of 350 Green, ensuring that the Company could not be required to provide direct or indirect financial support to the
former subsidiary or its creditors.
The
following amounts pertaining to 350 Green are included in the condensed consolidated statement of operations for the three and
nine months ended September 30, 2015:
|
|
For
The Three
|
|
|
For
The Nine
|
|
|
|
Months
Ended
|
|
|
Months
Ended
|
|
|
|
September
30, 2015
|
|
|
September
30, 2015
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenues
|
|
|
(148,144
|
)
|
|
|
(209,086
|
)
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
148,144
|
|
|
|
209,086
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
25,114
|
|
|
|
25,114
|
|
Total
Operating Expenses
|
|
|
25,114
|
|
|
|
25,114
|
|
Loss
From Operations
|
|
|
123,030
|
|
|
|
183,972
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
300
|
|
|
|
6,352
|
|
Gain
on settlement of accounts payable
|
|
|
155,770
|
|
|
|
155,770
|
|
Gain
on settlement of debt
|
|
|
314,598
|
|
|
|
314,598
|
|
Loss
on settlement of note receivable
|
|
|
(271,092
|
)
|
|
|
(271,092
|
)
|
|
|
|
|
|
|
|
|
|
Total
Other Income
|
|
|
199,576
|
|
|
|
205,628
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
322,606
|
|
|
$
|
389,600
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4.
ASSETS AND LIABILITIES TRANSFERRED TO TRUST MORTGAGE – 350 GREEN – CONTINUED
The
following represents the change in the balance of the non-controlling interest:
Balance - December 31, 2014
|
|
$
|
(4,400,730
|
)
|
|
|
|
|
|
Net
income of 350 Green
|
|
|
389,600
|
|
|
|
|
|
|
Balance - September
30, 2015
|
|
$
|
(4,011,130
|
)
|
Accrued
expenses pertaining to 350 Green consisted of the following:
|
|
September
30, 2015
|
|
|
December
31, 2014
|
|
|
|
(unaudited)
|
|
|
|
|
Accrued
taxes
|
|
$
|
120,132
|
|
|
$
|
113,531
|
|
Accrued host fees
|
|
|
-
|
|
|
|
51,064
|
|
Accrued
fees
|
|
|
-
|
|
|
|
158,021
|
|
Total
|
|
$
|
120,132
|
|
|
$
|
322,616
|
|
5.
ACCRUED EXPENSES
SUMMARY
Accrued
expenses consist of the following:
|
|
September
30, 2015
|
|
|
December
31, 2014
|
|
|
|
(unaudited)
|
|
|
|
|
Registration
rights penalty
|
|
$
|
728,750
|
|
|
$
|
2,569,788
|
|
Obligation to U.S.
Department of Energy
|
|
|
-
|
|
|
|
1,833,896
|
|
Accrued consulting
fees
|
|
|
894,725
|
|
|
|
936,862
|
|
Due to Creditors Committee
of the ECOtality Estate
|
|
|
-
|
|
|
|
1,035,965
|
|
Accrued host fees
|
|
|
830,721
|
|
|
|
680,080
|
|
Accrued professional,
board and other fees
|
|
|
770,489
|
|
|
|
883,707
|
|
Accrued wages
|
|
|
87,732
|
|
|
|
322,651
|
|
Warranty payable
|
|
|
315,883
|
|
|
|
196,402
|
|
Accrued taxes payable
|
|
|
171,163
|
|
|
|
146,577
|
|
Warrants payable
|
|
|
109,127
|
|
|
|
63,533
|
|
Accrued issuable equity
|
|
|
104,302
|
|
|
|
-
|
|
Accrued interest expense
|
|
|
72,968
|
|
|
|
42,202
|
|
Dividend payable
|
|
|
-
|
|
|
|
20,800
|
|
Deferred rent
|
|
|
-
|
|
|
|
6,564
|
|
Other
accrued expenses
|
|
|
25,750
|
|
|
|
-
|
|
|
|
$
|
4,111,610
|
|
|
$
|
8,739,027
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5.
ACCRUED EXPENSES – CONTINUED
REGISTRATION
RIGHTS PENALTY
In
connection with the sale of the Company’s common stock and warrants during the year ended December 31, 2013, the Company
granted the purchasers and the placement agents registration rights on the common stock and warrants within 60 days of the date
of the sale of the stock, as amended. The Stock Purchase Agreement (“SPA”) provided for a penalty provision of 1%
of the gross proceeds for each month that the shares are not registered, not to exceed 10%. The Securities and Exchange Commission
(“SEC”) notified the Company that it could not review its registration statement until such time as the Company furnished
two years of audited financial statements of 350 Green and ECOtality as the acquisitions were deemed significant. The Company
sought a waiver of the audit requirement but the SEC denied the granting of a waiver. On February 5, 2015, the holders of a majority
of the shares affected by the registration rights penalty granted the Company the option to satisfy the accrued registration rights
penalty and related interest as of December 23, 2014 totaling $1,724,823 in Series C Convertible Preferred Stock with a stated
value of $100 per share, in lieu of cash. The Company elected this option which required the Company to pay a 20% premium causing
the liability to increase to $1,850,188, exclusive of interest of $219,600. On February 10, 2015, the Company issued 20,414 shares
of Series C Convertible Preferred Stock and on March 31, 2015, the Company issued the remaining 283 shares of Series C Convertible
Preferred Stock, such that there was no liability as of September 30, 2015.
In
connection with the sale of the Company’s Series C Convertible Preferred Stock during the nine months ended September 30,
2015 and the year ended December 31, 2014, the Company granted the purchasers registration rights. As of September 30, 2015 and
December 31, 2014, the Company was not in a position to furnish two years of audited financial statements of 350 Green and ECOtality
to the SEC, therefore the SEC is unable to review any registration statement, if submitted. As a result, the Company accrued $728,750
and $500,000 of Series C Convertible Preferred Stock registration rights penalties at September 30, 2015 and December 31, 2014,
respectively, which represents 12.5% of the Series C Convertible Preferred Stock issuance dollar amount.
OBLIGATION
TO U.S. DEPARTMENT OF ENERGY
In
2014, the U.S. Department of Energy (“DOE”) notified the Company that it continues to have a property interest in
the 107 installed DCFCs if the fair market value of each DCFC had a market value in excess of $5,000 on October 16, 2013, the
date of the Blink purchase agreement approved by the bankruptcy court. The DOE requested documentation describing the data, assumption
and methodologies that the Company used to determine the value as of the closing date. The Company provided the DOE with additional
documentation and calculations supporting its belief that each DCFC acquired as of the closing date of the Blink purchase agreement
approved by the bankruptcy court had a fair market value of less than $5,000. On May 5, 2015, the DOE notified the Company that
it agreed with the Company’s analysis and had determined that the DOE’s interest in the DCFCs was extinguished. As
a result, the Company reversed the accrued liability in the second quarter of 2015 commensurate with the date of the DOE notification.
DUE
TO CREDITORS COMMITTEE OF THE ECOTALITY ESTATE
On
April 10, 2015, the consideration associated with the strategic transaction to acquire a 50% interest in the Reorganized Electric
Transportation Engineering Corporation of America (“ECOtality”) was amended to an aggregate of $1,200,000, consisting
of an initial payment of $375,000 (including $280,965 to be paid on behalf of the estate directly to their professional service
providers and $94,035 representing forbearance of a Blink network receivable from the estate) and the issuance of 8,250 shares
of Series B Convertible Preferred Stock. As of December 31, 2014, the Company had paid $70,000 and forborne the $94,035 receivable,
such that the liability was $1,035,965. During the nine months ended September 30, 2015, the Company paid $210,965 and issued
the Series B Convertible Preferred Stock, such that there was no liability as of September 30, 2015. See Note 9 – Stockholders’
Deficiency – Preferred Stock – Series B Convertible Preferred Stock for additional details.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5.
ACCRUED EXPENSES – CONTINUED
WARRANTS
PAYABLE
In
conjunction with the Beam acquisition, the agreement provided for anti-dilution protection to former members of Beam until such
time as a former member sells or disposes of all of his CCGI common stock. As specified in the agreement, if the Company issues
securities below $1.58 (a “Triggering Event”), the Company is required to issue a warrant to each former member to
purchase an additional number of Company common shares at the Triggering Event price. The Company has accrued for warrants payable
based on the Triggering Events that have occurred through September 30, 2015, as discussed in Note 8 – Stockholders’
Deficiency. During the nine months ended September 30, 2015, the Company issued one-year warrants to purchase an aggregate of
304,450 shares of common stock at an estimated fair value of $25,563 to the former Beam members which was recorded as a $11,270
reduction of warrants payable and the remainder recorded to the change in fair value of derivative liability. The warrants had
exercise prices ranging from $0.27 to $1.50 per share.
As
of September 30, 2015, the Company accrued $108,616 related to investment banking fees which were payable in warrants. See Note
8 – Fair Value Measurement – Warrants Payable and Note 9 – Stockholders’ Deficiency – Preferred
Stock - Series C Convertible Preferred Stock for additional details.
6.
ACCRUED PUBLIC INFORMATION FEE
In
accordance with certain securities purchase agreements, the Company is required to be compliant with Rule 144(c)(1) of the SEC,
as defined, so as to enable investors to sell their holdings of Company shares in accordance with the securities purchase agreements.
In the event of the Company’s noncompliance with Rule 144(c)(1) at any time after the six (6) month anniversary of the offering,
the investors are entitled to receive a fee of 1% of the aggregate subscription amount of the purchaser’s securities, plus
an additional 1% for every pro rata 30 day period that the Company is not in compliance (payable in cash or in kind). As of September
30, 2015 and December 31, 2014, the Company had accrued $1,987,567 and $711,517, respectively, as a result of periods of noncompliance
with Rule 144(c)(1).
7.
NOTES PAYABLE
CONVERTIBLE
NOTE
On
February 20, 2015, the Company renegotiated the terms of the $200,000 secured convertible note such that the due date was extended
to March 31, 2015. In connection with the extension, the Company issued the investor an immediately vested five-year warrant to
purchase 400,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrant had an issuance
date fair value of $23,641, which was recognized as amortization of debt discount during the nine months ended September 30, 2015.
On
May 1, 2015, the Company further renegotiated the terms of the convertible note such that: (i) the unpaid balance would accrue
interest at the rate of 2% per month effective April 1, 2015 and (ii) the maturity date was extended to June 1, 2015. In connection
with the extension, the Company: (i) issued the lender an immediately vested five-year warrant to purchase 50,000 shares of the
Company’s common stock at $1.00 per share with an issuance date fair value of $13,516 and (ii) extended the expiration dates
of warrants issued in October 2012 to purchase 150,000 shares of the Company’s common stock at an exercise price of $1.00
per share to the lender and its affiliates from October 2015 to October 2017 and recorded incremental compensation cost of $12,954.
Amortization
of debt discount for the three and nine months ended September 30, 2015 was $13,516 and $55,514, respectively, related to convertible
notes payable.
During
the nine months ended September 30, 2015, the Company made aggregate principal repayments of $100,000 associated with its convertible
note payable.
See
Note 12 – Subsequent Events – Convertible Note Payable for additional details.
NON-CONVERTIBLE
NOTES
During
the nine months ended September 30, 2015, the Company made aggregate principal repayments of $89,937 associated with non-convertible
notes payable.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7.
NOTES PAYABLE – CONTINUED
INTEREST
EXPENSE
Interest
expense for the three and nine months ended September 30, 2015 was $26,571 and $47,590, respectively, and $108,783 and $154,651
during the three and nine months ended September 30, 2014, respectively.
8.
FAIR VALUE MEASUREMENT
In
connection with sales of Series C Convertible Preferred Stock during the nine months ended September 30, 2015, the Company incurred
issuance costs which included an obligation to issue investment banker warrants to purchase 10% of the securities sold. The warrant
obligation had an aggregate fair value of $169,034 on the date of the sale of the Series C Convertible Preferred Stock. The warrant
obligation had a fair value of $108,616 as of September 30, 2015, which represented a reduction in fair value of $60,418, which
was included within the change in fair value of warrant liabilities during the nine months ended September 30, 2015. See Note
9 – Stockholders’ Deficiency – Preferred Stock - Series C Convertible Preferred Stock for additional details.
Assumptions
utilized in the valuation of Level 3 liabilities are described as follows:
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
0.32%
- 0.92
|
%
|
|
|
1.07
|
%
|
|
|
0.02%
- 1.30
|
%
|
|
|
0.90%
- 1.62
|
%
|
Expected
term (years)
|
|
|
1.00
- 4.82
|
|
|
|
4.19
- 5.41
|
|
|
|
1.00
- 5.05
|
|
|
|
4.53
- 5.00
|
|
Expected
volatility
|
|
|
91%
- 92
|
%
|
|
|
88
|
%
|
|
|
84%
- 95
|
%
|
|
|
88%
- 89
|
%
|
Expected
dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The
following table sets forth a summary of the changes in the fair value of Level 3 warrant liabilities that are measured at fair
value on a recurring basis:
Derivative
Liabilities
|
|
|
|
|
Beginning balance as of January
1, 2015
|
|
$
|
3,635,294
|
|
Issuance of warrants
|
|
|
413,240
|
|
Change in classification
|
|
|
281,403
|
|
Change
in fair value of derivative liability
|
|
|
(2,049,675
|
)
|
Ending balance
as of September 30, 2015
|
|
$
|
2,280,262
|
|
|
|
|
|
|
Warrants
Payable
|
|
|
|
|
Beginning balance as of January 1, 2015
|
|
$
|
63,533
|
|
Provision for new warrant
issuances
|
|
|
5,410
|
|
Accrual of other warrant
obligations
|
|
|
169,034
|
|
Change in fair value
of warrants payable
|
|
|
(117,580
|
)
|
Issuance of warrants
|
|
|
(11,270
|
)
|
Ending balance
as of September 30, 2015
|
|
$
|
109,127
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8.
FAIR VALUE MEASUREMENT – CONTINUED
Assets
and liabilities measured at fair value on a recurring or nonrecurring basis are as follows:
|
|
September
30, 2015
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,280,262
|
|
|
$
|
2,280,262
|
|
Warrants
payable
|
|
|
-
|
|
|
|
-
|
|
|
|
109,127
|
|
|
|
109,127
|
|
Total
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,389,389
|
|
|
$
|
2,389,389
|
|
|
|
December
31, 2014
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,635,294
|
|
|
$
|
3,635,294
|
|
Warrants
payable
|
|
|
-
|
|
|
|
-
|
|
|
|
63,533
|
|
|
|
63,533
|
|
Total
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,698,827
|
|
|
$
|
3,698,827
|
|
9.
STOCKHOLDERS’ DEFICIENCY
PREFERRED
STOCK
SERIES
A CONVERTIBLE PREFERRED STOCK
See
Note 11 – Commitments and Contingencies – Employment Agreement for details associated with the issuance of Series
A Convertible Preferred Stock.
The
Series A Convertible Preferred Stock shall have no liquidation preference so long as the Series C Convertible Preferred Stock
shall be outstanding.
SERIES
B CONVERTIBLE PREFERRED STOCK
On
April 21, 2015, the Company designated 10,000 shares of Series B Convertible Preferred Stock with a par value of $0.001 and a
stated value of $100 per share. The Series B Convertible Preferred Stock has no voting rights except under limited conditions.
The holders of Series B Convertible Preferred Stock and the holders of Series C Convertible Preferred Stock, shall proportionately
be entitled to receive out of the assets, whether capital or surplus, of the Company an amount in cash equal to the stated value
for each respective share of Series B Convertible Preferred Stock or Series C Convertible Preferred Stock before any payments
or distributions are made to holders of Series A Convertible Preferred Stock or holders of common stock. As of September 30, 2015,
the liquidation preference for the 8,250 issued and outstanding shares of Series B Convertible Preferred Stock was equal to $825,000.
The holder of the Series B Convertible Preferred Stock is entitled to redeem: (i) 2,750 shares on December 31, 2016; (ii) 2,750
shares on December 31, 2017; and (iii) 2,750 shares on December 31, 2018. However, the Company may choose not to honor the redemption
request, in which case the holder becomes entitled to immediately, or anytime thereafter, convert the Series B Convertible Preferred
Stock into common stock by dividing the aggregate stated value by the conversion price. The conversion price is equal to the average
closing price of the prior 30 trading days as of the date of the request to convert. The Company may, at any time, elect to redeem
all or part of the Series B Convertible Preferred Stock at the stated value.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
STOCKHOLDERS’ DEFICIENCY – CONTINUED
PREFERRED
STOCK
– CONTINUED
SERIES
B CONVERTIBLE PREFERRED STOCK - CONTINUED
During
the nine months ended September 30, 2015, the Company issued 8,250 shares of Series B Convertible Preferred Stock to the Creditors
of ECOtality as partial consideration for the strategic transaction to acquire a 50% interest in ECOtality. In addition, the parties
entered into a tax sharing agreement which stipulates that any benefit that CCGI realizes from the use of the ECOtality net operating
loss carryforwards (“NOLs”), up to $925,000, must be paid to the ECOtality estate and such payments would result in
the cancellation of a commensurate stated value amount of Series B Convertible Preferred Stock. After reviewing the terms of the
Series B Convertible Preferred Stock and the embedded conversion option (“ECO”), the Company determined that the Series
B Convertible Preferred Stock is classified as temporary equity and the ECO is not bifurcated, is not accounted for as a derivative
and is not a beneficial conversion feature. The temporary equity classification of the Series B Convertible Preferred Stock is
in accordance with ASC 480-10-s99 - Distinguishing Liabilities from Equity – Overall – SEC Materials and Accounting
Series Release (“ASR”) 268 – Presentation in Financial Statements of “Redeemable Preferred Stock”,
as the Company does not control settlement by delivery of its own common shares because there is no cap on the number of common
shares that could potentially be issuable upon redemption and therefore cash settlement is presumed.
See
Note 5 – Accrued Expenses – Due to Creditors Committee of the ECOtality Estate for additional details.
SERIES
C CONVERTIBLE PREFERRED STOCK
See
Note 5 – Accrued Expenses – Registration Rights Penalty and Note 11 – Commitments and Contingencies –
Employment Agreement for details associated with the issuance of Series C Convertible Preferred Stock.
On
July 24, 2015, the Company entered into a securities purchase agreement with a purchaser for net proceeds of an aggregate of $719,040
(gross proceeds of $830,000 less issuance costs of $110,960 which, as of September 30, 2015, had not been paid and were included
within accrued expenses). See Note 5 – Accrued Expenses – Warrants Payable and Note 8 – Fair Value Measurement
for additional details. Pursuant to the securities purchase agreement, the Company issued the following to the purchaser: (i)
9,223 shares of Series C Convertible Preferred Stock, and (ii) a five-year warrant to purchase 1,318,889 shares of common stock
for an exercise price of $1.00 per share with an issuance date fair value of $88,905 which was recorded as a derivative liability.
During
the nine months ended September 30, 2015, the Company issued 208 shares of Series C Convertible Preferred Stock in satisfaction
of the $20,800 dividend for the period from December 23, 2014 through December 31, 2014 and 6,569 shares of Series C Convertible
Preferred Stock in satisfaction of the $656,900 dividend for the nine months ended September 30, 2015.
In
July 2015, the Company agreed to pay a consultant an aggregate of $10,000 in cash and issue to the consultant 300 shares of Series
C Convertible Preferred Stock at a fair value of $30,000.
During the
nine months ended September 30, 2015, the Company did not meet certain defined milestones by their targeted completion dates,
as stipulated under the Series C Convertible Preferred Stock Securities purchase agreement dated December 23, 2014. Notwithstanding,
the purchasers released an aggregate of $3,000,000 to the Company during the nine months ended September 30, 2015 associated with
the 2014 sale of Series C Convertible Preferred Stock.
Pursuant
to an election of the purchasers, $1,000,000 was returned to the purchasers in July 2015 from escrow and was not provided to the
Company, such that the Company received an aggregate of $5,000,000 pursuant to the securities purchase agreement, as compared
to the $6,000,000 originally contemplated. The return of escrowed funds did not require the purchaser to return any portion of
the shares of Series C Convertible Preferred Stock purchased on December 23, 2014.
In
the event of a liquidation, the Series C Convertible Preferred Stock is also entitled to a liquidation preference equal to the
stated value plus any accrued and unpaid dividends, which, as of September 30, 2015, was equal to $10,199,700.
NON-CONTROLLING
INTERESTS
350
Green is not owned by the Company but is deemed to be a VIE where the entirety of its results of operations are consolidated in
the Company’s financial statements. See Note 4 – Assets and Liabilities Transferred to Trust Mortgage – 350
Green for additional details.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
STOCKHOLDERS’ DEFICIENCY – CONTINUED
STOCK-BASED
COMPENSATION
The
Company recognized stock-based compensation expense related to preferred stock, common stock, stock options and warrants for the
three and nine months ended September 30, 2015 of $842,229 and $3,705,069, respectively, and expense of $860,533 and $3,325,968
during the three and nine months ended September 30, 2014, respectively. As of September 30, 2015, there was $1,004,755 of unrecognized
stock-based compensation expense that will be recognized over the weighted average remaining vesting period of 1.18 years.
STOCK
OPTIONS
See
Note 11 – Commitments and Contingencies – Employment Agreements for details associated with the issuance of stock
options.
During
the nine months ended September 30, 2015, the Company issued five-year options to purchase 70,000 shares of the Company’s
common stock at exercise prices ranging from $0.27 to $0.42 per share to members of the Board of Directors as compensation for
attending Board meetings during this time. The options are fully vested and had an aggregate fair value of $15,937, which was
expensed immediately.
During
the nine months ended September 30, 2015, the Company issued five-year options to purchase 25,000 shares of the Company’s
common stock at exercise prices ranging from $0.35 to $0.39 per share to a member of the Board of Directors as compensation for
attending meetings of the OPFIN Committee. The options vest immediately and had a grant date fair value of $5,079, which will
be recognized over the one year service period.
In
applying the Black-Scholes option pricing model to stock options granted, the Company used the following assumptions:
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
free interest rate
|
|
|
0.66
|
%
|
|
|
0.66
|
%
|
|
|
0.63%
- 1.21
|
%
|
|
|
0.66%
- 1.77
|
%
|
Expected
term (years)
|
|
|
2.50
|
|
|
|
2.50
|
|
|
|
2.50
- 3.50
|
|
|
|
2.50
- 5.00
|
|
Expected
volatility
|
|
|
89
|
%
|
|
|
94
|
%
|
|
|
87%
- 101
|
%
|
|
|
94%
- 141
|
%
|
Expected
dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
A
summary of the option activity during the nine months ended September 30, 2015 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
In
Years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2014
|
|
|
7,690,665
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
95,000
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
(367,665
|
)
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
Outstanding,
September 30, 2015
|
|
|
7,418,000
|
|
|
$
|
1.23
|
|
|
|
2.8
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
September 30, 2015
|
|
|
5,182,000
|
|
|
$
|
1.22
|
|
|
|
2.7
|
|
|
$
|
-
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
STOCKHOLDERS’ DEFICIENCY – CONTINUED
STOCK
OPTIONS
– CONTINUED
The
following table presents information related to stock options at September 30, 2015:
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Range
of
|
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
Exercisable
|
|
Exercise
|
|
|
Exercise
|
|
|
Number
of
|
|
|
Remaining
Life
|
|
|
Number
of
|
|
Price
|
|
|
Price
|
|
|
Options
|
|
|
In
Years
|
|
|
Options
|
|
|
$0.27
- $0.54
|
|
|
$
|
0.49
|
|
|
|
625,000
|
|
|
|
3.6
|
|
|
|
625,000
|
|
|
$0.55
- $1.00
|
|
|
|
1.00
|
|
|
|
1,711,335
|
|
|
|
3.7
|
|
|
|
745,335
|
|
|
$1.01
- $1.45
|
|
|
|
1.17
|
|
|
|
1,406,665
|
|
|
|
2.7
|
|
|
|
1,266,665
|
|
|
$1.46
- $1.56
|
|
|
|
1.46
|
|
|
|
2,925,000
|
|
|
|
2.2
|
|
|
|
2,045,000
|
|
|
$1.57
- $1.72
|
|
|
|
1.61
|
|
|
|
750,000
|
|
|
|
2.2
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
7,418,000
|
|
|
|
2.7
|
|
|
|
5,182,000
|
|
STOCK
WARRANTS
The
securities purchase agreements associated with the October 2013 and December 2013 issuances of common stock and common stock purchase
warrants (the “SPA’s”) contain various covenants that restrict the Company, among other things, from effectuating
any issuances of common stock or common stock equivalents containing variable settlement provisions, other than exempt issuances,
as defined. Despite certain ambiguous covenant language, the Company believes that exempt issuances could include, but are not
necessarily limited to, common stock or common stock equivalents containing variable settlement provisions that are issued in
share based payment arrangements or to effectuate strategic transactions such as mergers and acquisitions. This restriction remains
in effect until such time as no purchaser in either of these separate transactions holds any of the warrants. Each of the SPA’s
provide for injunctive relief or the right to collect damages. The Company has classified the warrants issued in these transactions
as liability instruments stated at fair value. The Company believes that the Series B Preferred shares issued to complete the
acquisition of 50% of the interests of the ECOtality Estate in April 2015, constitute an exempt issuance, as intended under the
agreements as such shares (i) were issued to effectuate the strategic acquisition of ECOtality, and (ii) permit the Company, in
its sole control, to settle these shares for cash at stated optional redemption dates, as opposed to a variable number of shares.
However, there can be no assurance that the warrant holders (a) agree with the Company’s interpretation of the SPAs; and
(b) won’t pursue any of the potential remedies that may be available to them.
See
Note 7 – Notes Payable for details associated with the issuance of warrants.
See Note 5 – Accrued Expenses
– Warrants Payable and Note 8 – Fair Value Measurement for details associated with the issuances of warrants to the
former members of Beam. See Note 9 – Stockholders’ Deficiency – Preferred Stock - Series C Convertible Preferred
Stock for details associated with issuances of warrants in connection with a securities purchase agreement.
On
February 25, 2015, the Company entered into an agreement with certain investors in the October 2013 financing whereby the investors
were issued warrants to purchase 3,336,734 shares of the Company’s common stock at an exercise price of $0.70 per share
which vested immediately, expire five years from the date of issuance and contain weighted average anti-dilution and fundamental
transaction provisions, as defined. These additional warrants represent the warrants the investors would have received as a result
of the December 23, 2014 financing had they not previously surrendered their anti-dilution protection during 2014. The warrants,
which were classified as derivative liabilities, had an aggregate fair value of $275,908, which was recognized immediately. Additionally,
as a result of the December 23, 2014 financing, the exercise price of warrants to purchase an aggregate of 19,599,999 shares of
common stock issued to the October 2013 and December 2013 investors was reduced to $0.70 per share. As the warrants are classified
as derivative liabilities, the impact of the modification was included within change in fair value of warrant liabilities on the
condensed consolidated statement of operations during the nine months ended September 30, 2015.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
STOCKHOLDERS’ DEFICIENCY – CONTINUED
STOCK
WARRANTS
– CONTINUED
A
summary of the warrant activity during the nine months ended September 30, 2015 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
In
Years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2014
|
|
|
54,088,323
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
5,410,073
|
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
(718,043
|
)
|
|
|
1.06
|
|
|
|
|
|
|
|
|
|
Outstanding,
September 30, 2015
|
|
|
58,780,353
|
|
|
$
|
1.09
|
|
|
|
2.8
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
September 30, 2015
|
|
|
58,780,353
|
|
|
$
|
1.09
|
|
|
|
2.8
|
|
|
$
|
-
|
|
The
following table presents information related to stock warrants at September 30, 2015:
|
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Range
of
|
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
Exercisable
|
|
Exercise
|
|
|
Exercise
|
|
|
Number
of
|
|
|
Remaining
Life
|
|
|
Number
of
|
|
Price
|
|
|
Price
|
|
|
Warrants
|
|
|
In
Years
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.27
- $0.97
|
|
|
$
|
0.72
|
|
|
|
34,501,972
|
|
|
|
3.4
|
|
|
|
34,501,972
|
|
|
$0.98
- $1.01
|
|
|
|
1.00
|
|
|
|
4,530,944
|
|
|
|
4.0
|
|
|
|
4,530,944
|
|
|
$1.02
- $1.28
|
|
|
|
1.05
|
|
|
|
4,350,007
|
|
|
|
1.9
|
|
|
|
4,350,007
|
|
|
$1.29
- $2.25
|
|
|
|
1.90
|
|
|
|
15,347,430
|
|
|
|
1.4
|
|
|
|
15,347,430
|
|
|
$2.26
- $30.00
|
|
|
|
20.00
|
|
|
|
50,000
|
|
|
|
0.3
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
58,780,353
|
|
|
|
2.80
|
|
|
|
58,780,353
|
|
COMMON
STOCK
See
Note 11 – Commitments and Contingencies – Employment Agreements for details associated with issuances of common stock
pursuant to employment agreements.
On
February 3, 2015, the Company issued 50,000 fully vested shares of the Company’s common stock to a consultant to advise
the Company about corporate governance matters. The consulting services expense valued at $50,000 was accrued for as of December
31, 2014.
On
April 1, 2015, the Company issued 51,586 fully vested shares of its common stock to its then Chief Financial Officer as compensation
for the period from November 2014 through April 2015 valued at $21,600, of which $7,200 were accrued for as of December 31, 2014.
On
April 10, 2015, the Company issued 432,892 fully vested shares of its common stock to a consulting firm for services rendered
by a financial consultant for the period of December 2014 through March 2015 valued at $170,101, of which $16,739 was accrued
for as of December 31, 2014.
On
April 24, 2015, as part of a litigation settlement, two former members of Beam were issued an aggregate of 100,000 fully vested
shares of the Company’s common stock valued at $0.35 per share for an aggregate fair value of $35,000.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
STOCKHOLDERS’ DEFICIENCY – CONTINUED
COMMON STOCK
– CONTINUED
During
the nine months ended September 30, 2015, the Company offered the remaining seven former Beam members shares of the Company’s
common stock as consideration for surrendering their anti-dilution benefit contained in the original Beam acquisition agreement.
As a result, three members accepted the Company’s offer and the Company issued an aggregate of 2,850 fully vested shares
of the Company’s common stock valued at $898.
During
the nine months ended September 30, 2015, the Company issued 184,500 fully vested shares of the Company’s common stock to
members of the Board of Directors as compensation for attending Board meetings. The shares had a grant date fair value of $68,999
based on the trading price of the Company’s common stock on the dates of the respective meetings.
During
the nine months ended September 30, 2015, the Company issued an aggregate of 41,958 of fully vested shares of the Company’s
common stock at the respective closing market price on the date of the respective meetings to a member of the Board of Directors
for attendance of meetings of the newly formed OPFIN Committee. The shares had an aggregate grant date fair value of $15,000 which
was recognized immediately.
10.
RELATED PARTIES
The
Company paid commissions to a company owned by its former CEO totaling $17,000 and $43,250 during the three and nine months ended
September 30, 2015, respectively, and $18,000 and $40,250 during the three and nine months ended September 30, 2014, respectively,
for business development services relating to the installations of EV charging stations by the Company in accordance with the
support services contract. These amounts are recorded as compensation in the condensed consolidated statements of operations.
The
Company incurred accounting and tax service fees totaling $7,655 and $32,573 for the three and nine months ended September 30,
2015, respectively, and $21,528 and $23,317 for the three and nine months ended September 30, 2014, respectively, provided by
a company that is partially owned by the Company’s former Chief Financial Officer
.
This expense was recorded as general
and administrative expense in the condensed consolidated statements of operations.
The
Company is licensing certain technology under terms of a patent licensing agreement with an entity (licensor) that is majority
owned by the former CEO. The Company has agreed to pay royalties to the licensor equal to 10% of the gross profits received by
the Company from bona fide commercial sales and/or uses of the licensed products and processes. As of September 30, 2015, the
Company has not paid nor incurred any royalty fees related to this agreement. See Note 12 – Subsequent Events – Patent
License Agreement.
11.
COMMITMENTS AND CONTINGENCIES
OPERATING
LEASES
On
July 31, 2015, the lease agreement for the Company’s corporate headquarters in Miami Beach, Florida was amended such that
the amended lease term begins on August 1, 2015 and ends on September 30, 2018. Monthly lease payments are approximately $20,000
for a total of approximately $755,000 for the total term of the lease.
Total
rent expense for the three and nine months ended September 30, 2015 was $88,905 and $318,149, respectively, and $88,103 and $311,691
for the three and nine months ended September 30, 2014, respectively.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11.
COMMITMENTS AND CONTINGENCIES – CONTINUED
EMPLOYMENT
AGREEMENTS
On
March 24, 2015, the Company entered into an employment agreement with Mr. Ira Feintuch to serve as the Company’s Chief Operating
Officer for an initial three year term renewable annually unless written notice is provided 60 days prior to the renewal term.
In consideration thereof, Mr. Feintuch is to receive an annual salary of $250,000 and shall participate in all benefit programs
of the Company. In addition, Mr. Feintuch will receive 1,000,000 shares of Series A Convertible Preferred Stock, 1,500 shares
of Series C Convertible Preferred Stock and 1,500,000 shares of common stock. The stock awards are payable 50% upon the signing
of the employment agreement and 50% upon the one year anniversary of the employment agreement. The total fair value of the stock
awards was $1,750,000, of which $875,000 was recognized immediately upon issuance and the remaining $875,000 will be recognized
over the one year service period. The Company estimated the fair value of the common stock and Series C Convertible Preferred
Stock based on observed prices of sales and/or exchanges of identical securities within the last six months. The Company estimated
the fair value of the Series A Convertible Preferred Stock based on observed prices of sales and/or exchanges of similar securities
within the last six months. In addition, options to purchase an aggregate of 1,495,665 shares of common stock held by Mr. Feintuch
with exercise prices ranging from $1.00 to $1.46 per share had their expiration dates extended to March 24, 2018, such that the
value of modified options on the modification date was an aggregate of $192,147, which was $47,536 higher than the value of the
original options on the modification date. As a result, the Company recorded option modification expense of $47,536 during the
nine months ended September 30, 2015.
On
July 29, 2015 (the “Effective Date”), the Company entered into an employment agreement with Mr. Michael J. Calise
to serve as the Company’s Chief Executive Officer, pursuant to which Mr. Calise will be compensated at the rate of $275,000
per annum. In addition, Mr. Calise will be entitled to receive (1) 3,584,400 options with an exercise price of $0.70 per share,
(2) 1,588,016 options with an exercise price of $1.00 per share, (3) 26,422 options with an exercise price of $1.50 per share,
(4) 287,970 options with an exercise price of $2.00 per share and (5) 1,500 options with an exercise price of $3.00 per share.
The option quantities were derived from a percentage of the total options and warrants outstanding on the Effective Date (the
“Underlying Instruments”) and can be adjusted downward on a pro rata basis as a result of an expiration or amendment
of the Underlying Instruments. Each of the options shall vest and become exercisable at the rate of 25% of the total number of
shares on the twelve (12) month anniversary of the Effective Date and 1/16 of the total number of shares each quarter thereafter
on each quarterly anniversary of the Effective Date, however, no option shall be exercisable prior to the exercise of the Underlying
Instruments. The options shall have a four (4) year term from each of the respective vesting dates. The option grant requires
stockholder approval of an increase in the number of shares authorized to be issued pursuant to the Company’s equity incentive
plan. Pursuant to ASC 718, the options are not deemed to be granted until stockholder approval is obtained. As of September 30,
2015, the Company had not obtained stockholder approval and, accordingly, (i) the options are not considered outstanding as of
September 30, 2015 and (ii) the Company accrued approximately $64,000 of compensation expense related to the contractual obligation
to issue options which is included within accrued expenses as accrued issuable equity on the condensed consolidated balance sheet
as of September 30, 2015.
In
addition, Mr. Calise will receive a signing bonus consisting of (i) 220,588 shares of the Company’s common stock valued
at $75,000 and (ii) a $25,000 cash payment. Within thirty (30) days of Mr. Calise’s acceptance of this position, Mr. Calise
and the Board of the Directors will mutually set the Key Performance Indicators (“KPIs”) for Mr. Calise’s annual
performance bonus. Mr. Calise will be initially eligible to receive an annual performance bonus in the amount of $100,000. Any
entitled annual performance bonus shall be payable in January after the end of each year, and awarded for meeting the KPIs mutually
set by Mr. Calise and the Board of Directors for the prior calendar year. Mr. Calise and the Board of Directors will meet at the
beginning of each calendar year for set the KPIs and the annual bonus amount for that calendar year. Mr. Calise may receive an
additional bonus in the form of cash and/or stock, at the discretion of the Board of Directors, or pursuant to one or more written
plans adopted by the Board of Directors. Mr. Calise is entitled to paid time off of 20 days per annum. Upon termination by the
Company other than for cause, death, disability, or if Mr. Calise resigns for good reason, Mr. Calise will be entitled to: (i)
a lump sum payment equal to nine (9) months of salary, then in effect, (ii) a prorated annual performance bonus, (iii) reimbursement
of COBRA premiums for a period of (12) months and (iv) (9) months of accelerated vesting with respect to Mr. Calise’s then-outstanding
equity awards. In addition to the preceding termination benefits, if Mr. Calise is terminated three months or less prior to, or
upon, or within twelve months following a change of control, Mr. Calise will be entitled to accelerated vesting of then-outstanding
equity awards ranging from an additional three months up to 100% acceleration of vesting.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11.
COMMITMENTS AND CONTINGENCIES – CONTINUED
EMPLOYMENT
AGREEMENTS
- CONTINUED
Effective
July 24, 2015, the Company amended its employment agreement with Mr. Michael D. Farkas, such that Mr. Farkas was appointed the
Company’s Chief Visionary Officer and shall no longer serve as the Company’s Chief Executive Officer. Mr. Farkas will
continue to serve as the Company’s Executive Chairman of the Board. The employment agreement had a four month term. The
amended employment agreement specified the following: (i) in the event of a sale of the Company within one year of July 24, 2015,
Mr. Farkas shall be entitled to receive an incentive payment equal to 1% of the gross sale price; (ii) in satisfaction of amounts
previously owed to Mr. Farkas, the Company is to issue 4,444 shares of Series C Convertible Preferred stock valued at $400,000
(of which, as of September 30, 2015, 4,000 shares had been issued by the Company and the value of the remaining 444 shares is
included within accrued expenses on the condensed consolidated balance sheet); and (iii) all outstanding options and warrants
shall vest immediately.
BUSINESS
AGREEMENTS
On
April 2, 2015, Nissan North America (“Nissan”) notified the Company of the termination of the joint marketing agreement
with the Company as a result of the Company’s material default of the agreement in 2015. As a result, Nissan notified the
Company of its intent to repossess the 31 uninstalled fast chargers currently held at a third party facility that had a carrying
amount of $462,552 and was included within other assets and deferred revenue on the condensed consolidated balance sheet as of
September 30, 2015 and December 31, 2014. The parties reached an agreement on July 23, 2015 that Nissan would take possession
of 28 uninstalled fast chargers held at the third party facility, at which time the amount included within other assets and deferred
revenue was written off.
On
May 19, 2015, the Company entered into an agreement to purchase 15,000 chargers over three years pending: (i) the submission of
a purchase order for 15,000 chargers to be delivered in a mutually agreed product delivery forecast, (ii) the payment of an initiation
fee, as defined, (iii) sign off on a mutually agreed product schedule and (iv) a three year delivery forecast. The value of the
chargers in the aggregate is in the range of $10.3 million to $16.5 million depending on model and ordering quantity of respective
model. On June 26, 2015, the Company paid the initiation fee of $83,000 in full.
LITIGATION
AND DISPUTES
On
July 28, 2015, a Notice of Arbitration was received stating ITT Cannon has a dispute with Blink for the manufacturing and purchase
of 6,500 charging cables by Blink, who has not taken delivery or made payment on the contract price of $737,425. ITT Cannon also
seeks to be paid the cost of attorney’s fees as well as punitive damages. The parties have agreed on a single arbitrator
and are working to schedule the arbitration. The Company contends that the product was not in accordance with the specifications
in the purchase order and, as such, believes the claim is without merit. The parties have agreed on a single arbitrator and are
working to schedule the arbitration while simultaneously pursuing settlement options.
On
September 9, 2015, the United States Court of Appeals for the Seventh Circuit of Chicago, Illinois affirmed the ruling of the
United States District Court for the Northern District of Illinois in the matter of JNS Power & Control Systems, Inc. v. 350
Green, LLC in favor of JNS, which affirmed the sale of certain assets by 350 Green to JNS and the assumption of certain 350 Green
liabilities by JNS. On April 7, 2016, JNS amended the complaint to add CCGI alleging lost revenues from the chargers, among other
matters, caused by the defendants. Plaintiff also seeks indemnity for its costs in connection with enforcing the Asset Purchase
Agreement in courts in New York and Chicago. CCGI and 350 Green must respond to the amended complaint on or before June 20, 2016.
From
time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. COMMITMENTS
AND CONTINGENCIES – CONTINUED
LITIGATION
AND DISPUTES
- CONTINUED
350
GREEN, LLC
There
have been five lawsuits filed against 350 Green by creditors of 350 Green regarding unpaid claims. These lawsuits relate solely
to alleged pre-acquisition unpaid debts of 350 Green. Also, there are other unpaid creditors, aside from those noted above, that
claim to be owed certain amounts for pre-acquisition work done on behalf of 350 Green solely, that potentially could file lawsuits
at some point in the future.
On
August 7, 2014, 350 Green received a copy of a complaint filed by Sheetz, a former vendor of 350 Green alleging breach of contract
and unjust enrichment of $112,500. The complaint names 350 Green, 350 Holdings LLC and CCGI in separate breach of contract counts
and names all three entities together in an unjust enrichment claim. CCGI and 350 Holdings will seek to be dismissed from the
litigation, because, as the complaint is currently plead, there is no legal basis to hold CCGI or 350 Green liable for a contract
to which they are not parties. The parties held a mediation conference on May 15, 2015, but no settlement was reached. The parties
continue to negotiate a settlement.
See
Note 4 – Assets and Liabilities Transferred to Trust Mortgage - 350 Green.
12.
SUBSEQUENT EVENTS
PATENT
LICENSE AGREEMENT
On
March 11, 2016, the Company (the “Licensee”), the Executive Chairman of the Board and Balance Holdings, LLC (an entity
controlled by the Executive Chairman) (collectively, the “Licensor”) entered into an agreement related to a patent
license agreement, dated March 29, 2012. The parties acknowledge that the Licensee has paid a total of $8,525 in registration
and legal fees for the U.S. Provisional Patent Application No. 61529016 (the “Patent Application”) to date. Effective
March 11, 2016, the patent license agreement, solely with respect to the Patent Application and the parties’ rights and
obligations thereto, was terminated. The Executive Chairman of the Board agreed to be solely responsible for all future costs
and fees associated with the prosecution of the patent application. In the event the Patent Application is successful, the Executive
Chairman of the Board shall grant a credit to the Licensee in the amount of $8,525 to be applied against any outstanding amount(s)
owed to him. If the Licensee does not have any outstanding payment obligations to the Executive Chairman of the Board at the time
the Patent Application is approved, the Executive Chairman of the Board shall remit the $8,525 to the Licensee within twenty (20)
days of the approval. The parties agreed to a mutual release of any claims associated with the patent license agreement.
SERIES
C CONVERTIBLE PREFERRED STOCK
Subsequent
to September 30, 2015, the Company issued shares of Series C Convertible Preferred Stock representing the following:
|
|
Series
C
|
|
|
|
Convertible
|
|
|
|
Preferred
Stock
|
|
|
|
|
|
Dividends for the following
periods:
|
|
|
|
|
Quarter
ended December 31, 2015
|
|
|
2,923
|
|
Quarter ended March
31, 2016
|
|
|
3,184
|
|
Securities Purchase
Agreement dated October 14, 2015
|
|
|
18,333
|
|
Securities Purchase
Agreement dated March 11, 2016
|
|
|
15,834
|
|
Securities Purchase
Agreement dated March 11, 2016
|
|
|
1,666
|
|
Satisfaction
of accrued liabilities
|
|
|
1,194
|
|
|
|
|
|
|
Total
|
|
|
43,134
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12.
SUBSEQUENT EVENTS – CONTINUED
SERIES
C CONVERTIBLE PREFERRED STOCK
– CONTINUED
On
October 14, 2015, the Company entered into a securities purchase agreement with a purchaser for gross proceeds of an aggregate
of $1,100,000. Pursuant to the securities purchase agreement, the Company issued the following to the purchaser: (i) 18,333 shares
of Series C Convertible Preferred Stock, and (ii) a five-year warrant to purchase 2,618,997 shares of common stock for an exercise
price of $1.00 per share.
On
March 11, 2016, the Company entered into a securities purchase agreement with a purchaser for proceeds of an aggregate of $2,900,040
(“Subscription Amount”), of which, $650,040 was paid to the Company at closing and the remaining $2,250,000 (“Milestone
Amounts”) is payable to the Company upon the completion of certain milestones (“Milestones”), as specified in
the agreement. Pursuant to the agreement, the Company will issue the following to the purchaser: (i) 48,334 shares of Series C
Convertible Preferred Stock with a stated value of $100 per share (of which, 10,834 shares of Series C Convertible Preferred Stock
were issued to the purchaser at closing), and (ii) five-year warrants to purchase an aggregate of 6,904,857 shares of common stock
for an exercise price of $1.00 per share (of which, a warrant to purchase 1,547,714 shares of common stock was issued to the Purchaser
at closing). If, by June 24, 2016, the Company has not met sufficient Milestones for payment of the full Subscription Amount,
then the purchaser will have no further obligation to pay further Milestone Amounts and the purchaser shall only be entitled to
receive such additional securities that correspond to the portion of the Subscription Amount paid by purchaser. If (i) the Company
fails to achieve annual overall revenue growth of 20% measured year to year (e.g., Q3 2016 compared to Q3 2015) based on its most
recent public filings; and (ii) the Company fails to achieve at least a 25% increase in the value of purchase orders received
for Generation 2 Hardware (with a minimum average 40% gross margin) quarter over quarter on a quarterly basis (e.g., Q3 2016 compared
to Q2 2016) based on its most recent two quarters of public filings; and (iii) the holders of the shares of Series C Convertible
Preferred Stock request a redemption; and (iv) the Company chooses not to honor the redemption request; then, within 180 days
from the Company’s receipt of notice from at least 60% of the holders of the shares of Series C Convertible Preferred Stock,
the Company will use reasonable efforts to enter into an agreement to sell substantially all of its assets and use the proceeds
to pay all creditors and shareholders according to their position and in accordance with applicable laws. In the event the Company
does not complete the sale of substantially all of its assets within said 180 day period, Michael D. Farkas agrees to vote all
shares of voting capital stock of the Company registered in his name or beneficially owned by him as of the date hereof in accordance
with the instructions of at least 60% of the holders of the shares of Series C Convertible Preferred Stock on questions relating
to the liquidation of the Company and any other questions, including without limitation, Board of Directors modifications, necessary
to effect a Company liquidation. In the event of the Company’s noncompliance with Rule 144(c)(1) at any time after the six
(6) month anniversary of the offering, the purchaser is entitled to receive a cash fee equal to 1% of the aggregate subscription
amount of the purchaser’s securities, plus an additional 1% for every pro rata 30 day period that the Company is not in
compliance. As defined in the agreement, from the date of closing until such time as the purchaser holds any of the warrants,
the Company is prohibited from entering into any variable rate transactions. For a period of one year, the purchaser have the
option to exchange all or a portion of the shares of Series C Convertible Preferred Stock purchased pursuant to agreement for
any securities placed by the Company in a future equity financing transaction, based on a Series C Convertible Preferred Stock
value equal to 125% of the purchase price for financing closed prior to April 30, 2016 and otherwise based on a Series C Convertible
Preferred Stock value equal to $90 per share.
On
March 11, 2016, the Company entered into a securities purchase agreement with a purchaser for proceeds of an aggregate of $99,960.
Pursuant to the securities purchase agreement, the Company issued the following to the purchaser: (i) 1,666 shares of Series C
Convertible Preferred Stock, and (ii) a five-year warrant to purchase 238,000 shares of common stock for an exercise price of
$1.00 per share.
STOCK-BASED
COMPENSATION
In
October 2015, the Company issued a five-year option to purchase 5,000 shares of the Company’s common stock at an exercise
price of $0.17 per share to a member of the Board of Directors for attendance of meetings of the newly formed OPFIN Committee.
The option vests immediately.
On
November 11, 2015, the Company issued an aggregate of 30,299 fully vested shares of the Company’s common stock at the respective
closing market price on the date of the respective meetings to a member of the Board of Directors for attendance of meetings of
the newly formed OPFIN Committee.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12.
SUBSEQUENT EVENTS – CONTINUED
STOCK-BASED
COMPENSATION
– CONTINUED
On
November 13, 2015, the Company issued five-year options to purchase an aggregate of 1,020,000 shares of the Company’s common
stock under the 2014 Plan at $0.63 per share to employees for services rendered. The shares vest as follows: 273,750 on the date
of issuance, 248,750 on the first anniversary of the date of issuance, 248,750 on the second anniversary of the date of issuance
248,750 on the third anniversary of the date of issuance.
In
December 2015, the Company issued an aggregate of 101,962 fully vested shares of the Company’s common stock at the closing
market price on the date of the respective meeting and five-year options to purchase an aggregate of 20,000 shares of the Company’s
common stock at an exercise price of $0.19 per share to members of the Board of Directors for attendance of Board meetings held
during this time. The options vest immediately.
In
December 2015, the Company issued five-year options to purchase 15,000 shares of the Company’s common stock at exercise
prices ranging from $0.18 to $0.19 per share to members of the Board of Directors for attendance of meetings of the newly formed
OPFIN Committee.
In
January 2016, the Company agreed to extend the maturity date of warrants to purchase an aggregate of 1,290,000 shares of common
stock with an exercise price of $2.25 per share by eighteen (18) months in exchange for the warrant holders agreeing to the deletion
of a fundamental transaction provision.
In
March 2016, one of the former members of Beam returned 242,303 shares of the Company’s common stock to the Company in exchange
for $45,000. The shares of common stock were cancelled by the Company in March 2016.
CONVERTIBLE
NOTE PAYABLE
On
November 9, 2015, the Company further renegotiated the terms of a $200,000 convertible note such that: (i) the Company shall pay
the lender $61,000 comprised of $50,000 of principal and interest of $11,000; (ii) interest payable on the note accrues interest
at a rate of 1.5% per month effective April 1, 2015 and (iii) the maturity date was extended to February 29, 2016. In connection
with the extension, the Company issued the lender an immediately vested five-year warrant to purchase 280,000 shares of the Company’s
common stock at $1.00 per share. Through the date of filing, the Company has paid an aggregate of $170,008 to the lender, inclusive
of accrued interest, such that a principal balance of $50,000 remains outstanding is currently past due.
NOTES
PAYABLE
Subsequent
to September 30, 2015, the Company repaid in full a note payable in the principal amount of $100,000 to its Executive Chairman
of the Board.
COMMITMENTS
AND CONTINGENCIES
LITIGATION
AND DISPUTES
On
January 15, 2016, The Bernstein Law Firm filed a Demand for Arbitration with the American Arbitration Association (“AAA”)
against the Company for breach of contract for failure to pay invoices in the amount of $87,167 for legal work performed by The
Bernstein Law Firm. The parties have reached a settlement and are preparing the documentation.
On
April 8, 2016, Douglas Stein filed a Petition for Fee Arbitration with the State Bar of Georgia against the Company for breach
of contract for failure to pay invoices in the amount of $178,893 for legal work provided. The invoices have been accrued for
in the periods in which the services were provided. The Company has responded to the claim and is simultaneously pursuing settlement
options.
On
May 18, 2016, the Company was served with a complaint from Solomon Edwards Group, LLC for breach of written agreement and unjust
enrichment for failure to pay invoices in the amount of $172,645 for services provided, plus interest and costs. The invoices
have been accrued for in the periods in which the services were provided.
OTHER
MATTER
On
May 12, 2016, the Securities and Exchange Commission (“SEC”) filed a complaint with the United States District Court
in the Central District of California wherein the SEC alleges that an attorney who currently serves as securities counsel
to the Company was involved in a fraudulent scheme to create and sell seven (7) public “shell” companies. The
SEC’s complaint indicates that one of the shell companies, New Image Concepts, Inc. (“NIC”) was the subject
of the Company’s December 7, 2009 reverse merger, wherein following the merger, NIC was renamed Car Charging Group, Inc.
The Company is not named as a defendant in the SEC’s complaint and, based on internal review and discussions, there
were and are no continuing affiliations between any employees, directors, or investors of the pre-merger shell company and the
Company. The Company is in the process of evaluating whether any additional actions are necessary with respect to this matter.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of the results of operations and financial condition of Car Charging Group, Inc. (and including
its subsidiaries, “CCGI”) as of September 30, 2015 and for the three and nine months ended September 30, 2015 and
2014 should be read in conjunction with our financial statements and the notes to those financial statements that are included
elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition
and Results of Operations to “us,” “we,” “our,” and similar terms refer to CCGI. This Quarterly
Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking
statements contained in this Quarterly Report may not occur. Generally these statements relate to business plans or strategies,
projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions
to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words
“may,” “will,” “expect,” “believe,” “anticipate,” “project,”
“plan,” “intend,” “estimate,” and “continue,” and their opposites and similar
expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future
performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control,
which may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may affect
our results include, but are not limited to, the risks and uncertainties discussed in Item IA. Risk Factors of our Annual Report
on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission (“SEC”) on December
8, 2015.
Any
one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking
statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially
from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether from new information, future events or otherwise.
Overview
Car
Charging Group, Inc. (OTCPink: “CCGI”, “CarCharging” or “Company”) is the largest owner, operator,
and provider of electric vehicle (“EV”) charging services. CarCharging offers both residential and commercial EV charging
equipment, enabling EV drivers to easily recharge at numerous location types. Headquartered in Miami Beach, FL with offices in
San Jose, CA, New York, NY, and Phoenix, AZ, CarCharging’s business model is designed to expand EV charging infrastructure
availability.
CarCharging
owns the Blink Network, the software that operates, maintains, and tracks all of the Blink EV charging stations and the associated
charging data.
CarCharging
offers various options to commercial and residential property owners for EV charging services. In our comprehensive and turnkey
business model, CarCharging owns and operates the EV charging equipment; manages the installation, maintenance, and related services;
and shares a portion of the EV charging revenue with the property owner. Alternatively, property partners can share in the equipment
and installation expenses with CarCharging operating and managing the EV charging stations and providing connectivity to the Blink
Network. For properties interested in purchasing and owning EV charging stations, CarCharging can also provide EV charging hardware,
site recommendations, connection to the Blink Network, and management and maintenance services.
Sales
Our
revenues are primarily derived from hardware sales, public EV charging services, government grants, state and federal rebates,
and marketing incentives. EV charging fees are based either on an hourly rate, a per kilowatt-hour rate, or by session, and are
calculated based on a variety of factors, including associated station costs and local electricity tariffs. We anticipate implementing
charger occupancy fees and subscription plans for our Blink-owned public charging locations.
To
generate leads and enter into additional strategic partnership agreements with property owners, we have utilized the services
of independent contractors and in house personnel. We have found that by following this model, we are better able to stimulate
growth, control cash-flow, and minimize costs. Accordingly, our independent contractors are able to close and maintain client
relationships, as well as coordinate EV charging station installations and operations.
Recent
Developments
Private
Placements
On
December 23, 2014, the Company entered into a securities purchase agreement with certain investors for aggregate consideration
of up to $6,000,000 (the “Aggregate Subscription Amount”). Pursuant to the securities purchase agreement, the Company
issued the following to the purchasers: (i) 60,000 shares of Series C Convertible Preferred Stock convertible into 8,571,429 shares
of the Company’s common stock, par value $0.001, (the “Common Stock”); and (ii) fully vested five-year warrants
(the “Warrants”) to purchase an aggregate of 8,571,429 shares of Common Stock (the “Warrant Shares”) for
an exercise price of $1.00 per share. During the nine months ended September 30, 2015, the Company did not meet certain defined
milestones by their targeted completion dates, as stipulated under the securities purchase agreement. Notwithstanding, the purchasers
released an aggregate of $3,000,000 to the Company during the nine months ended September 30, 2015. Pursuant to an election of
the purchasers, $1,000,000 was returned to the purchasers in July 2015 from escrow and was not provided to the Company, such that
the Company received an aggregate of $5,000,000 pursuant to the securities purchase agreement, as compared to the $6,000,000 originally
contemplated. The return of escrowed funds did not require the purchaser to return any portion of the shares of Series C Convertible
Preferred Stock purchased on December 23, 2014.
On
July 24, 2015, the Company entered into a securities purchase agreement with a purchaser for gross proceeds of an aggregate of
$830,000. Pursuant to the securities purchase agreement, the Company issued the following to the Purchaser: (i) 9,223 shares of
Series C Convertible Preferred Stock, and (ii) a five-year warrant to purchase an aggregate of 1,318,889 shares of common stock
for an exercise price of $1.00 per share.
On
October 14, 2015, the Company entered into a securities purchase agreement with a purchaser for gross proceeds of an aggregate
of $1,100,000. Pursuant to the securities purchase agreement, the Company issued the following to the purchaser: (i) 18,333 shares
of Series C Convertible Preferred Stock, and (ii) a five-year warrant to purchase an aggregate of 2,618,997 shares of common stock
for an exercise price of $1.00 per share.
On
March 11, 2016, the Company entered into a securities purchase agreement with a purchaser for proceeds of an aggregate of $2,900,040
(“Subscription Amount”), of which, $650,040 was paid to the Company at closing and the remaining $2,250,000 (“Milestone
Amounts”) is payable to the Company upon the completion of certain milestones (“Milestones”), as specified in
the agreement. Pursuant to the agreement, the Company will issue the following to the purchaser: (i) 48,334 shares of Series C
Convertible Preferred Stock with a stated value of $100 per share (of which, 10,834 shares of Series C Convertible Preferred Stock
were issued to the purchaser at closing), and (ii) five-year warrants to purchase an aggregate of 6,904,857 shares of common stock
for an exercise price of $1.00 per share (of which, a warrant to purchase 1,547,714 shares of common stock was issued to the purchaser
at closing). If, by June 24, 2016, the Company has not met sufficient Milestones for payment of the full Subscription Amount,
then the purchaser will have no further obligation to pay further Milestone Amounts and the purchaser shall only be entitled to
receive such additional securities that correspond to the portion of the Subscription Amount paid by purchaser. If (i) the Company
fails to achieve annual overall revenue growth of 20% measured year to year (e.g., Q3 2016 compared to Q3 2015) based on its most
recent public filings; and (ii) the Company fails to achieve at least a 25% increase in the value of purchase orders received
for Generation 2 Hardware (with a minimum average 40% gross margin) quarter over quarter on a quarterly basis (e.g., Q3 2016 compared
to Q2 2016) based on its most recent two quarters of public filings; and (iii) the holders of the shares of Series C Convertible
Preferred Stock request a redemption; and (iv) the Company chooses not to honor the redemption request; then, within 180 days
from the Company’s receipt of notice from at least 60% of the holders of the shares of Series C Convertible Preferred Stock,
the Company will use reasonable efforts to enter into an agreement to sell substantially all of its assets and use the proceeds
to pay all creditors and shareholders according to their position and in accordance with applicable laws. In the event the Company
does not complete the sale of substantially all of its assets within said 180 day period, Michael D. Farkas agrees to vote all
shares of voting capital stock of the Company registered in his name or beneficially owned by him as of the date hereof in accordance
with the instructions of at least 60% of the holders of the shares of Series C Convertible Preferred Stock on questions relating
to the liquidation of the Company and any other questions, including without limitation, Board of Directors modifications, necessary
to effect a Company liquidation. In the event of the Company’s noncompliance with Rule 144(c)(1) at any time after the six
(6) month anniversary of the offering, the purchaser is entitled to receive a cash fee equal to 1% of the aggregate subscription
amount of the purchaser’s securities, plus an additional 1% for every pro rata 30 day period that the Company is not in
compliance. As defined in the agreement, from the date of closing until such time as the purchaser holds any of the warrants,
the Company is prohibited from entering into any variable rate transactions. For a period of one year, the purchaser have the
option to exchange all or a portion of the shares of Series C Convertible Preferred Stock purchased pursuant to agreement for
any securities placed by the Company in a future equity financing transaction, based on a Series C Convertible Preferred Stock
value equal to 125% of the purchase price for financing closed prior to April 30, 2016 and otherwise based on a Series C Convertible
Preferred Stock value equal to $90 per share.
On March 11, 2016, the
Company entered into a securities purchase agreement with a purchaser for gross proceeds of an aggregate of $99,960. Pursuant
to the securities purchase agreement, the Company issued the following to the purchaser: (i) 1,666 shares of Series C Convertible
Preferred Stock, and (ii) a five-year warrant to purchase 238,000 shares of common stock for an exercise price of $1.00 per share.
Resignation
of Chief Financial Officer
On
December 7, 2015, Jack Zwick resigned as the Company’s Chief Financial Officer and as a Member of the Board of Directors,
effective immediately. There is no disagreement between the Company and Mr. Zwick on any matter that caused his resignation. Michael
Calise was appointed as the Company’s interim principal financial officer by the Board of Directors. On March 9, 2016, Michael
Calise was appointed to the Board of Directors.
Consolidated
Results of Operations
Three
Months Ended September 30, 2015 Compared With Three Months Ended September 30, 2014
Revenues
We
generated charging service revenue of $436,259 related to installed EV charging stations for three months ended September 30,
2015 as compared to $299,920 for the three months ended September 30, 2014, an increase of $136,339, or 45%, which is primarily
a result of the Company’s participation in a program sponsored by Nissan North America in which Nissan provides free electric
charging to purchasers of Nissan Leafs in certain markets in the United States commencing in July 2014.
Grant
revenue increased from $207,276 to $262,858 during the three months ended September 30, 2015, an increase of $55,582, or 27%,
primarily due to our agreement with the Bay Area Air Quality Management District. Grants, rebate and incentives, collectively,
“grant revenue” relating to equipment and the related installation (which are included within fixed assets on the
condensed consolidated balance sheets), are deferred and amortized in a manner consistent with the depreciation expense of the
related assets over their useful lives.
Equipment
sales decreased from $374,708 to $232,739 during the three months ended September 30, 2015, a decrease of $141,969, or 38%. The
decrease was primarily due to a higher volume of residential and commercial units sold during 2014.
Other
revenue increased from $23,845 to $74,284 during the three months ended September 30, 2015, an increase of $50,439, or 212%. Other
revenues comprised of network and transaction fees earned from our hosts which the company initiated during the fourth quarter
of 2014.
Cost
of Revenues
Cost of revenues primarily
consists of depreciation of installed charging stations, amortization of the Blink Network infrastructure, the cost of charging
station parts and related services sold, repairs and maintenance, electricity reimbursements to hosts and revenue share payments
made to hosts when we are the primary obligor in the revenue share arrangement. Cost of revenues for the three months ended September
30, 2015 were $775,240 as compared to $1,521,596 for the three months ended September 30, 2014, a decrease of $746,356, or 49%,
primarily due to a reduction in depreciation and amortization expenses resulting from the impairment of certain fixed assets in
2014 as well as a reduction of approximately $200,000 in provider fees. There is a degree of variability in our gross margins
related to charging services revenues from period to period primarily due to (i) the mix of revenue share payment arrangements,
(ii) electricity reimbursements, and (iii) the estimated repair and maintenance costs associated with those charging stations
not currently in operation. Any variability in our gross margins related to equipment sales depends on the mix of products sold.
Operating
Expenses
Operating
expenses consist of selling, marketing, advertising, payroll, administrative, finance and professional expenses.
Compensation expense increased
by $88,412, or 4%, from $2,088,406 for the three months ended September 30, 2014 to $2,176,818 for the three months ended September
30, 2015. The increase was primarily attributable to increased share-based payments as compared to 2014.
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $101,127, or 21%,
from $484,624 for the three months ended September 30, 2014 to $383,497 for the three months ended September 30, 2015. The decrease
was primarily attributable to cost reduction initiatives in the 2015 period.
General
and administrative expenses decreased by $309,814 or 54%, from $574,148 for the three months ended September 30, 2014 to $264,334
for the three months ended September 30, 2015. The decrease was primarily due to a reduction in legal fees of $246,000 as compared
to the three months ended September 30, 2014, which were higher in 2014 as a result of an increase in litigation activity in 2014
(350 Green, ECOtality, Tim Mason and Mariana Gerzanych).
Impairment
of goodwill of $1,601,882 for the three months ended September 30, 2014 was associated with the acquisition of Beam Charging LLC.
An
impairment charge of $2,854,422 relating to:
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the
net book value of 304 electric chargers to be removed from a host’s locations, $333,974;
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the
net book value of chargers whose net book value at September 30, 2014 exceeded its fair value by $631,011;
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the
net book value of chargers to which title passed to the respective hosts as a result of non-novation of United States Department
of Energy grant of $1,591,115; and
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the
net book value of deployments in progress acquired in conjunction with 350 Green for which continuance was not deemed feasible,
$298,322.
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A
loss of $19,848 on replacing deployed charging stations during the quarter ended September 30, 2014 due to malfunction.
An
inducement expense for the three months ended September 30, 2014 associated with the issuance of warrants to a host to extend
exclusive EV installation rights on its properties to the Company of $321,877.
Other (Expense) Income
Other (expense)
income increased by $623,374, or 545%, from $114,435 for the three months ended September 30, 2014 to $737,809 for the three months
ended September 30, 2015. The increase was primarily attributable to:
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An
increase in the change in the fair value of warrant liabilities of $1,134,599, from $138,339
during the three months ended September 30, 2014 to $1,272,938 during the three months
ended September 30, 2015; partially offset by:
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●
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A
provision for non-compliance penalty for delinquent regular SEC filings of $(622,900) during the three months ended September
30, 2015 as compared to $(72,667) during the three months ended September 30, 2014; and
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A
release from an obligation to the U.S. Department of Energy associated with DC fast chargers in the amount of $482,611 during
the three months ended September 30, 2014.
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Net
Loss
Our
net loss for the three months ended September 30, 2015 decreased by $6,590,679, or 78%, to $1,855,940 as compared to $8,446,619
for the three months ended September 30, 2014. The decrease was primarily attributable to a decrease in operating expenses of
$5,120,558 and cost of revenues of $746,356. Our net loss attributable to common shareholders for the three months ended September
30, 2015 decreased by $6,025,573, or 71%, from $8,446,619 to $2,421,046 for the aforementioned reasons and due to dividends attributable
to Series C Convertible Preferred shareholders of $242,500.
Nine
Months Ended September 30, 2015 Compared With Nine Months Ended September 30, 2014
Revenues
We
generated charging service revenue of $1,342,029 related to installed EV charging stations for nine months ended September 30,
2015 as compared to $827,434 for the nine months ended September 30, 2014, an increase of $514,595, or 62%, which is primarily
a result of the Company’s participation in a program sponsored by Nissan North America in which Nissan provides free electric
charging to purchasers of Nissan Leafs in certain markets in the United States commencing in July 2014.
Grant
revenue increased from $865,918 to $1,068,837 during the nine months ended September 30, 2015, an increase of $202,919, or 23%.
Grants, rebate and incentives, collectively, “grant revenue” relating to equipment and the related installation (which
are included within fixed assets on the condensed consolidated balance sheets), are deferred and amortized in a manner consistent
with the depreciation expense of the related assets over their useful lives. Grant revenue during the nine months ended September
30, 2015 was primarily derived from our agreement with the Bay Area Air Quality Management District.
Equipment
sales increased from $473,429 to $638,718 during the nine months ended September 30, 2015, an increase of $165,289, or 35%. The
increase was primarily due a higher volume of residential and commercial units sold in 2015.
Other
revenue increased from $23,845 to $190,968 during the nine months ended September 30, 2015, an increase of $167,123, or 701%.
Other revenues comprised of network and transaction fees earned from our hosts which the company initiated during the fourth quarter
of 2014.
Cost
of Revenues
Cost
of revenues primarily consists of depreciation of installed charging stations, amortization of the Blink Network infrastructure,
the cost of charging station parts and related services sold, repairs and maintenance, electricity reimbursements to hosts and
revenue share payments made to hosts when we are the primary obligor in the revenue share arrangement. Cost of revenues for the
nine months ended September 30, 2015 were $2,557,402 as compared to $4,369,695 for the nine months ended September 30, 2014, a
decrease of $1,812,293, or 41%, primarily due to a reduction in depreciation and amortization expenses resulting from the impairment
of certain fixed assets in 2014. There is a degree of variability in our gross margins related to charging services revenues from
period to period primarily due to (i) the mix of revenue share payment arrangements, (ii) electricity reimbursements, and (iii)
the estimated repair and maintenance costs associated with those charging stations not currently in operation. Any variability
in our gross margins related to equipment sales depends on the mix of products sold.
Operating
Expenses
Operating
expenses consist of selling, marketing, advertising, payroll, administrative, finance and professional expenses.
Compensation expense increased
by $868,489, or 14%, from $6,163,893 for the nine months ended September 30, 2014 to $7,032,382 for the nine months ended September
30, 2015. The increase was primarily attributable to stock-based compensation expense of approximately $1,375,000 related to awards
granted to our newly-appointed Chief Operating Officer during the nine months ended September 30, 2015 under the terms of an employment
agreement.
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $58,597, or 5%, from
$1,264,245 for the nine months ended September 30, 2014 to $1,205,648 for the nine months ended September 30, 2015. The decrease
was primarily attributable to cost reduction initiatives in the 2015 period.
General
and administrative expenses decreased by $307,547, or 15%, from $2,097,373 for the nine months ended September 30, 2014 to $1,789,826
for the nine months ended September 30, 2015. The decrease was primarily due to a reduction in bad debt expense of $236,000 and
a reduction in legal fees of $215,000 as compared to the nine months ended September 30, 2014, which were higher in 2014 as a
result of an increase in litigation activity in 2014 (350 Green, ECOtality, Tim Mason and Mariana Gerzanych).
Impairment
of goodwill of $4,901,261 for the nine months ended September 30, 2014, associated with the acquisition of 350 Green and its placement
in a trust mortgage of $3,299,379 and in conjunction with the acquisition of Beam Charging LLC of $1,601,882.
An
impairment charge of $2,854,422 relating to:
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the
net book value of 304 electric chargers to be removed from a host’s locations, $333,974;
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●
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the
net book value of chargers whose net book value at September 30, 2014 exceeded its fair value by $631,011;
|
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●
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the
net book value of chargers to which title passed to the respective hosts as a result of non-novation of United States Department
of Energy grant of $1,591,115; and
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●
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the
net book value of deployments in progress acquired in conjunction with 350 Green for which continuance was not deemed feasible,
$298,322.
|
A
loss of $19,848 on replacing deployed charging stations during the nine months ended September 30, 2014 due to malfunction.
An
inducement expense for the nine months ended September 30, 2014 associated with the issuance of warrants to a host to extend exclusive
EV installation rights on its properties to the Company of $321,877.
Other (Expense) Income
Other (expense)
income increased by $2,185,130, or 571%, from $382,804 for the nine months ended September 30, 2014 to $2,567,934 for the nine
months ended September 30, 2015. The increase was primarily attributable to:
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A
gain of $1,833,896 in the nine months ended September 30, 2015 related to the release
of our liability to the U.S. Department of Energy related to certain chargers as compared
to a gain of $482,611 in the nine months ended September 30, 2014;
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An
inducement expense of $858,118 in the nine months ended September 30, 2014 for the issuance
of warrants to four shareholders of the Company who agreed to provide financial support
to the Company in the amount of $6,250,000 through 2014 and placement agents for securing
such financing; and
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A
gain from the change in the fair value of warrant liabilities of $2,161,845 during the
nine months ended September 30, 2015, as compared to $1,642,593 during the nine months
ended September 30, 2014, an increase of $519,252; partially offset by:
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A
provision for non-compliance penalty for delinquent regular SEC filings of $(1,276,050) during the nine months ended September
30, 2015 as compared to $(72,667) during the nine months ended September 30, 2014.
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Net
Loss
Our net loss for the nine
months ended September 30, 2015 decreased by $12,642,412, or 64%, to $6,776,772 as compared to $19,419,184 for the nine months
ended September 30, 2014. The decrease was primarily attributable to a decrease in operating expenses of $7,595,063 and an increase
in other income of $2,185,130. Our net loss attributable to common shareholders for the nine months ended September 30, 2015 decreased
by $11,595,912, or 60%, from $19,419,184 to $7,823,272 for the aforementioned reasons and due to dividends attributable to Series
C Convertible Preferred shareholders of $656,900.
Liquidity
and Capital Resources
During
the nine months ended September 30, 2015, we financed our activities from proceeds derived from sales of our capital stock. A
significant portion of the funds raised from the sale of capital stock have been used to cover working capital needs and personnel,
office expenses and various consulting and professional fees.
For the nine months ended
September 30, 2015 and 2014, we used cash of $4,975,523 and $6,664,163, respectively, in operations. Our cash used for the nine
months ended September 30, 2015 was primarily attributable to our net loss of $6,776,772, adjusted for net non-cash expenses in
the aggregate amount of $1,512,106, partially offset by $289,143 of net cash provided by changes in the levels of operating assets
and liabilities. Our cash used for the nine months ended September 30, 2014 was primarily attributable to our net loss of $19,419,184,
adjusted for net non-cash expenses in the aggregate amount of $12,184,050, partially offset by $570,971 of net cash provided by
changes in the levels of operating assets and liabilities.
During the nine months
ended September 30, 2015, net cash used in investing activities was $171,233, of which $38,368 was used in the purchase of office
and computer equipment and $210,965 was paid to the ECOtality Estate Creditor’s Committee, partially offset by $78,100 of
proceeds from the sale of fixed assets. Net cash used in investing activities was $760,112 for the nine months ended September
30, 2014, of which, $460,797 was used for purchases of electric vehicle charging stations, $137,165 was used for the purchase
of an automobile and $162,150 was used for the purchase of network software.
Net
cash provided by financing activities for the nine months ended September 30, 2015 was $3,640,063, of which $3,830,000 was provided
in connection with proceeds from the sale of Series C Convertible Preferred Stock and warrants, partially offset by the repayment
of notes payable of $189,937. Cash used in financing activities for the nine months ended September 30, 2014 was $260,140, of
which $210,671 was used as a security deposit for space rental and $49,469 was used to repay notes payable.
Through September
30, 2015, the Company has incurred an accumulated deficit since inception of $71,904,503. At September 30, 2015, the Company had
a cash balance and working capital deficit of $120,369 and $13,695,559, respectively. The Company has incurred additional losses
subsequent to September 30, 2015. The Company implemented cost reduction measures in December 2014 to reduce employee headcount
and other operating expenditures.
Subsequent to September
30, 2015, the Company received an aggregate of $2,150,000 through sales of Series C Convertible Preferred Stock. In addition,
pursuant to a Series C Convertible Preferred Stock securities purchase agreement entered into on March 11, 2016, an additional
$1,950,000 is payable to the Company upon the completion of certain milestones, as specified in the agreement. There can be no
assurance that the Company will be successful in completing the milestones.
The
Company expects that through the next 12 months from the date of this filing, it will require external funding to sustain operations
and to follow through on the execution of its business plan. There can be no assurance that the Company’s plans will materialize
and/or that the Company will be successful in its efforts to obtain the funding to cover working capital shortfalls. Given these
conditions, there is substantial doubt about the Company’s ability to continue as a going concern and its future is contingent
upon its ability to secure the levels of debt or equity capital it needs to meet its cash requirements. In addition, the Company’s
ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered
by entrants into established markets, the competitive environment in which the Company operates and the current capital raising
environment.
Since
inception, the Company’s operations have primarily been funded through proceeds from equity and debt financings. Although
management believes that the Company has access to capital resources, there are currently no commitments in place for new financing
at this time, except for the Milestone Amounts described above under Recent Developments, and there is no assurance that the Company
will be able to obtain funds on commercially acceptable terms, if at all.
The
Company intends to raise additional funds during the next twelve months. The additional capital raised would be used to fund the
Company’s operations. The current level of cash and operating margins is insufficient to cover the existing fixed and variable
obligations of the Company, so increased revenue performance and the addition of capital through issuances of securities are critical
to the Company’s success. Should the Company not be able to raise additional debt or equity capital through a private placement
or some other financing source, the Company would take one or more of the following actions to conserve cash: further reductions
in employee headcount, reduction in base salaries to senior executives and employees, and other cost reduction measures. Assuming
that the Company is successful in its growth plans and development efforts, the Company believes that it will be able to raise
additional debt or equity capital. There is no guarantee that the Company will be able to raise such additional funds on acceptable
terms, if at all.
We
have not been able to complete the audit of 350 Green LLC and Blink Network LLC for the two calendar years prior to their respective
acquisitions. Rule 505 and 506 of Regulation D requires that all non-accredited investors be provided with certain disclosure
documents, including the audited financial statements for the prior two fiscal years. In the event that we will not be able to
complete the audits for these two entities, we will not be able to raise any additional funds from non-accredited investors until
such time that the audits for the two prior fiscal years are completed.
These
factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s
condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classifications of liabilities that might be necessary should it be unable to continue
as a going concern.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons,
also known as “special purpose entities” (SPEs).
Critical
Accounting Policies and Estimates
There
are no material changes from the critical accounting policies set forth in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 2014 filed with the Securities
and Exchange Commission on December 8, 2015, except as disclosed below. Please refer to that document for disclosures regarding
the remaining critical accounting policies related to our business.
SEQUENCING
POLICY
Under
ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity
to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient
authorized shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with
the earliest grants receiving the first allocation of shares.