2. GOING
CONCERN AND MANAGEMENT’S PLANS
As
of June 30, 2016, the Company had a cash balance, a working capital deficiency and an accumulated deficit of $183,767, $19,508,293
and $80,119,423, respectively. During the three and six months ended June 30, 2016, the Company incurred a net loss of $2,345,976
and $6,746,768, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going
concern.
Since
inception, the Company’s operations have primarily been funded through proceeds received in 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 as described below, and there is no assurance that the Company will be able to obtain funds
on commercially acceptable terms, if at all. There is also no assurance that the amount of funds the Company might raise will
enable the Company to complete its development initiatives or attain profitable operations. If the Company is unable to obtain
additional financing on a timely basis, it may have to curtail its development, marketing and promotional activities, which would
have a material adverse effect on the Company’s business, financial condition and results of operations, and ultimately
the Company could be forced to discontinue its operations and liquidate.
The
accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation
of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business.
The condensed consolidated financial statements do not include any adjustment that might become necessary should the Company be
unable to continue as a going concern.
In July 2016, the Company issued a sixty-day
convertible note in the principal amount of $200,000 to a company wholly-owned by the Company’s Executive Chairman of the
Board of Directors. In August 2016, the Company repaid a convertible note in the principal amount of $105,000 to a company wholly-owned
by the Company’s Executive Chairman of the Board of Directors. The Company is currently funding its operations on a month-to-month
basis. While there can be no assurance that it will be successful, the Company is in active negotiations to raise additional capital.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES
OF CONSOLIDATION
The
condensed consolidated financial statements include the accounts of CCGI and its wholly-owned subsidiaries, including Car Charging,
Inc., Beam Charging LLC (“Beam”), EV Pass LLC, Blink Network LLC (“Blink”) and Car Charging China Corp.
(“Car Charging China”). All intercompany transactions and balances have been eliminated in consolidation.
Through
April 16, 2014, 350 Green LLC (“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, when 350 Green’s assets and liabilities were transferred
to a trust mortgage, 350 Green became a Variable Interest Entity (“VIE”). The consolidation guidance relating to accounting
for VIEs requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest entity and perform ongoing reassessments of whether an enterprise
is the primary beneficiary of a VIE. The Company determined that it is the primary beneficiary of 350 Green, and as such, 350
Green’s assets, liabilities and results of operations are included in the Company’s condensed consolidated financial
statements.
USE
OF ESTIMATES
Preparation
of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the
financial statements. The Company’s significant estimates used in these financial statements include, but are not limited
to, stock-based compensation, accounts receivable reserves, warranty reserves, inventory valuations, the valuation allowance related
to the Company’s deferred tax assets, the carrying amount of intangible assets, estimates of future EV sales and the effects
thereon, and the recoverability and useful lives of long-lived assets. Certain of the Company’s estimates could be affected
by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that
these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those
estimates.
ACCOUNTS
RECEIVABLE
Accounts
receivable are carried at their contractual amounts, less an estimate for uncollectible amounts. As of June 30, 2016 and December
31, 2015, there was an allowance for uncollectable amounts of $33,760 and $140,998, respectively. Management estimates the allowance
for bad debts based on existing economic conditions, the financial conditions of the customers, and the amount and age of past
due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts
are generally written off against the allowance for bad debts only after all collection attempts have been exhausted. There is
no collateral held by the Company for accounts receivable nor does any accounts receivable serve as collateral for any of the
Company’s borrowings with the exception of the Company’s convertible note payable further described in Note 7 –
Notes Payable – Convertible Note.
INVENTORIES
Inventory is comprised of electric charging
stations and related parts, which are available for sale or for warranty requirements. Inventories are stated at the lower of
cost or market. Cost is determined by the first-in, first-out method. Inventory that is sold to third parties is included within
cost of sales and inventory that is installed on the premises of participating owner/operator properties, where the Company retains
ownership, is transferred to fixed assets at the carrying value of the inventory. The Company periodically reviews for slow-moving,
excess or obsolete inventories. Products that are determined to be obsolete, if any, are written down to net realizable value.
Based on the aforementioned periodic reviews, the Company recorded an inventory reserve for slow-moving, excess or obsolete inventories
of $190,000 and $290,000 as of June 30, 2016 and December 31, 2015, respectively.
As of June 30, 2016 and December 31, 2015,
the Company’s inventory was comprised solely of finished goods and parts that are available for sale.
FIXED
ASSETS
Fixed
assets are stated at cost, net of accumulated depreciation and amortization which is recorded commencing at the in-service date
using the straight-line method over the estimated useful lives of the assets. Accumulated depreciation and amortization as of
June 30, 2016 and December 31, 2015 was $4,347,020 and $4,100,163, respectively.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
INTANGIBLE ASSETS
Accumulated amortization related to intangible
assets as of June 30, 2016 and December 31, 2015 was $28,602 and $23,445, respectively.
DERIVATIVE
FINANCIAL INSTRUMENTS
The
Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify
as derivative financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”). The accounting treatment of derivative financial
instruments requires that the Company record the conversion options and warrants at their fair values as of the inception date
of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating,
non-cash income or expense for each reporting period at each balance sheet date. Conversion options are recorded as a discount
to the host instrument and are amortized as interest expense over the life of the underlying instrument. The Company reassesses
the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events
during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The
Binomial Lattice Model was used to estimate the fair value of the warrants that are classified as derivative liabilities on the
condensed consolidated balance sheets. The model includes subjective input assumptions that can materially affect the fair value
estimates. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average
life of the warrants.
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.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements
and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may
be used to measure fair value:
Level
1 — quoted prices in active markets for identical assets or liabilities
Level
2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The
carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, accounts receivable,
prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair values due to the short-term
nature of these instruments. The carrying amount of the Company’s notes payable approximates fair value because the effective
yields on these obligations, which include contractual interest rates, taken together with other features such as concurrent issuance
of warrants, are comparable to rates of returns for instruments of similar credit risk.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
REVENUE
RECOGNITION
The
Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable
and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have
been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Accordingly, when a customer completes use of a charging station, the service can be deemed rendered and revenue may be recognized
based on the time duration of the session or kilowatt hours drawn during the session. Sales of EV stations are recognized upon
shipment to the customer, free on board shipping point, or the point of customer acceptance.
Governmental
grants and rebates pertaining to revenues and periodic expenses are recognized as income when the related revenue and/or periodic
expense are recorded. Government grants and rebates related to EV charging stations and their installation are deferred and amortized
in a manner consistent with the related depreciation expense of the related asset over their useful lives.
For
arrangements with multiple elements, which is comprised of (1) a charging unit, (2) installation of the charging unit, (3) maintenance
and (4) network fees, revenue is recognized dependent upon whether vendor specific objective evidence (“VSOE”) of
fair value exists for separating each of the elements. We determined that VSOE exists for both the delivered and undelivered elements
of our multiple-element arrangements. We limit our assessment of fair value to either (a) the price charged when the same element
is sold separately or (b) the price established by management having the relevant authority.
CONCENTRATIONS
During
the three and six months ended June 30, 2016, revenues generated from Entity C represented approximately 13% and 13%, respectively,
of the Company’s total revenue. During the three and six months ended June 30, 2015, revenues generated from Entity C represented
approximately 18% and 15%, respectively, of the Company’s total revenue. During the six months ended June 30, 2015, revenues
generated from Entity A represented approximately 27% of the Company’s total revenue. The Company generated grant revenues
from governmental agencies (Entity A) and charging service revenues from a customer (Entity C).
STOCK-BASED
COMPENSATION
The
Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award.
For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is
measured on the measurement date and re-measured on vesting dates and interim financial reporting dates until the service period
is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange
for the award, usually the vesting period. Awards granted to non-employee directors for their service as a director are treated
on the same basis as awards granted to employees. The Company computes the fair value of equity-classified warrants and options
granted using the Black-Scholes option pricing model.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
NET
LOSS PER COMMON SHARE
Basic
net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding
during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number vested of
common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the
exercise of outstanding stock options and warrants, plus the conversion of preferred stock.
The
following common stock equivalents are excluded from the calculation of weighted average dilutive common shares because their
inclusion would have been anti-dilutive:
|
|
June
30,
|
|
|
|
2016
|
|
|
2015
|
|
Preferred stock
|
|
|
50,674,188
|
|
|
|
41,242,027
|
|
Warrants
|
|
|
55,384,027
|
|
|
|
58,142,745
|
|
Options
|
|
|
7,765,000
|
|
|
|
7,666,333
|
|
Convertible notes
|
|
|
339,058
|
|
|
|
99,524
|
|
Total potentially
dilutive shares
|
|
|
114,162,273
|
|
|
|
107,150,629
|
|
COMMITMENTS
AND CONTINGENCIES
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it
is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. See Note 4 –
Accrued Expenses, Note 10 – Commitments and Contingencies and Note 11 – Subsequent Events – Commitments and
Contingencies.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
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 5 – 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
June
30, 2015
|
|
|
For
the Six Months Ended
June
30, 2015
|
|
Condensed
Consolidated Statements of Operations:
|
|
As
Reported
|
|
|
Adjustment
|
|
|
As
Revised
|
|
|
As
Reported
|
|
|
Adjustment
|
|
|
As
Revised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. ACCRUED
EXPENSES
SUMMARY
Accrued
expenses consist of the following:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
|
|
(unaudited)
|
|
|
|
|
Registration rights penalty
|
|
$
|
866,250
|
|
|
$
|
728,750
|
|
Accrued consulting fees
|
|
|
975,425
|
|
|
|
916,925
|
|
Accrued host fees
|
|
|
1,117,208
|
|
|
|
873,544
|
|
Accrued professional, board and other
fees
|
|
|
1,265,881
|
|
|
|
1,069,341
|
|
Accrued wages
|
|
|
194,369
|
|
|
|
187,779
|
|
Warranty payable
|
|
|
290,131
|
|
|
|
223,988
|
|
Accrued taxes payable
|
|
|
413,722
|
|
|
|
355,950
|
|
Warrants payable
|
|
|
295,106
|
|
|
|
77,761
|
|
Accrued issuable equity
|
|
|
737,895
|
|
|
|
324,894
|
|
Accrued interest expense
|
|
|
154,092
|
|
|
|
83,842
|
|
Dividend payable
|
|
|
365,300
|
|
|
|
293,200
|
|
Other accrued
expenses
|
|
|
70,264
|
|
|
|
10,750
|
|
|
|
$
|
6,745,643
|
|
|
$
|
5,146,724
|
|
REGISTRATION
RIGHTS PENALTY
In
connection with the sale of the Company’s Series C Convertible Preferred Stock, the Company granted the purchasers certain
registration rights. As of June 30, 2016 and December 31, 2015, the Company had not yet filed a registration statement under the
Securities Act of 1933. The registration rights agreements entered into with the Series C Convertible Preferred Stock purchasers
provide that the Company has to pay liquidated damages equal to 1% of all Series C subscription amounts received on the date the
Series C resale registration statement was due to be filed pursuant to such registration rights agreements. The Company needs
to pay such penalty each month thereafter until the resale registration statement is filed. The maximum liquidated damages amount
is 10% of all Series C subscription amounts received. Failure to pay such liquidated damages results in interest on such damages
at a rate of 18% per annum becoming due. As a result, the Company accrued $866,250 and $728,750 of Series C Convertible Preferred
Stock registration rights damages at June 30, 2016 and December 31, 2015, respectively.
WARRANTS
PAYABLE
As
of June 30, 2016 and December 31, 2015, the Company accrued $294,111 and $77,735, respectively, related to investment banking
fees which were payable in warrants. See Note 7 – Fair Value Measurement – Warrants Payable and Note 8 – Stockholders’
Deficiency – Preferred Stock - Series C Convertible Preferred Stock for additional details.
5. 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-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 June
30, 2016 and December 31, 2015, the Company had accrued $2,910,447 and $2,433,734, respectively, as a result of periods of noncompliance
with Rule 144(c)(1).
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. NOTES
PAYABLE
CONVERTIBLE AND OTHER NOTES – RELATED PARTY
On June 24, 2016, the Company issued a sixty-day
convertible note in the principal amount of $105,000 to a company wholly-owned by the Company’s Executive Chairman of the
Board of Directors. The principal amount is to be repaid upon the date at which the Company has received payment under an existing
grant with the Pennsylvania Turnpike. Interest on the note accrues at a rate of 18% annually and is payable at maturity. The unpaid
principal and accrued interest are convertible at the election of the holder into shares of common stock at $0.70 per share. In
connection with the note issuance, the Company issued a five-year immediately vested warrant to purchase 525,000 shares of common
stock at an exercise price of $0.70 per share with an issuance date fair value of $38,113, which was recorded as a debt discount.
In connection with the Company’s sequencing policy, the warrants were determined to be derivative liabilities. In connection
with the Company’s sequencing policy, the conversion option was also determined to be a derivative liability, however its
value was de minimis. Subsequent to June 30, 2016, the Company repaid the principal amount of $105,000 plus accrued interest.
On
June 24, 2016, the Company issued a sixty-day convertible note in the principal amount of $95,000 to a company wholly-owned by
the Company’s Executive Chairman of the Board of Directors. The principal amount is to be repaid upon the date at which
the Company has received at least $1,000,000 in financing from third parties. Interest on the note accrues at a rate of 18% annually
and is payable at maturity. The unpaid principal and accrued interest are convertible at the election of the holder into shares
of common stock at $0.70 per share. In connection with the note issuance, the Company issued a five-year immediately vested warrant
to purchase 475,000 shares of common stock at an exercise price of $0.70 per share with an issuance date fair value of $34,484,
which was recorded as a debt discount. In connection with the Company’s sequencing policy, the warrants were determined
to be derivative liabilities In connection with the Company’s sequencing policy, the conversion option was also determined
to be a derivative liability, however, its value was de minimis.
During
the six months ended June 30, 2016, the Company made aggregate principal repayments of $20,000 associated with a non-convertible
note payable to the same related party.
CONVERTIBLE AND OTHER NOTES
As of June 30, 2016, the secured convertible
note had an outstanding principal balance of $50,000 which was past due.
During the six months ended June 30, 2016,
the Company made aggregate principal repayments of $6,910 associated with a non-convertible note payable.
INTEREST
EXPENSE
Interest
expense for the three and six months ended June 30, 2016 was $35,314 and $70,552, respectively, and $11,960 and $21,019 during
the three and six months ended June 30, 2015, respectively.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. FAIR
VALUE MEASUREMENT
See
Note 4 – Accrued Expenses – Warrants Payable and Note 8 – Stockholders’ Deficiency – Preferred Stock
- Series C Convertible Preferred Stock for additional details associated with issuance costs which included an obligation to issue
investment banker warrants.
Assumptions
utilized in the valuation of Level 3 liabilities are described as follows:
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
0.58%
- 1.08%
|
|
|
|
0.22%
- 1.01%
|
|
|
|
0.58%
- 1.16%
|
|
|
|
0.02%
- 1.30%
|
|
Expected term (years)
|
|
|
2.28
- 5.00
|
|
|
|
1.00
- 4.66
|
|
|
|
2.28
- 5.00
|
|
|
|
1.00
- 5.05
|
|
Expected volatility
|
|
|
123%
- 139%
|
|
|
|
89%
- 95%
|
|
|
|
114%
- 139%
|
|
|
|
84%
- 95%
|
|
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 derivative liabilities and warrants payable that are measured at fair value on a recurring
basis:
Derivative
Liabilities
|
|
|
|
|
Beginning balance as of January 1, 2016
|
|
$
|
1,350,881
|
|
Issuance of warrants
|
|
|
251,011
|
|
Change in fair
value of derivative liability
|
|
|
2,038,366
|
|
Ending balance as of June 30, 2016
|
|
$
|
3,640,258
|
|
|
|
|
|
|
Warrants
Payable
|
|
|
|
|
Beginning balance as of January 1, 2016
|
|
$
|
77,761
|
|
Provision for new warrant issuances
|
|
|
969
|
|
Accrual of other warrant obligations
|
|
|
61,454
|
|
Change in fair value of warrants payable
|
|
|
154,922
|
|
Issuance of warrants
|
|
|
-
|
|
Ending balance as of June 30, 2016
|
|
$
|
295,106
|
|
Assets
and liabilities measured at fair value on a recurring or nonrecurring basis are as follows:
|
|
June
30, 2016
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,640,258
|
|
|
$
|
3,640,258
|
|
Warrants Payable
|
|
|
-
|
|
|
|
-
|
|
|
|
295,106
|
|
|
|
295,106
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,935,364
|
|
|
$
|
3,935,364
|
|
|
|
December
31, 2015
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,350,881
|
|
|
$
|
1,350,881
|
|
Warrants payable
|
|
|
-
|
|
|
|
-
|
|
|
|
77,761
|
|
|
|
77,761
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,428,642
|
|
|
$
|
1,428,642
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. STOCKHOLDERS’
DEFICIENCY
PREFERRED
STOCK
SERIES
A CONVERTIBLE PREFERRED STOCK
On
March 24, 2016, the Company issued 500,000 shares of Series A Convertible Preferred Stock to the Company’s Chief Operating
Officer in connection with his March 24, 2015 employment agreement. The $500,000 of aggregate fair value of the shares was recognized
over the one year service period. The Company recognized $0 and $114,754 of stock-based compensation expense during the three
and six months ended June 30, 2016, respectively, related to the award which is included within stock-based compensation on the
condensed consolidated statement of changes in stockholders’ deficiency.
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
As
of June 30, 2016, the liquidation preference for the Series B Convertible Preferred Stock amounted to $825,000.
SERIES
C CONVERTIBLE PREFERRED STOCK
On
March 11, 2016, the Company entered into a securities purchase agreement with a purchaser for gross 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”) was payable to the Company upon the completion of certain milestones (“Milestones”),
as specified in the agreement. Through June 30, 2016, based on the Company’s achievement of certain of the milestones prior
to the June 24, 2016 deadline, net proceeds of an aggregate of $1,147,950 (gross proceeds of $1,267,160 less issuance costs of
$197,160, of which, as of June 30, 2016, $149,658 had not been paid and was included within accrued expenses) of the Subscription
Amount had been paid to the Company. See Note 4 – Accrued Expenses – Warrants Payable and Note 7 – Fair Value
Measurement for additional details. As a result, the Company issued the following to the purchaser during the six months ended
June 30, 2016: (i) 21,120 shares of Series C Convertible Preferred Stock and (ii) five-year warrants to purchase an aggregate
of 3,017,047 shares of common stock at an exercise price of $1.00 per share with an issuance date fair value of $167,956 which
was recorded as a derivative liability.
On
March 11, 2016, the Company entered into a securities purchase agreement with a purchaser for net proceeds of an aggregate of
$85,285 (gross proceeds of $99,960 less issuance costs of $14,675, of which, as of June 30, 2016, $9,677 had not been paid and
was included within accrued expenses). See Note 4 – Accrued Expenses – Warrants Payable and Note 7 – Fair Value
Measurement for additional details. 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 with an issuance date fair value of $10,458 which was recorded as a derivative liability.
On
March 24, 2016, the Company issued 750 shares of Series C Convertible Preferred Stock to the Company’s Chief Operating Officer
in connection with his March 24, 2015 employment agreement. The $75,000 of aggregate fair value of the shares was recognized over
the one year service period. The Company recognized $0 and $17,213 of stock-based compensation expense during the three and six
months ended June 30, 2016, respectively, related to the award which is included within stock-based compensation on the condensed
consolidated statement of changes in stockholders’ deficiency.
During
the six months ended June 30, 2016, the Company issued 444 shares of Series C Convertible Preferred Stock with a fair value of
$39,964 to the Company’s Executive Chairman of the Board in satisfaction of amounts previously owed which was accrued for
as of December 31, 2015, which is included within Series C convertible preferred stock issued as compensation to the Executive
Chairman on the condensed consolidated statement of changes in stockholders’ deficiency.
During
the six months ended June 30, 2016, the Company issued 2,932 shares of Series C Convertible Preferred Stock in satisfaction of
the $293,200 dividend for the three months ended December 31, 2015 and 3,184 shares of Series C Convertible Preferred Stock in
satisfaction of the $318,400 dividend for the three months ended March 31, 2016. As of June 30, 2016 the Company accrued $365,300
in connection with the dividend payable for the three months ended June 30, 2016. See Note 4 – Accrued Expenses.
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 June 30, 2016, was equal to $15,407,900.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. STOCKHOLDERS’
DEFICIENCY – CONTINUED
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.
STOCK-BASED
COMPENSATION
The
Company recognized stock-based compensation expense related to preferred stock, common stock, stock options and warrants for the
three and six months ended June 30, 2016 in the amounts of $280,792 and $842,038, respectively, and for the three and six months
ended June 30, 2015 in the amounts of $1,102,606 and $2,862,840, respectively. As of June 30, 2016, there was $196,537 of unrecognized
stock-based compensation expense related to stock options that will be recognized over the weighted average remaining vesting
period of 0.9 years.
STOCK
OPTIONS
The
weighted average estimated fair value of the options granted during the three and six months ended June 30, 2016 was $0.51 and
$0.38 per share, respectively. The weighted average estimated fair value of the options granted during the three and six months
ended June 30, 2015 was $0.37 and $0.37 per share, respectively.
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 Six Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free interest
rate
|
|
|
0.73%
- 0.90%
|
|
|
|
0.63%
- 1.00%
|
|
|
|
0.73%
- 0.90%
|
|
|
|
0.63%
- 1.21%
|
|
Expected
term (years)
|
|
|
2.50
|
|
|
|
2.50
- 3.00
|
|
|
|
2.50
|
|
|
|
2.50
- 3.50
|
|
Expected volatility
|
|
|
112%
- 118%
|
|
|
|
87%
- 91%
|
|
|
|
102%
- 118%
|
|
|
|
87%
- 101%
|
|
Expected dividends
|
|
|
0.00%
|
|
|
|
0.00%
|
|
|
|
0.00%
|
|
|
|
0.00%
|
|
A
summary of the option activity during the six months ended June 30, 2016 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
In
Years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2015
|
|
|
7,781,667
|
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
130,000
|
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited/expired
|
|
|
(146,667
|
)
|
|
|
0.75
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2016
|
|
|
7,765,000
|
|
|
$
|
1.14
|
|
|
|
2.3
|
|
|
$
|
21,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2016
|
|
|
6,871,000
|
|
|
$
|
1.19
|
|
|
|
2.2
|
|
|
$
|
21,600
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. STOCKHOLDERS’
DEFICIENCY – CONTINUED
STOCK
WARRANTS
See
Note 8 – Stockholders’ Deficiency – Preferred Stock – Series C Convertible Preferred Stock for details
associated with the issuances of warrants in connection with the security purchase agreements.
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’ consent to
rescind a fundamental transactions provision. As a result, the Company recorded warrant modification expense of $5,827 during
the six months ended June 30, 2016.
During
the six months ended June 30, 2016, the Company recorded warrant modification expense of $457 related to the extension of expiration
date of warrants to purchase 25,000 shares of common stock.
A
summary of the warrant activity during the six months ended June 30, 2016 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
|
Shares
|
|
|
|
Price
|
|
|
|
In
Years
|
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2015
|
|
|
61,043,591
|
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
3,857,143
|
|
|
|
0.92
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited/expired
|
|
|
(9,516,707
|
)
|
|
|
2.08
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2016
|
|
|
55,384,027
|
|
|
$
|
0.89
|
|
|
|
2.6
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2016
|
|
|
55,384,027
|
|
|
$
|
0.89
|
|
|
|
2.6
|
|
|
$
|
56
|
|
COMMON
STOCK
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 cash of $45,000. The shares of common stock were cancelled by the Company in March 2016.
During
the six months ended June 30, 2016, the Company issued 750,000 shares of common to the Company’s Chief Operating Officer
in connection with his March 24, 2015 employment agreement. The $300,000 of aggregate fair value of the shares was recognized
over the one year service period. The Company recognized $0 and $68,852 of stock-based compensation expense during the three and
six months ended June 30, 2016, respectively, related to the award which is included within stock-based compensation on the condensed
consolidated statement of changes in stockholders’ deficiency.
During the six months ended June 30, 2016,
the Company issued an aggregate of 348,081 shares of common stock to the Company’s Board of Directors as compensation for
their attendance at various Board and OPFIN Committee meetings, of which, 194,158 shares were issued for 2016 meetings and 153,923
shares were issued for 2015 meetings. The shares had an aggregate grant date fair value of $65,982, of which, $35,924 was recognized
during the six months ended June 30, 2016 and is included within stock-based compensation on the condensed consolidated statement
of changes in stockholders’ deficiency and $30,058 was recognized during the year ended December 31, 2015
and was
included within stock-based compensation on the consolidated statement of changes in stockholders’ deficiency as of December
31, 2015.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RELATED
PARTIES
The
Company paid commissions to a company owned by its former CEO totaling $0 during the three and six months ended June 30, 2016
and $8,500 and $26,250 during the three and six months ended June 30, 2015, 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 $0 for the three and six months ended June 30, 2016 provided by a company
that is partially owned by the Company’s former Chief Financial Officer. The Company incurred accounting and tax service
fees totaling $17,736 and $24,918 for the three and six months ended June 30, 2015, 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.
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 June 30, 2016, the Company
has not paid nor incurred any royalty fees related to this agreement. See Note 10 – Commitments and Contingencies –
Patent License Agreement.
10. COMMITMENTS
AND CONTINGENCIES
OPERATING
LEASE
Total
rent expense for the three and six months ended June 30, 2016 was $91,120 and $170,991, respectively, and $113,297 and $229,244
for the three and six months ended June 30, 2015, respectively.
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.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. COMMITMENTS
AND CONTINGENCIES – CONTINUED
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
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.
From
time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business.
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.
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 an unspecified amount of lost revenues from
the chargers, among other matters, caused by the defendants. Plaintiff also seeks indemnity for its unspecified costs in connection
with enforcing the Asset Purchase Agreement in courts in New York and Chicago. CCGI has filed a motion to dismiss and the parties
have concurrently agreed to attend a settlement conference on August 18, 2016.
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 previously served 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 has determined that
no current or past employees of the Company were involved with the former shell company and it does not expect any additional
actions to be necessary with respect to this matter.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. SUBSEQUENT
EVENTS
NOTE
PAYABLE
On
July 27, 2016, the Company issued a sixty-day convertible note in the principal amount of $200,000 to a company wholly-owned by
the Company’s Executive Chairman of the Board of Directors. The principal amount is to be repaid upon the date at which
the Company has received at least $1,000,000 in financing from third parties. Interest on the note accrues at a rate of 18% annually
and is payable at maturity. The unpaid principal and accrued interest are convertible at the election of the holder into shares
of common stock at $0.70 per share. In connection with the note issuance, the Company issued a five-year immediately vested warrant
to purchase 1,000,000 shares of common stock at an exercise price of $0.70 per share.
SUBLEASE
AGREEMENT
On
July 28, 2016, the Company (“Sublandlord”) entered into a sublease agreement with Balance Labs, Inc. (“Subtenant”)
(an entity controlled by the Company’s Executive Chairman of the Board of Directors) pursuant to which the Company agreed
to sublease a portion of its Miami, Florida corporate headquarters to Subtenant. The term of the sublease agreement is from August
1, 2016 to September 29, 2018, subject to earlier termination upon written notice of termination by the landlord or Sublandlord.
Throughout the term of the agreement, Subtenant shall pay to Sublandlord fixed base rent and operating expenses equal to 50% of
Sublandlord’s obligation under its primary lease agreement, resulting in monthly base rent payments ranging from approximately
$7,500 to $8,000 per month, for a total of approximately $200,000 for the total term of the sublease agreement.
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, “CarCharging”, “CCGI”, “the Company”) as of June 30, 2016 and for the three
and six months ended June 30, 2016 and 2015 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 CarCharging. 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, 2015 filed with the Securities
and Exchange Commission (“SEC”) on July 29, 2016.
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
CarCharging
is a leading owner, operator, and provider of electric vehicle (“EV”) charging equipment and networked EV charging
services. CarCharging offers both residential and commercial EV charging equipment, enabling EV drivers to easily recharge at
various location types.
Our
principal line of products and services is our Blink EV charging network (the “Blink Network”) and EV charging equipment
(also known as electric vehicle supply equipment - EVSE) and EV related services. Our Blink Network is proprietary cloud-based
software that operates, maintains, and tracks all of the Blink EV charging stations and the associated charging data. The Blink
Network provides property owners, managers, and parking companies, who we refer to as our Property Partners, with cloud-based
services that enable the remote monitoring and management of EV charging stations, payment processing, and provides EV drivers
with vital station information including station location, availability, and applicable fees.
We offer our Property
Partners a flexible range of business models for EV charging equipment and services. In our comprehensive and turnkey business
model, we own and operate the EV charging equipment, manage the installation, maintenance, and related services; and share a portion
of the EV charging revenue with the property owner. Alternatively, Property Partners may share in the equipment and installation
expenses, with CarCharging operating and managing the EV charging stations and providing connectivity to the Blink Network. For
Property Partners interested in purchasing and owning EV charging stations, that they manage, we can also provide EV charging
hardware, site recommendations, connectivity to the Blink Network, and service and maintenance services.
We
have strategic relationships with hundreds of property partners that include well-recognized companies, large municipalities,
and local businesses. The types of properties include airports, auto dealers, healthcare/medical, hotel, mixed-use, municipal
locations, multifamily residential and condo, parks and recreation areas, parking lots, religious institution, restaurants, retailers,
schools and universities, stadiums, supermarkets, transportation hubs, and workplace locations. Some examples are Caltrans, City
of Azusa, City of Chula Vista, City of Springfield, City of Tucson, Cracker Barrel, Federal Realty, Fred Meyer Stores, Inc., Fry’s
Food & Drug, Inc., IKEA, JBG Associates, LLC, Kroger Company and Ralphs Grocery Company. CarCharging continues to establish
contracts with property partners that previously had contracts with ECOtality, the former owner of the Blink related assets.
We
currently have approximately 11,600 charging stations deployed of which 4,880 are Level 2 public charging units, 130 DC Fast Charging
EV chargers and 2,800 residential charging units in service on the Blink Network. Additionally, we currently have approximately
370 Level 2 charging units on other networks and there are also approximately an additional 3,400 non-networked, residential Blink
EV charging stations.
Sales
We
currently maintain an in-house field sales force that maintains business relationships with our property partners and develops
new sales opportunities through lead generation and marketing. We also sell our products and services through reseller partners,
which then sell to property representatives and/or hosts.
We continue to invest
in the improvement of the service and maintenance of our Company-owned stations, as well as those stations with a service and
maintenance plans, and expanding our cloud-based network capabilities. We anticipate continuing to expand our revenues by selling
our next generation of EV charging equipment to current as well as new Property Partners, which includes airports, auto dealers,
healthcare/medical, hotel, mixed-use, municipal locations, multifamily residential and condo, parks and recreation areas, parking
lots, religious institution, restaurants, retailers, schools and universities, stadiums, supermarkets, transportation hubs, and
workplace locations, expanding our sales channels to wholesale distributors, utilities, auto OEMs, solar integrators, and dealers,
and implementing EV charging station occupancy fees (after charging is completed, fees for remaining connected to the charging
station beyond an allotted grace period), and subscription plans for EV drivers on our Blink-owned public charging locations.
During the three months
ended June 30, 2016, one electric car sharing services customer accounted for 13% of our total revenues.
Our revenues are primarily
derived from fees charged to EV drivers for EV charging in public locations, EV charging hardware sales, and government grants.
EV charging fees to EV drivers are based either on an hourly rate, a per kilowatt-hour (“kWh”) rate, or by session,
and are calculated based on a variety of factors, including associated station costs and local electricity tariffs. EV charging
hardware is sold to our property partners such as Green Commuter, IKEA, Nashville Music Center, and Wendy’s. In addition,
other sources of fees from EV charging services are network fees and payment processing fees paid by our property partners.
Recent
Developments
Private
Placements
On
March 11, 2016, we entered into securities purchase agreements with two purchasers for proceeds of an aggregate of $3,000,000,
of which, $750,000 was paid to us at closing and the remaining $2,250,000 was payable to us upon the completion of certain milestones,
as specified in the agreement. Based on the Company’s achievement of certain of the milestones prior to the June 24, 2016
deadline, the Company received a final aggregate of $1,367,120 and issued a total of (i) 22,786 shares of Series C Convertible
Preferred Stock, and (ii) five-year warrants to purchase an aggregate of 3,255,047 shares of common stock for an exercise price
of $1.00 per share.
Notes
Payable
On June 24, 2016, we issued
a sixty-day convertible note in the principal amount of $105,000 to a company wholly-owned by our Executive Chairman. The principal
amount is to be repaid upon the date at which we have received payment under an existing grant with the Pennsylvania Turnpike.
Interest on the note accrues at a rate of 18% annually and is payable at maturity. The unpaid principal and accrued interest are
convertible at the election of the holder into shares of common stock at $0.70 per share. In connection with the note issuance,
we issued a five-year immediately vested warrant to purchase 525,000 shares of common stock at an exercise price of $0.70 per
share. Subsequent to June 30, 2016, we repaid the principal amount of $105,000 plus accrued interest.
On
June 24, 2016, we issued a sixty-day convertible note in the principal amount of $95,000 to a company wholly-owned by our Executive
Chairman. The principal amount is to be repaid upon the date at which we have received at least $1,000,000 in financing from third
parties. Interest on the note accrues at a rate of 18% annually and is payable at maturity. The unpaid principal and accrued interest
are convertible at the election of the holder into shares of common stock at $0.70 per share. In connection with the note issuance,
we issued a five-year immediately vested warrant to purchase 475,000 shares of common stock at an exercise price of $0.70 per
share.
On
July 27, 2016, we issued a sixty-day convertible note in the principal amount of $200,000 to a company wholly-owned by our Executive
Chairman. The principal amount is to be repaid upon the date at which we have received at least $1,000,000 in financing from third
parties. Interest on the note accrues at a rate of 18% annually and is payable at maturity. The unpaid principal and accrued interest
are convertible at the election of the holder into shares of common stock at $0.70 per share. In connection with the note issuance,
we issued a five-year immediately vested warrant to purchase 1,000,000 shares of common stock at an exercise price of $0.70 per
share.
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 Michael D. Farkas, our 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.
We have not paid nor incurred any royalties to date under the patent license agreement.
Consolidated
Results of Operations
Three
Months Ended June 30, 2016 Compared With Three Months Ended June 30, 2015
Revenues
We have generated charging
service revenue of $356,412 related to installed EV charging stations for the three months ended June 30, 2016 as compared to
$515,985 for the three months ended June 30, 2015, a decrease of $159,573, or 31%, which was primarily a result of a reduction
in revenue from a program sponsored by Nissan North America that the Company has participated in since July 2014. As part of the
program, drivers that purchase a Nissan Leaf in certain markets within the United States receive two years of free charging. Since
July 2015, other participating companies have added charging stations to the program reducing our share of revenue generated in
connection with this program. We expect revenues derived from this program during the balance of 2016 to continue to be lower
than the revenues we derived from this program in the same periods in 2015.
Grant revenue decreased
from $159,794 to $57,385 during the three months ended June 30, 2016, a decrease of $102,409, or 64%. Grants, rebate and incentives,
collectively “grant revenue” relating to equipment and the related installation are deferred and amortized in a manner
consistent with the depreciation expense of the related assets over their useful lives. Our grant revenue during the 2014 and
2015 fiscal years was primarily derived from our agreement with the Bay Area Air Quality Management District (the “BAAQMD”).
Our agreement with the BAAQMD ended on December 31, 2015. Our current source of grant revenue is from Pennsylvania Turnpike Commission.
The ability to secure grant revenues is typically unpredictable and, therefore, uncertain. However, historically, the Company
has secured and depended on incentives and intends to continue to pursue incentives from various governmental jurisdictions. As
an example, the Company recently endorsed the Obama Administration’s announcement of, among other things, programs to release
up to $4.5 billion in loan guarantees and invite applications to support the deployment of commercial EV charging facilities,
and launch the Fixing America’s Surface Transportation (“FAST”) Act process to identify and develop corridors
for zero emission and alternative fuel vehicles, which will include a network of EV fast charging stations.
Equipment
sales increased from $185,172 to $360,169 during the three months ended June 30, 2016, an increase of $174,997, or 95%. The increase
was primarily due to a higher volume of residential and commercial units sold during the three months ended June 30, 2016.
Other
revenue increased from $82,160 to $119,246 during the three months ended June 30, 2016, an increase of $37,086, or 45%. Other
revenues are comprised of network and transaction fees earned from our hosts which we initiated during the fourth quarter of 2014,
which resulted in an increase in the number of fee generating units on our network during the three months ended June 30, 2016
as compared to the three months ended June 30, 2015.
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 June 30, 2016 were $834,562 as compared to $713,031 for the three months ended June 30, 2015, an increase of
$121,531, or 17%. 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 decreased by $881,902, or 43%, from $2,070,910 for the three months ended June 30, 2015 to $1,189,008 for the three months
ended June 30, 2016. The decrease was primarily attributable to a reduction of approximately $434,000 in non-cash stock-based
compensation expense as compared to the 2015 period (which includes a $218,000 reduction of stock-based compensation expense related
to share-based payments made to our Chief Operating Officer during the three months ended June 30, 2015 under the terms of his
employment agreement) as well as a reduction in payroll and other related expenses of approximately $381,000 due to the departure
of certain management and other personnel during the second half of 2015.
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $136,011, or 27%,
from $505,581 for the three months ended June 30, 2015 to $369,570 for the three months ended June 30, 2016. The decrease was
primarily attributable to decreased IT expenses and call center expenses as the Company inaugurated its own internal call center
in Phoenix, Arizona during 2016 as compared to the prior period.
General
and administrative expenses decreased by $444,599, or 55%, from $813,412 for the three months ended June 30, 2015 to $368,813
for the three months ended June 30, 2016. The decrease was primarily due to reduced legal and consulting fees as compared to the
three months ended June 30, 2015, which was primarily attributable to cash constraints and reduced litigation activity during
the three months ended June 30, 2016.
Other
(Expense) Income
Other
income was $1,921,024 for the three months ended June 30, 2015 as compared to other expense of $477,235 for the three months ended
June 30, 2016, a decrease of $2,398,259, or 125%. The decrease was primarily attributable to $1,833,896 of income during the three
months ended June 30, 2015 which relate to a notification from the U.S Department of Energy (“DOE”) that it had no
further property interest in certain direct current fast chargers, which resulted in the release of our liability to the DOE.
In addition, we recorded a loss from the change in the fair value of warrant liabilities of $179,849 during the three months ended
June 30, 2016, as compared to a gain of $290,898 during the three months ended June 30, 2015, an decrease of $470,747, primarily
as a result of the Company’s share price, which increased the value of its warrant liabilities.
Net
Loss
Our
net loss for the three months ended June 30, 2016 increased by $1,107,177, or 89%, to $2,345,976 as compared to $1,238,799 for
the three months ended June 30, 2015. The increase was primarily attributable to an increase in other expense of $2,398,259, partially
offset by a decrease in operating expenses of $1,462,512. Our net loss attributable to common shareholders for the three months
ended June 30, 2016 increased by $1,246,820, or 85%, from $1,464,456 to $2,711,276 for the aforementioned reasons and due to an
increase in the dividend attributable to Series C Convertible Preferred shareholders of $152,900.
Six
Months Ended June 30, 2016 Compared With Six Months Ended June 30, 2015
Revenues
We have generated charging
service revenue of $740,882 related to installed EV charging stations for the six months ended June 30, 2016 as compared to $905,770
for the six months ended June 30, 2015, a decrease of $164,888,
or 18%, which is primarily a result
of a reduction in revenue from a program sponsored by Nissan North America that the Company has participated in since July 2014.
As part of the program, drivers that purchase a Nissan Leaf in certain markets within the United States receive two years of free
charging. Since July 2015, other participating companies have added charging stations to the program reducing our share of revenue
generated in connection with this program. We expect revenues derived from this program during the balance of 2016 to continue
to be lower than the revenues we derived from this program in the same periods in 2015.
Grant revenue decreased
from $805,979 to $157,165 during the six months ended June 30, 2016, a decrease of $648,814, or 81%. Grants, rebate and incentives,
collectively “grant revenue” relating to equipment and the related installation are deferred and amortized in a manner
consistent with the depreciation expense of the related assets over their useful lives. Our grant revenue during the 2014 and
2015 fiscal years was primarily derived from our agreement with the BAAQMD. Our agreement with the BAAQMD ended on December 31,
2015. Our current source of grant revenue is from Pennsylvania Turnpike Commission. The ability to secure grant revenues is typically
unpredictable and, therefore, uncertain. However, historically, the Company has secured and depended on incentives and intends
to continue to pursue incentives from various governmental jurisdictions. As an example, the Company recently endorsed the Obama
Administration’s announcement of, among other things, programs to release up to $4.5 billion in loan guarantees and invite
applications to support the deployment of commercial EV charging facilities, and launch the FAST Act process to identify and develop
corridors for zero emission and alternative fuel vehicles, which will include a network of EV fast charging stations.
Equipment
sales increased from $405,979 to $650,374 during the six months ended June 30, 2016, an increase of $244,395, or 60%. The increase
was primarily due to a higher volume of residential and commercial units sold during the six months ended June 30, 2016.
Other
revenue increased from $116,684 to $208,331 during the six months ended June 30, 2016, an increase of $91,647, or 79%. Other revenues
are comprised of network and transaction fees earned from our hosts which we initiated during the fourth quarter of 2014, which
resulted in an increase in the number of fee generating units on our network during the six months ended June 30, 2016 as compared
to the six months ended June 30, 2015.
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
six months ended June 30, 2016 were $1,604,740 as compared to $1,721,105 for the six months ended June 30, 2015, a decrease of
$116,365, or 7%, primarily due to a reduction in network fees due to a renegotiated contract.
Operating
Expenses
Operating
expenses consist of selling, marketing, advertising, payroll, administrative, finance and professional expenses.
Compensation
expense decreased by $2,202,777, or 45%, from $4,855,564 for the six months ended June 30, 2015 to $2,652,787 for the six months
ended June 30, 2016. The decrease was primarily attributable to share-based payments with a fair value of approximately $1,100,000
made to our Chief Operating Officer during the six months ended June 30, 2015 under the terms of an employment agreement, as well
as reduced payroll expenses of approximately $704,000 due to the departure of certain management and other personnel during the
second half of 2015.
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $107,778, or 13%,
from $822,151 for the six months ended June 30, 2015 to $714,373 for the six months ended June 30, 2016. The decrease was primarily
attributable to decreased call center expenses as the Company inaugurated their own internal call center in Phoenix, Arizona during
2016 and reduced travel expenses as compared to the prior period.
General
and administrative expenses decreased by $887,775, or 58%, from $1,525,492 for the six months ended June 30, 2015 to $637,717
for the six months ended June 30, 2016. The decrease was primarily due to reduced legal and consulting fees as compared to the
six months ended June 30, 2015, which was primarily attributable to cash constraints and reduced litigation activity during the
six months ended June 30, 2016.
Other
(Expense) Income
Other
income was $1,769,068 for the six months ended June 30, 2015 as compared to other expense of $2,893,903 for the six months ended
June 30, 2016, a decrease of $4,662,971, or 264%. The decrease was primarily attributable to a loss from the change in the fair
value of warrant liabilities of $2,194,257 during the six months ended June 30, 2016, as compared to a gain of $888,907 during
the six months ended June 30, 2015, a decrease of $3,083,164, primarily as a result of the increase in the Company’s share
price, which increased the value of its warrant liabilities. In addition, there was $1,833,896 of income during the six months
ended June 30, 2015 which relate to a notification from the DOE that it had no further property interest in certain direct current
fast chargers, which resulted in the release of our liability to the DOE.
Net
Loss
Our
net loss for the six months ended June 30, 2016 increased by $1,825,936, or 35%, to $6,746,768 as compared to $4,920,832 for the
six months ended June 30, 2015. The increase was primarily attributable to an increase in other expense of $4,662,971, partially
offset by a decrease in operating expenses of $3,198,330. Our net loss attributable to common shareholders for the three months
ended June 30, 2016 increased by $2,028,242, or 38%, from $5,402,226 to $7,430,468 for the aforementioned reasons and due to an
increase in the dividend attributable to Series C Convertible Preferred shareholders of $269,300.
Liquidity
and Capital Resources
During
the six months ended June 30, 2016, we primarily 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 six months ended June 30, 2016 and 2015, we used cash of $1,434,505 and $3,922,444 in operating activities, respectively.
Our cash used in operating activities for the six months ended June 30, 2016 was primarily attributable to our net loss of $6,746,768,
adjusted for non-cash expenses in the aggregate amount of $4,123,786, partially offset by $1,188,477 of net cash provided by changes
in the levels of operating assets and liabilities. Our cash used in operating activities for the six months ended June 30, 2015
was primarily attributable to our net loss of $4,920,832, adjusted for net non-cash expenses in the aggregate amount of $1,274,328,
plus $275,940 of net cash used to fund changes in the levels of operating assets and liabilities.
For
the six months ended June 30, 2016, cash used in investing activities was $58,669 which was used to purchase charging stations
and other fixed assets. During the six months ended June 30, 2015, cash used in investing activities was $253,452, of which $42,487
was used for the purchase of office and computer equipment and $210,965 was paid to the ECOtality Estate Creditor’s Committee.
Cash
provided by financing activities for the six months ended June 30, 2016 was $1,487,710, of which, $1,314,620 of net proceeds (gross
proceeds of $1,367,120 less issuance costs of $52,500) were from the sale of Series C Convertible Preferred Stock and warrants,
$200,000 was provided in connection with proceeds from the issuance of convertible notes to a related party, partially offset
by the repayment of notes payable of $26,910. Cash provided by financing activities for the six months ended June 30, 2015 was
$2,828,415, of which $3,000,000 was due to the release of funds from escrow in connection with a prior sale of Series C Convertible
Preferred Stock, partially offset by the repayment of notes payable of $171,585.
We
expect that through the next 12 months from the date of this filing, we will require external funding to sustain operations and
to follow through on the execution of our business plan. There can be no assurance that our plans will materialize and/or that
we will be successful in our efforts to obtain the funding to cover working capital shortfalls. Given these conditions, there
is substantial doubt about our ability to continue as a going concern and our future is contingent upon our ability to secure
the levels of debt or equity capital we need to meet our cash requirements. In addition, our 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 we operate and the current capital raising environment.
Since
inception, our operations have primarily been funded through proceeds from equity and debt financings. Although management believes
that we have access to capital resources, there are currently no commitments in place for new financing at this time, except as
described above under the heading Recent Developments, and there is no assurance that we will be able to obtain funds on commercially
acceptable terms, if at all.
We
intend to raise additional funds during the next twelve months. The additional capital raised would be used to fund our operations.
The current level of cash and operating margins is insufficient to cover our existing fixed and variable obligations, so increased
revenue performance and the addition of capital through issuances of securities are critical to our success. Should we not be
able to raise additional debt or equity capital through a private placement or some other financing source, we 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 we are successful in our growth plans and development
efforts, we believe that we will be able to raise additional debt or equity capital. There is no guarantee that we will be able
to raise such additional funds on acceptable terms, if at all.
Through
June 30, 2016, we incurred an accumulated deficit since inception of $80,119,423. As of June 30, 2016, we had a cash balance and
working capital deficit of $183,767 and $19,508,293, respectively. During the six months ended June 30, 2016 and 2015, we incurred
net losses of $6,746,768 and $4,920,832, respectively. These conditions raise substantial doubt about our ability to continue
as a going concern.
These
factors, among others, raise substantial doubt about our ability to continue as a going concern. Our 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, 2015 filed with the Securities
and Exchange Commission on July 29, 2016. Please refer to that document for disclosures regarding the critical accounting policies
related to our business.