2.
GOING CONCERN AND MANAGEMENT’S PLANS
As of September 30, 2016, the Company had
a cash balance, a working capital deficiency and an accumulated deficit of $9,132, $22,166,473 and $82,527,579, respectively.
During the three and nine months ended September 30, 2016, the Company incurred a net loss of $2,408,156 and $9,154,924, 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.
Subsequent
to September 30, 2016, the Company received an aggregate of $500,000 associated with the issuance of a note payable. In addition,
pursuant to the note, an additional $3,225,000 is payable to the Company upon the completion of certain milestones, as specified
in the note. See Note 11 – Subsequent Events – Note Payable for additional details. There can be no assurance that
the Company will be successful in completing the milestones. 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 (“EV Pass”), 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 September 30, 2016 and
December 31, 2015, there was an allowance for uncollectable amounts of $42,942 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.
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 $170,000 and $290,000 as of September 30, 2016 and December 31, 2015, respectively.
As
of September 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
September 30, 2016 and December 31, 2015 was $4,609,576 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
Intangible
assets were acquired in conjunction with the acquisitions of Beam, EV Pass, and Blink during 2013 and were recorded at their fair
value at such time. Trademarks are amortized on a straight-line basis over their useful life of ten years. Patents are amortized
on a straight-line basis over the lives of the patent (twenty years or less), commencing when the patent is approved and placed
in service on a straight line basis. Accumulated amortization related to intangible assets as of September 30, 2016 and December
31, 2015 was $31,181 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 nine months ended September 30, 2016, revenues generated from Entity C represented approximately 15% and 14%, respectively,
of the Company’s total revenue. During the three and nine months ended September 30, 2015, revenues generated from Entity
C represented approximately 15% and 15%, respectively, of the Company’s total revenue. During the nine months ended September
30, 2015, revenues generated from Entity A represented approximately 22% 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:
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
Preferred stock
|
|
|
50,882,292
|
|
|
|
43,850,376
|
|
Warrants
|
|
|
55,483,597
|
|
|
|
58,780,353
|
|
Options
|
|
|
6,923,335
|
|
|
|
7,418,000
|
|
Convertible notes
|
|
|
782,354
|
|
|
|
103,810
|
|
Total potentially
dilutive shares
|
|
|
114,071,578
|
|
|
|
110,152,539
|
|
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In
August 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” (“ASU
2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified
in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. ASU 2016-15 requires
adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the
amendments prospectively as of the earliest date practicable. The Company is currently evaluating ASU 2016-15 and its impact on
its condensed consolidated financial statements or disclosures.
4.
ACCRUED EXPENSES
SUMMARY
Accrued
expenses consist of the following:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
|
|
(unaudited)
|
|
|
|
|
Registration rights penalty
|
|
$
|
916,875
|
|
|
$
|
728,750
|
|
Accrued consulting fees
|
|
|
505,300
|
|
|
|
916,925
|
|
Accrued host fees
|
|
|
1,256,756
|
|
|
|
873,544
|
|
Accrued professional, board and other
fees
|
|
|
1,338,265
|
|
|
|
1,069,341
|
|
Accrued wages
|
|
|
188,622
|
|
|
|
187,779
|
|
Accrued commissions
|
|
|
400,000
|
|
|
|
-
|
|
Warranty payable
|
|
|
245,332
|
|
|
|
223,988
|
|
Accrued taxes payable
|
|
|
414,694
|
|
|
|
355,950
|
|
Accrued payroll taxes payable
|
|
|
140,294
|
|
|
|
-
|
|
Warrants payable
|
|
|
350,516
|
|
|
|
77,761
|
|
Accrued issuable equity
|
|
|
872,682
|
|
|
|
324,894
|
|
Accrued interest expense
|
|
|
210,088
|
|
|
|
83,842
|
|
Dividend payable
|
|
|
752,000
|
|
|
|
293,200
|
|
Other accrued
expenses
|
|
|
58,970
|
|
|
|
10,750
|
|
|
|
$
|
7,650,394
|
|
|
$
|
5,146,724
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 September 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 is required
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 $916,875 and $728,750 of Series C Convertible Preferred
Stock registration rights damages at September 30, 2016 and December 31, 2015, respectively.
ACCRUED
PROFESSIONAL, BOARD AND OTHER FEES
On
September 22, 2016, the Company was released from a $503,125 liability pursuant to a September 10, 2012 consulting agreement,
such that it recognized a gain on forgiveness of accrued expenses of $503,125 during the three and nine months ended September
30, 2016.
ACCRUED
COMMISSIONS
See
Note 9 – Related Parties for additional details.
WARRANTS
PAYABLE
As
of September 30, 2016 and December 31, 2015, the Company accrued $350,516 and $77,761, respectively, related to warrants payable,
of which, $345,670 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 September
30, 2016 and December 31, 2015, the Company had accrued $3,005,277 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
During
the nine months ended September 30, 2016, the Company issued convertibles notes payable in the aggregate principal amount of $600,000
to a company wholly-owned by the Company’s Executive Chairman of the Board of Directors. Notes payable with an aggregate
principal amount of $495,000 are to be repaid upon the earlier of (i) the sixty (60) day anniversary of the date of issuance or
(ii) the date on which the Company has received at least $1,000,000 in financing from third parties. A note payable with a principal
amount of $105,000 was repaid upon the date at which the Company has received payment under an existing grant with the Pennsylvania
Turnpike. Interest on the notes 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. These notes are secured
by substantially all of the assets of the Company. In connection with the notes issuances, the Company issued five-year immediately
vested warrants to purchase an aggregate of 3,000,000 shares of common stock at an exercise price of $0.70 per share with an aggregate
issuance date fair value of $204,465, which was recorded as a debt discount. In connection with the Company’s sequencing
policy, the warrants were determined to be derivative liabilities and the conversion options were also determined to be a derivative
liability, however, their fair value was de minimis.
During the nine months ended September 30,
2016, the Company made aggregate principal repayments of $125,000 associated with convertible and other notes payable to the same
related party, of which, $20,000 was related to a note issued in 2014 that was fully repaid. As of the date of filing, convertible
notes payable to a company wholly-owned by the Company’s Executive Chairman of the Board of Directors with an aggregate
principal amount of $495,000 were outstanding and were past due. The Company has not satisfied this debt and is in negotiations
with the Executive Chairman to extend the maturity dates of such notes. On November 14, 2016, the Company received notices of
default with respect to notes payable to a company wholly-owned by the Executive Chairman with an aggregate principal balance
of $410,000 which included demands for payment of the outstanding principal and interest within seven days.
CONVERTIBLE
AND OTHER NOTES
As
of September 30, 2016 and December 31, 2015, the secured convertible note had an outstanding principal balance of $50,000. The
note is currently past due and is secured by substantially all of the assets of the Company.
During
the nine months ended September 30, 2016, the Company made aggregate principal repayments of $10,428 associated with a non-convertible
note payable.
INTEREST
EXPENSE
Interest
expense for the three and nine months ended September 30, 2016 was $57,937 and $128,489, respectively, and $26,571 and $47,590
during the three and nine months ended September 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 Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.58%
- 1.08
|
%
|
|
|
0.32%
- 0.92
|
%
|
|
|
0.58%
- 1.38
|
%
|
|
|
0.02%
- 1.30
|
%
|
Expected term (years)
|
|
|
2.28
- 5.00
|
|
|
|
1.00
- 4.82
|
|
|
|
2.28
- 5.00
|
|
|
|
1.00
- 5.05
|
|
Expected volatility
|
|
|
123%
- 139
|
%
|
|
|
91%
- 92
|
%
|
|
|
114%
- 154
|
%
|
|
|
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
|
|
|
382,879
|
|
Change in fair
value of derivative liability
|
|
|
2,238,744
|
|
Ending balance as of September
30, 2016
|
|
$
|
3,972,504
|
|
|
|
|
|
|
Warrants
Payable
|
|
|
|
|
Beginning balance as of January 1, 2016
|
|
$
|
77,761
|
|
Accrual of other warrant obligations
|
|
|
67,353
|
|
Change in fair value of warrants payable
|
|
|
205,402
|
|
Issuance of warrants
|
|
|
-
|
|
Ending balance as of September
30, 2016
|
|
$
|
350,516
|
|
Assets
and liabilities measured at fair value on a recurring or nonrecurring basis are as follows:
|
|
September
30, 2016
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,972,504
|
|
|
$
|
3,972,504
|
|
Warrants Payable
|
|
|
-
|
|
|
|
-
|
|
|
|
350,516
|
|
|
|
350,516
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,323,020
|
|
|
$
|
4,323,020
|
|
|
|
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 nine months ended September 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 September 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 September 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 September 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 nine months ended
September 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 September 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 nine
months ended September 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 nine months ended September 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 nine months ended September 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 September 30, 2016, the Company accrued
an aggregate of $752,000 related to dividends payable, of which, $365,300 was for the dividend for the three months ended June
30, 2016 and $386,700 was for the dividend for the three months ended September 30, 2016. See Note 4 – Accrued Expenses.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8.
STOCKHOLDERS’ DEFICIENCY – CONTINUED
PREFERRED
STOCK
– CONTINUED
SERIES
C CONVERTIBLE PREFERRED STOCK – CONTINUED
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, 2016, was equal to $15,794,600.
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 nine months ended September 30, 2016 in the amounts of $305,458 and $1,147,496 respectively, and for the three and nine
months ended September 30, 2015 in the amounts of $842,229 and $3,705,069, respectively. As of September 30, 2016, there was $143,353
of unrecognized stock-based compensation expense related to stock options that will be recognized over the weighted average remaining
vesting period of 0.7 years.
STOCK
OPTIONS
The
weighted average estimated fair value of the options granted during the nine months ended September 30, 2016 was $0.38 per share.
There were no options granted during the three months ended September 30, 2016. The weighted average estimated fair value of the
options granted during the three and nine months ended September 30, 2015 was $0.27 and $0.36 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 Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
N/A
|
|
|
|
0.66
|
%
|
|
|
0.73%
- 0.90
|
%
|
|
|
0.63%
- 1.21
|
%
|
Expected term (years)
|
|
|
N/A
|
|
|
|
2.50
|
|
|
|
2.50
|
|
|
|
2.50
- 3.50
|
|
Expected volatility
|
|
|
N/A
|
|
|
|
89
|
%
|
|
|
102%
- 118
|
%
|
|
|
87%
- 101
|
%
|
Expected dividends
|
|
|
N/A
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
A
summary of the option activity during the nine months ended September 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
|
|
|
(988,332
|
)
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2016
|
|
|
6,923,335
|
|
|
$
|
1.14
|
|
|
|
2.3
|
|
|
$
|
27,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2016
|
|
|
6,041,001
|
|
|
$
|
1.19
|
|
|
|
2.1
|
|
|
$
|
27,900
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8.
STOCKHOLDERS’ DEFICIENCY – CONTINUED
STOCK
WARRANTS
See
Note 6 – Notes Payable – Convertible and Other Notes – Related Party for details associated with the issuance
of warrants in connection with notes payable. See Note 8 – Stockholders’ Deficiency – Preferred Stock –
Series C Convertible Preferred Stock for details associated with the issuances of warrants in connection with security purchase
agreements.
During
the nine months ended September 30, 2016, the Company agreed to extend the maturity date of warrants to purchase an aggregate
of 2,590,000 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 $6,838 during the nine months ended September 30, 2016.
During
the nine months ended September 30, 2016, the Company recorded warrant modification expense of $457 related to the extension of
the expiration date of warrants to purchase 25,000 shares of common stock.
A
summary of the warrant activity during the nine months ended September 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
|
|
|
6,255,048
|
|
|
|
0.86
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited/expired
|
|
|
(11,815,042
|
)
|
|
|
1.84
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2016
|
|
|
55,483,597
|
|
|
$
|
0.89
|
|
|
|
2.7
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2016
|
|
|
55,483,597
|
|
|
$
|
0.89
|
|
|
|
2.7
|
|
|
$
|
134
|
|
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 nine months ended September 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
nine months ended September 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 nine months ended September 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 nine months ended September 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 Executive Chairman, such company is referred to as “FGI,” totaling
$0 during the three and nine months ended September 30, 2016 and $17,000 and $43,250 during the three and nine months ended September
30, 2015, respectively, for business development related to installations of EV charging stations by the Company in accordance
with the support services contract. These amounts are recorded as compensation on the condensed consolidated statements of operations.
These amounts were paid pursuant to a Fee/Commission Agreement entered into by the Company and FGI on November 17, 2009.
FGI and the Company’s Chief Operating
Officer (“COO”) have made certain claims for historical unpaid compensation pursuant to their Fee/Commission Agreements
with the Company. During November 2016, the Company’s Board of Directors quantified the total claims to be approximately
$475,000 for each party and, upon further analysis, determined the Company’s reasonable estimate of the aggregate liability
is $400,000 (estimated as $217,000 payable in cash and $183,000 payable in stock options) which was accrued and is included within
accrued expenses on the condensed consolidated balance sheet as of September 30, 2016.
In addition, FGI has made a claim that expired
warrants to purchase an aggregate of 5,733,335 shares of common stock should be replaced pursuant to an agreement with the Company.
As of the filing date, the fair value of the warrant claim is estimated to be approximately $1,000,000. The Company believes this
claim is without merit.
A committee of the Board expects to resolve
all claims made by FGI (including the possible replacement warrants) by the end of the fiscal year. Separately, a committee of
the Board expects to resolve all claims made by the COO by the end of the fiscal year.
The Company incurred accounting and tax service
fees totaling $0 for the three and nine months ended September 30, 2016 and $7,655 and $32,573 for the three and nine months ended
September 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.
See Note 6 - Notes Payable - Convertible and
Other Notes - Related Party and Note 10 – Commitments and Contingencies – Patent License Agreement.
10.
COMMITMENTS AND CONTINGENCIES
See
Note 9 – Related Parties for disclosures associated with certain related party contingencies.
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.
OPERATING
LEASE
Total
rent expense, net of sublease income, for the three and nine months ended September 30, 2016 was $34,100 and $205,091, respectively,
and $88,905 and $318,149 for the three and nine months ended September 30, 2015, respectively.
PATENT
LICENSE AGREEMENT
On
March 29, 2012, the Company, as licensee (the “Licensee”) entered into an exclusive patent license agreement with
the Executive Chairman of the Board and Balance Holdings, LLC (an entity controlled by the Executive Chairman) (collectively,
the “Licensor”), whereby the Company agreed to pay a royalty of 10% of the gross profits received by the Company from
commercial sales and/or use of two provisional patent applications, one relating to an inductive charging parking bumper and one
relating to a process which allows multiple EVs to plug into an EV charging station simultaneously and charge as the current becomes
available.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10.
COMMITMENTS AND CONTINGENCIES – CONTINUED
PATENT
LICENSE AGREEMENT
– CONTINUED
On
March 11, 2016, the Licensee and the Licensor entered into an agreement related to the March 29, 2012 patent license agreement.
The parties acknowledged 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”) (related to the inductive charging parking bumper) 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. The Company
has not paid nor incurred any royalties to date under the patent license agreement.
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. The arbitration
hearing is currently scheduled for February 6, 2017 through February 8, 2017. Depositions have begun 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. The Company has responded to the claim and is simultaneously
pursuing settlement options.
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
350
Green 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.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10.
COMMITMENTS AND CONTINGENCIES – CONTINUED
LITIGATION
AND DISPUTES
– CONTINED
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
continue a series of settlement discussions with a named Magistrate Judge ahead of court proceedings.
OTHER
MATTER
On
May 12, 2016, the 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.
11.
SUBSEQUENT EVENTS
NOTE
PAYABLE
The
Company entered into a Securities Purchase Agreement dated October 7, 2016 (the “Purchase Agreement”) with a purchaser
(the “Purchaser” and together with the Company, the “Parties”). In accordance with its terms, the Purchase
Agreement became effective upon (i) execution by the Parties of the Purchase Agreement, Note, the Warrant, and (ii) delivery of
an initial advance pursuant to the Note of $500,000, which occurred on October 13, 2016. The Note and Warrant were issued on October
13, 2016. Pursuant to the Purchase Agreement, the Purchaser purchased from the Company (i) a Promissory Note in the aggregate
principal amount of up to $3,725,000 (the “Note”) due and payable on the earlier of February 15, 2017 or if the Listing
Approval End Date (as defined in the Note) is February 28, 2017, March 31, 2017, or the third business day after the closing of
the Public Offering (as defined in the Purchase Agreement), and (ii) a Common Stock Purchase Warrant (the “Warrant”)
to purchase 714,285 shares of the Company’s common stock (“Common Stock”) at an exercise price per share equal
to the lesser of (i) 80% of the per share price of the Common Stock in the Company’s contemplated Public Offering, (ii)
$0.70 per share, (iii) 80% of the unit price in the Public Offering (if applicable), (iv) the exercise price of any warrants issued
in the Public Offering, or (v) the lowest conversion price, exercise price, or exchange price, of any security issued by the Company
that is outstanding on October 13, 2016. Additionally, pursuant to the Purchase Agreement, on the fifth (5th) trading day after
the pricing of the Public Offering, but in no event later than February 28, 2017, or, if the Listing Approval End Date is February
28, 2017, in no event later than March 31, 2017, the Company shall deliver to the Purchaser such number of duly and validly issued,
fully paid and non-assessable Origination Shares (as defined in the Purchase Agreement) equal to $1,680,000, divided by the lowest
of (i) $0.70 per share, or (ii) the lowest daily closing price of the Common Stock during the ten days prior to delivery of the
Origination Shares (subject to adjustment for stock splits), or (iii) 80% of the Common Stock offering price of the Public Offering,
or (iv) 80% of the unit price offering price of the Public Offering (if applicable), or (v) the exercise price of any warrants
issued in the Public Offering.
Pursuant
to the Note, the Purchaser is obligated to provide the Company additional $250,000 or $500,000 advances under the Note as certain
milestones, contained in the Funding Schedule within the Note, are achieved (the “Additional Advances”). In the event
of an Additional Advance, the Company shall deliver an additional warrant within three (3) days of such advances in the form of
the Warrant (the “Additional Warrant”), with the following terms: (i) an aggregate exercise amount equal to 100% of
the principal sum attributable to the Additional Advance or Further Advance, respectively (ii) at the per share exercise price
then in effect on the Warrant, and (iii) the number of shares for which the Additional Warrant is exercisable equal to the aggregate
exercise amount for the Additional Warrant divided by the exercise price. The Purchaser may, at its election, exercise the Warrant,
and each Additional Warrant, if any, pursuant to a cashless exercise.
If
the Company fails to repay the balance due under the Note, or issues a Variable Security (as defined in the Note) up to and including
the date of the closing of the Public Offering, the Purchaser has the right to convert all or any portion of the outstanding Note
into shares of Common Stock, subject to the terms and conditions set forth in the Note. All amounts due under the Note become
immediately due and payable upon the occurrence of an event of default as set forth in the Note.
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 September 30, 2016 and for the
three and nine months ended September 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 elsewhere in this Quarterly Report on Form 10-Q particularly in Item IA - Risk Factors.
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
We
are a leading owner, operator, and provider of electric vehicle (“EV”) charging equipment and networked EV charging
services. We offer 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) 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 provide 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.
As
reflected in our unaudited consolidated financial statements for the nine months ended September 30, 2016, we had had a cash balance,
a working capital deficiency and an accumulated deficit of $9,132, $22,166,473, and $82,527,579, respectively. During nine months
ended September 30, 2016 and 2015, we incurred net losses of $9,154,924 and $6,776,772, respectively. These factors raise substantial
doubt about our ability to continue as a going concern, as expressed in the notes to our consolidated financial statements. Historically,
we have been able to raise funds to support our business operations.
Through
April 16, 2014, 350 Green was our wholly-owned subsidiary in which we had full control and the Company 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.
We determined that our Company is the primary beneficiary of 350 Green, and as such, 350 Green’s assets, liabilities and
results of operations are included in our consolidated financial statements.
Consolidated
Results of Operations
Three
Months Ended September 30, 2016 Compared With Three Months Ended September 30, 2015
Revenues
We
have generated charging service revenue of $380,857 related to installed EV charging stations for the three months ended September
30, 2016 as compared to $436,259 for the three months ended September 30, 2015, a decrease of $55,402, or 13%, 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 the
amount of revenue we generate 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 derived from this program in the same periods in 2015.
Grant
revenue decreased from $262,858 to $71,125 during the three months ended September 30, 2016, a decrease of $191,733, or 73%. 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
the 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 decreased
from $232,739 to $205,821 during the three months ended September 30, 2016, a decrease of $26,918, or 12%. The decrease was primarily
due to a lower volume of residential units sold during the three months ended September 30, 2016, partially offset by a higher
volume of commercial units sold during the three months ended September 30, 2016.
Other
revenue increased from $74,284 to $97,356 during the three months ended September 30, 2016, an increase of $23,072, or 31%. Other
revenues are comprised of network and transaction fees earned from our hosts. The increase was primarily due an increase in maintenance
contracts from our hosts during the three months ended September 30, 2016 as compared to the three months ended September 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 September 30, 2016 were $700,865 (93% of revenues) as compared to $775,240 (77% of revenues) for the three
months ended September 30, 2015, a decrease of $74,375, or 10%. 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 $612,355, or 28%, from $2,176,818 for the three months ended September 30, 2015 to $1,564,463 for the three
months ended September 30, 2016. The decrease was primarily attributable to a reduction of approximately $680,000 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 September 30, 2015 under
the terms of his employment agreement) as well as a reduction in payroll and other related expenses of approximately $467,000
due to the departure of certain management and other personnel during the second half of 2015, partially offset by $400,000 of
commission expense in the 2016 period (of which, $217,000 is payable in cash and $183,000 is payable in stock options).
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $40,723, or 11%, from
$383,497 for the three months ended September 30, 2015 to $342,774 for the three months ended September 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 increased by $156,619, or 59%, from $264,334 for the three months ended September 30, 2015 to $420,953
for the three months ended September 30, 2016. The increase was primarily due to increased legal and consulting fees as compared
to the three months ended September 30, 2015 resulting from increased general corporate matters and litigation activity.
Other
(Expense) Income
Other
income was $737,809 for the three months ended September 30, 2015 as compared to other expense of $134,260 for the three months
ended September 30, 2016, a decrease of $872,069, or 118%. The decrease was primarily attributable to the loss we recorded from
the change in the fair value of warrant liabilities of $255,788 during the three months ended September 30, 2016 as compared to
a gain of $1,272,938 during the three months ended September 30, 2015, a decrease of $1,528,726, primarily as a result of the
Company’s share price, which increased the value of its warrant liabilities, partially offset by a decrease in the provision
for non-compliance penalty for delinquent regular SEC filings of $528,070.
Net
Loss
Our
net loss for the three months ended September 30, 2016 increased by $552,216, or 30%, to $2,408,156 as compared to $1,855,940
for the three months ended September 30, 2015. The increase was primarily attributable to an increase in other expenses of $872,069,
offset by a decrease in operating expenses of $496,459 and gross profit of $176,606. Our net loss attributable to common stockholders
for the three months ended September 30, 2016 increased by $373,810, or 15%, from $2,421,046 to $2,794,856 for the aforementioned
reasons and due to an increase in the dividend attributable to Series C Convertible Preferred shareholders of $144,200 and a decrease
in income attributable to our non-controlling interest of $322,606.
Nine
Months Ended September 30, 2016 Compared With Nine Months Ended September 30, 2015
Revenues
We
have generated charging service revenue of $1,121,739 related to installed EV charging stations for nine months ended September
30, 2016 as compared to $1,342,029 for the nine months ended September 30, 2015, a decrease of $220,290, or 16%, 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. The Program Coordinator pays the Company based on the number of program participants and the percentage of DC Fast
Chargers in the program. Starting in July 2015, the private company participating in this program began adding chargers to the
program and we no longer were able to generate as much revenue from the percentage of chargers we have in the 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 $1,068,837 to $228,290 during the nine months ended September 30, 2016, a decrease of $840,547, or 79%.
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 the 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 $638,718 to $856,195 during the nine months ended September 30, 2016, an increase of $217,477, or 34%. The
increase was primarily due to a higher volume of residential and commercial units sold during the nine months ended September
30, 2016.
Other
revenue increased from $190,968 to $305,687 during the nine months ended September 30, 2016, an increase of $114,719, or 60%.
Other revenues are comprised of network and transaction fees earned from our hosts. The increase was primarily due to an increase
in maintenance contracts from out host during the nine months ended September 30, 2016 as compared to the nine months ended September
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
nine months ended September 30, 2016 were $2,305,605 (92% of revenues) as compared to $2,557,402 (79% of revenues) for the nine
months ended September 30, 2015, a decrease of $251,797, or 10%, primarily due to a reduction in network fees due to a renegotiated
contract. 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 $2,815,132, or 40%, from $7,032,382 for the nine months ended September 30, 2015 to $4,217,250 for the nine
months ended September 30, 2016. The decrease was primarily attributable to share-based payments with a fair value of approximately
$1,375,000 made to our Chief Operating Officer during the nine months ended September 30, 2015 under the terms of an employment
agreement, as well as reduced payroll expenses of approximately $1,172,000 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 $148,501, or 12%,
from $1,205,648 for the nine months ended September 30, 2015 to $1,057,147 for the nine months ended September 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 $731,156, or 41%, from $1,789,826 for the nine months ended September 30, 2015 to $1,058,670
for the nine months ended September 30, 2016. The decrease was primarily due to reduced legal and consulting fees as compared
to the nine months ended September 30, 2015, which was primarily attributable to cash constraints during the nine months ended
September 30, 2016.
Other
(Expense) Income
Other
income was $2,567,934 for the nine months ended September 30, 2015 as compared to other expense of $3,028,163 for the nine months
ended September 30, 2016, a decrease of $5,596,097, or 218%. The decrease was primarily attributable to a loss from the change
in the fair value of warrant liabilities of $2,450,045 during the nine months ended September 30, 2016, as compared to a gain
of $2,161,845 during the nine months ended September 30, 2015, a decrease of $4,611,890, 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 nine months ended September 30, 2015 which related 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 nine months ended September 30, 2016 increased by $2,378,152, or 35%, to $9,154,924 as compared to $6,776,772
for the nine months ended September 30, 2015. The increase was primarily attributable to an increase in other expense of $5,596,097,
partially offset by a decrease in operating expenses of $3,694,789 and gross profit of $476,844. Our net loss attributable to
common shareholders for the nine months ended September 30, 2016 increased by $2,402,052, or 31%, from $7,823,272 to $10,225,324
for the aforementioned reasons and due to an increase in the dividend attributable to Series C Convertible Preferred shareholders
of $413,500 and a decrease in income attributable to our non-controlling interest of $389,600.
Liquidity
and Capital Resources
During
the nine months ended September 30, 2016, we primarily financed our activities from proceeds derived from debt and equity financings.
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, 2016 and 2015, we used cash of $1,913,463 and $4,975,523 in operating activities, respectively.
Our cash used in operating activities for the nine months ended September 30, 2016 was primarily attributable to our net loss
of $9,154,924, adjusted for non-cash expenses in the aggregate amount of $5,383,069, partially offset by $1,858,392 of net cash
provided by changes in the levels of operating assets and liabilities. Our cash used in operating activities 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.
For
the nine months ended September 30, 2016, cash used in investing activities was $80,463 which was used to purchase charging stations
and other fixed assets. During the nine months ended September 30, 2015, cash used in investing activities was $171,233, of which
$38,368 was used for the purchase of office and computer equipment and $210,965 was paid to the ECOtality Estate Creditor’s
Committee, offset by $78,100 of proceeds from the sale of fixed assets.
Cash
provided by financing activities for the nine months ended September 30, 2016 was $1,813,827, 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,
$600,000 was provided in connection with proceeds from the issuance of convertible notes to a related party and $139,844 was provided
by bank overdrafts, partially offset by the repayment of $135,428 of notes payable and the payment of an aggregate of $157,709
of issuance costs. Cash provided by financing activities for the nine months ended September 30, 2015 was $3,640,063, of which
$3,830,000 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 $189,937.
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
September 30, 2016, we incurred an accumulated deficit since inception of $82,527,579.
As
of September 30, 2016, we had a cash balance and working capital deficit of $9,132
and
$22,166,473, respectively. During the three and nine months ended September 30, 2016, we incurred net losses of $2,408,156 and
$9,154,924, 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 we be unable to continue as a going concern.
Recent
Developments
Private
Placements
On
March 11, 2016, we entered into a securities purchase agreement with a purchaser for gross proceeds of an aggregate of $2,900,040,
of which, $650,040 was paid to us at closing and the remaining $2,250,000 is payable to us upon the completion of certain milestones,
as specified in the agreement. At closing, 10,834 shares of Series C Convertible Preferred Stock were issued to the purchaser
and 2,500 shares of Series C Convertible Preferred Stock were issued upon the completion of certain milestone during the three
months ended March 31, 2016.
We
entered into the Purchase Agreement dated October 7, 2016 with JMJ. In accordance with its terms, the Purchase Agreement became
effective upon (i) execution by the Parties of the Purchase Agreement, a note, and a warrant, and (ii) delivery of an initial
advance pursuant to the note of $500,000, which occurred on October 13, 2016. The note and warrant were issued on October 13,
2016. Pursuant to the Purchase Agreement, JMJ purchased from our Company (i) a Promissory Note in the aggregate principal amount
of up to $3,725,000 due and payable on the earlier of February 15, 2017 or if the Listing Approval End Date (as defined in the
note) is February 28, 2017, March 31, 2017, or the third business day after the closing of the Public Offering (as defined in
the Purchase Agreement), and (ii) a Common Stock Purchase Warrant to purchase 714,285 shares of our common stock at an exercise
price per share equal to the lesser of (i) 80% of the per share price in the contemplated Public Offering, (ii) $0.70 per share,
(iii) 80% of the unit price in the Public Offering (if applicable), (iv) the exercise price of any warrants issued in the Public
Offering, or (v) the lowest conversion price, exercise price, or exchange price, of any security issued by us that is outstanding
on October 13, 2016. The aggregate exercise price is $500,000. Pursuant to the terms of the note, JMJ has agreed that it will
not convert the note into more than 9.99% of our outstanding shares. JMJ currently does not own any shares of our common stock.
On
the fifth (5th) trading day after the pricing of the Public Offering, but in no event later than February 28, 2017, or, if the
Listing Approval End Date is February 28, 2017, in no event later than March 31, 2017, we will deliver to JMJ shares of our common
stock (“Origination Shares”) equal to 48% of the consideration paid by JMJ under the note divided by the lowest of
(i) $0.70 per share, or (ii) the lowest daily closing price of the Issuer’s common stock during the ten days prior to delivery
of the Origination Shares (subject to adjustment for stock splits), or (iii) 80% of the common stock offering price of the Public
Offering, or (iv) 80% of the unit price offering price of the Public Offering (if applicable), or (v) the exercise price of any
warrants issued in the Public Offering.
The
initial amount borrowed under the note was $500,000, with the remaining amounts permitted to be borrowed under the note being
subject to us achieving certain milestones. JMJ will receive a Common Stock Purchase Warrant after each advance. In addition,
we agreed that until the closing of the Public Offering, if we issue any security with any term more favorable to the holder of
such security or with a term in favor of the holder of such security that was not similarly provided to JMJ in the note or the
warrants, such term, at the JMJ’s option, shall become a part of the transaction documents with JMJ. In addition, we agreed
to a one-year prohibition (after the closing of the Public Offering) on issuing securities at an effective price per share lower
than the greatest of: (i) the exercise price of any warrant issued to JMJ; (ii) the offering price in the Public Offering; or
(iii) the exercise price of any warrants issued in the Public Offering. In addition, we agreed on a prohibition on issuing any
debt or variable rate security.
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 Michael
D. Farkas, our Executive Chairman. 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 Mr. Farkas.
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 $100,000 to a company wholly-owned by Mr. Farkas.
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 500,000 shares of common stock at an exercise price of $0.70 per
share.
On
July 29, 2016, we issued a sixty-day convertible note in the principal amount of $50,000 to a company wholly-owned by Mr. Farkas.
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 250,000 shares of common stock at an exercise price of $0.70 per
share.
On
July 29, 2016, we issued a sixty-day convertible note in the principal amount of $20,000 to a company wholly-owned by Mr. Farkas.
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 100,000 shares of common stock at an exercise price of $0.70 per
share.
On
August 1, 2016, we issued a sixty-day convertible note in the principal amount of $30,000 to a company wholly-owned by Mr. Farkas.
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 150,000 shares of common stock at an exercise price of $0.70 per
share.
On
August 15, 2016, we issued a sixty-day convertible note in the principal amount of $100,000 to a company wholly-owned by Mr. Farkas.
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 500,000 shares of common stock at an exercise price of $0.70 per
share.
On
September 1, 2016, we issued a sixty-day convertible note in the principal amount of $15,000 to a company wholly-owned by Mr.
Farkas. 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 75,000 shares of common stock at an exercise price of $0.70 per share.
On
September 9, 2016, we issued a sixty-day convertible note in the principal amount of $35,000 to a company wholly-owned by Mr.
Farkas. 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 175,000 shares of common stock at an exercise price of $0.70 per
share.
On
September 16, 2016, we issued a sixty-day convertible note in the principal amount of $50,000 to a company wholly-owned by Mr.
Farkas. 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 250,000 shares of common stock at an exercise price of $0.70 per
share.
With the exception of
the June 24, 2016 convertible note for $105,000, the convertible notes in favor of a company wholly-owned by Mr. Farkas discussed
above have matured and are past due. We have not satisfied this debt and are in negotiations with Mr. Farkas to extend the maturity
dates of such notes. If we are unable to do so on favorable terms, or at all, Mr. Farkas could seek to enforce the notes against
us, which could have an adverse effect on our business and reduce the market price of our common stock. On November 14, 2016,
we received notices of default with respect to notes payable to a company wholly-owned by the Executive Chairman with an aggregate
principal balance of $410,000 which included demands for payment of the outstanding principal and interest within seven days.
Patent
License Agreement
On
March 29, 2012, we, as licensee (the “Licensee”) entered into an exclusive patent license agreement with Mr. Farkas,
and Balance Holdings, LLC (an entity controlled by Mr. Farkas) (collectively, the “Licensor”), whereby we agreed to
pay a royalty of 10% of the gross profits received by us from commercial sales and/or use of two provisional patent applications,
one relating to an inductive charging parking bumper and one relating to a process which allows multiple EVs to plug into an EV
charging station simultaneously and charge as the current becomes available.
On
March 11, 2016, the Licensee and the Licensor entered into an agreement related to the March 29, 2012 patent license agreement.
The parties acknowledged 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”) (related to the inductive charging parking bumper) 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. Mr. Farkas 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, Mr. Farkas 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 Mr. Farkas at the time the Patent Application is approved, Mr. Farkas 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.
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 SEC
on July 29, 2016. Please refer to that document for disclosures regarding the critical accounting policies related to our business.
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).
Recent
Issued Accounting Pronouncements
In
August 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” (“ASU
2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified
in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. ASU 2016-15 requires
adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments
prospectively as of the earliest date practicable. We are currently evaluating ASU 2016-15 and its impact on our condensed consolidated
financial statements or disclosures.
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on our financial statements upon adoption.