2. GOING
CONCERN AND MANAGEMENT’S PLANS
As
of March 31, 2017, the Company had a cash balance, a working capital deficiency and an accumulated deficit of $2,988, $18,989,258
and $84,169,514, respectively. During the three months ended March 31, 2017, the Company incurred a net loss of $3,097,732.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern within a year after
the issuance date of this filing.
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 March 31, 2017, the Company received an aggregate of $695,000 associated with the issuance of a convertible note payable. In
addition, pursuant to a convertible note, an additional $999,900 of funding could be released to the Company upon the completion
of certain contractually defined milestones. See Note 5 – Notes Payable – Convertible and Other and Notes and Note
10 – Subsequent Events – Convertible Note for additional details. There can be no assurance that the Company will
be successful in attaining the defined 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 voting control and was therefore 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, derivative liabilities 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 March 31, 2017, and December
31, 2016, there was an allowance for uncollectable amounts of $19,848 and $42,349, 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 $188,000 and $154,000 as of March 31, 2017 and December 31, 2016, respectively.
As
of March 31, 2017, and December 31, 2016, 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
March 31, 2017 and December 31, 2016 was $4,870,795 and $4,726,861, 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 March 31, 2017 and December 31,
2016 was $36,339 and $33,759, 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 FASB 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 instruments, such as cash and cash equivalents, accounts receivable and accounts
payable 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. The Company determined that VSOE exists for both the delivered and undelivered
elements of the company’s multiple-element arrangements. The Company limited their 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 months ended March 31, 2017 and 2016, revenues generated from Entity C represented approximately 10% and 13%, respectively,
of the Company’s total revenue. During the three months ended March 31, 2017, revenues generated from Entity D represented
approximately 16% of the Company’s total revenue. The Company generated charging service revenues from a customer (Entity
C) and equipment sales revenue from a customer (Entity D). As of March 31, 2017, and December 31, 2016, accounts receivable from
Entity C were 11% and 18%, respectively, of total accounts receivable.
RECLASSIFICATIONS
Certain
prior year balances have been reclassified in order to conform to current year presentation. These reclassifications have no effect
on previously reported results of operations or loss per share.
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 and convertible notes.
The
following common stock equivalents are excluded from the calculation of weighted average dilutive common shares because their
inclusion would have been anti-dilutive:
|
|
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Preferred
stock
|
|
|
53,264,425
|
|
|
|
50,635,502
|
|
Warrants
|
|
|
55,900,882
|
|
|
|
57,881,213
|
|
Options
|
|
|
7,411,668
|
|
|
|
7,700,000
|
|
Convertible
notes
|
|
|
850,107
|
|
|
|
50,983
|
|
Total
potentially dilutive shares
|
|
|
117,427,082
|
|
|
|
116,267,698
|
|
COMMITMENTS
AND CONTINGENCIES
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it
is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
LITIGATION
AND DISPUTES
The
Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements.
4.
ACCRUED EXPENSES
SUMMARY
Accrued
expenses consist of the following:
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
Registration rights penalty
|
|
$
|
1,003,944
|
|
|
$
|
967,928
|
|
Accrued consulting fees
|
|
|
181,800
|
|
|
|
184,800
|
|
Accrued host fees
|
|
|
1,395,650
|
|
|
|
1,308,897
|
|
Accrued professional, board and other fees
|
|
|
1,447,629
|
|
|
|
1,381,399
|
|
Accrued wages
|
|
|
230,000
|
|
|
|
241,466
|
|
Accrued commissions
|
|
|
500,000
|
|
|
|
445,000
|
|
Warranty payable
|
|
|
333,000
|
|
|
|
338,000
|
|
Accrued taxes payable
|
|
|
556,687
|
|
|
|
511,902
|
|
Accrued payroll taxes payable
|
|
|
246,818
|
|
|
|
122,069
|
|
Warrants payable
|
|
|
202,980
|
|
|
|
155,412
|
|
Accrued issuable equity
|
|
|
1,306,862
|
|
|
|
862,377
|
|
Accrued interest expense
|
|
|
338,582
|
|
|
|
273,838
|
|
Accrued lease termination costs
|
|
|
300,000
|
|
|
|
-
|
|
Accrued settlement reserve costs
|
|
|
175,000
|
|
|
|
-
|
|
Dividend payable
|
|
|
1,905,000
|
|
|
|
1,150,100
|
|
Other accrued
expenses
|
|
|
14,068
|
|
|
|
12,788
|
|
Total
accrued expenses
|
|
$
|
10,138,020
|
|
|
$
|
7,955,976
|
|
Accrued
expenses, net of current portion
|
|
|
3,150,212
|
|
|
|
-
|
|
Current
portion of accrued expenses
|
|
$
|
6,987,808
|
|
|
$
|
7,955,976
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4
.
ACCRUED EXPENSES - CONTINUED
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. On November 7, 2016, the Company filed a registration statement under the Securities Act of 1933 but, as
of March 31, 2017, the registration statement had not been declared effective by the SEC. 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 and once filed the Company has 30 days for the registration statement to be deemed effective otherwise the
penalty resumes each month until the terms are met. 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 $1,003,944 and $967,928 of Series C Convertible Preferred Stock registration rights damages
at March 31, 2017 and December 31, 2016, respectively. Subsequent to March 31, 2017, the Company issued Series C Convertible
Preferred Stock in satisfaction of the liability. See Note 10 – Subsequent Events - Series C Convertible Preferred Stock
for additional details.
ACCRUED
PROFESSIONAL, BOARD AND OTHER FEES
Accrued
professional, board and other fees consist of investment banking fees, professional fees, bonuses, board of director fees, network
fees, installation costs and other miscellaneous fees. As of March 31, 2017 and December 31, 2016, accrued investment banking
fees were $860,183, which were payable in cash.
ACCRUED
COMMISSIONS
See
Note 8 – Related Parties for additional details.
WARRANTY
PAYABLE
The
Company provides a limited product warranty against defects in materials and workmanship for its Blink residential and commercial
chargers, ranging in length from one to two years. The Company accrues for estimated warranty costs at the time of revenue recognition
and records the expense of such accrued liabilities as a component of cost of sales. Estimated warranty costs are based on historical
product data and anticipated future costs. Should actual failure rates differ significantly from estimates, the impact of these
unforeseen costs would be recorded as a change in estimate in the period identified. Warranty expenses for the three months ended
March 31, 2017 and 2016 were $19,147 and $71,116, respectively.
ACCRUED
ISSUABLE EQUITY
In
connection with the issuance of a convertible note payable in 2016, the Company is obligated to issue to the purchaser shares
of common stock equal to 48% of the consideration paid by the purchaser. The Company must issue such shares on the earlier of
(i) the fifth (5th) trading day after the pricing of the Public Offering and (ii) May 15, 2017. As of March 31, 2017, the purchaser
paid aggregate consideration of $1,805,100 to the Company but the Company had not yet issued the common stock to the purchaser.
As a result, the Company accrued the $866,448 obligation. See Note 5 – Notes Payable – Convertible and Other Notes
for additional details.
Subsequent
to March 31, 2017, the Company issued 575,144 shares of common stock in satisfaction of $230,000 of the liability. See Note 10
– Subsequent Events - Common Stock for additional details.
RELEASE
OF LIABILITY
On
March 24, 2017, the Company was released from a $23,928 liability pursuant to a professional service agreement, such that it recognized
a gain on forgiveness of accounts payable of $23,928 during the three months ended March 31, 2017.
ACCRUED
LEASE TERMINATION COSTS
See
Note 9 – Commitments and Contingencies – Operating Lease for additional details.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED)
5. NOTES
PAYABLE
CONVERTIBLE
AND OTHER NOTES
Amendment
of Promissory Note
With
respect to the securities and purchase agreement dated October 7, 2016, on March 23, 2017, the parties agreed to amend the terms
of the securities and purchase agreement and promissory note as follows:
The
maturity date of the note is the earlier of May 15, 2017 or third business day after the closing of the Public Offering. Subsequent
to March 31, 2017, the maturity date was extended to the earlier of June 15, 2017 or the third business day after the closing
of the Public Offering. See Note 10 – Subsequent Events – Convertible Notes for additional details.
With
respect to the Origination Shares, on the fifth (5th) trading day after the pricing of the Public Offering, but in no event later
than May 15, 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 equal
to 48% of the consideration paid by the purchaser, 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. In the event that the Public
Offering is not completed before May 15, 2017, so long as purchaser owns any of the Origination Shares at the time of a subsequent
public offering where the pricing terms above would result in a lower Origination Share pricing, the Origination Shares pricing
shall be subject to a reset based on the same above pricing terms (such that the Origination Shares issuance price would be reduced
and the number of Origination Shares issued would be increased to equal the Origination Dollar Amount). Unless otherwise agreed
by both parties, at no time will the Company issue to the purchaser such number of Origination Shares that would result in the
purchaser owning more than 9.99% of the number of shares of common stock outstanding of the Issuer immediately after giving effect
to the issuance of the Origination Shares.
The
purchaser conditionally waives the defaults for the Company’s failure to meet the original maturity date of the note and
delivery date for the Origination Shares, but the purchaser does not waive any damages, fees, penalties, liquidated damages, or
other amounts or remedies otherwise resulting from such defaults (which damages, fees, penalties, liquidated damages, or other
amounts or remedies the Investor may choose in the future to assess, apply or pursue in its sole discretion) and the purchaser’s
conditional waiver is conditioned on the Company’s not being in default of and not breaching any term of the note or the
securities purchase agreement or any other Transaction Documents (as defined in the securities purchase agreement) at any time
subsequent to the date of the amendment. If the Company triggers an event of default or breaches any term of the note, the securities
purchase agreement, or the Transaction Documents at any time subsequent to the date of the amendment, the purchaser may issue
a notice of default for the Company’s failure to meet the original maturity date of the note and delivery date of the Origination
Shares.
Issuances
With
respect to the securities and purchase agreement dated October 7, 2016, as amended on March 23, 2017, during the three months
ended March 31, 2017, the Company received additional advances of an aggregate of $805,100 under the note, such that, as of March
31, 2017, an aggregate of $1,805,100 had been advanced to the Company by the purchaser. Pursuant to the terms of the securities
purchase agreement, the Company is required to repay an aggregate of $856,856 to the purchaser in connection with the advances
received during the three months ended March 31, 2017. The $51,756 difference between the principal amount and the cash received
was recorded as debt discount and is being accreted to interest expense over the term of the note.
Pursuant
to the terms of the note, during the three months ended March 31, 2017, the Company issued five-year warrants to purchase an aggregate
of 1,150,142 shares of the Company’s common stock with an issuance date fair value of an aggregate of $44,795, which was
recorded as a derivative liability. The aggregate exercise price of the warrants is $805,100. As of March 31, 2017, the Company
had not issued the Origination Shares (as defined in the securities purchase agreement) associated with the advances to-date and,
as a result, accrued for the $866,448 obligation as of March 31, 2017. See Note 4 – Accrued Expenses – Accrued Issuable
Equity. The conversion option of the note was determined to be a derivative liability. The aggregate issuance date fair value
of the warrants, Origination Shares, conversion option, placement agent fees and other issuance costs in connection with the advances
during the three months ended March 31, 2017 was $819,868, which was recorded as a debt discount against the principal amount
of the note. The $18,213 of debt discount in excess of the principal was recognized immediately and the remaining $801,655 of
debt discount is being recognized over the term of the note.
During
the three months ended March 31, 2017, the Company made aggregate principal repayments of $3,604 associated with a non-convertible
note payable.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. NOTES
PAYABLE - CONTINUED
CONVERTIBLE
AND OTHER NOTES - RELATED PARTY
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. As of the date of filing there have been no further developments in respect to the demand for payment on these notes
payable.
On
February 10, 2017, the Company issued a promissory note in the principal amount of $22,567, to a company in which the Company’s
Executive Chairman has a controlling interest, which bears interest at 10% per annum payable upon maturity. The promissory note
is payable on the earlier of May 9, 2017, or the closing date of a public offering of the Company’s securities, which raises
gross proceeds of at least $10,000,000. This note may be prepaid in whole or in part at any time without penalty or premium. As
of the date of filing, the note is 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
February 14, 2017, the Company issued a promissory note in the principal amount of $25,000, to a company in which the Company’s
Executive Chairman has a controlling interest, which bears interest at 10% per annum payable upon maturity. The promissory note
is payable on the earlier of May 15, 2017, or the closing date of a public offering of the Company’s securities, which raises
gross proceeds of at least $10,000,000. This note may be prepaid in whole or in part at any time without penalty or premium. As
of the date of filing, the note is 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.
INTEREST
EXPENSE
Interest
expense for the three months ended March 31, 2017 and 2016 was $140,661 and $35,238, respectively.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. FAIR
VALUE MEASUREMENT
See
Note 4 – Accrued Expenses – Warrants Payable for additional details associated with issuance costs which included
an obligation to issue investment banker warrants. See Note 5 – Notes Payable – Convertible and Other Notes for warrants
classified as derivative liabilities that were issued in connection with a convertible note.
Assumptions
utilized in the valuation of Level 3 liabilities are described as follows:
|
|
For
the Three Months Ended
|
|
|
|
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
1.47
- 1.50
|
%
|
|
|
0.87%
- 1.16
|
%
|
Expected
term (years)
|
|
|
1.53
- 5.00
|
|
|
|
2.53
- 4.28
|
|
Expected
volatility
|
|
|
149%
- 155
|
%
|
|
|
114%
- 119
|
%
|
Expected
dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The
following table sets forth a summary of the changes in the fair value of Level 3 warrant liabilities that are measured at fair
value on a recurring basis:
Derivative
Liabilities
|
|
|
|
Beginning
balance as of January 1, 2017
|
|
$
|
1,583,103
|
|
Issuance of
warrants
|
|
|
334,487
|
|
Change
in fair value of derivative liability
|
|
|
421,200
|
|
Ending
balance as of March 31, 2017
|
|
$
|
2,338,790
|
|
|
|
|
|
|
Warrants
Payable
|
|
|
|
|
Beginning
balance as of January 1, 2017
|
|
$
|
155,412
|
|
Provision
for new warrant issuances
|
|
|
-
|
|
Accrual
of other warrant obligations
|
|
|
4,479
|
|
Change
in fair value of warrants payable
|
|
|
42,486
|
|
Ending
balance as of March 31, 2017
|
|
$
|
202,377
|
|
Assets
and liabilities measured at fair value on a recurring or nonrecurring basis are as follows:
|
|
March
31, 2017
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,338,790
|
|
|
$
|
2,338,790
|
|
Warrants
Payable
|
|
|
-
|
|
|
|
-
|
|
|
|
202,377
|
|
|
|
202,377
|
|
Total
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,541,167
|
|
|
$
|
2,541,167
|
|
|
|
December
31, 2016
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,583,103
|
|
|
$
|
1,583,103
|
|
Warrants
payable
|
|
|
-
|
|
|
|
-
|
|
|
|
155,412
|
|
|
|
155,412
|
|
Total
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,738,515
|
|
|
$
|
1,738,515
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. STOCKHOLDERS’
DEFICIENCY
PREFERRED
STOCK
SERIES
A CONVERTIBLE PREFERRED STOCK
The
Series A Convertible Preferred Stock shall have no liquidation preference so long as the Series C Convertible Preferred Stock
shall be outstanding.
SERIES
B CONVERTIBLE PREFERRED STOCK
On
December 31, 2016, the Company received a notice of redemption from the creditors committee of the ECOtality estate to redeem
2,750 shares of Series B Convertible Preferred Stock for $275,000. As of March 31, 2017, the redemption amount remained outstanding.
The Company has the option to settle the redemption request either by the repayment in cash or by the issuance of shares of common
stock.
As
of March 31, 2017, the liquidation preference for the Series B Convertible Preferred Stock amounted to $825,000.
SERIES
C CONVERTIBLE PREFERRED STOCK
As
of March 31, 2017, and December 31, 2016, the Company recorded a dividend payable liability on the shares of Series C Convertible
Preferred Stock of $1,905,000 and $1,150,100, respectively. See Note 4 – Accrued Expenses. Subsequent to March 31, 2017,
the Company issued Series C Convertible Preferred Stock in satisfaction of the liability. See Note 10 – Subsequent Events
- Series C Convertible Preferred Stock for additional details.
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 March 31, 2017, was equal to $16,947,600.
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 months ended March 31, 2017 and 2016 of $167,248 and $561,246, respectively, which is included within compensation expense
on the condensed consolidated statement of operations. As of March 31, 2017, there was $30,947 of unrecognized stock-based compensation
expense that will be recognized over the weighted average remaining vesting period of 0.25 years.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. RELATED
PARTIES
See
Note 5 - Notes Payable – Convertible and Other Notes – Related Party.
A
company owned by its Executive Chairman, such company is referred to as “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 $500,000 (estimated as $375,000 payable in cash and $125,000 payable in stock options). The Company’s Board of Directors
continues to investigate this claim, but has not reached any conclusions or new estimates of the aggregate liability. The estimated
aggregate liability of $500,000 was accrued and is included within accrued expenses on the condensed balance sheet as of March
31, 2017. See Note 4 – Accrued Expenses.
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 March 31, 2017, the fair value of the warrant claim is estimated to be approximately
$686,000. The Company’s Board of Directors is currently investigating this claim, but at this time, the range of possible
settlement amounts ranges from $0 to $686,000, with no amount being more likely than another amount. Accordingly, the Company
has not made any accrual for a settlement of this claim as of March 31, 2017.
On
February 7, 2017, a company in which the Company’s Executive Chairman has a controlling interest purchased the following
securities from a stockholder of the Company for $1,000,000: 7,142,857 shares of common stock, 114,491 shares of Series C Preferred
Stock, warrants to purchase 26,230,176 shares of the Company’s common stock, and all rights, claims, title, and interests
in any securities of whatever kind or nature issued or issuable as a result of the stockholder’s ownership of the Company’s
securities.
9. COMMITMENTS
AND CONTINGENCIES
OPERATING
LEASE
On
February 28, 2017, the Company vacated the Phoenix, Arizona space and has no further obligation in connection with the sublease.
Total
rent expense, net of sublease income, for the three months ended March 31, 2017 and 2016 was $56,548 and $79,871, respectively,
and is recorded in other operating expenses on the condensed consolidated statements of operations.
On
March 20, 2017, in connection with the Company’s Miami Beach, Florida lease, the Company’s landlord filed a complaint
for eviction with the Miami-Dade County Court against the Company as a result of the Company’s default under the lease for
failing to pay rent, operating expenses and sales taxes of approximately $175,000, which represents the Company’s obligations
under the lease through March 31, 2017, which was accrued for as of March 31, 2017. As a result of the action taken by the landlord,
as of March 31, 2017, the Company accrued an additional $300,000, which represents the fair value of the Company’s rent
obligation through the end of the lease.
TAXES
The
Company has not filed its Federal and State corporate income tax returns for the years ended December 31, 2014 and 2015. The Company
has sustained losses for the years ended December 31, 2014 and 2015. The Company has determined that no tax liability, other than
required minimums, has been incurred.
The
Company is also delinquent in filing and, in certain instances, paying sales taxes collected from customers in specific states
that impose a tax on sales of the Company’s products. The Company has accrued an approximate $216,000 liability as of March
31, 2017 and December 31, 2016 related to this matter.
The
Company is currently delinquent in remitting approximately $247,000 and $244,000 as of March 31, 2017 and December 31, 2016, respectively,
of federal and state payroll taxes withheld from employees. On March 29, 2017, the Company sent a letter to the Internal Revenue
Service (“IRS”) notifying the IRS of its intention to resolve the delinquent taxes upon the receipt of additional
working capital.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. COMMITMENTS
AND CONTINGENCIES – CONTINUED
LITIGATION
AND DISPUTES
On
July 28, 2015, a Notice of Arbitration was received stating ITT Cannon has a dispute with Blink for the manufacturing and purchase
of 6,500 charging cables by Blink, which had 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 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 July 26, 2017 through July 28, 2017. The
parties began initial depositions in February and will continue through the period leading to the arbitration hearing. In parallel
however, the parties had settlement discussions on February 28, 2017. As of May 8, 2017, settlement agreement drafts have been
exchanged between Blink, Car Charging and ITT reflecting stock valued at $200,000 and, as a result, the Company accrued for the
liability as of March 31, 2017. The amount of shares will be determined and priced on the day of closing of our contemplated public
offering. For this, ITT would relinquish to Car Charging all of the remaining inventory of the EV charging cable assemblies originally
valued at $737,425. Typical stock restrictions and/or stock bleed out agreements may be imposed affecting the final settlement
figure. On May 10, 2017, the parties had a case management conference in which they informed the arbitrator that they are attempting
to settle the case.
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. The parties failed to settle after numerous attempts. On February 15, 2017, the case was brought to the Georgia Arbitration
Committee. On February 26, 2017, The Stein Law firm was awarded a summary judgment for $178,893. The Company may appeal the decision
and/or offer stock and/or cash in exchange for the awarded judgment at a later date.
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. Subsequent to March 31, 2017, the Company issued 364,061 shares of common stock to Solomon Edwards
Group, LLC in partial satisfaction of the past due amount, which amount is included in Note 10 – Subsequent Events –Common
Stock.
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. As of March 31, 2017 and December 31, 2016, an amount of $112,500 is included in accounts payable
of 350 Green. The parties held a mediation conference on May 15, 2015, but no settlement was reached. The Company settled with
Sheetz in principal on February 10, 2017 with the formal documentation being signed on March 1, 2017. The settlement involved
a combination of DC charging equipment, installation, charging services, shared driver charging revenue and maintenance for two
systems in exchange for no further legal action amongst 350 Holdings or the Company.
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 the Company 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. On April 28, 2017, the parties
concluded their efforts to mediate a settlement before Magistrate Judge Kim without achieving a settlement. Settlement discussions
are ongoing between the parties. The next status hearing on the matter is set for May 31, 2017.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. SUBSEQUENT
EVENTS
CONVERTIBLE
NOTES
Issuances
With
respect to the securities and purchase agreement dated October 7, 2016, as amended on March 23, 2017 and May 15, 2017,
subsequent to March 31, 2017, the Company received additional advances of an aggregate of $695,000 under the note. Pursuant to
the terms of the note, the Company issued warrants to purchase an aggregate of 992,856 shares of the Company’s common stock
with an aggregate exercise price of $695,000.
A
mendment
of Promissory Note
With
respect to the securities and purchase agreement dated October 7, 2016, as amended on March 23, 2017, on May 15, 2017, the parties
agreed to amend the terms of the securities and purchase agreement and promissory note as follows:
The
maturity date of the note is the earlier of June 15, 2017 or third business day after the closing of the Public Offering.
With
respect to the Origination Shares, on the fifth (5th) trading day after the pricing of the Public Offering, but in no event later
than June 15, 2017, the Company shall deliver to the purchaser such number of duly and validly issued, fully paid and non-assessable
Origination Shares equal to 48% of the consideration paid by the purchaser, 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.
In the event that the Public Offering is not completed before June 15, 2017, so long as purchaser owns any of the Origination
Shares at the time of a subsequent public offering where the pricing terms above would result in a lower Origination Share pricing,
the Origination Shares pricing shall be subject to a reset based on the same above pricing terms (such that the Origination Shares
issuance price would be reduced and the number of Origination Shares issued would be increased to equal the Origination Dollar
Amount). Unless otherwise agreed by both parties, at no time will the Company issue to the purchaser such number of Origination
Shares that would result in the purchaser owning more than 9.99% of the number of shares of common stock outstanding of the Issuer
immediately after giving effect to the issuance of the Origination Shares.
The
purchaser conditionally waives the defaults for the Company’s failure to meet the original and previously amended maturity
date of the note and delivery date for the Origination Shares, but the purchaser does not waive any damages, fees, penalties,
liquidated damages, or other amounts or remedies otherwise resulting from such defaults (which damages, fees, penalties, liquidated
damages, or other amounts or remedies the Investor may choose in the future to assess, apply or pursue in its sole discretion)
and the purchaser’s conditional waiver is conditioned on the Company’s not being in default of and not breaching any
term of the note or the securities purchase agreement or any other Transaction Documents (as defined in the securities purchase
agreement) at any time subsequent to the date of the amendment. If the Company triggers an event of default or breaches any term
of the note, the securities purchase agreement, or the Transaction Documents at any time subsequent to the date of the amendment,
the purchaser may issue a notice of default for the Company’s failure to meet the original maturity date of the note and
delivery date of the Origination Shares.
SERIES
C CONVERTIBLE PREFERRED STOCK
Subsequent
to March 31, 2017, the Company issued an aggregate of 61,740 shares of Series C Convertible Preferred Stock in satisfaction of
aggregate liabilities of approximately $6,200,000 associated with the Company’s registration rights penalty, public information
fee and Series C Convertible Preferred Stock dividends.
COMMON
STOCK
Subsequent
to March 31, 2017, the Company issued an aggregate of 1,058,314 shares of common stock in satisfaction of aggregate liabilities
of $386,900 associated with certain professional and other consulting fee agreements.
EXCHANGE
OF WARRANTS AND SERIES C CONVERTIBLE PREFERRED STOCK
Subsequent
to March 31, 2017, the Company sent out letters to various holders of warrants and Series C Convertible Preferred Stock that contained
an offer for the holder to (i) exchange their exiting warrants for common stock of the Company and (ii) exchange their existing
Series C Preferred Stock for common stock of the Company. As of the date of filing, holders had agreed to (i) exchange warrants
to purchase an aggregate of 2,285,000 shares of common stock for an aggregate of 2,285,000 shares of common stock (the “Warrant
Exchange”) and (ii) exchange an aggregate of 6,811 shares of Series C Convertible Preferred Stock for common stock based
upon a formula defined in the agreement (the “Series C Preferred Stock Exchange”). The Warrant Exchange is effective
immediately and the Series C Preferred Stock Exchange is effective upon closing of the Public Offering. The Series C Preferred
Stock shall be exchanged for common stock using the following formula: the number of shares of Series C Convertible Preferred
Stock owned multiplied by a factor of 115 and divided by 80% of the price per share of common stock sold in the in the Public
Offering. The holders also agreed to not, without prior written consent of the underwriter, sell or otherwise transfer any shares
of common stock or any securities convertible into common stock for a period of 270 days from the effective date of the Series
C Preferred Stock Exchange. As of the date of filing, the Company had not issued the common stock in connection with Warrant Exchange.
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 March 31, 2017 and for the three
months ended March 31, 2017 and 2016 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 condensed consolidated financial statements for the three months ended March 31, 2017, we had had a
cash balance, a working capital deficiency and an accumulated deficit of $2,988, $18,989,258 and $84,169,514, respectively.
During the three months ended March 31, 2017, we incurred a net loss of $3,097,732. These factors raise substantial doubt about
our ability to continue as a going concern, as expressed in the notes to our condensed consolidated financial statements. Historically,
we have been able to raise funds to support our business operations, although there can be no assurance we will be successful.
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 condensed consolidated financial statements.
Consolidated
Results of Operations
Three
Months Ended March 31, 2017 Compared With March 31 Ended March 31, 2016
Revenues
Total
revenue for the three months ended March 31, 2017 was $595,620 compared to $840,137, a decline of $244,517, or 29%. The decline
is primarily attributed to a $136,618, or 47%, decline in product sales that decreased to $153,587 for the three months ended
March 31, 2017 compared to $290,205 for the three months ended March 31, 2016. The decrease was primarily due to lower volume
of residential and commercial units sold during the three months ended March 31, 2017. In addition, the decline is attributed
to a $66,970, or 29%, decline in grants and rebates revenue that decreased to $32,810 for the three months ended March 31, 2017
compared to $99,780 for the three months ended March 31, 2016. Grants and rebates 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.
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 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.
Charging
service revenue company-owned charging stations was $267,874 for the three months ended March 31, 2017 compared to $292,743 for
the three months ended March 31, 2016, a slight decrease of $24,869, or 8%. Charging services derived from revenue company-owned
charging stations increased, despite a $54,099 decrease 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 2017 to continue to be lower than the revenues
we derived from this program in the same periods in 2016.
Total
revenue from warranty revenue, network fees and other revenue was $141,349 for the three months ended March 31, 2017 as compared
to $157,409 for the three months ended March 31, 2016, a decrease of $16,060, or 10%. The decrease is primarily attributable to
a decrease in non-company-owned fee-generating units on our network during the three months ended March 31, 2017 as compared to
the three months ended March 31, 2016, partially offset by an increase in maintenance contracts entered into by the Company as
compared to the prior period.
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 goods and related services sold, repairs and maintenance, electricity reimbursements and revenue
share payments to hosts when we are the primary obligor in the revenue share arrangement. Cost of revenues for the three months
ended March 31, 2017 were $432,407 as compared to $746,775 for the three months ended March 31, 2016. The decrease is primarily
attributable to a decrease of $158,032, or 50%, in total cost of revenues in connection with cost of charging services, host provider
fees and cost of product sales primarily due to a decrease in charging service revenues and equipment sales, with margins remaining
consistent as compared to the prior period, as well as a reduction in depreciation and amortization expense that declined to $112,153
for the three months ended March 31, 2017 as compared to $202,104 for the three months ended March 31, 2016, as the underlying
assets became fully depreciated since the 2016 period. 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 costs of maintaining 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 $466,422, or 32%, from $1,463,779 (consisting of approximately $0.9 million of cash compensation and approximately
$0.6 million of non-cash compensation) for the three months ended March 31, 2016 to $997,357 (consisting of approximately $0.8
million of cash compensation and approximately $0.2 million of non-cash compensation) for the three months ended March 31, 2017.
The decrease was primarily attributable reduced payroll expenses of approximately $180,000 due to the departure of certain management
and other personnel during the second half of 2016 and a reduction in non-cash compensation of approximately $400,000 (which includes
a $201,000 reduction of stock-based compensation expense related to share-based payments made to our Chief Operating Officer during
the three months ended March 31, 2016 under the terms of his employment agreement.)
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $101,862, or 30%,
from $344,803 for the three months ended March 31, 2016 to $242,941 for the three months ended March 31, 2017. 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 and third party IT expenses as compared to the prior period.
General
and administrative expenses increased by $44,804, or 17%, from $268,904 for the three months ended March 31, 2016 to $313,708
for the three months ended March 31, 2017. The increase was primarily due to increased legal and consulting fees as compared to
the three months ended March 31, 2016, partially offset by a general reduction in other expenditures due to cash constraints.
During
the three months ended March 31, 2017, we incurred lease termination costs of $300,000 which represents the fair value of our
remaining under our lease agreement.
Other
Expense
Other
expense decreased by $1,006,898, or 42%, from $2,416,668 for the three months ended March 31, 2016 to $1,406,939 for the three
months ended March 31, 2017. The decrease was primarily attributable to a decrease in the change of the fair value of warrant
liabilities of $1,550,119, or 77%, from $2,014,408 for the three months ended March 31, 2016 to $464,289 for the three months
ended March 31, 2017, partially offset by an increase in amortization of discount on convertible notes of $614,901
Net
Loss
Our
net loss for the three months ended March 31, 2017 decreased by $1,303,060, or 30%, to $3,097,732 as compared to $4,400,792 for
the three months ended March 31, 2016. The decrease was primarily attributable to a decrease in operating expenses of $223,480
and other expenses of $1,006,898, partially offset by an increase in gross profit of $69,851. Our net loss attributable to common
shareholders for the three months ended March 31, 2017 decreased by $866,560, or 18%, from $4,719,192 to $3,852,632 for the aforementioned
reasons and due to an increase in the dividend attributable to Series C Convertible Preferred shareholders of $436,500.
Liquidity
and Capital Resources
During
the three months ended March 31, 2017, we financed our activities from proceeds derived from debt and equity financing. 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 three ended March 31, 2017 and 2016, we used cash of $783,135 and $823,037, respectively, in operations. Our cash use for
the three months ended March 31, 2017 was primarily attributable to our net loss of $3,097,732, adjusted for net non-cash expenses
in the aggregate amount of $1,477,377, partially offset by $837,220 of net cash provided by changes in the levels
of operating assets and liabilities. Our cash use for the three months ended March 31, 2016 was primarily attributable to our
net loss of $4,400,792, adjusted for net non-cash expenses in the aggregate amount of $3,188,644 partially offset by $389,111
of net cash provided by changes in the levels of operating assets and liabilities.
During
the three months ended March 31, 2017, cash used in investing activities was $206, which was used to purchase charger cables.
Net cash used in investing activities was $5,836 during the three months ended March 31, 2016, which was used to purchase office
and computer equipment.
Net
cash provided by financing activities for the three months ended March 31, 2017 was $780,431, of which $805,100 was provided in
connection with the issuance of convertible notes payable and $47,567 was provided in connection with proceeds from the issuance
of notes payable to a related party, partially offset by $24,720 of payment of future offering costs, $39,000 of payment of debt
issuance costs, repayment of notes payable of $3,604 and $4,912 of net cash used in connection with bank overdrafts. Cash provided
by financing activities for the three months ended March 31, 2016 was $831,566 of which $855,000 of net proceeds (gross proceeds
of 900,000 less cash issuance costs of $45,000) were from the sale of Series C Convertible Preferred Stock and warrants, partially
offset by the repayment of notes payable of $23,434.
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
March 31, 2017, we incurred an accumulated deficit since inception of $84,169,514. As of March 31, 2017, we had a cash balance
and working capital deficit of $2,988 and $18,989,258, respectively. During the three months ended March 31, 2017, we incurred
a net loss of $3,097,732. These conditions raise substantial doubt about our ability to continue as a going concern within one
year after the issuance date of this filing.
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.
Securities
Purchase Agreement with JMJ Financial
In
accordance with its terms, the purchase agreement with JMJ (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. We are currently planning
to conduct an underwritten public offering of our securities for which we have filed a Registration Statement on Form S-1, as
amended, on December 21, 2016 (the “Registered Offering”). Pursuant to the Purchase Agreement, as amended on
March 23, 2017 and May 15, 2017, 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 June 15, 2017 or the third business day after the closing of the
Registered Offering, 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 Registered Offering, (ii) $0.70 per share,
(iii) 80% of the unit price in the Registered Offering (if applicable), (iv) the exercise price of any warrants issued in the
Registered 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 our contemplated public offering, but in no event later than June 15,
2017, we will deliver to JMJ the Origination Shares.
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. With the achievement of certain milestones in November 2016, an additional advance
of $500,000 occurred on November 28, 2016. Another warrant to purchase 714,285 shares of our common stock was issued as of November
28, 2016. With the achievement of certain milestones in February 2017, additional advances of $225,100 and $300,000 occurred on,
respectively, February 10, 2017 and February 27, 2017. Thus, two more warrants to purchase the Company’s common stock were
issued, one for 321,571 shares and the other for 428,571 shares, respectively. With the achievement of certain milestones in March
2017, additional advances of $250,000 and $30,000 occurred on March 14, 2017 and March 24, 2017, respectively, and two more warrants
to purchase the Company's common stock were issued, one for 357,143 shares and the other for 42,857 shares. With the achievement
of certain milestones in April 2017, an additional advance of $400,000 occurred on April 5, 2017 and another warrant to purchase
571,428 shares of our common stock was issued on the same date. With the achievement of certain milestones in May 2017, an additional
advance of $295,000 occurred on May 9, 2017 and another warrant to purchase 421,428 shares of our common stock was issued on the
same date.
In
connection with the Purchase Agreement, the Company entered into a Representations and Warranties Agreement with JMJ regarding
the Company’s existing debt as of October 13, 2016. The Company agreed to obtain agreements, by December 15, 2016, with
holders owning at least $7,000,000 of the outstanding liabilities as reflected on the Company’s balance sheet as of June
30, 2016, providing for those holders to convert their liabilities into shares of Series C Preferred Stock or common stock of
the Company at or prior to the time of the closing of the Registered Offering. The Company agreed to also, by December 15, 2016,
to seek agreements so that the Company would not have, other than securities issued to JMJ, have any variable securities. The
Company is still seeking these conversion agreements. Although the Company did not meet the December 2016 deadline, JMJ has not
sought any remedies or assessed any fees for such failure.
Critical
Accounting Policies
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, 2016 filed with the SEC
on April 14, 2017. 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).
Recently
Issued Accounting Standards
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.