2.
GOING CONCERN AND MANAGEMENT’S PLANS
As
of June 30, 2017, the Company had a cash balance, a working capital deficiency and an accumulated deficit of $584, $20,136,201
and $88,585,681, respectively. During the three and six months ended June 30, 2017, the Company incurred a net loss of $4,416,167
and $7,513,899, respectively. 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 June 30, 2017, the Company received an aggregate of $185,078 associated with the issuance of a convertible note payable and
non-convertible notes payable. In addition, pursuant to a convertible note, an additional $949,900 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, effective April 17, 2014, 350 Green’s assets, liabilities and results of operations were included in
the Company’s condensed consolidated financial statements. On May 18, 2017, each of 350 Green and Green 350 Trust Mortgage
LLC filed to commence an assignment for the benefit of creditors, which results in their residual assets being controlled by an
assignee in a judicial proceeding. As a result, as of May 18, 2017, 350 Green is no longer a variable interest entity of the Company
and, accordingly, 350 Green, which had approximately $3.7 million of liabilities, has been deconsolidated from the Company’s
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 June 30, 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.
INVENTORY
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 and net realizable value. 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 or excess inventory of $195,000 and $154,000 as of June 30, 2017 and December 31, 2016, respectively.
As
of June 30, 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
June 30, 2017 and December 31, 2016 was $4,973,784 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 June 30, 2017 and December 31,
2016 was $38,917 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 and six months ended June 30, 2017, revenues generated from Entity C represented approximately 11% and 11%, respectively,
of the Company’s total revenue. During the three and six months ended June 30, 2016, revenues generated from Entity C represented
approximately 13% and 13%, respectively, of the Company’s total revenue. During the three and six months ended June 30,
2017, revenues generated from Entity D represented approximately 11% and 19% 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 June
30, 2017, and December 31, 2016, accounts receivable from Entity C were 9% 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:
|
|
June
30,
|
|
|
|
2017
|
|
|
2016
|
|
Preferred
stock
|
|
|
62,408,700
|
|
|
|
50,674,188
|
|
Warrants
|
|
|
53,099,690
|
|
|
|
55,384,027
|
|
Options
|
|
|
7,391,668
|
|
|
|
7,765,000
|
|
Convertible
notes
|
|
|
1,016,732
|
|
|
|
339,058
|
|
Total
potentially dilutive shares
|
|
|
123,916,790
|
|
|
|
114,162,273
|
|
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.
RECENTLY
ISSUED ACCOUNTING PRONOUCEMENTS
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue
recognition requirements in ASC 605 - Revenue Recognition (“ASC 605”) and most industry-specific guidance throughout
ASC 605. The standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
The guidance in ASU 2014-09 was revised in July 2015 to be effective for interim periods beginning on or after December 15, 2017
and should be applied on a transitional basis either retrospectively to each prior reporting period presented or retrospectively
with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. In 2016, FASB issued
additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying
performance obligations and licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as
well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). The Company has not yet selected a
transition method and is currently evaluating the impact of the adoption of these ASUs on its consolidated financial position
and results of operations.
In
May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718)” (“ASU 2017-09”).
ASU 2017-09 provides clarity on the accounting for modifications of stock-based awards. ASU 2017-09 requires adoption on a prospective
basis in the annual and interim periods for our fiscal year ending December 31, 2019 for share-based payment awards modified on
or after the adoption date. The Company is currently evaluating the effect that adopting this new accounting guidance will have
on its consolidated cash flows and related disclosures.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
RECENTLY
ISSUED ACCOUNTING PRONOUCEMENTS
- CONTINUED
In
July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260) and Derivatives and Hedging (Topic 815) - Accounting for
Certain Financial Instruments with Down Round Features. Equity-linked instruments, such as warrants and convertible instruments
may contain down round features that result in the strike price being reduced on the basis of the pricing of future equity offerings.
Under the ASU, a down round feature will no longer require a freestanding equity-linked instrument (or embedded conversion option)
to be classified as a liability that is remeasured at fair value through the income statement (i.e. marked-to-market). However,
other features of the equity-linked instrument (or embedded conversion option) must still be evaluated to determine whether liability
or equity classification is appropriate. Equity classified instruments are not marked-to-market. For earnings per share ("EPS")
reporting, the ASU requires companies to recognize the effect of the down round feature only when it is triggered by treating
it as a dividend and as a reduction of income available to common shareholders in basic EPS. The amendments in this ASU are effective
for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption
is permitted, including adoption in any interim period. The Company has not yet selected a transition method and is currently
evaluating the impact of the adoption of these ASUs on its consolidated financial position and results of operations.
4.
ACCRUED EXPENSES
SUMMARY
Accrued
expenses consist of the following:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
Registration
rights penalty
|
|
$
|
11,677
|
|
|
$
|
967,928
|
|
Accrued
consulting fees
|
|
|
98,843
|
|
|
|
184,800
|
|
Accrued
host fees
|
|
|
1,500,218
|
|
|
|
1,308,897
|
|
Accrued
professional, board and other fees
|
|
|
1,472,286
|
|
|
|
1,381,399
|
|
Accrued
wages
|
|
|
740,000
|
|
|
|
241,466
|
|
Accrued
commissions
|
|
|
721,607
|
|
|
|
445,000
|
|
Warranty
payable
|
|
|
226,000
|
|
|
|
338,000
|
|
Accrued
taxes payable
|
|
|
558,339
|
|
|
|
511,902
|
|
Accrued
payroll taxes payable
|
|
|
368,133
|
|
|
|
122,069
|
|
Warrants
payable
|
|
|
270,392
|
|
|
|
155,412
|
|
Accrued
issuable equity
|
|
|
2,051,123
|
|
|
|
862,377
|
|
Accrued
interest expense
|
|
|
173,881
|
|
|
|
273,838
|
|
Accrued
lease termination costs
|
|
|
300,000
|
|
|
|
-
|
|
Accrued
settlement reserve costs
|
|
|
525,588
|
|
|
|
-
|
|
Dividend
payable
|
|
|
790,900
|
|
|
|
1,150,100
|
|
Other
accrued expenses
|
|
|
103,229
|
|
|
|
12,788
|
|
Total
accrued expenses
|
|
$
|
9,912,216
|
|
|
$
|
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 June 30, 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. On May 9, 2017, the Company issued 12,455 shares of Series C Convertible Preferred Stock in satisfaction of $1,245,500 of
liabilities associated with the Company’s registration rights penalty.
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 June 30, 2017 and December 31, 2016, accrued investment banking fees
were $860,183, which were payable in cash.
On
June 8, 2017, the Board approved aggregate compensation of $490,173 (compromised of $344,311 to be paid in cash and $145,862 to
be paid in units of shares of the Company’s common stock and warrants (with each such warrant having an exercise price equal
to the price per unit of the units sold in the public offering) at a 20% discount to the price per unit sold in the public offering)
to be paid to members of the Board based on the accrued amounts owed to such Board members as of March 31, 2017. The compensation
will be paid by the third business day following: (i) a public offering of the Company’s securities; and (ii) the listing
of the Company’s shares of common stock on the NASDAQ or other national securities exchange.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4
.
ACCRUED EXPENSES - CONTINUED
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 cost to repair and failure rates differ significantly from estimates,
the impact of these unforeseen costs would be recorded as a change in estimate in the period identified. For the six months ended
June 30, 2017, the change in reserve was approximately $22,500. Warranty expenses for the three and six months ended June 30,
2017 were $45,531 and $64,678, respectively. Warranty expenses for the three and six months ended June 30, 2016 were $121,246
and $192,362, 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 (defined as a public offering of the Company’s
securities to raise gross proceeds of at least $20,000,000) and (ii) May 15, 2017. As of June 30, 2017, the purchaser paid aggregate
consideration of $1,805,100 to the Company but the Company has not yet issued the common stock to the purchaser. As a result,
the Company accrued the remaining $1,200,048 obligation which represents the fair value of the share obligation. See Note 5 –
Notes Payable – Convertible and Other Notes for additional details.
Separately,
during the six months ended June 30, 2017, the Company issued an aggregate of 575,144 shares of common stock in partial satisfaction
of certain liabilities.
See
Note 8 – Related Parties – Employment Agreement for details related to replacement of expired warrants.
See
Note 10 – Subsequent Events – Stock Warrant for details associated with the issuance of warrants in satisfaction of
a liability to issue certain equity awards to the Company’s Chief Executive Officer which, as of June 30, 2017, was $191,931.
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 six months ended June 30, 2017. See Note 9 – Commitments
and Contingencies – Litigation and Disputes for additional information.
ACCRUED
LEASE TERMINATION COSTS
See
Note 9 – Commitments and Contingencies – Operating Lease for additional details.
5.
NOTES PAYABLE
CONVERTIBLE
AND OTHER NOTES
Amendment
of Promissory Note
With
respect to the securities and purchase agreement dated October 7, 2016, as amended on March 23, 2017 and 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 the third business day after the closing of the public offering.
See Note 10 – Subsequent Events – Convertible Notes for additional details related to the extension of the maturity
date of the note.
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 maturity date, 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 the maturity date, 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.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5.
NOTES PAYABLE - CONTINUED
CONVERTIBLE
AND OTHER NOTES
- CONTINUED
Amendment
of Promissory Note - Continued
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 and purchase agreement or any other Transaction Documents (as defined in the securities and
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 and 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. As of the date of filing, the Company has violated certain covenants
of the note, however, the violations did not trigger an event of default and did not result in the Company being obligated to
pay any fines or penalties.
Issuances
With
respect to the securities and purchase agreement dated October 7, 2016, as amended on March 23, 2017 and May 15, 2017, during
the six months ended June 30, 2017, the Company received additional advances of an aggregate of $1,500,100 under the note, such
that, as of June 30, 2017, an aggregate of $2,500,100 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 $1,596,535 to the purchaser in connection
with the advances received during the six months ended June 30, 2017. The $96,435 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 six months ended June 30, 2017, the Company issued five-year warrants to purchase an aggregate
of 2,142,998 shares of the Company’s common stock with an issuance date fair value of an aggregate of $74,392, which was
recorded as a derivative liability. The aggregate exercise price of the warrants is $1,500,100. As of June 30, 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 remaining $1,200,048 fair value of the obligation as of June 30, 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 six months ended June 30, 2017 was $1,550,977, which was recorded as a debt discount
against the principal amount of the note. The $54,322 of debt discount in excess of the principal was recognized immediately and
the remaining $1,496,654 of debt discount is being recognized over the term of the note.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5.
NOTES PAYABLE - CONTINUED
CONVERTIBLE
AND OTHER NOTES - RELATED PARTY
During
the six months ended June 30, 2017, the Company issued a convertible notes payable in the principal amount of $50,000 to a company
wholly-owned by the Company’s Executive Chairman of the Board of Directors. Interest on the note accrues at a rate of 15%
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. The note is secured by substantially all of the assets of the Company
.
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 $545,000, secured by substantially all of the Company’s assets, 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 and six months ended June 30, 2017 was $218,288 and $358,949, respectively. Interest expense for the three
and six months ended June 30, 2016 was $35,314 and $70,552, respectively.
6.
FAIR VALUE MEASUREMENT
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
|
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
1.50
- 1.55
|
%
|
|
|
0.58%
- 1.08
|
%
|
|
|
1.47
- 1.55
|
%
|
|
|
0.58%
- 1.16
|
%
|
Expected
term (years)
|
|
|
1.28
- 5.00
|
|
|
|
2.28
- 5.00
|
|
|
|
1.28
- 5.00
|
|
|
|
2.28
- 5.00
|
|
Expected
volatility
|
|
|
130%
- 149
|
%
|
|
|
123%
- 139
|
%
|
|
|
130%
- 149
|
%
|
|
|
114%
- 139
|
%
|
Expected
dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6.
FAIR VALUE MEASUREMENT – CONTINUED
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
|
|
|
651,527
|
|
Change
in fair value of derivative liability
|
|
|
670,237
|
|
Ending
balance as of June 30, 2017
|
|
$
|
2,904,867
|
|
|
|
|
|
|
Warrants
Payable
|
|
|
|
|
Beginning
balance as of January 1, 2017
|
|
$
|
155,412
|
|
Accrual
of other warrant obligations
|
|
|
5,016
|
|
Change
in fair value of warrants payable
|
|
|
109,964
|
|
Ending
balance as of June 30, 2017
|
|
$
|
270,392
|
|
Assets
and liabilities measured at fair value on a recurring or nonrecurring basis are as follows:
|
|
June
30, 2017
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,904,867
|
|
|
$
|
2,904,867
|
|
Warrants
Payable
|
|
|
-
|
|
|
|
-
|
|
|
|
270,392
|
|
|
|
270,392
|
|
Total
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,175,259
|
|
|
$
|
3,175,259
|
|
|
|
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
|
|
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 June 30, 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 June 30, 2017, the liquidation preference for the Series B Convertible Preferred Stock amounted to $825,000.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7.
STOCKHOLDER’S DEFICIENCY – CONTINUED
Series
C Convertible Preferred Stock
During
the six months ended June 30, 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. As of June 30, 2017, and December 31, 2016, the Company
recorded a dividend payable liability on the shares of Series C Convertible Preferred Stock of $790,900 and $1,150,100, respectively.
See Note 4 – Accrued Expenses.
In
the event of a liquidation, the Series C Convertible Preferred Stock is also entitled to a liquidation preference equal to the
stated value plus any accrued and unpaid dividends, which, as of June 30, 2017, was equal to $22,007,500.
See
Note 7 – Stockholder’s Deficiency – Exchange of Warrants and Series C Convertible Preferred Stock for details
regarding the exchange of Series C Convertible Preferred Stock for common stock.
COMMON
STOCK
During
the six months ended June 30, 2017, the Company issued an aggregate of 1,058,314 shares of common stock as partial satisfaction
of certain liabilities associated with certain professional and other consulting fee agreements.
See
Note 7 – Stockholder’s Deficiency – Exchange of Warrants and Series C Convertible Preferred Stock for details
regarding the exchange of Warrants and Series C Convertible Preferred Stock for common stock.
EXCHANGE
OF WARRANTS AND SERIES C CONVERTIBLE PREFERRED STOCK
During
the six months ended June 30, 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 existing 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 this filing, holders had agreed
to (i) exchange warrants to purchase an aggregate of 8,158,800 shares of common stock with an exercise price of $0.70 per share
for an aggregate of 8,096,300 shares of common stock (the “Warrant Exchange”) and (ii) exchange an aggregate of 12,678
shares of Series C Convertible Preferred Stock for common stock based upon a formula defined in the agreement (the “Series
C Preferred Stock Exchange”).
Subsequent to June 30, 2017, the Company issued an aggregate of 4,546,300 shares of
common stock in connection with the Warrant Exchange such that there were an aggregate of 3,550,000 shares of common stock still
to be issued by the Company as of the date of filing. The Warrant Exchange is effective immediately and the Series C Preferred
Stock Exchange is effective upon the closing of the public offering (collectively defined as a public offering of securities to
raise up to $20,000,000 and to list the Company’s shares of common stock on the NASDAQ). 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. Certain
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.
STOCK-BASED
COMPENSATION
The
Company recognized stock-based compensation expense related to preferred stock, common stock, stock options and warrants for the
three and six months ended June 30, 2017 of $921,683 and $1,088,931, respectively, and for the three and six months ended June
30, 2016 in the amounts of $280,792, and $842,038, respectively, which is included within compensation expense on the condensed
consolidated statement of operations. As of June 30, 2017, there was $4,432 of unrecognized stock-based compensation expense that
will be recognized over the weighted average remaining vesting period of 0.38 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.
EMPLOYMENT
AGREEMENT
Effective
June 15, 2017, the Company amended its employment agreement with Michael D. Farkas, its Executive Chairman (the “Third Amendment”).
This Third Amendment was approved by the Compensation Committee and the Board as a whole (with Mr. Farkas recusing himself from
the vote regarding the Third Amendment). The Third Amendment clarified that, on a going-forward basis, the Executive Chairman
position held by Mr. Farkas is the principal executive officer of the Company. Mr. Farkas will hold this position for a term of
three (3) years, with an automatic one (1) year renewal unless either party terminates Mr. Farkas’ employment with the Company
at least sixty (60) days prior to the expiration of the term.
The
Company agreed that Mr. Farkas was paid $20,000 per month from July 24, 2015 to November 24, 2015 and we agreed to pay Mr. Farkas
the equivalent of $15,000 per month in cash and $15,000 per month in shares of common stock for the past eighteen (18) months
(from December 1, 2015 through May 31, 2017), or $270,000 in cash and $270,000 in common stock.
Prior
to entering into an employment agreement dated October 15, 2010 with Mr. Farkas (the “Original Farkas Employment Agreement”),
the Company and an entity controlled by Mr. Farkas entered into: (i) that certain Consulting Agreement dated October 20, 2009
(the “Consulting Agreement”); and (ii) that certain Car Charging Group, Inc. Fee/Commission Agreement dated November
17, 2009 (the “Fee Agreement”) and, after entering into the Original Farkas Employment Agreement, the parties entered
into that certain Patent License Agreement dated March 29, 2012 among the Company, Mr. Farkas and Balance Holdings, LLC and the
March 11, 2016 Agreement regarding the Patent License Agreement (collectively with the Fee Agreement and the Consulting Agreement,
the “Affiliate Agreements”).
Upon
the closing of the offering for which the Company filed a registration statement on Form S-1 on November 7, 2016 (as amended),
Mr. Farkas will be paid: (i) $270,000 in cash for payments owed Mr. Farkas from December 1, 2015 through May 31, 2017; and (ii)
at least $645,000 ($375,000 of commissions on hardware sales, accrued commissions on revenue from charging stations due pursuant
to the Affiliate Agreements, and $270,000 of common stock for payments owed Mr. Farkas from December 1, 2015 through May 31, 2017)
in units of the Company’s common stock and warrants sold in the offering at a 20% discount to the price per unit of the
units sold in the offering. Pursuant to the Third Amendment, the Company and Mr. Farkas agreed that not all amounts due pursuant
to the Affiliate Agreements had been calculated as of June 15, 2017. Once calculated prior to the offering, the additional amount
shall be paid in the form of units at a 20% discount to the price per unit of the units sold in the offering.
In
addition, pursuant to the Third Amendment, Mr. Farkas is due to receive (regardless of the status of the offering) warrants in
replacement of expired warrants he was due to receive under the terms of the Original Farkas Employment Agreement. These warrants
will expire five years after their issuance date: (a) warrants for 100,000 shares of common stock at an exercise price of $0.19
per share; (b) warrants for 3,433,335 shares of common stock at an exercise price of $0.43 per share; and (c) warrants for 2,200,000
shares of common stock at an exercise price of $0.74 per share. As of June 30, 2017, the fair value of the warrants was estimated
to be approximately $526,000. Mr. Farkas will also receive options (regardless of the status of the offering) for 350,000 shares
of common stock at an exercise price of $0.60 per share and options for 412,000 shares of common stock at an exercise price of
$0.75 per share in connection with amounts owed pursuant to the Affiliate Agreements. As of June 30, 2017, the fair value of the
options was estimated to be approximately $61,000.
The
Third Amendment resolves all claims Mr. Farkas had with regard to the Affiliate Agreements.
Pursuant
to the Third Amendment, Mr. Farkas’ salary will be, prior to the closing of the offering, $15,000 per month in cash and
$15,000 per month in shares of common stock. After the closing of the offering, Mr. Farkas’ monthly salary will be $30,000
of cash compensation. If the Company has positive EBITDA for a fiscal quarter during the term of Mr. Farkas’ employment,
his monthly salary shall be $40,000 of cash compensation for as long as the Company has positive EBITDA as assessed on a quarterly
basis. Pursuant to the Third Amendment, Mr. Farkas will be entitled to salary and benefits for eighteen (18) months if he is terminated
for a reason other than for cause.
Mr.
Farkas agreed that the Fee Agreement and the Consulting Agreement are suspended and no payments are due thereunder (other than
the payments specified in the Third Amendment) for as long as he is a full-time employee of the Company and is due to be paid
a monthly salary of at least $30,000.
As
of June 30, 2017, the Company has accrued for all necessary amounts due to Mr. Farkas which are specified above.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8.
RELATED PARTIES – CONTINUED
COMPENSATION
AGREEMENT
On
June 16, 2017, the Company entered into a compensation agreement with Ira Feintuch, its Chief Operating Officer (the “Compensation
Agreement”). The Compensation Agreement clarifies the accrued compensation owed to Mr. Feintuch under the Fee/Commission
Agreement dated November 19, 2009. Under the Compensation Agreement, Mr. Feintuch is entitled to receive (i) options for 350,000
shares of the Company’s common stock at an exercise price of $0.60 per share; and (ii) options for 480,000 shares of the
Company’s common stock at an exercise price of $0.75 per share. As of June 30, 2017, options had not been issued and had
a fair value of approximately $70,000.
Pursuant
to the Compensation Agreement, Mr. Feintuch is due to receive (regardless of the status of the offering) $142,250 for accrued
commissions on hardware sales and $31,969 for accrued commissions on revenue from charging stations. The aforementioned amounts
of commissions on hardware sales and revenue from charging stations were calculated through March 31, 2017. The Company and Mr.
Feintuch agreed that from April 1, 2017 through the closing of the offering, these commissions shall be calculated using the same
formula (the “Additional Amounts”), and once approved by the Compensation Committee of the Board, will be paid to
Mr. Feintuch.
The
timing of the payments described above shall be as follows: The Company shall pay Mr. Feintuch the following by the third (3
rd
)
business day following the closing of the offering: (i) $130,664 in cash (75% of the value of the accrued commissions on hardware
sales and accrued commission on revenues from charging stations as calculated through March 31, 2017) and (ii) an amount of cash
equal to 75% of the Additional Amounts. By the third (3
rd
) business day following the closing of this offering, the
Company shall also issue to Mr. Feintuch (i) units of shares of common stock and warrants sold in the offering with a value of
$43,555 (25% of the value of the accrued commissions on hardware sales and the accrued commission on revenue from charging stations,
as calculated through March 31, 2017) at a 20% discount to the price per unit of the units sold in the offering; and (ii) an amount
of units with a value of 25% of the Additional Amounts at a 20% discount to the price per unit of the units sold in the offering.
The
Compensation Agreement resolves all claims Mr. Feintuch had with regard to the Fee/Commission Agreement.
As
of June 30, 2017, the Company has accrued for all necessary amounts due to Mr. Feintuch which are specified above.
THIRD
PARTY TRANSACTION
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.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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 June 30, 2017. As a result of the action taken by the landlord,
the Company accrued an additional $300,000 as of June 30, 2017, which represents the present value of the Company’s rent
obligation through the end of the lease.
On
May 22, 2017, the Company entered into a lease for 11,457 square feet of office and warehouse space in Phoenix, Arizona beginning
June 1, 2017 and ending July 31, 2019. Monthly lease payments range from approximately $6,300 to $6,600 (with the Company paying
approximately $6,300 in total during the first three months of the lease) for a total of approximately $155,000 for the total
term of the lease.
Total
rent expense, net of sublease income, for the three and six months ended June 30, 2017 was $30,615 and $62,067, respectively,
and is recorded in other operating expenses on the condensed consolidated statements of operations. Total rent expense for the
three and six months ended June 30, 2016, was $91,120 and $170,991, respectively, and is recorded in other operating expenses
on the condensed consolidated statements of operations.
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 $218,000 liability as of June
30, 2017 and December 31, 2016 related to this matter.
The
Company is currently delinquent in remitting approximately $368,000 and $244,000 as of June 30, 2017 and December 31, 2016, respectively,
of federal and state payroll taxes withheld from employees. On August 15, 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.
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. On June 13, 2017, Blink and ITT Cannon agreed
to a settlement agreement under which the parties agreed to the following: (a) the Blink purchase order dated May 7, 2014 for
6,500 charging cables is terminated, cancelled and voided; (b) three (3) business days following the closing date of a public
offering of the Company’s securities and listing of such securities on the Nasdaq Capital Market, the Company shall issue
to ITT Cannon shares of the same class of the Company’s securities with an aggregate value of $200,000 (which was accrued
at June 30, 2017); and (c) within seven (7) calendar days of the valid issuance of the shares in item (b) above, ITT Cannon shall
ship and provide the remaining 6,500 charging cables to Blink and dismiss the arbitration without prejudice.
If
the public offering is not completed the settlement agreement will be
terminated.
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, which has been confirmed and
converted into a judgment by the Superior Court of Fulton County, Georgia on August 7, 2017 in the amount of $179,168, inclusive
of court costs.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
COMMITMENTS AND CONTINGENCIES – CONTINUED
LITIGATION
AND DISPUTES
– CONTINUED
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. On May 9, 2017, the Company issued 364,061 shares of common stock to Solomon Edwards Group, LLC in
satisfaction of $121,800 of the Company’s liability.
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 Company settled with Sheetz and the parties signed two agreements on February 23, 2017: a General
Release and Settlement Agreement and a Exclusive Electronic Vehicle Charging Services Agreement. 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 between 350 Holdings or the Company. The Exclusive Electronic Vehicle Charging Services Agreement
with Sheetz is for a five (5) year term. Pursuant to the agreement, Blink shall remit to Sheetz gross revenue generated by electric
vehicle charging fees and advertising, minus (i) any and all taxes, (ii) 8% transaction fees, (iii) $18.00 per charger per month;
and (iv) any electricity costs incurred by Blink ((i), (ii), (iii), and (iv) being referred to as the “Service Fees”).
In the event the aggregate gross revenues are insufficient to cover the Service Fees incurred in a given month by the charging
stations, such unpaid Service Fees will accrue to the following month. The agreement is subject to an automatic five-year renewal
unless written notice for the contrary is provided.
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 attorney’s
fees and costs in connection with enforcing the Asset Purchase Agreement in courts in New York and Chicago. On July 26, 2017,
the District Court denied the Company’s motion to dismiss the Company from the suit. The deadline for the Company to answer
the second amended complaint is August 17, 2017. The deadline for the parties to complete discovery is December 8, 2017. The next
status hearing on the matter is set for December 8, 2017. As of June 30, 2017, the Company accrued a $300,000 liability in connection
with its settlement offer to JNS.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10.
SUBSEQUENT EVENTS
COMMON
STOCK
Issuances
Subsequent
to June 30, 2017 the Company appointed Robert Schweitzer as a new member of the Board of Directors. Pursuant to Mr. Schweitzer’s
offer agreement, the Company issued 500,000 shares of common stock to him.
CONVERTIBLE
NOTES
Amendment
of Promissory Note
With
respect to the securities and purchase agreement dated October 7, 2016, as amended on March 23, 2017 and May 15, 2017, on July
20, 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 August 20, 2017 or third business day after the closing of the Public Offering.
Issuances
With
respect to the securities and purchase agreement dated October 7, 2016, as amended on March 23, 2017, May 15, 2017 and July 20,
2017, on July 23, 2017, the Company received an additional advance of $50,000 under the note. Pursuant to the terms of the note,
the Company issued a warrant to purchase 71,429 shares of the Company’s common stock.
NON-CONVERTIBLE
NOTES - RELATED PARTY
Issuances
Subsequent
to June 30, 2017, the Company issued promissory notes in the aggregate principal amount of $135,078 to a company in which the
Company’s Executive Chairman has a controlling interest. The notes bear interest at a rate of 10% per annum, which is payable
upon maturity. The notes are payable on the earlier of October 17, 2017 or the closing date of a public offering of the Company’s
securities which raises gross proceeds of at least $2,500,000. These notes may be prepaid in whole or in part at any time without
penalty or premium.
STOCK
WARRANTS
Issuance
On
August 4, 2017, the Company issued five-year warrants to purchase an aggregate of 2,401,135 shares of common stock to our Chief
Executive Officer in connection with his employment agreement. The warrants vest immediately and have exercise prices ranging
from $0.70 to $3.00 per share.
Exchange
On
August 14, 2017, the Company entered into a warrant exchange agreement with a warrant holder whereby the holder agreed to exchange
warrants to purchase an aggregate of 2,500,000 shares of common stock for 2,500,000 shares of common stock.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The
following discussion and analysis of the results of operations and financial condition of Car Charging Group, Inc. (and, including
its subsidiaries, “CarCharging”, “CCGI”, “the Company”) as of June 30, 2017 and for the three
and six months ended June 30, 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 June 30, 2017, we had a cash
balance, a working capital deficiency and an accumulated deficit of $584, $20,136,201 and $88,585,681, respectively. During the
three and six months ended June 30, 2017, we incurred a net loss of $4,416,167 and $7,513,899, respectively. These factors raise
substantial doubt about our ability to continue as a going concern within a year after the issuance date of this filing, 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. On May 18, 2017, each of 350 Green and
Green 350 Trust Mortgage LLC filed to commence an assignment for the benefit of creditors, which results in their residual assets
being controlled by an assignee in a judicial proceeding. As a result, as of May 18, 2017, 350 Green is no longer a variable interest
entity of the Company and, accordingly, 350 Green’s approximately $3.7 million of liabilities have been deconsolidated from
our financial statements.
Consolidated
Results of Operations
Three
Months Ended June 30, 2017 Compared With Three Months Ended June 30, 2016
Revenues
Total
revenue for the three months ended June 30, 2017 was $532,974 compared to $868,024, a decline of $335,050, or 39%.
The
decline is primarily attributed to a $303,212, or 84%, decline in product sales that decreased to $56,957 for the three months
ended June 30, 2017 compared to $360,169 for the three months ended June 30, 2016. The decrease was primarily due to lower volume
of residential and commercial units sold during the three months ended June 30, 2017.
Charging
service revenue company-owned charging stations was $244,931 for the three months ended June 30, 2017 compared to $284,203 for
the three months ended June 30, 2016, a decrease of $39,272, or 14%. Charging services derived from revenue company-owned charging
stations decreased primarily due to a $41,234 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, a private company participating in this program began
adding chargers to the program and the Company generated less revenue as a result of the decline in its percentage of chargers
in the program. The Company expects revenues derived from this program during the balance of 2017 to continue to be lower than
the revenues it derived from this program in the same periods in 2016.
Total
revenue from warranty revenue, network fees and other revenue was $146,755 for the three months ended June 30, 2017 as compared
to $166,267 for the three months ended June 30, 2016, a decrease of $19,512, or 12%. The decrease is primarily attributable to
a decrease in non-company-owned fee-generating units on our network during the three months ended June 30, 2017 as compared to
the prior period, 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 June 30, 2017 were $390,049 as compared to $809,374 for the three months ended June 30, 2016. The decrease is primarily
attributable to a decrease of $195,104, or 164%, in warranty and repairs and maintenance expense due to a lower cost of repairs
provided by us as compared to repairs provided by third party vendors. Additionally, the decrease is due to a decrease of $98,412,
or 25%, 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, as well as a reduction in depreciation and amortization
expense that declined to $99,271 for the three months ended June 30, 2017 as compared to $231,853 for the three months ended June
30, 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 increased by $824,672, or 69%, from $1,189,008 (consisting of approximately $0.9 million of cash compensation and approximately
$0.3 million of non-cash compensation) for the three months ended June 30, 2016 to $2,013,680 (consisting of approximately $1.1
million of cash compensation and approximately $0.9 million of non-cash compensation) for the three months ended June 30, 2017.
The increase was primarily attributable to increased non-cash compensation of approximately $651,000 earned by our Executive Chairman
pursuant to his amended employment agreement and increased non-cash commission expenses of approximately $131,800 earned by a
company owned by our Executive Chairman.
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $158,808, or 43%,
from $369,570 for the three months ended June 30, 2016 to $210,762 for the three months ended June 30, 2017. The decrease was
primarily attributable to a reduction in rent expense, travel expense due to decreased travel, as well as a decreased in software
development expenses in connection with generation 2 chargers.
General
and administrative expenses decreased by $130,438, or 35%, from $368,813 for the three months ended June 30, 2016 to $238,375
for the three months ended June 30, 2017. The decrease was primarily attributable to a decrease in accounting expenses of approximately
of $146,600, consulting fees of approximately $43,000 and credit card processing fees of approximately $32,000, partially offset
by an increase in legal expenses of approximately $104,000.
Other
Expense
Other
expense increased by $1,619,040, or 339%, from $477,235 for the three months ended June 30, 2016 to $2,096,275 for the three months
ended June 30, 2017. The increase was primarily due to an increase in amortization of discount on convertible debt of $1,097,777,
a loss on settlement of accounts payable of $350,588, and the change of the warrant liabilities of $136,655 or 76%, from $179,849
for the three months ended June 30, 2016 to $316,504 for the three months ended June 30, 2017.
Net
Loss
Our
net loss for the three months ended June 30, 2017 increased by $2,070,191, or 88%, to $4,416,167 as compared to $2,345,976 for
the three months ended June 30, 2016. The increase was primarily due to increased other expenses of $1,619,040 and increased operating
expenses of $535,426. Our net loss attributable to common shareholders for the three months ended June 30, 2017 increased by $2,495,791,
or 92%, from $2,711,276 to $5,207,067 for the aforementioned reasons and due to an increase in the dividend attributable to Series
C Convertible Preferred shareholders of $425,600.
Six
Months Ended June 30, 2017 Compared With Six Months Ended June 30, 2016
Revenues
Total
revenue for the six months ended June 30, 2017 was $1,128,594 compared to $1,710,547, a decline of $581,953, or 34%.
The
decline is primarily attributed to a $439,830, or 68%, decline in product sales that decreased to $210,544 for the six months
ended June 30, 2017 compared to $650,374 for the six months ended June 30, 2016. The decrease was primarily due to lower volume
of residential and commercial units sold during the six months ended June 30, 2017.
Charging
service revenue company-owned charging stations was $512,805 for the six months ended June 30, 2017 compared to $576,946 for the
six months ended June 30, 2016, a decrease of $64,141, or 11%. Charging services derived from revenue company-owned charging stations
decreased primarily due to a $80,306 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, a private company participating in this program began adding
chargers to the program and the Company generated less revenue as a result of the decline in its percentage of chargers in the
program. The Company expects revenues derived from this program during the balance of 2017 to continue to be lower than the revenues
it derived from this program in the same periods in 2016.
Total
revenue from warranty revenue, network fees and other revenue was $288,104 for the six months ended June 30, 2017 as compared
to $326,062 for the six months ended June 30, 2016, a decrease of $37,958, or 12%. The decrease is primarily attributable to a
decrease in non-company-owned fee-generating units on our network during the six months ended June 30, 2017 as compared to the
six months ended June 30, 2016, partially offset by an increase in network fees 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 six months
ended June 30, 2017 were $822,456 as compared to $1,558,535 for the six months ended June 30, 2016. Cost of revenues decreased
in virtually every category as compared to the 2016 period, however, the decrease is primarily attributable to a decrease of $249,458,
or 130%, in warranty and repairs and maintenance expense due to a lower cost of repairs provided by us as compared to repairs
provided by third party vendors. In addition, there was a decrease of $256,444, or 36%, 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, as well as a reduction in depreciation and amortization expense that declined to $211,424 for the
six months ended June 30, 2017 as compared to $433,957 for the six months ended June 30, 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 increased by $358,250, or 14%, from $2,652,787 (consisting of approximately $1.9 million of cash compensation and approximately
$0.8 million of non-cash compensation) for the six months ended June 30, 2016 to $3,011,037 (consisting of approximately $1.9
million of cash compensation and approximately $1.1 million of non-cash compensation) for the six months ended June 30, 2017.
The increase was attributable to increased non-cash compensation of approximately $263,000, primarily due to non-cash compensation
earned by our Executive Chairman pursuant to his amended employment agreement, increased commission expenses of approximately
$185,000 earned by a company owned by our Executive Chairman and increased consulting fees of $70,000 associated with our former
acting Chief Financial Officer.
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $260,670, or 36%,
from $714,373 for the six months ended June 30, 2016 to $453,703 for the six months ended June 30, 2017. The decrease was primarily
attributable to a reduction in rent expense, travel expense due to decreased travel, as well as decreased IT expenses due to decreased
call center expenses as the Company inaugurated their own internal call center in Phoenix, Arizona during 2016.
General
and administrative expenses decreased by $85,634, or 13%, from $637,717 for the six months ended June 30, 2016 to $552,083 for
the six months ended June 30, 2017. The decrease was primarily attributable to a decrease in accounting expenses of approximately
of $205,000 and consulting expenses of approximately $80,000, partially offset by an increase in legal and professional fees of
approximately $257,000.
During
the six months ended June 30, 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 increased by $609,311, or 21%, from $2,893,903 for the six months ended June 30, 2016 to $3,503,214 for the six months
ended June 30, 2017. The increase was primarily due to an increase in amortization of discount on convertible debt of $1,712,678
and interest expense of $288,397, partially offset by a decrease in the change of the fair value of warrant liabilities of $1,413,464.
Net
Loss
Our
net loss for the six months ended June 30, 2017 increased by $767,131, or 11%, to $7,513,899 as compared to $6,746,768 for the
six months ended June 30, 2016. The increase was primarily due an increase in other expenses of $609,311 and in increase of total
operating expenses of $311,946, partially offset by an increase in gross profit of $154,126. Our net loss attributable to common
shareholders for the six months ended June 30, 2017 increased by $1,629,231, or 22%, from $7,430,468 to $9,059,699 for the aforementioned
reasons and due to an increase in the dividend attributable to Series C Convertible Preferred shareholders of $862,100.
Liquidity
and Capital Resources
During
the six months ended June 30, 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 six months ended June 30, 2017 and 2016, we used cash of $1,556,018 and $1,434,505, respectively, in operations. Our cash
use for the six months ended June 30, 2017 was primarily attributable to our net loss of $7,513,899, adjusted for net non-cash
expenses in the aggregate amount of $4,172,923, partially offset by $1,784,958 of net cash provided by changes in the levels of
operating assets and liabilities. Our cash used in operating activities for the six months ended June 30, 2016 was primarily attributable
to our net loss of $6,746,768, adjusted for non-cash expenses in the aggregate amount of $4,123,786, partially offset by $1,188,477
of net cash provided by changes in the levels of operating assets and liabilities.
During
the six months ended June 30, 2017, cash used in investing activities was $206, which was used to purchase charger cables. Net
cash used in investing activities was $58,669 during the six months ended June 30, 2016, which was used to purchase office and
computer equipment.
Net
cash provided by financing activities for the six months ended June 30, 2017 was $1,550,910, of which, $1,597,667 was provided
in connection with the issuance of various forms of notes payable and $84,144 provided from bank overdrafts, partially offset
by the payment of $38,263 of associated with future offering costs and $87,823 of debt issuance costs as well as the repayment
of notes payable of $4,815. Cash provided by financing activities for the six months ended June 30, 2016 was $1,487,710, of which,
$1,314,620 of net proceeds (gross proceeds of $1,367,120 less issuance costs of $52,500) were from the sale of Series C Convertible
Preferred Stock and warrants, $200,000 was provided in connection with proceeds from the issuance of convertible notes to a related
party, partially offset by the repayment of notes payable of $26,910.
We
expect that through the next 12 months from the date of this filing, we will require external funding to sustain operations and
to follow through on the execution of our business plan. There can be no assurance that our plans will materialize and/or that
we will be successful in our efforts to obtain the funding to cover working capital shortfalls. Given these conditions, there
is substantial doubt about our ability to continue as a going concern and our future is contingent upon our ability to secure
the levels of debt or equity capital we need to meet our cash requirements. In addition, our ability to continue as a going concern
must be considered in light of the problems, expenses and complications frequently encountered by entrants into established markets,
the competitive environment in which we operate and the current capital raising environment.
Since
inception, our operations have primarily been funded through proceeds from equity and debt financings. Although management believes
that we have access to capital resources, there are currently no commitments in place for new financing at this time, except as
described above under the heading Recent Developments, and there is no assurance that we will be able to obtain funds on commercially
acceptable terms, if at all.
We
intend to raise additional funds during the next twelve months. The additional capital raised would be used to fund our operations.
The current level of cash and operating margins is insufficient to cover our existing fixed and variable obligations, so increased
revenue performance and the addition of capital through issuances of securities are critical to our success. Should we not be
able to raise additional debt or equity capital through a private placement or some other financing source, we would take one
or more of the following actions to conserve cash: further reductions in employee headcount, reduction in base salaries to senior
executives and employees, and other cost reduction measures. Assuming that we are successful in our growth plans and development
efforts, we believe that we will be able to raise additional debt or equity capital. There is no guarantee that we will be able
to raise such additional funds on acceptable terms, if at all.
Through
June 30, 2017, we incurred an accumulated deficit since inception of $88,585,681. As of June 30, 2017, we had a cash balance and
working capital deficit of $584 and $19,610,301, respectively. During the six months ended June 30, 2017, we incurred a net loss
of $7,513,899. 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.
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
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue
recognition requirements in ASC 605 - Revenue Recognition (“ASC 605”) and most industry-specific guidance throughout
ASC 605. The standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
The guidance in ASU 2014-09 was revised in July 2015 to be effective for interim periods beginning on or after December 15, 2017
and should be applied on a transitional basis either retrospectively to each prior reporting period presented or retrospectively
with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. In 2016, FASB issued
additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying
performance obligations and licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as
well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). The Company has not yet selected a
transition method and is currently evaluating the impact of the adoption of these ASUs on its consolidated financial position
and results of operations.
In
May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718)” (“ASU 2017-09”).
ASU 2017-09 provides clarity on the accounting for modifications of stock-based awards. ASU 2017-09 requires adoption on a prospective
basis in the annual and interim periods for our fiscal year ending December 31, 2019 for share-based payment awards modified on
or after the adoption date. The Company is currently evaluating the effect that adopting this new accounting guidance will have
on its consolidated cash flows and related disclosures.
In
July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260) and Derivatives and Hedging (Topic 815) - Accounting for
Certain Financial Instruments with Down Round Features. Equity-linked instruments, such as warrants and convertible instruments
may contain down round features that result in the strike price being reduced on the basis of the pricing of future equity offerings.
Under the ASU, a down round feature will no longer require a freestanding equity-linked instrument (or embedded conversion option)
to be classified as a liability that is remeasured at fair value through the income statement (i.e. marked-to-market). However,
other features of the equity-linked instrument (or embedded conversion option) must still be evaluated to determine whether liability
or equity classification is appropriate. Equity classified instruments are not marked-to-market. For earnings per share ("EPS")
reporting, the ASU requires companies to recognize the effect of the down round feature only when it is triggered by treating
it as a dividend and as a reduction of income available to common shareholders in basic EPS. The amendments in this ASU are effective
for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption
is permitted, including adoption in any interim period. The Company has not yet selected a transition method and is currently
evaluating the impact of the adoption of these ASUs on its consolidated financial position and results of operations.