2.
GOING CONCERN AND MANAGEMENT’S PLANS
As
of September 30, 2017, the Company had a cash balance, a working capital deficiency and an accumulated deficit of $9,062, $67,198,792
and $182,206,113, respectively. During the three and nine months ended September 30, 2017, the Company incurred a net loss of
$93,620,432 and $101,134,331, 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 September 30, 2017, the Company received an aggregate of $949,900 associated with the issuance of a convertible note payable
and non-convertible notes payable. See Note 5 – Notes Payable – Convertible and Other and Notes and Note 10 –
Subsequent Events – Promissory Note for additional details. 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.
On November 7, 2016, the Company filed, and subsequently amended, a registration statement on Form S-1 to register its securities
for the purpose of raising capital under the Securities Act of 1933. There can be no assurance that the Company will be successful
in raising such capital.
BLINK
CHARGING CO. & 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 Blink Charging Co. and its wholly-owned subsidiaries, including
Car Charging, Inc., Beam Charging LLC (“Beam”), EV Pass LLC (“EV Pass”), Blink Network LLC (“Blink
Network”) 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 September 30, 2017 and
December 31, 2016, there was an allowance for uncollectable amounts of $38,275 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 $192,000 and $154,000 as of September 30, 2017 and December 31, 2016, respectively.
As
of September 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
September 30, 2017 and December 31, 2016 was $5,044,518 and $4,726,861, respectively.
BLINK
CHARGING CO. & 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 acquisition of Blink Network during 2013 and were recorded at their fair value
at such time. Trademarks are amortized on a straight-line basis over their useful life of ten years. Patents are amortized on
a straight-line basis over the lives of the patent (twenty years or less), commencing when the patent is approved and placed in
service on a straight-line basis. Accumulated amortization related to intangible assets as of September 30, 2017 and December
31, 2016 was $41,496 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.
BLINK
CHARGING CO. & 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 nine months ended September 30, 2017, revenues generated from Entity C represented approximately 10%, of the Company’s
total revenue. During the three and nine months ended September 30, 2016, revenues generated from Entity C represented approximately
15% and 14%, respectively, of the Company’s total revenue. During the three and nine months ended September 30, 2017, revenues
generated from Entity D represented approximately 26% and 21% 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 September 30, 2017 and
December 31, 2016, accounts receivable from Entity C was 10% 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.
BLINK
CHARGING CO. & 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:
|
|
September
30
|
|
|
|
2017
|
|
|
2016
|
|
Convertible
preferred stock
|
|
|
2,884,383
|
|
|
|
1,017,646
|
|
Warrants
|
|
|
266,143
|
|
|
|
1,109,672
|
|
Options
|
|
|
147,300
|
|
|
|
138,467
|
|
Convertible
notes
|
|
|
19,856
|
|
|
|
15,647
|
|
Total
potentially dilutive shares
|
|
|
3,317,682
|
|
|
|
2,281,432
|
|
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 core principle of 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. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is
possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S.
GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include
in the transaction price and allocating the transaction price to each separate performance obligation. 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,
however, based on its preliminary analysis, the Company does not believe the adoption of these ASUs will have a material impact
on its condensed 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 condensed consolidated financial statements and related disclosures.
BLINK
CHARGING CO. & 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.
In
August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging
Activities (“ASU 2017-12”) which is intended to better align an entity’s risk management activities and its
financial reporting for hedging relationships. ASU 2017-12 will change both the designation and measurement guidance for a qualifying
hedging relationship and the presentation of the impact of the hedging relationship on the entity’s financial statements.
In addition, ASU 2017-12 contains targeted improvements to ease the application of current guidance related to the assessment
of hedge effectiveness and eliminates the requirement for an entity to separately measure and report hedge ineffectiveness. For
public companies, these amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. Early adoption is permitted. The Company is currently evaluating the effect that adopting this new accounting
guidance will have on its condensed consolidated financial statements and related disclosures.
4.
ACCRUED EXPENSES
SUMMARY
Accrued
expenses consist of the following:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Registration
rights penalty
|
|
$
|
21,517
|
|
|
$
|
967,928
|
|
Accrued
consulting fees
|
|
|
214,958
|
|
|
|
184,800
|
|
Accrued
host fees
|
|
|
1,514,327
|
|
|
|
1,308,897
|
|
Accrued
professional, board and other fees
|
|
|
1,544,196
|
|
|
|
1,381,399
|
|
Accrued
wages
|
|
|
803,708
|
|
|
|
241,466
|
|
Accrued
commissions
|
|
|
835,001
|
|
|
|
445,000
|
|
Warranty
payable
|
|
|
235,000
|
|
|
|
338,000
|
|
Accrued
taxes payable
|
|
|
566,825
|
|
|
|
511,902
|
|
Accrued
payroll taxes payable
|
|
|
576,709
|
|
|
|
122,069
|
|
Warrants
payable
|
|
|
2,530,714
|
|
|
|
155,412
|
|
Accrued
issuable equity
|
|
|
9,352,068
|
|
|
|
862,377
|
|
Accrued
interest expense
|
|
|
206,720
|
|
|
|
273,838
|
|
Accrued
lease terminiation costs
|
|
|
300,000
|
|
|
|
-
|
|
Accrued
settlement reserve costs
|
|
|
12,975,588
|
|
|
|
-
|
|
Dividend
payable
|
|
|
848,900
|
|
|
|
1,150,100
|
|
Other
accrued expenses
|
|
|
23,787
|
|
|
|
12,788
|
|
Total
accrued expenses
|
|
$
|
32,550,018
|
|
|
$
|
7,955,976
|
|
BLINK
CHARGING CO. & 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 September 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 September 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.
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 Network 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
nine months ended September 30, 2017, the change in reserve was approximately $9,000. Warranty expenses (benefit) for the
three and nine months ended September 30, 2017 were $30,771 and $(26,325) respectively. Warranty expenses for the three and nine
months ended September 30, 2016 were $21,895 and $214,258 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 September 30, 2017, the purchaser paid
aggregate consideration of $2,500,100 to the Company but the Company has not yet issued the common stock to the purchaser. As
a result, the Company accrued the remaining $1,224,048 obligation which represents the fair value of the share obligation. See
Note 5 – Notes Payable – Convertible and Other Notes for additional details.
BLINK
CHARGING CO. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4
.
ACCRUED EXPENSES - CONTINUED
ACCRUED
ISSUABLE EQUITY
– CONTINUED
Separately,
during the nine months ended September 30, 2017, the Company issued an aggregate of 11,503 shares of common stock in partial satisfaction
of certain liabilities.
During
the three months ended September 30, 2017, the Company entered into agreements with certain warrant holders to exchange warrants
to purchase an aggregate of 726,504 shares of common stock with an approximate value on the date of exchange of $2.3 million for
an aggregate of 710,841 shares of common stock with an approximate value on the date of exchange of $8.0 million. As a result,
the Company recorded a loss on inducement expense of approximately $5.7 million during the three and nine months ended September
30, 2017 related to the exchange. As of September 30, 2017, the shares of common stock had not been issued by the Company such
that the Company included the $8.0 million value within accrued expenses on the condensed consolidated balance sheet.
See
Note 6 – Fair Value Measurement for details associated with the issuance of warrants in satisfaction of a liability to issue
certain awards to the Company’s Chief Executive Officer.
See
Note 8 – Related Parties – Employment Agreement for details related to replacement of expired warrants.
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 $22,914 during the nine months ended September 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.
ACCRUED
SETTLEMENT RESERVE COSTS
See
Note 5 – Notes Payable – Convertible and Other Notes and Note 9 – Commitments and Contingencies – Litigation
and Disputes.
5.
NOTES PAYABLE
CONVERTIBLE
AND OTHER NOTES
Amendment
of Promissory Note
With
respect to the securities purchase agreement dated October 7, 2016 (the “Purchase Agreement”) with JMJ Financial (“JMJ”),
as amended most recently on August 29, 2017, the parties agreed to amend the terms of the Purchase Agreement and promissory note
(the “Promissory Note”) as follows:
The
maturity date of the Promissory Note is the earlier of December 15, 2017 or the third business day after the closing of the Public
Offering.
Pursuant
to the default provisions of the Promissory Note, the Company accrued a $12 million default penalty as of September 30, 2017,
which was included within accrued expenses on the condensed consolidated balance sheet.
See
Note 10 - Subsequent Events - Promissory Note for additional details.
BLINK
CHARGING CO. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5.
NOTES PAYABLE – CONTINUED
CONVERTIBLE
AND OTHER NOTES
- CONTINUED
Amendment
of Promissory Note - Continued
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 JMJ such number of duly and validly issued, fully paid and non-assessable Origination
Shares equal to 48% of the consideration paid by JMJ, divided by the lowest of (i) $35.00 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 JMJ such number of Origination Shares that
would result in JMJ 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.
Issuances
With
respect to the Securities Purchase Agreement, during the nine months ended September 30, 2017, the Company received additional
advances of an aggregate of $1,550,100 under the Promissory Note, such that, as of September 30, 2017, an aggregate of $2,550,100
had been advanced to the Company by JMJ. Pursuant to the terms of the Securities Purchase Agreement, the Company is required to
repay an aggregate of $1,649,749 to JMJ in connection with the advances received during the nine months ended September 30, 2017.
The $99,649 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 Promissory Note.
Pursuant
to the terms of the Promissory Note, during the nine months ended September 30, 2017, the Company issued five-year warrants to
purchase an aggregate of 44,289 shares of the Company’s common stock with an issuance date fair value of an aggregate of
$80,056, which was recorded as a derivative liability. The aggregate exercise price of the warrants is $1,550,110. As of
September 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 $1,224,048 fair value of the obligation as of September
30, 2017. See Note 4 – Accrued Expenses – Accrued Issuable Equity. The conversion option of the Promissory 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 nine months ended September 30,
2017 was $1,594,139, which was recorded as a debt discount against the principal amount of the Promissory Note. The $54,322 of
debt discount in excess of the principal was recognized immediately and the remaining $1,539,817 of debt discount is being recognized
over the term of the Promissory Note.
During
the nine months ended September 30, 2017, the Company issued note payables in the aggregate principal amount of $260,000 to certain
lenders. Interest on the notes accrues at a rate of 12% annually and is payable at maturity. The notes mature on the earlier of
December 29, 2017 or the Company receiving $5,000,000 from equity investors or through debt financings. In connection with the
issuances of these notes, the Company issued five-year warrants to purchase an aggregate of 15,600 shares of common stock at an
exercise price the lower of $35.00 per share or a price equal to a twenty percent discount to the price per share sold in any
equity financing transaction within the next twelve months whereby the Company cumulatively receives at least $1,000,000. The
aggregate grant date fair value of the warrants of $52,260 was recorded as an original issue discount and is being amortized over
the terms of the respective notes.
BLINK
CHARGING CO. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5.
NOTES PAYABLE - CONTINUED
CONVERTIBLE
AND OTHER NOTES
- CONTINUED
Extension
During
the nine months ended September 30, 2017, the Company and a lender agreed to extend a note payable with a principal balance of
$50,000 and a maturity date of February 2016, to the earlier of: (a) December 29, 2017; or (b) the Company receiving $5 million
in proceeds from equity and/or debt financings. The lender also waived any past events of default with regard to a failure to
make payments pursuant to the original note, as amended. In connection with the extension the Company issued the lender a five-year
warrant to purchase 10,000 shares of common stock with an exercise price the lower of $35.00 per share or a price equal to a twenty
percent (20%) discount to the price per share sold in any equity financing transaction within the next twelve months whereby the
Company cumulatively receives at least $1,000,000. The aggregate grant date fair value of $33,500 was recorded as an inducement
expense and has been recorded on the condensed consolidated statement of operations as a component of other expense for the three
and nine months ended September 30, 2017.
CONVERTIBLE
AND OTHER NOTES - RELATED PARTY
During
the nine months ended September 30, 2017, the Company issued a convertible note 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 $35.00 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.
During
the three months ended September 30, 2017, the Company issued promissory notes in the aggregate principal amount of $160,078 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.
Effective
August 23, 2017, the Company entered into an agreement with a company in which the Company’s Executive Chairman has a controlling
interest (the “BLNK Conversion Agreement”) where the parties agreed to, upon the closing of the offering for which
the Company filed a registration statement on Form S-1 on November 7, 2016 (as amended), convert an aggregate of $209,442 of principal
and interest into common stock, determined by the following formula: (i) the Debt amount multiplied by a factor of 115 and (ii)
then divided by 80% of the per share price of common stock sold in the offering. If the Company converts securities at more favorable
terms than those provided in the BLNK Conversion Agreement, then the conversion price herein shall be automatically modified to
equal such more favorable terms. The BLNK Conversion Agreement expires on December 29, 2017.
INTEREST
EXPENSE
Interest
expense for the three and nine months ended September 30, 2017 was $95,215 and $445,510, respectively. Interest expense for the
three and nine months ended September 30, 2016 was $57,937 and $128,489, respectively.
BLINK
CHARGING CO. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
On
August 4, 2017, the Company issued five-year warrants to purchase an aggregate of 48,023 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 $35.00
to $150.00 per share. The warrants had an issuance date fair value of $153,529, which was recorded as a derivative liability.
Assumptions
utilized in the valuation of Level 3 liabilities are described as follows:
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
1.55
- 1.62
|
%
|
|
|
0.58%
- 1.08
|
%
|
|
|
1.47
- 1.62
|
%
|
|
|
0.58%
- 1.16
|
%
|
Expected
term (years)
|
|
|
1.28
- 3.75
|
|
|
|
2.28
- 5.00
|
|
|
|
1.28
- 4.00
|
|
|
|
2.28
- 5.00
|
|
Expected
volatility
|
|
|
114%
- 130
|
%
|
|
|
123%
- 139
|
%
|
|
|
114%
- 149
|
%
|
|
|
114%
- 154
|
%
|
Expected
dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The
following table sets forth a summary of the changes in the fair value of Level 3 warrant liabilities that are measured at fair
value on a recurring basis:
Derivative
Liabilities
|
|
|
|
Beginning
balance as of January 1, 2017
|
|
$
|
1,583,103
|
|
Issuance of
warrants
|
|
|
936,881
|
|
Change
in fair value of derivative liability
|
|
|
24,108,022
|
|
Ending
balance as of September 30, 2017
|
|
$
|
26,628,006
|
|
|
|
|
|
|
Warrants
Payable
|
|
|
|
|
Beginning
balance as of January 1, 2017
|
|
$
|
155,412
|
|
Accrual
of other warrant obligations
|
|
|
8,616
|
|
Change
in fair value of warrants payable
|
|
|
2,366,686
|
|
Ending
balance as of September 30, 2017
|
|
$
|
2,530,714
|
|
BLINK
CHARGING CO. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6.
FAIR VALUE MEASUREMENT - CONTINUED
Assets
and liabilities measured at fair value on a recurring or nonrecurring basis are as follows:
|
|
September
30, 2017
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26,628,006
|
|
|
$
|
26,628,006
|
|
Warrants
payable
|
|
|
-
|
|
|
|
-
|
|
|
|
2,530,714
|
|
|
|
2,530,714
|
|
Total
liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
29,158,720
|
|
|
$
|
29,158,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 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 September 30, 2017, the liquidation preference for the Series B Convertible Preferred Stock amounted to $825,000.
Series
C Convertible Preferred Stock
During
the nine months ended September 30, 2017, the Company issued an aggregate of 70,006 shares of Series C Convertible Preferred Stock
in satisfaction of aggregate liabilities of approximately $7,027,000 associated with the Company’s registration rights penalty,
public information fee and Series C Convertible Preferred Stock dividends. As of September 30, 2017 and December 31, 2016, the
Company recorded a dividend payable liability on the shares of Series C Convertible Preferred Stock of $848,900 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 September 30, 2017, was equal to $22,955,100.
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.
BLINK
CHARGING CO. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7.
STOCKHOLDERS’ DEFICIENCY - CONTINUED
COMMON
STOCK
Effective
August 29, 2017, pursuant to authority granted by the stockholders of the Company, the Company implemented a 1-for-50 reverse
split of the Company’s issued and outstanding common stock (the “Reverse Split”). The number of authorized shares
remains unchanged. All share and per share information has been retroactively adjusted to reflect the Reverse Split for all periods
presented, unless otherwise indicated.
During
the nine months ended September 30, 2017, the Company issued an aggregate of 21,166 shares of common stock as partial satisfaction
of certain liabilities associated with certain professional and other consulting fee agreements.
During
the nine months ended September 30, 2017, the Company issued 10,000 shares of common stock to a director with an issuance date
fair value of $90,000, which was recognized immediately.
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.
WARRANT
EXERCISE
On
August 29, 2017, a company in which the Company’s Executive Chairman has a controlling interest exercised warrants to purchase
3,100,000 shares of common stock on a cashless basis and received 2,990,404 shares of common stock. The warrants contained
a provision in their agreement such that they were not impacted by the Reverse Split. As a result, since the exercised warrants
were previously classified as a derivative liability, the Company recorded a mark-to-market adjustment during the three months
ended September 30, 2017 of approximately $43.9 million which was included within change in fair value of warrant liabilities
on the condensed consolidated statement of operations.
EXCHANGE
OF WARRANTS AND SERIES C CONVERTIBLE PREFERRED STOCK
During
the nine months ended September 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. The holders agreed to (i) exchange
warrants to purchase an aggregate of 92,176 shares of common stock with an exercise price of $35.00 per share for an aggregate
of 90,926 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”). On August 25, 2017, the Company issued an aggregate of 90,926 shares of common stock in connection with
the Warrant Exchange. 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.
During
the three months ended September 30, 2017, the Company entered into agreements with certain warrant holders to exchange warrants
to purchase an aggregate of 180,533 shares of common stock with an approximate value on the date of exchange of $0.6 million for
an aggregate of 180,533 shares of common stock with an approximate value on the date of exchange of $3.0 million. As a result,
the Company recorded a loss on inducement expense of approximately $2.4 million during the three and nine months ended September
30, 2017 related to the 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 nine months ended September 30, 2017 of $322,426 and $1,432,832, respectively, and for the three and nine months
ended September 30, 2016 in the amounts of $305,458, and $1,147,496, respectively, which is included within compensation expense
on the condensed consolidated statement of operations. As of September 30, 2017, there was $1,358 of unrecognized stock-based
compensation expense that will be recognized over the weighted average remaining vesting period of 0.12 years.
BLINK
CHARGING CO. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8.
RELATED PARTIES
See
Note 5 - Notes Payable – Convertible and Other Notes – Related Party and Note 7 – Stockholders’ Deficiency
– Warrant Exercise.
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 Blink Charging Co. 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. See Note 8 –
Related Parties – Conversion Agreements for additional details.
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 2,000 shares of common stock at an exercise price of $9.50
per share; (b) warrants for 68,667 shares of common stock at an exercise price of $21.50 per share; and (c) warrants for 44,000
shares of common stock at an exercise price of $37.00 per share. As of September 30, 2017, the fair value of the warrants was
estimated to be approximately $732,000. Mr. Farkas will also receive options (regardless of the status of the offering) for 7,000
shares of common stock at an exercise price of $30.00 per share and options for 8,240 shares of common stock at an exercise price
of $37.50 per share in connection with amounts owed pursuant to the Affiliate Agreements. As of September 30, 2017, the fair value
of the options was estimated to be approximately $90,000.
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 September 30, 2017, the Company has accrued for all necessary amounts due to Mr. Farkas which are specified above.
BLINK
CHARGING CO. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8.
RELATED PARTIES – CONTINUED
CONVERSION
AGREEMENTS
Effective
August 23, 2017, the Company entered into an agreement with Michael D. Farkas, its Executive Chairman (the “Conversion Agreement”)
where the parties agreed to, upon the closing of the offering for which the Company filed a registration statement on Form S-1
on November 7, 2016 (as amended), convert $315,000 of payments owed Mr. Farkas from December 1, 2015 through August 31, 2017 (“Debt”)
into common stock, determined by the following formula: (i) the Debt amount multiplied by a factor of 115 and (ii) then divided
by 80% of the per share price of common stock sold in the offering. If the Company converts securities at more favorable terms
than those provided to Mr. Farkas, then the Debt conversion price shall be automatically modified to equal such more favorable
terms. The Conversion Agreement expires on December 29, 2017.
See
Note 5 – Notes Payable – Convertible and Other Notes – Related Party for details related to the conversion of
notes payable.
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 7,000
shares of the Company’s common stock at an exercise price of $30.00 per share; and (ii) options for 9,600 shares of the
Company’s common stock at an exercise price of $37.50 per share. As of September 30, 2017, options had not been issued and
had a fair value of approximately $97,000.
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 September 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 Mr. Farkas has a controlling interest purchased the following securities from a stockholder
of the Company for $1,000,000: 142,857 shares of common stock, 114,491 shares of Series C Preferred Stock, warrants to purchase
526,604 shares of the Company’s common stock, and all rights, claims, title, and interests in any securities of whatever
kind or nature issued or issuable as a result of the stockholder’s ownership of the Company’s securities.
9.
COMMITMENTS AND CONTINGENCIES
OPERATING
LEASE
On
February 28, 2017, the Company vacated the Phoenix, Arizona space and has no further obligation in connection with the sublease.
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 September 30, 2017. As a result of the action taken by the
landlord, the Company accrued an additional $300,000 as of September 30, 2017, which represents the present value of the Company’s
rent obligation through the end of the lease.
BLINK
CHARGING CO. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
COMMITMENTS AND CONTINGENCIES – CONTINUED
OPERATING
LEASE
- CONTINUED
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 nine months ended September 30, 2017 was $39,976 and $117,194, respectively,
and is recorded in other operating expenses on the condensed consolidated statements of operations. Total rent expense for the
three and nine months ended September 30, 2016, was $34,100 and $205,091, 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, 2015 and
2016. The Company has sustained losses for the years ended December 31, 2014, 2015 and 2016. 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 accrued an approximate $227,000 and $218,000 liability
as of September 30, 2017 and December 31, 2016, respectively, related to this matter.
The
Company is currently delinquent in remitting approximately $577,000 and $244,000 as of September 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 Network for the manufacturing
and purchase of 6,500 charging cables by Blink Network, 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
Network and ITT Cannon agreed to a settlement agreement under which the parties agreed to the following: (a) the Blink Network
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 September 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 Network 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, which continues to accrue both interest at the rate of 7.25% per annum on that amount calculated on a daily
as of February 28, 2014, and costs to-date of $40,000 which are hereby added to the foregoing judgment amount (all of which was
accrued at September 30, 2017). In connection with perfecting the Georgia judgment in the State of New York, Mr. Stein served
an Information Subpoena with Restraining Notice dated September 12, 2017 on the underwriter of the offering for which the Company
filed a registration statement on Form S-1 on November 7, 2016 (as amended) (the “Restraining Notice”). The Restraining
Notice seeks to force the underwriter to pay the judgment amount directly out of the proceeds of the offering. The underwriter
may seek to withdraw as the underwriter of the Company's registered offering if Mr. Stein does not withdraw the Restraining Notice.
The Company continues to pursue a settlement with Mr. Stein including with regard to the withdrawal of the Restraining Notice.
BLINK
CHARGING CO. & 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 7,281 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 Blink Charging Co. in separate breach of
contract counts and names all three entities together in an unjust enrichment claim. Blink Charging Co. 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 Blink
Charging Co. 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
May 30, 2013, JNS Power & Control Systems, Inc. (“JNS”) filed a complaint against 350 Green, LLC alleging claims
for breach of contract, specific performance and indemnity arising out of an Asset Purchase Agreement between JNS and 350 Green
entered on April 13, 2013, whereby JNS would purchase car chargers and related assets from 350 Green. On September 24, 2013, the
District Court entered summary judgment in favor of JNS on its claim for specific performance. On September 9, 2015, the United
States Court of Appeals for the Seventh Circuit of Chicago, Illinois affirmed the ruling of the District Court, 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 Company answered the second amended complaint on August 16, 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 September 30, 2017, the Company accrued a $750,000 liability in connection with its settlement offer to JNS. The parties
are in the process of documenting a settlement.
10.
SUBSEQUENT EVENTS
Promissory
Note
Subsequent
to September 30, 2017, in connection with the JMJ Agreement (as defined below) with JMJ, the Company received an additional advance
of $949,900 under the Promissory Note.
BLINK
CHARGING CO. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10.
SUBSEQUENT EVENTS – CONTINUED
JMJ
Agreement
On
October 23, 2017, the Company entered into a Lockup, Conversion, and Additional Investment Agreement (the “JMJ Agreement”)
with JMJ whereby the Company and JMJ agreed to settle the current defaults under the Promissory Note, which, as of September 30,
2017 resulted in default penalties of $12 million. Pursuant to the JMJ Agreement, the parties agreed to two different scenarios
under which the defaults under the Promissory Note would be settled, provided that (i) the Company completes its public offering
by December 15, 2017, and (ii) no additional event of default or breach occurs between the date of the JMJ Agreement and the close
of the public offering. Pursuant to the JMJ Agreement, the following options are available to the Company:
Option
A
|
i.
|
Cash Payment
- Within three (3) trading days after closing of the public offering, the Company shall pay JMJ $2 million of the Promissory Note balance in cash.
|
|
ii.
|
Mandatory Default Amount
– JMJ agrees to settle the $12 million default penalty for $1,100,000 of common stock (“Settlement Shares”).
|
|
iii.
|
Warrants
– JMJ’s warrants (with a derivative
liability value of $25 million on the September 30, 2017 balance sheet) shall be exchanged for $3.5 million of common stock
(“Warrant Shares”).
|
|
iv.
|
Promissory Note Balance
- The balance on the Promissory Note, after applying the $2 million Cash Payment, shall be payable in common stock (“Note Balance Shares”).
|
|
v.
|
Lockup Fee
- The Company agrees to pay a lockup fee of $250,000 payable in common stock as consideration for JMJ entering into a lockup agreement, not to exceed six months, that will be effective upon closing of the public offering (“Lockup Shares”).
|
|
vi.
|
Defaults
- The Company agrees to pay to JMJ $750,000 in common stock as fees for the numerous events of default under the Purchase Agreement, the Promissory Note and related documents (“Default Shares”).
|
|
vii.
|
Share Delivery and Pricing
- The number of Settlement Shares, Warrant Shares, Note Balance Shares, Lockup Shares, Origination Shares and Default Shares (collectively, “Investor Shares”) deliverable to JMJ, and the time of the delivery of the Investor Shares, shall be determined in accordance with the pricing formula and delivery specified in the Purchase Agreement.
|
|
viii.
|
Investor Shares Beneficial Ownership Limitation
- Unless agreed by both parties, at no time will the Company issue such shares that would result in JMJ owning more than 9.99% of all shares of common stock.
|
Option
B
|
i.
|
No Cash Payment
– The Company shall not pay to JMJ any part of the Promissory Note balance in cash.
|
|
ii.
|
Mandatory Default Amount
– JMJ agrees to settle the $12 million default penalty for $2,100,000 of common stock (“Settlement Shares”).
|
|
iii.
|
Warrants
– JMJ’s warrants (with a derivative
liability value of $25 million on the September 30, 2017 balance sheet) shall be exchanged for $3.5 million of common stock
(“Warrant Shares”).
|
|
iv.
|
Promissory Note Balance
- The balance on the Promissory Note shall be payable in common stock (“Note Balance Shares”).
|
|
v.
|
Lockup Fee
- The Company agrees to pay a lockup fee of $250,000 payable in common stock as consideration for JMJ entering into a lockup agreement, not to exceed six months, that will be effective upon closing of the public offering (“Lockup Shares”).
|
|
vi.
|
Defaults
- The Company agrees to pay to JMJ $750,000 in common stock as fees for the numerous events of default under the Purchase Agreement, the Promissory Note and related documents (“Default Shares”).
|
|
vii.
|
Share Delivery and Pricing
- The number of Settlement Shares, Warrant Shares, Note Balance Shares, Lockup Shares, Origination Shares and Default Shares (collectively, “Investor Shares”) deliverable to JMJ, and the time of the delivery of the Investor Shares, shall be determined in accordance with the pricing formula and delivery specified in the Purchase Agreement.
|
|
viii.
|
Investor Shares Beneficial Ownership Limitation
- Unless agreed by both parties, at no time will the Company issue such shares that would result in JMJ owning more than 9.99% of all shares of common stock.
|
Furthermore,
at JMJ’s election at any time prior to the closing of the public offering, the Company shall create, within five (5) business
days after such election, a series of convertible preferred stock to address the Beneficial Ownership Limitation on Investor Shares.
JMJ shall have the right to invest up to $5 million in the public offering and up to $5 million in each of the Company’s
subsequent financings during the two year period after the public offering, on the same terms as the best terms, as determined
by JMJ, provided to any investor in the public offering or in any such subsequent financing.
BLINK
CHARGING CO. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10.
SUBSEQUENT EVENTS – CONTINUED
JMJ
Agreement
– Continued
Pursuant
to the JMJ Agreement, the Promissory Note maturity date and was extended to December 15, 2017.
Warrant Agreement
On November 20, 2017, a warrant holder confirmed in writing that he would not pursue
a price reset of his outstanding warrants as a result of the August 29, 2017 exercise of certain warrants that were not impacted
by the Reverse Split. The Company expects that this will result in a substantial reduction of the fair market value of derivative
liabilities ($25 million on the September 30, 2017 balance sheet) in the fourth quarter of 2017.
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 Blink Charging Co. (and, including its
subsidiaries, “Blink”, “Blink Charging Co.”, the “Company”) as of September 30, 2017 and for
the three and nine months ended September 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 Blink Charging. 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 Blink Charging 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 as of September 30, 2017, we had a cash balance, a working
capital deficiency and an accumulated deficit of $9,062, $67,198,792 and $182,206,113, respectively. During the three and nine
months ended September 30, 2017, we incurred a net loss of $93,620,432 and $101,134,331, 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.
On
August 17, 2017, Car Charging Group, Inc. changed its name to Blink Charging Co. Effective August 29, 2017, pursuant to authority
granted by the stockholders of the Company, the Company implemented a 1-for-50 reverse split of the Company’s issued and
outstanding common stock (the “Reverse Split”). The number of authorized shares remains unchanged. All share and per
share information has been retroactively adjusted to reflect the Reverse Split for all periods presented, unless otherwise indicated.
Consolidated
Results of Operations
Three
Months Ended September 30, 2017 Compared With Three Months Ended September 30, 2016
Revenues
Total
revenue for the three months ended September 30, 2017 was $606,899 compared to $748,950 a decline of $142,051, or 19%. The decline
is attributed to a $48,557, or 24%, decline in product sales that decreased to $157,264 for the three months ended September 30,
2017 compared to $205,821 for the three months ended September 30, 2016. The decrease was primarily due to cost-cutting measures,
limited resources during reorientation of operations, as well as lower volume of residential and commercial units sold during
the three months ended September 30, 2017. The decrease is also attributable to a $56,148, or 79%, decline in grant and rebate
revenue that decreased to $14,978 for the three months ended September 30, 2017 compared to $71,126 for the comparable 2016 period.
Grants and rebates relating to equipment and the related installation are deferred and amortized in a manner consistent with the
depreciation expense of the related assets over their useful lives. The ability to secure grant revenues is typically unpredictable
and, therefore, uncertain. We have not recently received any new grants and, as a result, the 2017 revenue is related to the amortization
of previous grants.
Charging
service revenue from company-owned charging stations was $328,302 for the three months ended September 30, 2017 compared
to $317,443 for the three months ended September 30, 2016, an increase of $10,859, or 3%. Charging service revenue
derived from company-owned charging stations increased despite a $58,826 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 $106,355 for the three months ended September 30, 2017 as compared
to $154,560 for the three months ended September 30, 2016, a decrease of $48,205, or 31%. The decrease is primarily attributable
to a decrease in non-company-owned fee-generating units on our network, which is included within other revenues, during
the three months ended September 30, 2017 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 September 30, 2017 were $305,610 as compared to $694,656 for the three months ended September 30, 2016. The decrease is
primarily attributable to a decrease of $135,576, or 72%, in warranty, repairs and maintenance, and network costs 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 $77,104, or 12%, 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 $86,744 for the three months ended September 30, 2017 as compared to
$263,110 for the three months ended September 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 decreased by $483,819, or 31%, from $1,564,463 (consisting of approximately $1.3 million of cash compensation and
approximately $0.3 million of non-cash compensation) for the three months ended September 30, 2016 to $1,080,644 (consisting of
approximately $0.8 million of cash compensation and approximately $0.3 million of non-cash compensation) for the three
months ended September 30, 2017. The decrease was primarily attributable to decreased cash commission expenses of approximately
$315,000 earned by a company owned by our Executive Chairman as well as decrease of approximately $180,000 of payroll
expenses due to decreased headcount as compared to the 2016 period.
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $114,847, or 34%,
from $342,774 for the three months ended September 30, 2016 to $227,927 for the three months ended September 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 $198,554, or 47%, from $420,953 for the three months ended September 30, 2016 to $222,399
for the three months ended September 30, 2017. The decrease was primarily attributable to a decrease in legal and professional
fees of approximately of $183,639, and consulting fees of approximately $31,500, partially offset by an increase in credit card
processing fees $17,715.
Other
Expense
Other
expense increased by $92,256,491, or 68,715%, from $134,260 for the three months ended September 30, 2016 to $92,390,751 for the
three months ended September 30, 2017. The increase was primarily due to an increase in the non-cash change in fair value of warrant
liabilities of approximately $71.8 million, which was primarily attributable to the quantity of warrants held by our Executive
Chairman not being subject to our Reverse Split, which, as a result of the Reverse Split, caused them to increase in value. The
increase in other expense was also attributable to a loss on settlement reserve of $12.5 million, which was primarily related
to our default on our note with JMJ, as well as a non-cash loss on inducement of $7.6 million which related to exchange agreements
whereby the value consideration received by the counterparty exceeded the carrying value of the liability.
Net
Loss
Our
net loss for the three months ended September 30, 2017 increased by $91,212,276 or 3,788%, to $93,620,432 compared to $2,408,156
for the three months ended September 30, 2016. The increase was primarily due to increased other expenses of $92,256,491. Our
net loss attributable to common shareholders for the three months ended September 30, 2017 increased by $91,654,076, or 3,279%,
from $2,794,856 to $94,448,932 for the aforementioned reasons and due to an increase in the dividend attributable to Series C
Convertible Preferred shareholders of $441,800.
The
increase in other expense was primarily due to an increase in the non-cash change in fair value of warrant liabilities of approximately
$71.8 million, which was primarily attributable to the quantity of warrants held by our Executive Chairman not being subject to
our Reverse Split, which, as a result of the Reverse Split, caused them to increase in value. The increase in other expense was
also attributable to a loss on settlement reserve of $12.5, which was primarily related to our default on our note with JMJ, as
well as a non-cash loss on inducement of $7.6 million which related to exchange agreements whereby the value consideration received
by the counterparty exceeded the carrying value of the liability.
Nine
Months Ended September 30, 2017 Compared With Nine Months Ended September 30, 2016
Revenues
Total
revenue for the nine months ended September 30, 2017 was $1,735,493 compared to $2,459,496, a decline of $724,003, or 29%. The
decline is primarily attributed to a $488,388, or 57%, decline in product sales that decreased to $367,808 for the nine months
ended September 30, 2017 compared to $856,195 for the nine months ended September 30, 2016. The decrease was primarily due to
cost-cutting measures, limited resources during reorientation of operations, as well as lower volume of residential and commercial
units sold during the nine months ended September 30, 2017. The decrease is also attributable to a $134,492, or 59%, decline
in grant and rebate revenue that decreased to $93,798 for the nine months ended September 30, 2017 compared to $228,290 for the
comparable 2016 period. Grants and rebates relating to equipment and the related installation are deferred and amortized in a
manner consistent with the depreciation expense of the related assets over their useful lives. The ability to secure grant revenues
is typically unpredictable and, therefore, uncertain. We have not recently received any new grants and, as a result, the 2017
revenue is related to the amortization of previous grants.
Charging
service revenue from company-owned charging stations was $879,428 for the nine months ended September 30, 2017 compared to $958,376
for the nine months ended September 30, 2016, a decrease of $78,948, or 8%. Charging service revenue from company-owned charging
stations decreased primarily due to a $170,020 decrease in revenue from a program sponsored by Nissan North America that the Company
has participated in since July 2014, partially offset by an increase in revenue of $91,071 from company-owned charging stations.
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 $394,459 for the nine months ended September 30, 2017 as compared
to $416,634 for the nine months ended September 30, 2016, a decrease of $22,175, or 5%. The decrease is primarily attributable
to a decrease in non-company-owned fee-generating units on our network during the nine months ended September 30, 2017 as compared
to the nine months ended September 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 nine months
ended September 30, 2017 were $1,128,066 as compared to $2,253,190 for the nine months ended September 30, 2016. Cost of revenues
decreased in virtually every category as compared to the 2016 period except for charging services which experienced an increase
of $18,400, however, the decrease is primarily attributable to a decrease of $392,678, or 65%, in warranty and repairs
and maintenance and network costs expense due to a lower cost of repairs provided by us as compared to repairs provided by third
party vendors. Warranty and repairs and maintenance expense decreased as compared to the 2016 period primarily 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 $351,947, or 44%, in total cost of revenues in connection with cost of 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 $298,168 for the nine months ended September 30, 2017 as compared to $697,067
for the nine months ended September 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 decreased by $125,569, or 3%, from $4,217,250 (consisting of approximately $3.1 million of cash compensation and approximately
$1.1 million of non-cash compensation) for the nine months ended September 30, 2016 to $4,091,681 (consisting of approximately
$2.7 million of cash compensation and approximately $1.4 million of non-cash compensation) for the nine months ended September
30, 2017. The decrease was attributable decreased commission expenses of approximately $130,000 earned by a company owned
by our Executive Chairman as well as decrease of approximately $290,000 of payroll expenses due to decreased headcount as compared
to the 2016 period, partially offset by an increase in non-cash compensation expense primarily attributable to stock-based compensation
issued to directors.
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $375,517, or 36%,
from $1,057,147 for the nine months ended September 30, 2016 to $681,630 for the nine months ended September 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 $284,188, or 27%, from $1,058,670 for the nine months ended September 30, 2016 to $774,482
for the nine months ended September 30, 2017. The decrease was primarily attributable to a decrease in accounting expenses of
approximately of $200,905 and consulting expenses of approximately $106,500, partially offset by an increase in legal and professional
fees of approximately $74,311.
During
the nine months ended September 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 $92,865,802, or 3,067%, from $3,028,163 for the nine months ended September 30, 2016 to $95,893,965 for the
nine months ended September 30, 2017. The increase was primarily due to an increase in the non-cash change in fair value of warrant
liabilities of approximately $70.4 million, which was primarily attributable to the quantity of warrants held by our Executive
Chairman not being subject to our Reverse Split, which, as a result of the Reverse Split, caused them to increase in value. The
increase in other expense was also attributable to a loss on settlement reserve of $13.0, which was primarily related to our default
on our note with JMJ, as well as a non-cash loss on inducement of $7.6 million which related to exchange agreements whereby the
value consideration received by the counterparty exceeded the carrying value of the liability.
Net
Loss
Our
net loss for the nine months ended September 30, 2017 increased by $91,979,407, or 1,005%, to $101,134,331 as compared to $9,154,924
for the nine months ended September 30, 2016. The increase was primarily due an increase in other expenses of $92,865,802. Our
net loss attributable to common shareholders for the nine months ended September 30, 2017 increased by $92,283,307, or 912%, from
$10,225,324 to $103,508,631 for the aforementioned reasons and due to an increase in the dividend attributable to Series C Convertible
Preferred shareholders of $1,303,900.
The
increase in other expense was primarily due to an increase in the non-cash change in fair value of warrant liabilities of approximately
$70.4 million, which was primarily attributable to the quantity of warrants held by our Executive Chairman not being subject to
our Reverse Split, which, as a result of the Reverse Split, caused them to increase in value. The increase in other expense was
also attributable to a loss on settlement reserve of $13.0, which was primarily related to our default on our note with JMJ, as
well as a non-cash loss on inducement of $7.6 million which related to exchange agreements whereby the value consideration received
by the counterparty exceeded the carrying value of the liability.
Liquidity
and Capital Resources
During
the nine months ended September 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 nine months ended September 30, 2017 and 2016, we used cash of $2,020,021 and $1,913,463, respectively, in operations. Our
cash use for the nine months ended September 30, 2017 was primarily attributable to our net loss of $101,134,331, adjusted for
net non-cash expenses in the aggregate amount of $84,498,217, partially offset by $14,616,093 of net cash provided
by changes in the levels of operating assets and liabilities. Our cash used in operating activities for the nine months
ended September 30, 2016 was primarily attributable to our net loss of $9,154,924, adjusted for non-cash expenses in the aggregate
amount of $5,383,069, partially offset by $1,858,392 of net cash provided by changes in the levels of operating assets and liabilities.
During
the nine months ended September 30, 2017, cash used in investing activities was $12,681, which was used to purchase charger cables.
Net cash used in investing activities was $80,463 during the nine months ended September 30, 2016, which was used to purchase
charging stations and other fixed assets.
Net
cash provided by financing activities for the nine months ended September 30, 2017 was $2,035,866, of which, $2,067,745 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 $72,945 of debt issuance costs as well as the repayment
of notes payable of $4,815. Cash provided by financing activities for the nine months ended September 30, 2016 was $1,813,827,
of which, $1,314,620 of net proceeds (gross proceeds of $1,367,120 less issuance costs of $52,500) were from the sale of Series
C Convertible Preferred Stock and warrants, $600,000 was provided in connection with proceeds from the issuance of convertible
notes to a related party, partially offset by the repayment of notes payable of $135,428.
We
expect that through the next 12 months from the date of this filing, we will require external funding to sustain operations and
to follow through on the execution of our business plan. There can be no assurance that our plans will materialize and/or that
we will be successful in our efforts to obtain the funding to cover working capital shortfalls. Given these conditions, there
is substantial doubt about our ability to continue as a going concern and our future is contingent upon our ability to secure
the levels of debt or equity capital we need to meet our cash requirements. In addition, our ability to continue as a going concern
must be considered in light of the problems, expenses and complications frequently encountered by entrants into established markets,
the competitive environment in which we operate and the current capital raising environment.
Since
inception, our operations have primarily been funded through proceeds from equity and debt financings. Although management believes
that we have access to capital resources, there are currently no commitments in place for new financing at this time, except as
described above under the heading Recent Developments, and there is no assurance that we will be able to obtain funds on commercially
acceptable terms, if at all.
We
intend to raise additional funds during the next twelve months. The additional capital raised would be used to fund our operations.
The current level of cash and operating margins is insufficient to cover our existing fixed and variable obligations, so increased
revenue performance and the addition of capital through issuances of securities are critical to our success. Should we not be
able to raise additional debt or equity capital through a private placement or some other financing source, we would take one
or more of the following actions to conserve cash: further reductions in employee headcount, reduction in base salaries to senior
executives and employees, and other cost reduction measures. Assuming that we are successful in our growth plans and development
efforts, we believe that we will be able to raise additional debt or equity capital. There is no guarantee that we will be able
to raise such additional funds on acceptable terms, if at all.
Through
September 30, 2017, we incurred an accumulated deficit since inception of $182,206,113. As of September 30, 2017, we had a cash
balance and working capital deficit of $9,062 and $67,198,792, respectively. During the nine months ended September 30, 2017,
we incurred a net loss of $101,134,331. 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.
Recent
Developments
Promissory
Note
Subsequent
to September 30, 2017, in connection with the JMJ Agreement (as defined below) with JMJ, the Company received an additional advance
of $949,900 under the Promissory Note.
JMJ
Agreement
On
October 23, 2017, the Company entered into a Lockup, Conversion, and Additional Investment Agreement (the “JMJ Agreement”)
with JMJ whereby the Company and JMJ agreed to settle the current defaults under the Promissory Note, which, as of September 30,
2017 resulted in default penalties of $12 million. Pursuant to the JMJ Agreement, the parties agreed to two different scenarios
under which the defaults under the Promissory Note would be settled, provided that (i) the Company completes its public offering
by December 15, 2017, and (ii) no additional event of default or breach occurs between the date of the JMJ Agreement and the close
of the public offering. Pursuant to the JMJ Agreement, the following options are available to the Company:
Option
A
|
i.
|
Cash
Payment
- Within three (3) trading days after closing of the public offering, the Company shall pay JMJ $2 million of
the Promissory Note balance in cash.
|
|
ii.
|
Mandatory
Default Amount
– JMJ agrees to settle the $12 million default penalty for $1,100,000 of common stock (“Settlement
Shares”).
|
|
iii.
|
Warrants
– JMJ’s warrants (with a derivative liability value of $25 million on the September 30, 2017 balance sheet)
shall be exchanged for $3.5 million of common stock (“Warrant Shares”).
|
|
iv.
|
Promissory
Note Balance
- The balance on the Promissory Note, after applying the $2 million Cash Payment, shall be payable in common
stock (“Note Balance Shares”).
|
|
v.
|
Lockup
Fee
- The Company agrees to pay a lockup fee of $250,000 payable in common stock as consideration for JMJ entering into
a lockup agreement, not to exceed six months, that will be effective upon closing of the public offering (“Lockup Shares”).
|
|
vi.
|
Defaults
- The Company agrees to pay to JMJ $750,000 in common stock as fees for the numerous events of default under the Purchase
Agreement, the Promissory Note and related documents (“Default Shares”).
|
|
vii.
|
Share
Delivery and Pricing
- The number of Settlement Shares, Warrant Shares, Note Balance Shares, Lockup Shares, Origination
Shares and Default Shares (collectively, “Investor Shares”) deliverable to JMJ, and the time of the delivery of
the Investor Shares, shall be determined in accordance with the pricing formula and delivery specified in the Purchase Agreement.
|
|
viii.
|
Investor
Shares Beneficial Ownership Limitation
- Unless agreed by both parties, at no time will the Company issue such shares
that would result in JMJ owning more than 9.99% of all shares of common stock.
|
Option
B
|
i.
|
No
Cash Payment
– The Company shall not pay to JMJ any part of the Promissory Note balance in cash.
|
|
ii.
|
Mandatory
Default Amount
– JMJ agrees to settle the $12 million default penalty for $2,100,000 of common stock (“Settlement
Shares”).
|
|
iii.
|
Warrants
– JMJ’s warrants (with a derivative liability value of $25 million on the September 30, 2017 balance sheet)
shall be exchanged for $3.5 million of common stock (“Warrant Shares”).
|
|
iv.
|
Promissory
Note Balance
- The balance on the Promissory Note shall be payable in common stock (“Note Balance Shares”).
|
|
v.
|
Lockup
Fee
- The Company agrees to pay a lockup fee of $250,000 payable in common stock as consideration for JMJ entering into
a lockup agreement, not to exceed six months, that will be effective upon closing of the public offering (“Lockup Shares”).
|
|
vi.
|
Defaults
- The Company agrees to pay to JMJ $750,000 in common stock as fees for the numerous events of default under the Purchase
Agreement, the Promissory Note and related documents (“Default Shares”).
|
|
vii.
|
Share
Delivery and Pricing
- The number of Settlement Shares, Warrant Shares, Note Balance Shares, Lockup Shares, Origination
Shares and Default Shares (collectively, “Investor Shares”) deliverable to JMJ, and the time of the delivery of
the Investor Shares, shall be determined in accordance with the pricing formula and delivery specified in the Purchase Agreement.
|
|
viii.
|
Investor
Shares Beneficial Ownership Limitation
- Unless agreed by both parties, at no time will the Company issue such shares
that would result in JMJ owning more than 9.99% of all shares of common stock.
|
Warrant Agreement
On November 20, 2017,
a warrant holder confirmed in writing that he would not pursue a price reset of his outstanding warrants as a result of the August
29, 2017 exercise of certain warrants that were not impacted by the Reverse Split. The Company expects that this will result in
a substantial reduction of the fair market value of derivative liabilities ($25 million on the September 30, 2017 balance sheet)
in the fourth quarter of 2017.
Furthermore,
at JMJ’s election at any time prior to the closing of the public offering, the Company shall create, within five (5) business
days after such election, a series of convertible preferred stock to address the Beneficial Ownership Limitation on Investor Shares.
JMJ shall have the right to invest up to $5 million in the public offering and up to $5 million in each of the Company’s
subsequent financings during the two year period after the public offering, on the same terms as the best terms, as determined
by JMJ, provided to any investor in the public offering or in any such subsequent financing.
Pursuant
to the JMJ Agreement, the Promissory Note maturity date and was extended to December 15, 2017.
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 core principle of 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. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is
possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S.
GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include
in the transaction price and allocating the transaction price to each separate performance obligation. 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,
however, based on its preliminary analysis, the Company does not believe the adoption of these ASUs will have a material impact
on its condensed 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 condensed consolidated financial statements 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.
In
August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging
Activities (“ASU 2017-12”) which is intended to better align an entity’s risk management activities and its
financial reporting for hedging relationships. ASU 2017-12 will change both the designation and measurement guidance for a qualifying
hedging relationship and the presentation of the impact of the hedging relationship on the entity’s financial statements.
In addition, ASU 2017-12 contains targeted improvements to ease the application of current guidance related to the assessment
of hedge effectiveness and eliminates the requirement for an entity to separately measure and report hedge ineffectiveness. For
public companies, these amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. Early adoption is permitted. The Company is currently evaluating the effect that adopting this new accounting
guidance will have on its condensed consolidated financial statements and related disclosures.