2.
GOING CONCERN AND MANAGEMENT’S PLANS
As
of June 30, 2015, the Company had a cash balance, a working capital deficiency and an accumulated deficit of $279,581, $15,302,565
and $70,825,957, respectively. During the three and six months ended June 30, 2015, the Company incurred a net loss of $2,338,799
and $6,020,832, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going
concern.
Since
inception, the Company’s operations have primarily been funded through proceeds received in equity and debt financings.
Although management believes that the Company has access to capital resources, there are currently no commitments in place for
new financing at this time, and there is no assurance that the Company will be able to obtain funds on commercially acceptable
terms, if at all. There is also no assurance that the amount of funds the Company might raise will enable the Company to complete
its development initiatives or attain profitable operations. If the Company is unable to obtain additional financing on a timely
basis, it may have to curtail its development, marketing and promotional activities, which would have a material adverse effect
on the Company’s business, financial condition and results of operations, and ultimately the Company could be forced to
discontinue its operations and liquidate.
The
accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation
of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business.
The condensed consolidated financial statements do not include any adjustment that might become necessary should the Company be
unable to continue as a going concern.
Subsequent
to June 30, 2015, the Company received an aggregate of $2,580,040 through new sales of Series C Convertible Preferred Stock. In
addition, pursuant to the Series C Convertible Preferred Stock securities purchase agreement entered into on March 11, 2016, an
additional $2,250,000 is payable to the Company upon the completion of certain milestones, as specified in the agreement. There
can be no assurance that the Company will be successful in completing the milestones. The Company is currently funding its operations
on a month-to-month basis. While there can be no assurance that it will be successful, the Company is in active negotiations to
raise additional capital. See Note 12 – Subsequent Events for additional details.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES
OF CONSOLIDATION
The
condensed consolidated financial statements include the accounts of CCGI and its wholly-owned subsidiaries, including Car Charging,
Inc., Beam Charging LLC (“Beam”), EV Pass LLC, Blink Network LLC (“Blink”) and Car Charging China Corp.
(“Car Charging China”).
Through
April 16, 2014, 350 Green LLC (“350 Green”) was a wholly-owned subsidiary of the Company and was consolidated. Beginning
on April 17, 2014, when 350 Green’s assets and liabilities were transferred to a trust mortgage (see Note 4 – Assets
and Liabilities Transferred to Trust Mortgage – 350 Green), and through June 30, 2015, 350 Green was a VIE, without recourse
to the Company. The consolidation guidance relating to accounting for Variable Interest Entities (“VIE”) requires
an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling
financial interest in a variable interest entity and perform ongoing reassessments of whether an enterprise is the primary beneficiary
of a VIE. The Company determined that it is the primary beneficiary of 350 Green, and as such, 350 Green’s assets, liabilities
and results of operations are included in the Company’s condensed consolidated financial statements.
USE
OF ESTIMATES
Preparation
of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the
financial statements. The Company’s significant estimates used in these financial statements include, but are not limited
to, stock-based compensation, warranty reserves, inventory valuations, the valuation allowance related to the Company’s
deferred tax assets, the carrying amount of intangible assets, estimates of future EV sales and the effects thereon, and the recoverability
and useful lives of long-lived assets. Certain of the Company’s estimates, including the carrying amount of the intangible
assets, could be affected by external conditions, including those unique to the Company and general economic conditions. It is
reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results
to differ from those estimates.
ACCOUNTS
RECEIVABLE
Accounts
receivable are carried at their contractual amounts, less an estimate for uncollectible amounts. As of June 30, 2015 and December
31, 2014, there was an allowance for uncollectable amounts of $122,667 and $119,936, respectively. Management estimates the allowance
for bad debts based on existing economic conditions, the financial conditions of the customers, and the amount and age of past
due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts
are generally written off against the allowance for bad debts only after all collection attempts have been exhausted. There is
no collateral held by the Company for accounts receivable nor does any accounts receivable serve as collateral for any of the
Company’s borrowings with the exception of the Company’s convertible note payable further described in Note 6 –
Notes Payable – Convertible Note Payable.
DERIVATIVE
FINANCIAL INSTRUMENTS
The
Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify
as derivative financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”). The accounting treatment of derivative financial
instruments requires that the Company record the embedded conversion option 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. 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 and conversion options 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 or conversion options.
Conversion
options are recorded as a discount to the host instrument and are amortized as interest expense over the life of the underlying
instrument.
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.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements
and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may
be used to measure fair value:
Level
1 — quoted prices in active markets for identical assets or liabilities
Level
2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses,
accounts payable and accrued expenses approximate fair values due to the short-term nature of these instruments. The carrying
amount of the Company’s notes payable approximates fair value because the effective yields on these obligations, which include
contractual interest rates, taken together with other features such as concurrent issuance of warrants, are comparable to rates
of returns for instruments of similar credit risk.
REVENUE
RECOGNITION
The
Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable
and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have
been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Accordingly, when a customer completes use of a charging station, the service can be deemed rendered and revenue may be recognized
based on the time duration of the session or kilowatt hours drawn during the session. Sales of EV stations are recognized upon
shipment to the customer, free on board shipping point, or the point of customer acceptance.
Governmental
grants and rebates pertaining to revenues and periodic expenses are recognized as income when the related revenue and/or periodic
expense are recorded. Government grants and rebates related to EV charging stations and their installation are deferred and amortized
in a manner consistent with the related depreciation expense of the related asset over their useful lives.
For
arrangements with multiple elements, which is comprised of (1) a charging unit, (2) installation of the charging unit, (3) maintenance
and (4) network fees, revenue is recognized dependent upon whether vendor specific objective evidence (“VSOE”) of
fair value exists for separating each of the elements. We determined that VSOE exists for both the delivered and undelivered elements
of our multiple-element arrangements. We limit our assessment of fair value to either (a) the price charged when the same element
is sold separately or (b) the price established by management having the relevant authority.
RECLASSIFICATIONS
Certain
prior period amounts have been reclassified for comparative purposes to conform to the fiscal 2015 presentation. These reclassifications
have no impact on the previously reported net loss.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
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.
NET
LOSS PER COMMON SHARE
Basic
net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding
during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number vested of
common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the
exercise of outstanding stock options and warrants, plus the conversion of preferred stock.
The
following common stock equivalents are excluded from the calculation of weighted average dilutive common shares because their
inclusion would have been anti-dilutive:
|
|
June 30,
|
|
|
|
2015
|
|
|
2014
|
|
Preferred stock
|
|
|
41,242,027
|
|
|
|
25,000,000
|
|
Warrants
|
|
|
58,142,745
|
|
|
|
36,936,137
|
|
Options
|
|
|
7,666,333
|
|
|
|
5,006,665
|
|
Convertible note
|
|
|
99,524
|
|
|
|
-
|
|
Total potentially dilutive shares
|
|
|
107,150,629
|
|
|
|
66,942,802
|
|
COMMITMENTS
AND CONTINGENCIES
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it
is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. See Note 5 –
Accrued Expenses, Note 11 – Commitments and Contingencies and Note 12 – Subsequent Events – Litigation and Disputes.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4.
ASSETS AND LIABILITIES TRANSFERRED TO TRUST MORTGAGE – 350 GREEN
On
April 17, 2014, the Company’s Board of Directors executed a resolution to form a trust mortgage relating to 350 Green. On
May 29, 2014, the Company and EVSE Management LLC (“EVSE”) entered into a Management Services Agreement and on June
27, 2014, EVSE purchased certain assets from 350 Green. On September 8, 2014, the Company entered into an agreement among the
trustee of 350 Green, an attorney, 350 Green and the Company whereby the Company would pay the legal fees incurred in connection
with an action brought by 350 Green against JNS Power and Control Systems, Inc. (“JNS”). On September 30, 2014, the
Company (“Assignor”) entered into an Assignment Agreement with Green 350 Trust Mortgage LLC (“Assignee”),
an entity formed by the trustee for the sole purpose to entering into this transaction, under which Assignor, the sole member
of 350 Green, irrevocably assigned, sold and transferred 100% of the limited liability company membership interests in 350 Green
to Assignee and Assignee accepted such transfer in consideration of receipt of $100 as of September 30, 2014.
The
Company determined that it is the primary beneficiary of 350 Green due to the subordinated financing arrangements as well as the
Company being the primary beneficiary in the outcome of the action against JNS as of June 30, 2015 and, as such, 350 Green’s
assets and liabilities and results of operations are included in the Company’s condensed consolidated financial statements.
Through April 16, 2014, 350 Green was a wholly-owned subsidiary of the Company and was consolidated. Beginning on April 17, 2014
and through June 30, 2015, 350 Green was a VIE, without recourse to the Company.
The
following amounts pertaining to 350 Green are included in the condensed consolidated statement of operations for the three and
six months ended June 30, 2015:
|
|
For The Three
|
|
|
For The Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30, 2015
|
|
|
June 30, 2015
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
-
|
|
|
|
-
|
|
Total Operating Expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Operations
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Other Income:
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3,042
|
|
|
|
6,052
|
|
Gain on settlement of accrued expenses
|
|
|
10,215
|
|
|
|
60,942
|
|
|
|
|
|
|
|
|
|
|
Total Other Income
|
|
|
13,257
|
|
|
|
66,994
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
13,257
|
|
|
$
|
66,994
|
|
The
following represents the change in the balance of the non-controlling interest:
Balance - December 31, 2014
|
|
$
|
(4,400,730
|
)
|
|
|
|
|
|
Net income of 350 Green for the six months ended June 30, 2015
|
|
|
66,994
|
|
|
|
|
|
|
Balance - June 30, 2015
|
|
$
|
(4,333,736
|
)
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4.
ASSETS AND LIABILITIES TRANSFERRED TO TRUST MORTGAGE – 350 GREEN – CONTINUED
Accrued
expenses pertaining to 350 Green consisted of the following:
|
|
June 30, 2015
|
|
|
December 31, 2014
|
|
|
|
(unaudited)
|
|
|
|
|
Accrued taxes
|
|
$
|
120,132
|
|
|
$
|
113,531
|
|
Accrued host fees
|
|
|
-
|
|
|
|
51,064
|
|
Accrued fees
|
|
|
148,030
|
|
|
|
158,021
|
|
Total
|
|
$
|
268,162
|
|
|
$
|
322,616
|
|
5.
ACCRUED EXPENSES
SUMMARY
Accrued
expenses consist of the following:
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
|
December 31, 2014
|
|
|
|
(unaudited)
|
|
|
|
|
Registration rights penalty
|
|
$
|
500,000
|
|
|
$
|
2,569,788
|
|
Obligation to U.S. Department of Energy
|
|
|
-
|
|
|
|
1,833,896
|
|
Accrued consulting fees
|
|
|
754,125
|
|
|
|
936,862
|
|
Due to Creditors Committee of the Ecotality Estate
|
|
|
-
|
|
|
|
1,035,965
|
|
Accrued host fees
|
|
|
777,173
|
|
|
|
680,080
|
|
Accrued fees
|
|
|
721,076
|
|
|
|
883,707
|
|
Accrued wages
|
|
|
266,199
|
|
|
|
322,651
|
|
Warranty payable
|
|
|
390,662
|
|
|
|
196,402
|
|
Accrued taxes payable
|
|
|
154,798
|
|
|
|
146,577
|
|
Warrants payable
|
|
|
-
|
|
|
|
63,533
|
|
Accrued issuable equity
|
|
|
368,090
|
|
|
|
-
|
|
Accrued interest expense
|
|
|
46,692
|
|
|
|
42,202
|
|
Dividend payable
|
|
|
-
|
|
|
|
20,800
|
|
Deferred rent
|
|
|
-
|
|
|
|
6,564
|
|
Other accrued expenses
|
|
|
40,750
|
|
|
|
-
|
|
|
|
$
|
4,019,565
|
|
|
$
|
8,739,027
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5.
ACCRUED EXPENSES – CONTINUED
REGISTRATION
RIGHTS PENALTY
In
connection with the sale of the Company’s common stock and warrants during the year ended December 31, 2013, the Company
granted the purchasers and the placement agents registration rights on the common stock and warrants within 60 days of the date
of the sale of the stock, as amended. The Stock Purchase Agreement (“SPA”) provided for a penalty provision of 1%
of the gross proceeds for each month that the shares are not registered, not to exceed 10%. The Securities and Exchange Commission
(“SEC”) notified the Company that it could not review its registration statement until such time as the Company furnished
two years of audited financial statements of 350 Green and ECOtality as the acquisitions were deemed significant. The Company
sought a waiver of the audit requirement but the SEC denied the granting of a waiver. On February 5, 2015, the holders of a majority
of the shares affected by the registration rights penalty granted the Company the option to satisfy the accrued registration rights
penalty and related interest as of December 23, 2014 totaling $1,724,823 in Series C Convertible Preferred Stock with a stated
value of $100 per share, in lieu of cash. The Company elected this option which required the Company to pay a 20% premium causing
the liability to increase to $1,850,188, exclusive of interest of $219,600. On February 10, 2015, the Company issued 20,414 shares
of Series C Convertible Preferred Stock and on March 31, 2015, the Company issued the remaining 283 shares of Series C Convertible
Preferred Stock, such that there was no liability as of June 30, 2015.
In
connection with the sale of the Company’s Series C Convertible Preferred Stock during the year ended December 31, 2014,
the Company granted the purchasers registration rights. As of June 30, 2015 and December 31, 2014, the Company was not in a position
to furnish two years of audited financial statements of 350 Green and ECOtality to the SEC, therefore the SEC is unable to review
any registration statement, if submitted. As a result, the Company accrued $500,000 of Series C Convertible Preferred Stock registration
rights penalties, which represents 10% of the final Series C Convertible Preferred Stock issuance dollar amount.
OBLIGATION
TO U.S. DEPARTMENT OF ENERGY
In
2014, the U.S. Department of Energy (“DOE”) notified the Company that it continues to have a property interest in
the 107 installed DCFCs if the fair market value of each DCFC had a market value in excess of $5,000 on October 16, 2013, the
date of the Blink purchase agreement approved by the bankruptcy court. The DOE requested documentation describing the data, assumption
and methodologies that the Company used to determine the value as of the closing date. The Company provided the DOE with additional
documentation and calculations supporting its belief that each DCFC acquired as of the closing date of the Blink purchase agreement
approved by the bankruptcy court had a fair market value of less than $5,000. On May 5, 2015, the DOE notified the Company that
it agreed with the Company’s analysis and had determined that the DOE’s interest in the DCFCs was extinguished. As
a result, the Company reversed the accrued liability in the second quarter of 2015 commensurate with the date of the DOE notification.
DUE
TO CREDITORS COMMITTEE OF THE ECOTALITY ESTATE
On
April 10, 2015, the consideration associated with the strategic transaction to acquire a 50% interest in the Reorganized
Electric Transportation Engineering Corporation of America (“ECOtality”) was amended to an aggregate
of $1,200,000, consisting of an initial payment of $375,000 (including $280,965 to be paid on behalf of the estate directly to
their professional service providers and $94,035 representing forbearance of a Blink network receivable from the estate) and the
issuance of 8,250 shares of Series B Convertible Preferred Stock. As of December 31, 2014, the Company had paid $70,000 and forborne
the $94,035 receivable, such that the liability was $1,035,965. During the six months ended June 30, 2015, the Company paid $210,965
and issued the Series B Convertible Preferred Stock, such that there was no liability as of June 30, 2015. See Note 9 –
Stockholders’ Deficiency – Preferred Stock – Series B Convertible Preferred Stock for additional details.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5.
ACCRUED EXPENSES – CONTINUED
WARRANTS
PAYABLE
In
conjunction with the Beam acquisition, the agreement provided for anti-dilution protection to former members of Beam until such
time as a former member sells or disposes of all of his CCGI common stock. As specified in the agreement, if the Company issues
securities below $1.58 (a “Triggering Event”), the Company is required to issue a one-year warrant to each former
member to purchase an additional number of Company common shares at the Triggering Event price. The Company has accrued for warrants
payable based on the Triggering Events that have occurred through June 30, 2015, as discussed in Note 8 – Stockholders’
Deficiency. During the six months ended June 30, 2015, the Company issued one-year warrants to purchase an aggregate of 271,521
shares of common stock at an estimated fair value of $14,437 to the former Beam members. The warrants had exercise prices ranging
from $0.32 to $1.05 per share.
6.
ACCRUED PUBLIC INFORMATION FEE
In
accordance with the SPA of October 11, 2013 and December 9, 2013, the Company was required to be compliant with Rule 144(c)(1)
of the SEC, as defined, so as to enable investors to sell their holdings of Company shares in accordance with the SPA. In the
event of the Company’s noncompliance with Rule 144(c)(1) at any time after the six (6) month anniversary of the offering,
the investors are entitled to receive a cash fee of 1% of the aggregate subscription amount of the purchaser’s securities,
plus an additional 1% for every pro rata 30 day period that the Company is not in compliance. During 2015, the Company was late
with several SEC filings resulting in its non-compliance with Rule 144(c)(1). As of June 30, 2015 and December 31, 2014, the Company
had accrued $2,464,667 and $711,517, respectively, associated with the obligation.
7.
NOTES PAYABLE
CONVERTIBLE
NOTE
On
February 20, 2015, the Company renegotiated the terms of the $200,000 secured convertible note such that the due date was extended
to March 31, 2015. In connection with the extension, the Company issued the investor an immediately vested five-year warrant to
purchase 400,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrant had an issuance
date fair value of $23,641, which was recognized as amortization of debt discount during the six months ended June 30, 2015.
On
May 1, 2015, the Company further renegotiated the terms of the convertible note such that: (i) the unpaid balance would accrue
interest at the rate of 2% per month effective April 1, 2015 and (ii) the maturity date was extended to June 1, 2015. In connection
with the extension, the Company: (i) issued the lender an immediately vested five-year warrant to purchase 50,000 shares of the
Company’s common stock at $1.00 per share with an issuance date fair value of $13,516 and (ii) extended the expiration dates
of warrants issued in October 2012 to purchase 150,000 shares of the Company’s common stock at an exercise price of $1.00
per share to the lender and its affiliates from October 2015 to October 2017 and recorded incremental compensation cost of $12,954.
Amortization
of debt discount for the three and six months ended June 30, 2015 was $0 and $41,998, respectively, related to convertible notes
payable.
During
the six months ended June 30, 2015, the Company made aggregate principal repayments of $100,000 associated with its convertible
note payable.
See
Note 12 – Subsequent Events – Convertible Note Payable for additional details.
NON-CONVERTIBLE
NOTES
During
the six months ended June 30, 2015, the Company made aggregate principal repayments of $71,585 associated with non-convertible
notes payable.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7.
NOTES PAYABLE – CONTINUED
INTEREST
EXPENSE
Interest
expense for the three and six months ended June 30, 2015 was $11,960 and $21,019, respectively, and $11,537 and $45,868 during
the three and six months ended June 30, 2014, respectively.
8.
FAIR VALUE MEASUREMENT
Assumptions
utilized in the valuation of Level 3 liabilities are described as follows:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.22%
- 1.01%
|
|
|
|
1.62
|
%
|
|
|
0.02%
- 1.30%
|
|
|
|
0.90%
- 1.62%
|
|
Expected term (years)
|
|
|
1.00
- 4.66
|
|
|
|
4.84
- 5.00
|
|
|
|
1.00
- 5.05
|
|
|
|
4.53
- 5.00
|
|
Expected volatility
|
|
|
89%
- 95%
|
|
|
|
88
|
%
|
|
|
84%
- 95%
|
|
|
|
88%
- 89%
|
|
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, 2015
|
|
$
|
3,635,294
|
|
Issuance of warrants
|
|
|
310,245
|
|
Change in classification
|
|
|
281,403
|
|
Change in fair value of derivative liability
|
|
|
(836,070
|
)
|
Ending balance as of June 30, 2015
|
|
$
|
3,390,872
|
|
Warrants Payable
|
|
|
|
|
Beginning balance as of January 1, 2015
|
|
$
|
63,533
|
|
Provision for new warrant issuances
|
|
|
4,325
|
|
Change in fair value of warrants payable
|
|
|
(57,162
|
)
|
Issuance of warrants
|
|
|
(10,696
|
)
|
Ending balance as of June 30, 2015
|
|
$
|
-
|
|
Assets
and liabilities measured at fair value on a recurring or nonrecurring basis are as follows:
|
|
June 30, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,390,872
|
|
|
$
|
3,390,872
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,390,872
|
|
|
$
|
3,390,872
|
|
|
|
December 31, 2014
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,635,294
|
|
|
$
|
3,635,294
|
|
Warrants payable
|
|
|
-
|
|
|
|
-
|
|
|
|
63,533
|
|
|
|
63,533
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,698,827
|
|
|
$
|
3,698,827
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
STOCKHOLDERS’ DEFICIENCY
PREFERRED
STOCK
SERIES
A CONVERTIBLE PREFERRED STOCK
See
Note 11 – Commitments and Contingencies – Employment Agreement for details associated with the issuance of 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
April 21, 2015, the Company designated 10,000 shares of Series B Convertible Preferred Stock with a par value of $0.001 and
a stated value of $100 per share. The Series B Convertible Preferred Stock has no voting rights except under limited
conditions. The holders of Series B Convertible Preferred Stock and the holders of Series C Convertible Preferred Stock,
shall proportionately be entitled to receive out of the assets, whether capital or surplus, of the Company an amount in cash
equal to the stated value for each respective share of Series B Convertible Preferred Stock or Series C Convertible Preferred
Stock before any payments or distributions are made to holders of Series A Convertible Preferred Stock or holders of common
stock. As of June 30, 2015, the liquidation preference for the Series B Convertible Preferred Stock was equal to $825,000.
The holder of the Series B Convertible Preferred Stock is entitled to redeem: (i) 2,750 shares on December 31, 2016; (ii)
2,750 shares on December 31, 2017; and (iii) 2,750 shares on December 31, 2018. However, the Company may choose not to honor
the redemption request, in which case the holder becomes entitled to immediately, or anytime thereafter, convert the Series B
Convertible Preferred Stock into common stock by dividing the aggregate stated value by the conversion price. The
conversion price is equal to the average closing price of the prior 30 trading days as of the date of the request to
convert. The Company may, at any time, elect to redeem all or part of the Series B Convertible Preferred Stock at the
stated value.
During
the six months ended June 30 2015, the Company issued 8,250 shares of Series B Convertible Preferred Stock to the Creditors
of ECOtality as partial consideration for the strategic transaction to acquire a 50% interest in ECOtality. In
addition, the parties entered into a tax sharing agreement which stipulates that any benefit that CCGI realizes from the use
of the ECOtality net operating loss carryforwards (“NOLs”), up to $925,000, must be paid to the ECOtality estate
and such payments would result in the cancellation of a commensurate stated value amount of Series B Convertible Preferred
Stock. After reviewing the terms of the Series B Convertible Preferred Stock and the embedded conversion option
(“ECO”), the Company determined the Series B Convertible Preferred Stock is classified as temporary equity
and the ECO is not bifurcated, is not accounted for as a derivative and is not a beneficial conversion feature.
The
temporary equity classification of the Series B Convertible Preferred Stock is in accordance with ASC 480-10-s99 -
Distinguishing Liabilities from Equity – Overall – SEC Materials and Accounting Series Release
(“ASR”) 268 – Presentation in Financial Statements of “Redeemable Preferred Stock”, as the
Company does not control settlement by delivery of its own common shares because there is no cap on the number of common
shares that could potentially be issuable upon redemption and therefore cash settlement is presumed.
See
Note 5 – Accrued Expenses – Due to Creditors Committee of the ECOtality Estate for additional details.
SERIES
C CONVERTIBLE PREFERRED STOCK
See
Note 5 – Accrued Expenses – Registration Rights Penalty and Note 11 – Commitments and Contingencies –
Employment Agreement for details associated with the issuance of Series C Convertible Preferred Stock.
During
the six months ended June 30, 2015, the Company issued 208 shares of Series C Convertible Preferred Stock in satisfaction of the
$20,800 dividend for the period from December 23, 2014 through December 31, 2014 and 4,144 shares of Series C Convertible Preferred
Stock in satisfaction of the $414,400 dividend for the six months ended June 30, 2015.
During
the six months ended June 30, 2015, the Company did not meet certain defined milestones by their targeted completion dates, as
stipulated under the Series C Convertible Preferred Stock Securities Purchase Agreement dated December 23, 2014. Notwithstanding,
the Purchasers released an aggregate of $3,000,000 to the Company during the six months ended June 30, 2015 associated with the
2014 sale of Series C Convertible Preferred Stock.
Pursuant
to an election of one of the Purchasers, $1,000,000 was returned to the Purchaser in July 2015 from escrow and was not provided
to the Company, such that the Company received an aggregate of $5,000,000 pursuant to the Securities Purchase Agreement, as compared
to the $6,000,000 originally contemplated.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
STOCKHOLDERS’ DEFICIENCY – CONTINUED
PREFERRED
STOCK
-
CONTINUED
SERIES
C CONVERTIBLE PREFERRED STOCK - CONTINUED
In
the event of a liquidation, the Series C Convertible Preferred Stock is also entitled to a liquidation preference equal to the
stated value plus any accrued and unpaid dividends, which, as of June 30, 2015, was equal to $8,604,900.
NON-CONTROLLING
INTERESTS
350
Green is not owned by the Company but is deemed to be a VIE, therefore the entirety of its results of operations are consolidated
in the Company’s financial statements. See Note 4 – Assets and Liabilities Transferred to Trust Mortgage – 350
Green for additional details.
Car
Charging China was incorporated in the State of Delaware on June 24, 2010. Prior to 2015, Car Charging China had insignificant
operations. On January 20, 2015, a three month agreement was entered into between CCGI, Car Charging China and a consultant whereby
Car Charging China agreed to deliver to the consultant on a monthly basis $13,500 in cash and $10,000 in common stock of Car Charging
China. As of June 30, 2015, Car Charging China had transferred 0.8% of its common stock (deemed to have de minimis value) to the
consultant.
STOCK-BASED
COMPENSATION
The
Company recognized stock-based compensation expense related to preferred stock, common stock, stock options and warrants for the
three and six months ended June 30, 2015 of $1,102,606 and $2,862,840, respectively, and expense of $0 and $2,465,435 during the
three and six months ended June 30, 2014, respectively. As of June 30, 2015, there was $1,621,581 of unrecognized stock-based
compensation expense related to stock options that will be recognized over the weighted average remaining vesting period of 1.27
years.
STOCK
OPTIONS
See
Note 11 – Commitments and Contingencies – Employment Agreement for details associated with the modification of certain
stock options.
During
the six months ended June 30, 2015, the Company issued five-year options to purchase 65,000 shares of the Company’s common
stock at exercise prices ranging from $0.33 to $0.42 per share to members of the Board of Directors as compensation for attending
Board meetings during this time. The options are fully vested and had an aggregate fair value of $15,269, which was expensed immediately.
During
the six months ended June 30, 2015, the Company issued five-year options to purchase 25,000 shares of the Company’s common
stock at exercise prices ranging from $0.35 to $0.39 per share to a member of the Board of Directors as compensation for attending
meetings of the newly formed OPFIN Committee. The options vest in one year and had a grant date fair value of $5,079, which will
be recognized over the one year service period.
In
applying the Black-Scholes option pricing model to stock options granted, the Company used the following assumptions:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
0.63%
- 1.00%
|
|
|
|
0.97%
- 1.56%
|
|
|
|
0.63%
- 1.21%
|
|
|
|
0.97%
- 1.56%
|
|
Expected term (years)
|
|
|
2.50
- 3.00
|
|
|
|
3.50
- 5.00
|
|
|
|
2.50
- 3.50
|
|
|
|
3.50
- 5.00
|
|
Expected volatility
|
|
|
87%
- 91%
|
|
|
|
130%
- 141%
|
|
|
|
87%
- 101%
|
|
|
|
130%
- 141%
|
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
STOCKHOLDERS’ DEFICIENCY – CONTINUED
STOCK
OPTIONS
– CONTINUED
A
summary of the option activity during the six months ended June 30, 2015 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
In Years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2014
|
|
|
7,690,665
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
90,000
|
|
|
|
0.37
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited/expired
|
|
|
(114,332
|
)
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2015
|
|
|
7,666,333
|
|
|
$
|
1.23
|
|
|
|
3.1
|
|
|
$
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2015
|
|
|
5,080,333
|
|
|
$
|
1.23
|
|
|
|
3.0
|
|
|
$
|
400
|
|
The
following table presents information related to stock options at June 30, 2015:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Range of
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
Exercisable
|
|
Exercise
|
|
Exercise
|
|
|
Number of
|
|
|
Remaining Life
|
|
|
Number of
|
|
Price
|
|
Price
|
|
|
Options
|
|
|
In Years
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.33 - $0.54
|
|
$
|
0.49
|
|
|
|
620,000
|
|
|
|
3.9
|
|
|
|
620,000
|
|
$0.55 - $1.00
|
|
|
1.00
|
|
|
|
1,874,668
|
|
|
|
3.9
|
|
|
|
628,668
|
|
$1.01 - $1.45
|
|
|
1.17
|
|
|
|
1,406,665
|
|
|
|
2.9
|
|
|
|
1,266,665
|
|
$1.46 - $1.56
|
|
|
1.46
|
|
|
|
3,015,000
|
|
|
|
2.5
|
|
|
|
2,065,000
|
|
$1.57 - $1.72
|
|
|
1.61
|
|
|
|
750,000
|
|
|
|
2.5
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
7,666,333
|
|
|
|
3.0
|
|
|
|
5,080,333
|
|
STOCK
WARRANTS
The Securities Purchase Agreements associated with the October 2013 and December 2013 issuances of common
stock and common stock purchase warrants (the “SPA’s”) contain various covenants that restrict the Company, among
other things, from effectuating any issuances of common stock or common stock equivalents containing variable settlement provisions,
other than exempt issuances, as defined. Despite certain ambiguous covenant language, the Company believes that exempt issuances
could include, but are not necessarily limited to, common stock or common stock equivalents containing variable settlement provisions
that are issued in share based payment arrangements or to effectuate strategic transactions such as mergers and acquisitions. This
restriction remains in effect until such time as no purchaser in either of these separate transactions holds any of the warrants.
Each of the SPA’s provide
for injunctive relief or the right to collect damages. The Company has classified
the warrants issued in these transactions as liability instruments stated at fair value. The Company believes that the Series B
Preferred shares issued to complete the acquisition of 50% of the interests of the Ecotality Estate in April 2015, constitute an
exempt issuance, as intended under the agreements as such shares (i) were issued to effectuate the strategic acquisition of Ecotality,
and (ii) permit the Company, in its sole control, to settle these shares for cash at stated optional redemption dates, as opposed
to a variable number of shares. However, there can be no assurance that the warrant holders (a) agree with the Company’s
interpretation of the SPAs; and (b) won’t pursue any of the potential remedies that may be available to them.
See
Note 7 – Notes Payable for details associated with the issuance of warrants.
See Note 5 – Accrued Expenses
– Warrants Payable and Note 8 – Fair Value Measurement for details associated with the issuances of warrants to the
former members of Beam.
On
February 25, 2015, the Company entered into an agreement with certain investors in the October 2013 financing whereby the investors
were issued warrants to purchase 3,336,734 shares of the Company’s common stock at an exercise price of $0.70 per share
which vested immediately, expire five years from the date of issuance and contain weighted average anti-dilution and fundamental
transaction provisions, as defined. These additional warrants represent the warrants the investors would have received as a result
of the December 23, 2014 financing had they not previously surrendered their anti-dilution protection during 2014. The warrants,
which were classified as derivative liabilities, had an aggregate fair value of $275,908, which was recognized immediately. Additionally,
as a result of the December 23, 2014 financing, the exercise price of warrants to purchase an aggregate of 19,599,999 shares of
common stock issued to the October 2013 and December 2013 investors was reduced to $0.70 per share. As the warrants are classified
as derivative liabilities, the impact of the modification was included within change in fair value of warrant liabilities on the
condensed consolidated statement of operations during the six months ended June 30, 2015.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
STOCKHOLDERS’ DEFICIENCY – CONTINUED
STOCK
WARRANTS
– CONTINUED
The
assumptions used in connection with the valuation of warrants were as follows:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
0.11%
- 1.01%
|
|
|
|
1.62
|
%
|
|
|
0.02%
- 1.30%
|
|
|
|
0.90%
- 1.62%
|
|
Contractual term (years)
|
|
|
0.45
- 4.66
|
|
|
|
4.84
- 5.00
|
|
|
|
0.45
- 5.05
|
|
|
|
4.53
- 5.00
|
|
Expected volatility
|
|
|
87%
- 102%
|
|
|
|
88
|
%
|
|
|
84%
- 102%
|
|
|
|
88%
- 89%
|
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
A
summary of the warrant activity during the six months ended June 30, 2015 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
In Years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2014
|
|
|
54,088,323
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
4,058,255
|
|
|
|
0.74
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited/expired
|
|
|
(3,833
|
)
|
|
|
30.00
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2015
|
|
|
58,142,745
|
|
|
$
|
1.09
|
|
|
|
3.0
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2015
|
|
|
58,142,745
|
|
|
$
|
1.09
|
|
|
|
3.0
|
|
|
$
|
8
|
|
The
following table presents information related to warrants at June 30, 2015:
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Range of
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
Exercisable
|
|
Exercise
|
|
Exercise
|
|
|
Number of
|
|
|
Remaining Life
|
|
|
Number of
|
|
Price
|
|
Price
|
|
|
Warrants
|
|
|
In Years
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.33 - $0.97
|
|
$
|
0.72
|
|
|
|
34,688,951
|
|
|
|
3.7
|
|
|
|
34,688,951
|
|
$0.98 - $1.01
|
|
|
1.00
|
|
|
|
3,479,822
|
|
|
|
3.6
|
|
|
|
3,479,822
|
|
$1.02 - $1.28
|
|
|
1.05
|
|
|
|
4,569,882
|
|
|
|
2.0
|
|
|
|
4,569,882
|
|
$1.29 - $2.25
|
|
|
1.90
|
|
|
|
15,354,090
|
|
|
|
1.6
|
|
|
|
15,354,090
|
|
$2.26 - $30.00
|
|
|
20.00
|
|
|
|
50,000
|
|
|
|
0.5
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
58,142,745
|
|
|
|
3.0
|
|
|
|
58,142,745
|
|
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.
STOCKHOLDERS’ DEFICIENCY – CONTINUED
COMMON
STOCK
See
Note 11 – Commitments and Contingencies – Employment Agreement for details associated with the issuance of common
stock.
On
February 3, 2015, the Company issued 50,000 fully vested shares of the Company’s common stock to a consultant to advise
the Company about corporate governance matters. The consulting services expense valued at $50,000 was accrued for as of December
31, 2014.
On
April 1, 2015, the Company issued 51,586 fully vested shares of its common stock to its then Chief Financial Officer as compensation
for the period from November 2014 through April 2015 valued at $21,600, of which $7,200 were accrued for as of December 31, 2014.
On
April 10, 2015, the Company issued 432,892 fully vested shares of its common stock to a consulting firm for services rendered
by a financial consultant for the period of December 2014 through March 2015 valued at $170,101, of which $16,739 was accrued
for as of December 31, 2014.
On
April 24, 2015, as part of a litigation settlement, two former members of Beam were issued an aggregate of 100,000 fully vested
shares of the Company’s common stock valued at $0.35 per share.
During
the six months ended June 30, 2015, the Company offered the remaining seven former Beam members shares of the Company’s
common stock as consideration for surrendering their anti-dilution benefit contained in the original Beam acquisition agreement.
As a result, two members accepted the Company’s offer and the Company issued an aggregate of 2,375 fully vested shares of
the Company’s common stock valued at $760.
During
the six months ended June 30, 2015, the Company issued 147,000 fully vested shares of the Company’s common stock to members
of the Board of Directors as compensation for attending Board meetings. The shares had a grant date fair value of $56,999 based
on the trading price of the Company’s common stock on the dates of the respective meetings.
During
the six months ended June 30, 2015, the Company issued an aggregate of 41,958 of fully vested shares of the Company’s common
stock at the respective closing market price on the date of the respective meetings to a member of the Board of Directors for
attendance of meetings of the newly formed OPFIN Committee. The shares had an aggregate grant date fair value of $15,000 which
was recognized immediately.
10.
RELATED PARTIES
The
Company paid commissions to a company owned by its former CEO totaling $8,500 and $26,250 during the three and six months ended
June 30, 2015, respectively, and $10,500 and $22,250 during the three and six months ended June 30, 2014, respectively, for business
development services relating to the installations of EV charging stations in accordance with the support services contract. These
amounts are recorded as compensation in the condensed consolidated statements of operations.
The
Company incurred accounting and tax service fees totaling $17,736 and $24,918 for the three and six months ended June 30, 2015,
respectively, and $361 and $1,789 for the three and six months ended June 30, 2014, respectively, provided by a company that is
partially owned by the Company’s former Chief Financial Officer
.
This expense was recorded as general and administrative
expense in the condensed consolidated statements of operations.
The
Company is licensing certain technology under terms of a patent licensing agreement with an entity (licensor) that is majority
owned by the former CEO. The Company has agreed to pay royalties to the licensor equal to 10% of the gross profits received by
the Company from bona fide commercial sales and/or uses of the licensed products and processes. As of June 30, 2015, the Company
has not paid nor incurred any royalty fees related to this agreement. See Note 12 – Subsequent Events – Patent License
Agreement.
11.
COMMITMENTS AND CONTINGENCIES
OPERATING
LEASES
Total
rent expense for the three and six months ended June 30, 2015 was $113,297 and $229,244, respectively, and $120,281 and $223,588
for the three and six months ended June 30, 2014, respectively.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11.
COMMITMENTS AND CONTINGENCIES – CONTINUED
EMPLOYMENT
AGREEMENT
On
March 24, 2015, the Company entered into an employment agreement with Mr. Ira Feintuch to serve as the Company’s Chief Operating
Officer for an initial three year term renewable annually unless written notice is provided 60 days prior to the renewal term.
In consideration thereof, Mr. Feintuch is to receive an annual salary of $250,000 and shall participate in all benefit programs
of the Company. In addition, Mr. Feintuch will receive 1,000,000 shares of Series A Convertible Preferred Stock, 1,500 shares
of Series C Convertible Preferred Stock and 1,500,000 shares of common stock. The stock awards are payable 50% upon the signing
of the employment agreement and 50% upon the one year anniversary of the employment agreement. The total fair value of the stock
awards was $1,750,000, of which $875,000 was recognized immediately upon issuance and the remaining $875,000 will be recognized
over the one year service period. The Company estimated the fair value of the common stock and Series C Convertible Preferred
Stock based on observed prices of sales and/or exchanges of identical securities within the last six months. The Company estimated
the fair value of the Series A Convertible Preferred Stock based on observed prices of sales and/or exchanges of similar securities
within the last six months. As of June 30, 2015, there was approximately $234,000 of accrued issuable equity related to the
stock awards. See Note 5 - Accrued Expenses. In addition, options to purchase an aggregate of 1,495,665 shares of common stock
held by Mr. Feintuch with exercise prices ranging from $1.00 to $1.46 per share had their expiration dates extended to March 24,
2018, such that the value of modified options on the modification date was an aggregate of $192,147, which was $47,536 higher
than the value of the original options on the modification date. As a result, the Company recorded option modification expense
of $47,536 during the six months ended June 30, 2015.
BUSINESS
AGREEMENTS
On
April 2, 2015, Nissan North America (“Nissan”) notified the Company of the termination of the joint marketing agreement
with the Company as a result of the Company’s material default of the agreement in 2015. As a result, Nissan notified the
Company of its intent to repossess the 31 uninstalled fast chargers currently held at a third party facility that had a carrying
amount of $462,552 and was included within other assets and deferred revenue on the condensed consolidated balance sheet as of
June 30, 2015 and December 31, 2014. The parties reached an agreement on July 23, 2015 that Nissan would take possession
of 28 uninstalled fast chargers held at the third party facility, at which time the amounts included within other assets and
deferred revenue will be written off.
On
May 19, 2015, the Company entered into an agreement to purchase 15,000 chargers over three years pending: (i) the submission of
a purchase order for 15,000 chargers to be delivered in a mutually agreed product delivery forecast, (ii) the payment of an initiation
fee, as defined, (iii) sign off on a mutually agreed product schedule and (iv) a three year delivery forecast. The value of the
chargers in the aggregate is in the range of $10.3 million to $16.5 million depending on model and ordering quantity of respective
model. On June 26, 2015, the Company paid the initiation fee of $83,000 in full.
LITIGATION
AND DISPUTES
From
time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business.
350
GREEN, LLC
There
have been five lawsuits filed against 350 Green by creditors of 350 Green regarding unpaid claims. These lawsuits relate solely
to alleged pre-acquisition unpaid debts of 350 Green. Also, there are other unpaid creditors, aside from those noted above, that
claim to be owed certain amounts for pre-acquisition work done on behalf of 350 Green solely, that potentially could file lawsuits
at some point in the future.
On
August 7, 2014, 350 Green received a copy of a complaint filed by Sheetz, a former vendor of 350 Green alleging breach of contract
and unjust enrichment of $112,500. The complaint names 350 Green, 350 Holdings LLC and CCGI in separate breach of contract counts
and names all three entities together in an unjust enrichment claim. CCGI and 350 Holdings will seek to be dismissed from the
litigation, because, as the complaint is currently plead, there is no legal basis to hold CCGI or 350 Green liable for a contract
to which they are not parties. The parties held a mediation conference on May 15, 2015, but no settlement was reached. The parties
continue to negotiate a settlement.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12.
SUBSEQUENT EVENTS
PATENT
LICENSE AGREEMENT
On
March 11, 2016, the Company (the “Licensee”), the Executive Chairman of the Board and Balance Holdings, LLC (an entity
controlled by the Executive Chairman) (collectively, the “Licensor”) entered into an agreement related to a patent
license agreement, dated March 29, 2012. The parties acknowledge that the Licensee has paid a total of $8,525 in registration
and legal fees for the U.S. Provisional Patent Application No. 61529016 (the “Patent Application”) to date. Effective
March 11, 2016, the patent license agreement, solely with respect to the Patent Application and the parties’ rights and
obligations thereto, was terminated. The Executive Chairman of the Board agreed to be solely responsible for all future costs
and fees associated with the prosecution of the patent application. In the event the Patent Application is successful, the Executive
Chairman of the Board shall grant a credit to the Licensee in the amount of $8,525 to be applied against any outstanding amount(s)
owed to him. If the Licensee does not have any outstanding payment obligations to the Executive Chairman of the Board at the time
the Patent Application is approved, the Executive Chairman of the Board shall remit the $8,525 to the Licensee within twenty (20)
days of the approval. The parties agreed to a mutual release of any claims associated with the patent license agreement.
SERIES
C CONVERTIBLE PREFERRED STOCK
Subsequent
to June 30, 2015, the Company issued shares of Series C Convertible Preferred Stock representing the following:
|
|
Series C
|
|
|
|
Convertible
|
|
|
|
Preferred Stock
|
|
|
|
|
|
Dividends for the following periods:
|
|
|
|
|
Quarter ended September 30, 2015
|
|
|
2,434
|
|
Quarter ended December 31, 2015
|
|
|
2,923
|
|
Quarter ended March 31, 2016
|
|
|
3,184
|
|
Securities Purchase Agreement dated July
24, 2015
|
|
|
9,223
|
|
Securities Purchase Agreement dated October
14, 2015
|
|
|
18,333
|
|
Securities Purchase Agreement dated March
11, 2016
|
|
|
10,834
|
|
Satisfaction of accrued liabilities
|
|
|
5,494
|
|
Total
|
|
|
52,425
|
|
On
July 24, 2015, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with
Eventide Gilead Fund (the “Purchaser”) for proceeds of an aggregate of $830,000. Pursuant to the Securities Purchase
Agreement, the Company issued the following to the Purchaser: (i) 9,223 shares of Series C Convertible Preferred Stock with a
stated value of $100 per share, and (ii) five-year warrants to purchase an aggregate of 1,318,889 shares of common stock for an
exercise price of $1.00 per share.
On
October 14, 2015, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with
Eventide Gilead Fund (the “Purchaser”) for proceeds of an aggregate of $1,100,000. Pursuant to the Securities Purchase
Agreement, the Company issued the following to the Purchaser: (i) 18,333 shares of Series C Convertible Preferred Stock with a
stated value of $100 per share, and (ii) five-year warrants to purchase an aggregate of 2,618,997 shares of common stock for an
exercise price of $1.00 per share.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12.
SUBSEQUENT EVENTS – CONTINUED
SERIES
C CONVERTIBLE PREFERRED STOCK
– CONTINUED
On
March 11, 2016, the Company entered into a Securities Purchase Agreement with Eventide Gilead Fund (the “Purchaser”)
for proceeds of an aggregate of $2,900,040 (“Subscription Amount”), of which, $650,040 was paid to the Company at
closing and the remaining $2,250,000 (“Milestone Amounts”) is payable to the Company upon the completion of certain
milestones (“Milestones”), as specified in the agreement. Pursuant to the agreement, the Company will issue the following
to the Purchaser: (i) 48,334 shares of Series C Convertible Preferred Stock with a stated value of $100 per share (of which, 10,834
shares of Series C Convertible Preferred Stock were issued to the Purchaser at closing), and (ii) five-year warrants to purchase
an aggregate of 6,904,857 shares of common stock for an exercise price of $1.00 per share (of which, a warrant to purchase 1,547,714
shares of common stock was issued to the Purchaser at closing). If, by June 24, 2016, the Company has not met sufficient Milestones
for payment of the full Subscription Amount, then the Purchaser will have no further obligation to pay further Milestone Amounts
and the Purchaser shall only be entitled to receive such additional securities that correspond to the portion of the Subscription
Amount paid by Purchaser. If (i) the Company fails to achieve annual overall revenue growth of 20% measured year to year (e.g.,
Q3 2016 compared to Q3 2015) based on its most recent public filings; and (ii) the Company fails to achieve at least a 25% increase
in the value of purchase orders received for Generation 2 Hardware (with a minimum average 40% gross margin) quarter over quarter
on a quarterly basis (e.g., Q3 2016 compared to Q2 2016) based on its most recent two quarters of public filings; and (iii) the
holders of the shares of Series C Convertible Preferred Stock request a redemption; and (iv) the Company chooses not to honor
the redemption request; then, within 180 days from the Company’s receipt of notice from at least 60% of the holders of the
shares of Series C Convertible Preferred Stock, the Company will use reasonable efforts to enter into an agreement to sell substantially
all of its assets and use the proceeds to pay all creditors and shareholders according to their position and in accordance with
applicable laws. In the event the Company does not complete the sale of substantially all of its assets within said 180 day period,
Michael D. Farkas agrees to vote all shares of voting capital stock of the Company registered in his name or beneficially owned
by him as of the date hereof in accordance with the instructions of at least 60% of the holders of the shares of Series C Convertible
Preferred Stock on questions relating to the liquidation of the Company and any other questions, including without limitation,
Board of Directors modifications, necessary to effect a Company liquidation. In the event of the Company’s noncompliance
with Rule 144(c)(1) at any time after the six (6) month anniversary of the offering, the Purchaser is entitled to receive a cash
fee equal to 1% of the aggregate subscription amount of the Purchaser’s securities, plus an additional 1% for every pro
rata 30 day period that the Company is not in compliance. As defined in the agreement, from the date of closing until such time
as the Purchaser holds any of the warrants, the Company is prohibited from entering into any variable rate transactions. For a
period of one year, the Purchaser have the option to exchange all or a portion of the shares of Series C Convertible Preferred
Stock purchased pursuant to agreement for any securities placed by the Company in a future equity financing transaction, based
on a Series C Convertible Preferred Stock value equal to 125% of the purchase price for financing closed prior to April 30, 2016
and otherwise based on a Series C Convertible Preferred Stock value equal to $90 per share.
STOCK-BASED
COMPENSATION
Subsequent
to June 30, 2015, the Company issued one-year warrants to purchase an aggregate of 32,929 shares of the Company’s common
stock to the former members of Beam at exercise prices ranging from $0.27 to $1.50 per share.
On
July 22, 2015, the Company issued an aggregate of 37,500 fully vested shares of the Company’s common stock at $0.32 per
share to members of the Board of Directors for attendance of Board meetings held during this time.
In
September 2015, the Company issued five-year options to purchase an aggregate of 5,000 shares of the Company’s common stock
at an exercise prices of $0.27 per share to members of the Board of Directors for attendance of Board meetings held during this
time. The options vest immediately.
In
October 2015, the Company issued a five-year option to purchase 5,000 shares of the Company’s common stock at an exercise
price of $0.17 per share to a member of the Board of Directors for attendance of meetings of the newly formed OPFIN Committee.
The option vests immediately.
On
November 11, 2015, the Company issued an aggregate of 30,299 fully vested shares of the Company’s common stock at the respective
closing market price on the date of the respective meetings to a member of the Board of Directors for attendance of meetings of
the newly formed OPFIN Committee.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12.
SUBSEQUENT EVENTS – CONTINUED
STOCK-BASED
COMPENSATION
– CONTINUED
Subsequent
to June 30, 2015, the Company offered the remaining seven former Beam members’ shares of the Company’s common stock
as consideration for surrendering their anti-dilution benefit contained in the original Beam acquisition agreement. As a result,
one member accepted the Company’s offer and the Company issued 475 fully vested shares of the Company’s common stock
valued at $138.
On
November 13, 2015, the Company issued five-year options to purchase an aggregate of 1,527,617 shares of the Company’s common
stock under the 2014 Plan at $0.63 per share to employees for services rendered. The shares vest as follows: 423,154 on the date
of issuance, 368,154 on the first anniversary of the date of issuance, 368,154 on the second anniversary of the date of issuance
368,155 on the third anniversary of the date of issuance.
In
December 2015, the Company issued an aggregate of 101,962 fully vested shares of the Company’s common stock at the closing
market price on the date of the respective meeting and five-year options to purchase an aggregate of 20,000 shares of the Company’s
common stock at an exercise price of $0.19 per share to members of the Board of Directors for attendance of Board meetings held
during this time. The options vest immediately.
In
December 2015, the Company issued five-year options to purchase 15,000 shares of the Company’s common stock at exercise
prices ranging from $0.18 to $0.19 per share to members of the Board of Directors for attendance of meetings of the newly formed
OPFIN Committee.
In
January 2016, the Company agreed to extend the maturity date of warrants to purchase an aggregate of 1,290,000 shares of common
stock with an exercise price of $2.25 per share by eighteen (18) months in exchange for the warrant holders agreeing to the deletion
of a fundamental transaction provision.
In
March 2016, one of the former members of Beam returned 242,303 shares of the Company’s common stock to the Company in exchange
for $45,000. The shares of common stock were cancelled by the Company in March 2016.
EMPLOYMENT
AGREEMENTS
On
July 29, 2015 (the “Effective Date”), the Company entered into an employment agreement with Mr. Michael J. Calise
to serve as the Company’s Chief Executive Officer, pursuant to which Mr. Calise will be compensated at the rate of $275,000
per annum. In addition, Mr. Calise will be entitled to receive (1) 3,584,400 four-year options with an exercise price of $0.70
per share, (2) 1,588,016 four-year options with an exercise price of $1.00 per share, (3) 26,422 four-year options with an exercise
price of $1.50 per share, (4) 287,970 four-year options with an exercise price of $2.00 per share and (5) 1,500 four-year options
with an exercise price of $3.00 per share. Each of the options shall vest and become exercisable at the rate of 25% of the total
number of shares on the twelve (12) month anniversary of the Effective Date and 1/16 of the total number of shares each quarter
thereafter on each quarterly anniversary of the Effective Date. In addition, Mr. Calise will receive a signing bonus consisting
of (i) 220,588 shares of the Company’s common stock valued at $75,000 and (ii) a $25,000 cash payment. Within thirty (30)
days of Mr. Calise’s acceptance of this position, Mr. Calise and the Board of the Directors will mutually set the Key Performance
Indicators (“KPIs”) for Mr. Calise’s annual performance bonus. Mr. Calise will be initially eligible to receive
an annual performance bonus in the amount of $100,000. Any entitled annual performance bonus shall be payable in January after
the end of each year, and awarded for meeting the KPIs mutually set by Mr. Calise and the Board of Directors for the prior calendar
year. Mr. Calise and the Board of Directors will meet at the beginning of each calendar year for set the KPIs and the annual bonus
amount for that calendar year. Mr. Calise may receive an additional bonus in the form of cash and/or stock, at the discretion
of the Board of Directors, or pursuant to one or more written plans adopted by the Board of Directors. Mr. Calise is entitled
to paid time off of 20 days per annum. Upon termination by the Company other than for cause, death, disability, or if Mr. Calise
resigns for good reason, Mr. Calise will be entitled to: (i) a lump sum payment equal to nine (9) months of salary, then in effect,
(ii) a prorated annual performance bonus, (iii) reimbursement of COBRA premiums for a period of (12) months and (iv) (9) months
of accelerated vesting with respect to Mr. Calise’s then-outstanding equity awards. In addition to the preceding termination
benefits, if Mr. Calise is terminated three months or less prior to, or upon, or within twelve months following a change of control,
Mr. Calise will be entitled to accelerated vesting of then-outstanding equity awards ranging from an additional three months up
to 100% acceleration of vesting.
CAR
CHARGING GROUP, INC. & SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12.
SUBSEQUENT EVENTS – CONTINUED
EMPLOYMENT
AGREEMENTS
– CONTINUED
Effective
July 24, 2015, the Company amended its employment agreement with Mr. Michael D. Farkas, such that Mr. Farkas was appointed the
Company’s Chief Visionary Officer and shall no longer serve as the Company’s Chief Executive Officer. Mr. Farkas will
continue to serve as the Company’s Executive Chairman of the Board. The employment agreement had a four month term. The
amended employment agreement specified the following: (i) in the event of a sale of the Company within one year of July 24, 2015,
Mr. Farkas shall be entitled to receive an incentive payment equal to 1% of the gross sale price; (ii) in satisfaction of amounts
previously owed to Mr. Farkas, the Company issued 4,444 shares of Series C Convertible Preferred stock valued at $400,000; and
(iii) all outstanding options and warrants shall vest immediately.
CONVERTIBLE
NOTE PAYABLE
On
November 9, 2015, the Company further renegotiated the terms of a $200,000 convertible note such that: (i) the Company shall pay
the lender $61,000 comprised of $50,000 of principal and interest of $11,000; (ii) interest payable on the note accrues interest
at a rate of 1.5% per month effective April 1, 2015 and (iii) the maturity date was extended to February 29, 2016. In connection
with the extension, the Company issued the lender an immediately vested five-year warrant to purchase 280,000 shares of the Company’s
common stock at $1.00 per share. Through the date of filing, the Company has paid an aggregate of $170,008 to the lender, inclusive
of accrued interest, such that a principal balance of $50,000 remains outstanding is currently past due.
LITIGATION
AND DISPUTES
On
July 28, 2015, a Notice of Arbitration was received stating ITT Cannon has a dispute with Blink for the manufacturing and purchase
of 6,500 charging cables by Blink, who has not taken delivery or made payment on the contract price of $737,425. ITT Cannon also
seeks to be paid the cost of attorney’s fees as well as punitive damages. The parties have agreed on a single arbitrator
and are working to schedule the arbitration. The Company contends that the product was not in accordance with the specifications
in the purchase order and, as such, believes the claim is without merit. The parties have agreed on a single arbitrator and are
working to schedule the arbitration while simultaneously pursuing settlement options.
On
September 9, 2015, the United States Court of Appeals for the Seventh Circuit of Chicago, Illinois affirmed the ruling of the
United States District Court for the Northern District of Illinois in the matter of JNS Power & Control Systems, Inc. v. 350
Green, LLC in favor of JNS, which affirmed the sale of certain assets by 350 Green to JNS and the assumption of certain 350 Green
liabilities by JNS. On April 7, 2016, JNS amended the complaint to add CCGI alleging lost revenues from the chargers, among
other matters, caused by the defendants. Plaintiff also seeks indemnity for its costs in connection with enforcing the Asset Purchase
Agreement in courts in New York and Chicago. The court has set the matter for further status on May 17, 2016.
On
January 15, 2016, The Bernstein Law Firm filed a Demand for Arbitration with the American Arbitration Association (“AAA”)
against the Company for breach of contract for failure to pay invoices in the amount of $87,167 for legal work performed by The
Bernstein Law Firm. The parties have reached a settlement and are preparing the documentation.
OPERATING
LEASE
On
July 31, 2015, the lease agreement for the Company’s corporate headquarters in Miami Beach, Florida was amended such that
the amended lease term begins on August 1, 2015 and ends on September 30, 2018. Monthly lease payments are approximately $20,000
for a total of approximately $755,000 for the total term of the lease.
NOTES
PAYABLE
Subsequent
to June 30, 2015, the Company repaid in full a note payable in the principal amount of $100,000 to its Executive Chairman of the
Board.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of the results of operations and financial condition of Car Charging Group, Inc. (and including
its subsidiaries, “CCGI”) as of June 30, 2015 and for the three and six months ended June 30, 2015 and 2014 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 CCGI. This Quarterly Report
contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking
statements contained in this Quarterly Report may not occur. Generally these statements relate to business plans or strategies,
projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions
to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words
“may,” “will,” “expect,” “believe,” “anticipate,” “project,”
“plan,” “intend,” “estimate,” and “continue,” and their opposites and similar
expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future
performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control,
which may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may affect
our results include, but are not limited to, the risks and uncertainties discussed in Item IA. Risk Factors of our Annual Report
on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission (“SEC”) on December
8, 2015.
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
Car
Charging Group, Inc. (OTCPink: “CCGI”, “CarCharging” or “Company”) is the largest owner, operator,
and provider of electric vehicle (“EV”) charging services. CarCharging offers both residential and commercial EV charging
equipment, enabling EV drivers to easily recharge at numerous location types. Headquartered in Miami Beach, FL with offices in
San Jose, CA, New York, NY, and Phoenix, AZ, CarCharging’s business model is designed to expand EV charging infrastructure
availability.
CarCharging
owns the Blink Network, the software that operates, maintains, and tracks all of the Blink EV charging stations and the associated
charging data.
CarCharging
offers various options to commercial and residential property owners for EV charging services. In our comprehensive and turnkey
business model, CarCharging owns and operates the EV charging equipment; manages the installation, maintenance, and related services;
and shares a portion of the EV charging revenue with the property owner. Alternatively, property partners can share in the equipment
and installation expenses with CarCharging operating and managing the EV charging stations and providing connectivity to the Blink
Network. For properties interested in purchasing and owning EV charging stations, CarCharging can also provide EV charging hardware,
site recommendations, connection to the Blink Network, and management and maintenance services.
Sales
Our
revenues are primarily derived from hardware sales, public EV charging services, government grants, state and federal rebates,
and marketing incentives. EV charging fees are based either on an hourly rate, a per kilowatt-hour rate, or by session, and are
calculated based on a variety of factors, including associated station costs and local electricity tariffs. We anticipate implementing
charger occupancy fees and subscription plans for our Blink-owned public charging locations.
To
generate leads and enter into additional strategic partnership agreements with property owners, we have utilized the services
of independent contractors and in house personnel. We have found that by following this model, we are better able to stimulate
growth, control cash-flow, and minimize costs. Accordingly, our independent contractors are able to close and maintain client
relationships, as well as coordinate EV charging station installations and operations.
Recent
Developments
Private
Placements
On
December 23, 2014, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”)
with certain investors (the “Purchasers”) for aggregate consideration of up to $6,000,000 (the “Aggregate Subscription
Amount”). Pursuant to the Securities Purchase Agreement, the Company issued the following to the Purchasers: (i) 60,000
shares of Series C Convertible Preferred Stock convertible into 8,571,429 shares of the Company’s common stock, par value
$0.001, (the “Common Stock”); and (ii) fully vested five-year warrants (the “Warrants”) to purchase an
aggregate of 8,571,429 shares of Common Stock (the “Warrant Shares”) for an exercise price of $1.00 per share. Through
the date of filing, the Company had received $5,000,000 associated with the Securities Purchase agreement (the initial $2,000,000
upon execution and an additional $3,000,000 related to the original Series C Convertible Preferred Stock in consideration of the
formation of an Operations and Finance Committee (“OPFIN Committee”) to provide the Company with financial and operational
direction, management and oversight with respect to the Company’s operating plan and fiscal year 2015 revised budget and
to oversee progress.
On
July 24, 2015, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with
Eventide Gilead Fund (the “Purchaser”) for the purchase of an aggregate of $830,000. Pursuant to the Securities Purchase
Agreement, the Company issued the following to the Purchaser: (i) 9,223 shares of Series C Convertible Preferred Stock with a
stated value of $100 per share, and (ii) warrants to purchase an aggregate of 1,318,889 shares of common stock for an exercise
price of $1.00 per share.
On
October 14, 2015, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with
Eventide Gilead Fund (the “Purchaser”) for the purchase of an aggregate of $1,100,000. Pursuant to the Securities
Purchase Agreement, the Company issued the following to the Purchaser: (i) 18,333 shares of Series C Convertible Preferred Stock
with a stated value of $100 per share, and (ii) warrants to purchase an aggregate of 2,618,997 shares of common stock for an exercise
price of $1.00 per share.
On
March 11, 2016, the Company entered into a Securities Purchase Agreement with Eventide Gilead Fund (the “Purchaser”)
for proceeds of an aggregate of $2,900,040 (“Subscription Amount”), of which, $650,040 was paid to the Company at
closing and the remaining $2,250,000 (“Milestone Amounts”) is payable to the Company upon the completion of certain
milestones (“Milestones”), as specified in the agreement. Pursuant to the agreement, the Company will issue the following
to the Purchaser: (i) 48,334 shares of Series C Convertible Preferred Stock with a stated value of $100 per share (of which, 10,834
shares of Series C Convertible Preferred Stock were issued to the Purchaser at closing), and (ii) five-year warrants to purchase
an aggregate of 6,904,857 shares of common stock for an exercise price of $1.00 per share (of which, a warrant to purchase 1,547,714
shares of common stock was issued to the Purchaser at closing). If, by June 24, 2016, the Company has not met sufficient Milestones
for payment of the full Subscription Amount, then the Purchaser will have no further obligation to pay further Milestone Amounts
and the Purchaser shall only be entitled to receive such additional securities that correspond to the portion of the Subscription
Amount paid by Purchaser. If (i) the Company fails to achieve annual overall revenue growth of 20% measured year to year (e.g.,
Q3 2016 compared to Q3 2015) based on its most recent public filings; and (ii) the Company fails to achieve at least a 25% increase
in the value of purchase orders received for Generation 2 Hardware (with a minimum average 40% gross margin) quarter over quarter
on a quarterly basis (e.g., Q3 2016 compared to Q2 2016) based on its most recent two quarters of public filings; and (iii) the
holders of the shares of Series C Convertible Preferred Stock request a redemption; and (iv) the Company chooses not to honor
the redemption request; then, within 180 days from the Company’s receipt of notice from at least 60% of the holders of the
shares of Series C Convertible Preferred Stock, the Company will use reasonable efforts to enter into an agreement to sell substantially
all of its assets and use the proceeds to pay all creditors and shareholders according to their position and in accordance with
applicable laws. In the event the Company does not complete the sale of substantially all of its assets within said 180 day period,
Michael D. Farkas agrees to vote all shares of voting capital stock of the Company registered in his name or beneficially owned
by him as of the date hereof in accordance with the instructions of at least 60% of the holders of the shares of Series C Convertible
Preferred Stock on questions relating to the liquidation of the Company and any other questions, including without limitation,
Board of Directors modifications, necessary to effect a Company liquidation. In the event of the Company’s noncompliance
with Rule 144(c)(1) at any time after the six (6) month anniversary of the offering, the Purchaser is entitled to receive a cash
fee equal to 1% of the aggregate subscription amount of the Purchaser’s securities, plus an additional 1% for every pro
rata 30 day period that the Company is not in compliance. As defined in the agreement, from the date of closing until such time
as the Purchaser holds any of the warrants, the Company is prohibited from entering into any variable rate transactions. For a
period of one year, the Purchaser have the option to exchange all or a portion of the shares of Series C Convertible Preferred
Stock purchased pursuant to agreement for any securities placed by the Company in a future equity financing transaction, based
on a Series C Convertible Preferred Stock value equal to 125% of the purchase price for financing closed prior to April 30, 2016
and otherwise based on a Series C Convertible Preferred Stock value equal to $90 per share.
Resignation
of Chief Financial Officer
On
December 7, 2015, Jack Zwick resigned as the Company’s Chief Financial Officer and as a Member of the Board of Directors,
effective immediately. There is no disagreement between the Company and Mr. Zwick on any matter that caused his resignation. Michael
Calise was appointed as the Company’s interim principal financial officer by the Board of Directors. On March 9, 2016, Michael
Calise was appointed to the Board of Directors.
Consolidated
Results of Operations
Three
Months Ended June 30, 2015 Compared With Three Months Ended June 30, 2014
Revenues
We
have generated charging service revenue of $515,985 related to installed EV charging stations for three months ended June 30,
2015 as compared to $271,855 for the three months ended June 30, 2014, an increase of $244,130, or 90%, which is primarily a result
of the Company’s participation in a program sponsored by Nissan North America to provide free electric charging to purchasers
of Nissan Leafs in certain markets in the United States commencing in July 2014.
Grant
revenue decreased from $596,009 to $159,794 during the three months ended June 30, 2015, a decrease of $436,215, or 73%, primarily
due to a California Energy Commission payment to the Company in 2014. Grants, rebate and incentives, collectively “grant
revenue” relating to equipment and the related installation are deferred and amortized in a manner consistent with the depreciation
expense of the related assets over their useful lives.
Equipment
sales increased from $61,328 to $185,172 during the three months ended June 30, 2015, an increase of $123,844, or 202%. The increase
was primarily due to sales of residential and commercial chargers.
During
the three months ended June 30, 2015, other revenues were $82,160, which were comprised of network and transaction fees earned
from our hosts. No such fees were in effect during the three months ended June 30, 2014.
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, electricity reimbursements and revenue share payments to hosts when
we are the primary obligor in the revenue share arrangement. Cost of revenues for the three months ended June 30, 2015 were $713,031
as compared to $1,535,898 for the three months ended June 30, 2014, a decrease of $822,867, or 54%, primarily due to a reduction
in depreciation and amortization expenses resulting from the impairment of certain fixed assets in 2014 as well as a reduction
of approximately $128,000 in network fees.
Operating
Expenses
Operating
expenses consist of selling, marketing, advertising, payroll, administrative, finance and professional expenses.
Compensation
expense decreased by $183,850, or 8%, from $2,254,760 for the three months ended June 30, 2014 to $2,070,910 for the three months
ended June 30, 2015. The decrease was primarily attributable to a reduction in share-based payments as compared to 2014.
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses increased by $128,823, or 34%,
from $376,758 for the three months ended June 30, 2014 to $505,581 for the three months ended June 30, 2015. The increase was
primarily attributable to higher IT and call center expenses as compared to the prior period.
General
and administrative expenses increased by $255,821, or 46%, from $557,591 for the three months ended June 30, 2014 to $813,412
for the three months ended June 30, 2015. The increase was primarily due to a gain resulting from the settlement of certain consulting
fees in 2014.
Impairment
of goodwill of $3,299,379 for the three months ended June 30, 2014 was associated with the acquisition of 350 Green and its placement
in a trust mortgage of $3,299,379.
Inducement
expense of $858,118 for the three months ended June 30, 2014 was incurred with the issuance of warrants to four shareholders of
the Company who agreed to provide financial support to the Company in the amount of $6,250,000 through 2014 and placement agents
for securing such financing during the three months ended June 30, 2014.
Other
Income (Expense)
Other
income decreased by $18,640, or 2%, from $839,664 for the three months ended June 30, 2014 to $821,024 for the three months ended
June 30, 2015. The decrease was primarily attributable to:
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A
gain from the change in the fair value of warrant liabilities of $290,898 during the three months ended June 30, 2015, as
compared to $1,219,889 during the three months ended June 30, 2014, a decrease of $928,991.
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Non-compliance
penalty expense of $1,289,650 during the three months ended June 30, 2015 as a result of our delinquent regular SEC filings.
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The
decrease was partially offset by a gain of $1,833,896 related to the release of our liability to the U.S. Department of Energy
related to certain chargers.
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Net
Loss
Our
net loss for the three months ended June 30, 2015 decreased by $4,774,849, or 67%, to $2,338,799 as compared to $7,113,648 for
the three months ended June 30, 2014. The decrease was primarily attributable to a decrease in operating expenses of $3,956,703
and cost of revenue of $822,867. Our net loss attributable to common shareholders for the three months ended June 30, 2015 decreased
by $4,549,192, or 64%, from $7,113,648 to $2,564,456 for the aforementioned reasons and due to dividends attributable to Series
C Convertible Preferred shareholders of $212,400.
Six
Months Ended June 30, 2015 Compared With Six Months Ended June 30, 2014
Revenues
We
have generated charging service revenue of $905,770 related to installed EV charging stations for six months ended June 30, 2015
as compared to $527,514 for the six months ended June 30, 2014, an increase of $378,256, or 72%, which is primarily a result of
the Company’s participation in a program sponsored by Nissan North America to provide free electric charging to purchasers
of Nissan Leafs in certain markets in the United States commencing in July 2014.
Grant
revenue increased from $658,642 to $805,979 during the six months ended June 30, 2015, an increase of $147,337, or 22%. Grants,
rebate and incentives, collectively “grant revenue” relating to equipment and the related installation are deferred
and amortized in a manner consistent with the depreciation expense of the related assets over their useful lives. Grant revenue
during the six months ended June 30, 2015 was primarily derived from our agreement with the Bay Area Air Quality Management District.
Equipment
sales increased from $98,721 to $405,979 during the six months ended June 30, 2015, an increase of $307,258, or 311%. The increase
was primarily due to sales of residential and commercial chargers.
During
the six months ended June 30, 2015, other revenues were $116,684, which were comprised of network and transaction fees earned
from our hosts. No such fees were in effect during the six months ended June 30, 2014.
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, electricity reimbursements and revenue share payments to hosts when
we are the primary obligor in the revenue share arrangement. Cost of revenues for the six months ended June 30, 2015 were $1,721,105
as compared to $2,848,099 for the six months ended June 30, 2014, a decrease of $1,126,994, or 40%, primarily due to a reduction
in depreciation and amortization expenses resulting from the impairment of certain fixed assets in 2014.
Operating
Expenses
Operating
expenses consist of selling, marketing, advertising, payroll, administrative, finance and professional expenses.
Compensation
expense increased by $780,077, or 19%, from $4,075,487 for the six months ended June 30, 2014 to $4,855,564 for the six months
ended June 30, 2015. The increase was primarily attributable to share-based payments with a fair value of $875,000 made to our
newly-appointed Chief Operating Officer during the six months ended June 30, 2015 under the terms of an employment agreement.
Other
operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses increased by $42,530, or 5%, from
$779,621 for the six months ended June 30, 2014 to $822,151 for the six months ended June 30, 2015. The increase was primarily
attributable to higher IT and call center expenses as compared to the prior period.
General
and administrative expenses increased by $2,267, or 0%, from $1,523,225 for the six months ended June 30, 2014 to $1,525,492 for
the six months ended June 30, 2015.
Impairment
of goodwill of $3,299,379 for the six months ended June 30, 2014, was associated with the acquisition of 350 Green and its placement
in a trust mortgage of $3,299,379.
Inducement
expense of $858,118 for the six months ended June 30, 2014, was incurred with the issuance of warrants to four shareholders of
the Company who have agreed to provide financial support to the Company in the amount of $6,250,000 through 2014 and placement
agents for securing such financing during the six months ended June 30, 2014.
Other
Income (Expense)
Other
income decreased by $457,419, or 41%, from $1,126,487 for the six months ended June 30, 2014 to $669,068 for the three months
ended June 30, 2015. The decrease was primarily attributable to:
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Non-compliance
penalty expense of $1,753,150 during the six months ended June 30, 2015 as a result of our delinquent regular SEC filings.
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A
gain from the change in the fair value of warrant liabilities of $888,907 during the three months ended June 30, 2015, as
compared to $1,504,254 during the six months ended June 30, 2014, a decrease of $615,347.
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The
decrease was partially offset by a gain of $1,833,896 related to the release of our liability to the U.S. Department of Energy
related to certain chargers.
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Net
Loss
Our
net loss for the six months ended June 30, 2015 decreased by $4,951,733, or 45%, to $6,020,832 as compared to $10,972,565 for
the six months ended June 30, 2014. The decrease was primarily attributable to a decrease in operating expenses of $3,332,623
and cost of revenue of $1,126,994 and an increase in revenue of $949,535, partially offset by a decrease in other income of $457,419.
Our net loss attributable to common shareholders for the six months ended June 30, 2015 decreased by $4,470,339, or 41%, from
$10,972,565 to $6,502,226 for the aforementioned reasons and due to dividends attributable to Series C Convertible Preferred shareholders
of $414,400.
Liquidity
and Capital Resources
During
the six months ended June 30, 2015, we financed our activities from proceeds derived from sales of our capital stock. A significant
portion of the funds raised from the sale of capital stock have been used to cover working capital needs and personnel, office
expenses and various consulting and professional fees.
For
the six months ended June 30, 2015 and 2014, we used cash of $3,922,444 and $4,642,935 from operations respectively. Our cash
used for the six months ended June 30, 2015 was primarily attributable to our net loss of $6,020,832, adjusted for net non-cash
expenses in the aggregate amount of $2,374,328, plus $275,940 of net cash used to fund changes in the levels of operating assets
and liabilities. Our cash used for the six months ended June 30, 2014 was primarily attributable to our net loss of $10,972,565,
adjusted for net non-cash expenses in the aggregate amount of $6,090,423, partially offset by $239,207 of net cash provided by
changes in the levels of operating assets and liabilities. During the six months ended June 30, 2015, cash used for investing
was $253,452, of which $42,487 was for the purchase of office and computer equipment and $210,965 was paid to the ECOtality Estate
Creditor’s Committee. Net cash outflows for investing activities were $672,539 for the six months ended June 30, 2014 of
which $535,374 was used for purchases of electric vehicle charging stations and $137,165 was used for the purchase of an automobile.
Cash provided by financing activities for the six months ended June 30, 2015 was $2,828,415, of which $3,000,000 was due to the
release of funds from escrow in connection with a prior sale of Series C Convertible Preferred Stock, partially offset by the
repayment of notes payable of $171,585. Cash used in financing activities for the six months ended June 30, 2014 totaled $241,859,
of which $210,585 was used as a security deposit for space rental and $31,274 was used to repay notes payable.
Through
June 30, 2015, the Company has incurred an accumulated deficit since inception of $70,825,957. At June 30, 2015, the Company had
a cash balance and working capital deficit of $279,581 and $15,302,565, respectively. The Company has incurred additional losses
subsequent to June 30, 2015. The Company implemented cost reduction measures in December 2014 to reduce employee headcount and
other operating expenditures.
Subsequent
to June 30, 2015, the Company received an aggregate of $2,580,040 through new sales of Series C Convertible Preferred Stock. In
addition, an additional $2,250,000 is payable to the Company upon the completion of certain milestones, as specified in the Series
C Convertible Preferred Stock agreement. There can be no assurance that the Company will be successful in completing the milestones.
The
Company expects that through the next 12 months from the date of this filing, it will require external funding to sustain operations
and to follow through on the execution of its business plan. There can be no assurance that the Company’s plans will materialize
and/or that the Company will be successful in its efforts to obtain the funding to cover working capital shortfalls. Given these
conditions, there is substantial doubt about the Company’s ability to continue as a going concern and its future is contingent
upon its ability to secure the levels of debt or equity capital it needs to meet its cash requirements. In addition, the Company’s
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 the Company operates and the current capital raising
environment.
Since
inception, the Company’s operations have primarily been funded through proceeds from 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, and there is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at
all.
The
Company intends to raise additional funds during the next twelve months. The additional capital raised would be used to fund the
Company’s operations. The current level of cash and operating margins is insufficient to cover the existing fixed and variable
obligations of the Company, so increased revenue performance and the addition of capital through issuances of securities are critical
to the Company’s success. Should the Company not be able to raise additional debt or equity capital through a private placement
or some other financing source, the Company 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 the Company is successful in its growth plans and development efforts, the Company believes that it will be able to raise
additional debt or equity capital. There is no guarantee that the Company will be able to raise such additional funds on acceptable
terms, if at all.
We
have not been able to complete the audit of 350 Green LLC and Blink Network LLC for the two calendar years prior to their respective
acquisitions. Rule 505 and 506 of Regulation D requires that all non-accredited investors be provided with certain disclosure
documents, including the audited financial statements for the prior two fiscal years. In the event that we will not be able to
complete the audits for these two entities, we will not be able to raise any additional funds from non-accredited investors until
such time that the audits for the two prior fiscal years are completed.
These
factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s
condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classifications of liabilities that might be necessary should it be unable to continue
as a going concern.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons,
also known as “special purpose entities” (SPEs).
Critical
Accounting Policies and Estimates
There
are no material changes from the critical accounting policies set forth in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 2014 filed with the Securities
and Exchange Commission on December 8, 2015, except as disclosed below. Please refer to that document for disclosures regarding
the remaining critical accounting policies related to our business.
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.