Blink Charging Co. quarterly report, Q3 FY2015

Business context and reporting period

Car Charging Group, Inc. (the filing’s registrant; its subsidiaries include Blink Network LLC) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. The company acquired and operated EV charging stations, provided charging services and network access, and sold charging equipment. The report was signed May 20, 2016.

Financial performance and position

Gross margin was approximately 23% for Q3 2015 and 21% for the first nine months, versus negative gross margins in the comparable 2014 periods. Revenue growth reflected higher charging-service and grant revenue; nine-month equipment sales also rose. The company attributed lower cost of revenue chiefly to reduced depreciation and amortization following 2014 asset impairments.

At September 30, 2015, cash was $120,369, current assets $1.385 million, current liabilities $15.080 million, and working-capital deficit $13.696 million. Total assets were $3.416 million against total liabilities of $15.266 million; total stockholders’ deficiency was $12.675 million. Current and long-term notes payable totaled approximately $573,000, including $100,000 owed to a related party; derivative liabilities were $2.280 million. The balance sheet also included $1.988 million of accrued public-information fees.

For the first nine months, investing cash outflow was $171,000 and financing cash inflow was $3.640 million, largely from Series C preferred-stock and warrant sales, partly offset by debt repayments. Cash declined by $1.507 million from year-end 2014.

Material changes versus the prior comparable period

• Nine-month revenue increased 48% to $3.241 million. Charging-service revenue rose 62%, grant revenue 23%, equipment sales 35%, and other revenue increased from a small base.
• Nine-month net loss narrowed to $6.777 million from $19.419 million. The comparison benefited substantially from the absence of 2014 goodwill and charging-station impairment charges totaling about $7.756 million, as well as lower depreciation and amortization. 2015 results also included significant noncash warrant fair-value gains and a DOE liability release.
• Operating expenses fell to $10.028 million from $17.623 million for the nine-month period; compensation rose 14%, partly due to stock-based awards, while general and administrative expenses declined.
• Cash fell sharply from $1.627 million at December 31, 2014 to $120,369 at September 30, 2015. Accrued expenses declined, but accrued public-information fees increased from $712,000 to $1.988 million.

Outlook, risks, contingencies and unusual items

• Going concern: Management stated that substantial doubt existed about the company’s ability to continue as a going concern. It expected to require external funding over the following 12 months, said operations were being funded month-to-month, and warned that failure to raise capital could require further cuts or cessation of operations. No firm new-financing commitment was in place apart from conditional milestone funding described in the filing.
• Subsequent financing: The filing reports $2.150 million received after September 30, 2015 from Series C preferred-stock sales and up to $1.950 million in additional milestone-based payments under a March 2016 agreement. The agreement’s milestone conditions and investor redemption/liquidation provisions create material execution and financing risks.
• Registration and SEC compliance: The company accrued penalties for delinquent SEC filings and Rule 144 reporting noncompliance. It also disclosed it had not filed all required Exchange Act reports during the preceding 12 months. A prior-quarter accrued-fee and penalty error was corrected: the June 2015 accrued public-information fee and related penalty were reduced by $1.1 million, improving the previously reported net loss by that amount.
• Controls: Management concluded disclosure controls were ineffective and identified material weaknesses involving undocumented controls, inadequate accounting resources and expertise, weak information flow, and ineffective audit-committee oversight.
• Operating and legal matters: Nissan terminated its joint marketing agreement after alleging material default; the parties agreed Nissan would take 28 uninstalled fast chargers, and the related asset and deferred revenue were written off. ITT Cannon sought $737,425 plus other relief over charging cables; the company disputed the claim and pursued settlement. The filing also describes 350 Green creditor litigation, a Sheetz claim, and JNS litigation, with JNS’s appellate ruling affirmed for JNS and a later amended complaint naming the company.
• Other notable items: A $1.834 million DOE liability release and $2.162 million gain from warrant-liability fair-value changes contributed to 2015 other income; both are not indicators of recurring operating performance. The company continued consolidating 350 Green as a variable-interest entity while reassessing its interests and potential support obligations.
• Outlook and growth targets: No conventional revenue or earnings forecast was provided. A 2016 financing agreement included conditions tied to 20% year-over-year revenue growth and 25% quarter-over-quarter growth in Generation 2 hardware purchase-order value with a minimum 40% average gross margin; these are financing conditions, not management guidance.

Important facts for investors to verify

1. Whether the company obtained sufficient financing and met the preferred-stock agreement’s milestone conditions, and the resulting dilution, redemption, or asset-sale implications.
2. Whether cash, operating cash burn, accrued obligations, and the going-concern assessment changed after September 30, 2015.
3. The status and potential financial exposure of the ITT Cannon, JNS, Sheetz, and other creditor or fee disputes.
4. Whether delinquent SEC filings and the disclosed control weaknesses were remedied, including the accuracy of the corrected June 2015 figures.
5. How much of the reported loss improvement reflects sustainable operating progress versus prior-year impairments, noncash warrant gains, and the DOE liability release.