Blink Charging Co. quarterly report, Q2 FY2017

Business context and reporting period

Car Charging Group, Inc. (the registrant named in this filing; the request identifies the company as Blink Charging Co.) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2017. It operated EV charging stations and a charging network, and sold charging equipment and related services.

Financial results and liquidity

Product sales fell 84% in the quarter and 68% for the six-month period, which management attributed mainly to lower charger unit volumes. Company-owned charging-service revenue fell 14% and 11%, respectively; management cited reduced revenue from a Nissan-sponsored program. Gross profit increased year over year despite lower revenue, helped by lower costs, including reduced repairs and depreciation. Warranty and repairs costs were negative in the reported periods, an unusual credit that materially supported gross profit; investors should review the underlying explanation and accounting.

At June 30, cash was $584; current assets were $570,000 and current liabilities $20.707 million. Total liabilities were $20.778 million, including $2.905 million of derivative liabilities and current convertible and other notes with net carrying values totaling approximately $3.392 million. Stockholders’ deficiency was $19.623 million. The filing gives conflicting working-capital-deficit figures: $20.136 million in the financial-statement notes and elsewhere in MD&A, and $19.610 million in another MD&A passage.

For the first six months, operating cash use was $1.556 million, investing cash use was $206, and financing provided $1.551 million. Cash declined from $5,898 to $584. Operating cash use exceeded the prior-year $1.435 million. Financing included $1.5 million of additional convertible-note advances; the company also issued equity to settle certain liabilities.

Material changes versus the prior comparable period

• Six-month net loss increased 11% to $7.514 million; loss attributable to common shareholders increased 22% to $9.060 million, partly reflecting higher Series C preferred dividends.
• Operating expenses rose 8% for the six months, including higher compensation and $300,000 of lease-termination costs. Compensation included substantial non-cash stock and equity-award expense.
• Other expense increased to $3.503 million for the six months, including $1.713 million of convertible-debt discount amortization and increased interest expense. Changes in warrant-liability fair value remained a significant non-cash item.
• In May 2017, 350 Green ceased to be a variable interest entity and was deconsolidated, removing approximately $3.7 million of liabilities; a $97,152 loss was recorded. This affects comparability with prior periods.

Outlook, risks, contingencies and unusual items

• Going concern: Management reported substantial doubt about the company’s ability to continue as a going concern within one year after filing. It said operations were being funded month to month and external funding was required; no assurance was given that financing would be available on acceptable terms. Without funding, the company might curtail activities or discontinue operations.
• Outlook: No quantified earnings or revenue guidance was provided. Management expected Nissan-program revenue for the remainder of 2017 to be below comparable 2016 periods and said increased revenue and additional capital were critical.
• Debt and related parties: Certain notes payable to entities controlled by the Executive Chairman were past due, including secured convertible notes with aggregate principal of $545,000; the company was negotiating extensions. Some note covenants had been violated, although the filing said those violations had not triggered a default or penalties as of its date. Subsequent to quarter-end, the company reported $185,078 of additional note funding and a possible further $949,900 contingent on contract milestones.
• Dilution and obligations: Series C preferred shares were issued to satisfy approximately $6.2 million of accumulated dividends, fees and penalties. The company also reported substantial accrued compensation and equity obligations to executives and directors, many payable in connection with a public offering. As of August 15, 2017, 86,581,122 common shares were outstanding.
• Legal, tax and lease matters: The filing describes several creditor and litigation matters, including a $179,168 judgment entered for the Stein Law firm after quarter-end, a $300,000 accrued JNS settlement offer, and an ITT Cannon settlement contingent on a public offering and listing. It also reports approximately $368,000 of delinquent payroll taxes and $218,000 of accrued sales-tax liabilities. An eviction action and $300,000 lease-termination accrual were disclosed.
• Controls and reporting: Management concluded disclosure controls were ineffective due to material weaknesses involving documentation, accounting resources and expertise, timely communication, and board oversight. The company also checked “No” to whether it had filed all required reports during the preceding 12 months.
• Technology risks: The filing highlights exposure to cyberattacks, service outages, software defects, and dependence on mobile platforms and third-party technologies.

Most important facts for investors to verify

1. Reconcile the conflicting working-capital-deficit figures and assess cash runway, near-term obligations, and the status and terms of required financing.
2. Review the going-concern warning, past-due and secured related-party debt, note covenants, and the conditions attached to further funding.
3. Examine revenue trends by source and customer, especially product sales and Nissan-program revenue, and determine whether the unusual negative warranty-cost entries are sustainable.
4. Assess potential dilution from preferred stock, warrants, convertible debt, accrued equity compensation, and offering-contingent settlements.
5. Track material litigation, tax arrears, lease obligations, and remediation of the disclosed control weaknesses.