Blink Charging Co. quarterly report, Q3 FY2017

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Blink Charging Co. — Q3 2017 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2017. Blink owns and operates EV charging stations and provides charging equipment, network services, and related support. Unless otherwise noted, amounts are in U.S. dollars.

Financial performance and position

  • Revenue: Q3 revenue was $606,899, down 19% from $748,950; nine-month revenue was $1.74 million, down 29% from $2.46 million. Nine-month product sales fell 57% to $367,808. Management cited lower unit sales, limited resources, and no recent new grants. Company-owned charging-service revenue declined 8% for the nine months, partly due to reduced revenue from a Nissan-sponsored program.
  • Profitability: Q3 gross profit was $301,289 (about 49.6% gross margin), versus $54,294 (about 7.2%) a year earlier. Nine-month gross profit was $607,427 (about 35.0%), versus $206,306 (about 8.4%). Operating losses were $1.23 million for Q3 and $5.24 million for nine months. Net losses were $93.62 million and $101.13 million, respectively; net loss attributable to common shareholders was $94.45 million for Q3 and $103.51 million for nine months. The unusually large losses primarily reflect non-cash warrant fair-value charges and other unusual expenses, not operating performance alone.
  • Cash flow: Operating cash used was $2.02 million in the first nine months, versus $1.91 million in 2016. Investing cash used was $12,681; financing provided $2.04 million. Cash increased by just $3,164 to $9,062.
  • Liquidity and liabilities: At September 30, cash was $9,062 and working capital deficiency was $67.20 million. Current liabilities were $67.73 million, including $32.55 million of accrued expenses and $26.63 million of derivative liabilities. Total liabilities were $67.79 million; total assets were $1.90 million, leaving stockholders’ deficiency of $66.72 million. The balance sheet reported $2.63 million of convertible notes, $752,645 of related-party convertible notes, and $556,344 of other notes, net of discounts.
  • Margins and expenses: Lower cost of revenue, including reduced repairs and depreciation, lifted gross margin versus 2016. Operating expenses fell 34% in Q3 and 8% for the nine months, but gross profit remained insufficient to cover operating expenses.

Material changes and unusual items

  • A 1-for-50 reverse stock split took effect August 29, 2017. The company said certain warrants held by its Executive Chairman were not adjusted for the split, substantially increasing their reported fair value and contributing to a $72.88 million nine-month expense from changes in warrant liability fair value.
  • The company recorded a $12.98 million settlement reserve, primarily related to default on its JMJ promissory note, and a $7.57 million loss on inducement associated with warrant exchanges. These items materially inflated reported losses.
  • 350 Green was deconsolidated on May 18, 2017 after an assignment-for-benefit-of-creditors proceeding; approximately $3.7 million of its liabilities were removed from consolidation.
  • Common shares outstanding increased from 1,609,530 at December 31, 2016 to 4,812,632 at September 30, 2017. The company also issued Series C preferred shares to satisfy certain accrued fees, penalties, and dividends.

Outlook, risks, and contingencies

  • Going concern: Management stated that the $9,062 cash balance, $67.20 million working capital deficiency, and significant losses raise substantial doubt about the company’s ability to continue as a going concern within a year of filing. Operations were being funded month to month; management expected to need external funding and warned that failure to obtain it could require further cost reductions or threaten continued operations. No formal revenue or earnings guidance was provided.
  • Financing and JMJ: Subsequent to quarter-end, Blink received another $949,900 under the JMJ note. An October 23 agreement offered conditional settlement alternatives for the $12 million default penalty, contingent on completion of the public offering by December 15, 2017 and no further default. Depending on the option, settlement included common shares, a $2 million cash payment under one alternative, and conversion of the note balance and warrant obligations into shares. JMJ also received rights to participate in future financings.
  • Other debt and dilution: Related-party notes secured by substantially all company assets were past due, and the company was negotiating extensions. The JMJ note and other financings carry conversion, warrant, or pricing provisions that may result in substantial share issuance. Series C preferred stock had a stated liquidation preference of $22.96 million, including accrued and unpaid dividends.
  • Legal and operating exposures: A restraining notice relating to a legal judgment sought payment from the proceeds of the registered offering; the filing said the underwriter might withdraw if the notice was not withdrawn. The company also reported other legal claims and settlement obligations, delinquent federal and state payroll taxes of approximately $577,000, and delinquent sales-tax filings and payments. The filing does not establish the ultimate outcomes of these matters.
  • Controls and reporting: Management concluded disclosure controls were ineffective and identified material weaknesses involving undocumented controls, limited accounting resources and segregation of duties, untimely communication of financial information, and insufficient board oversight. The filing also checked “No” for having filed all required Exchange Act reports during the preceding 12 months.

Most important facts for investors to verify

  1. Whether the registered offering closed on the stated timetable, and the resulting cash proceeds, dilution, and ability to fund operations.
  2. The final JMJ settlement terms, status of the default, note balance, warrant exchange, and number and pricing of shares issued.
  3. Whether the reported $26.63 million derivative liability and related warrant charges were subsequently reduced, as management expected after a warrant holder waived a price-reset claim.
  4. The status and resolution of the underwriter restraining notice, outstanding judgments and litigation, overdue taxes, and other accrued settlement obligations.
  5. Whether Blink improved its material-weakness disclosures and internal controls, and addressed the filing’s reported SEC reporting-compliance status.