Blink Charging Co. (then Car Charging Group, Inc.) — Q2 2016 Form 10-Q
Business context and reporting period. The filing covers the three and six months ended June 30, 2016. The company owned and operated EV charging stations and its Blink Network, and sold charging equipment and related services. The filing was signed August 15, 2016. It reports that the company had not filed all required Exchange Act reports during the preceding 12 months.
Financial results and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $893,212 | $943,111 | $1,756,752 | $2,234,412 |
| Gross profit (margin) | $58,650 (6.6%) | $230,080 (24.4%) | $152,012 (8.7%) | $513,307 (23.0%) |
| Operating loss | ($1,868,741) | ($3,159,823) | ($3,852,865) | ($6,689,900) |
| Net loss | ($2,345,976) | ($1,238,799) | ($6,746,768) | ($4,920,832) |
| Net loss attributable to common stockholders | ($2,711,276) | ($1,464,456) | ($7,430,468) | ($5,402,226) |
| Basic and diluted loss per share | ($0.03) | ($0.02) | ($0.09) | ($0.07) |
- Cash flow: Six-month operating cash use was $1.43 million, compared with $3.92 million in 2015. Investing cash use was $58,669; financing provided $1.49 million. Cash declined by $5,464 to $183,767.
- Liquidity and balance sheet: At June 30, cash was $183,767, current assets $1.07 million, current liabilities $20.58 million, and working capital deficit $19.51 million. Total assets were $2.44 million versus $3.67 million at December 31, 2015; total liabilities were $20.69 million versus $16.47 million. Stockholders’ deficiency was $19.07 million.
- Debt and obligations: Current liabilities included $50,000 of convertible notes, $127,403 of related-party convertible notes, and $349,859 of current notes payable. A $50,000 secured convertible note was past due. The company also reported $3.64 million in derivative liabilities and a $15.41 million liquidation preference on Series C preferred stock, including accrued and unpaid dividends.
Material changes versus the prior comparable period
- Quarterly revenue fell 5%; six-month revenue fell 21%. Charging-service revenue declined 31% for Q2 and 18% for the half-year, primarily because the company’s share of the Nissan Leaf free-charging program decreased. Grant revenue declined 64% for Q2 and 81% for the half-year after the BAAQMD agreement ended. Equipment sales rose 95% for Q2 and 60% for the half-year.
- Gross margin contracted materially in both comparative periods. Six-month cost of revenue fell 7%, while revenue fell 21%.
- Operating expenses decreased 43% for Q2 and 44% for the half-year, mainly from lower stock-based compensation, reduced payroll after personnel departures, and lower professional, call-center, and other costs.
- Net loss worsened despite lower operating expenses. The main factors were a $2.19 million six-month noncash loss from remeasurement of warrant liabilities in 2016, versus a gain in 2015, and $1.83 million of 2015 income from release of a U.S. Department of Energy liability. Series C preferred dividends charged to common stockholders also increased.
- Cash used in operations improved year over year, but cash remained very low and liabilities increased. The company issued 22,786 Series C preferred shares and warrants in connection with 2016 private placements; common shares outstanding rose to 80,476,508 at June 30.
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 need external funding over the next 12 months, had no firm commitments for new financing, and said operations were being funded month to month. Failure to raise capital could require further cost reductions or curtailment of activities.
- Financing and related parties: In June, the company issued $200,000 in short-term convertible notes to an entity owned by its Executive Chairman, bearing 18% annual interest and convertible at $0.70 per share, with warrants attached. A further $200,000 related-party note was issued in July; the company also reported repayment after quarter-end of the $105,000 June note.
- Fees and penalties: Accrued public information fees were $2.91 million, and accrued Series C registration-rights damages were $866,250. The company said it had not yet filed the Series C resale registration statement; the agreements provide for monthly damages and interest if unpaid.
- Legal matters: Disputes included an ITT Cannon arbitration over $737,425 of charging cables, fee and services claims of $178,893 and $172,645, and several legacy 350 Green creditor and litigation matters. The company disputed or was pursuing resolution of the claims. The SEC complaint concerning the company’s pre-merger shell-company history did not name the company as a defendant; management said it did not expect further action to be necessary.
- Controls and reporting: Management concluded disclosure controls were ineffective due to material weaknesses, including undocumented controls, limited accounting resources and segregation of duties, insufficient U.S. GAAP expertise, inadequate communication of transaction information, and ineffective board oversight. The filing also revised 2015 comparative results for an accrued public-information-fee error, reducing the previously reported liability and prior-period losses by $1.1 million.
- Management commentary: The company planned to pursue equipment sales, expand sales channels and network services, and seek government incentives; it cautioned that grant revenue is unpredictable. No quantified revenue, earnings, or cash-flow guidance was provided.
Important facts for investors to verify
- Near-term financing availability, cash runway, and the terms and repayment status of related-party notes.
- Whether registration statements and reporting requirements were brought current, and the resulting fees, penalties, or investor rights.
- The company’s ability to improve charging-service revenue and gross margins as grant revenue and the Nissan program contribution decline.
- The valuation and potential dilution associated with derivative liabilities, preferred stock, warrants, and options; the filing lists 114.2 million potentially dilutive shares excluded from diluted loss per share.
- Progress in remediating material weaknesses and the status and potential exposure of disclosed disputes and litigation.