Blink Charging Co. (then Car Charging Group, Inc.) — Q3 2016 Form 10-Q
Business and period: The company owns and operates EV charging stations and its Blink charging network, and sells charging equipment and related services. This unaudited report covers the quarter and nine months ended September 30, 2016, compared with the corresponding 2015 periods. The company reported that it had not filed all required Exchange Act reports during the preceding 12 months.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $755,159 | $1,006,140 | $2,511,911 | $3,240,552 |
| Gross profit | $54,294 | $230,900 | $206,306 | $683,150 |
| Operating loss | $(2,273,896) | $(2,593,749) | $(6,126,761) | $(9,344,706) |
| Net loss | $(2,408,156) | $(1,855,940) | $(9,154,924) | $(6,776,772) |
| Net loss attributable to common stockholders | $(2,794,856) | $(2,421,046) | $(10,225,324) | $(7,823,272) |
| Net cash used in operating activities | Not provided for the quarter | $(1,913,463) | $(4,975,523) |
Gross margin fell to approximately 7% in Q3 from 23% and to 8% for the nine months from 21%. Nine-month revenue fell about 22%, while operating loss narrowed about 34%; net loss nevertheless increased about 35%. The nine-month basic and diluted loss per share was $0.13, versus $0.10 in 2015.
At September 30, cash was $9,132; current assets were $778,971 and current liabilities were $22,945,444, producing a $22,166,473 working-capital deficit. Total assets were $1,976,168, total liabilities $23,041,428 and total stockholders’ deficiency $21,890,260. Cash used in investing activities was $80,463 and cash provided by financing activities was $1,813,827 for the nine months. Financing included $1,314,620 net proceeds from Series C preferred stock and warrants and $600,000 in related-party convertible notes; cash declined from $189,231 at year-end to $9,132.
Changes, outlook and material risks
- Charging-service revenue declined 16% for the nine months, principally because the company’s share of revenue from a Nissan-sponsored free-charging program fell as other operators added stations. Grant and rebate revenue fell 79%, following the end of the Bay Area Air Quality Management District agreement; equipment sales rose 34% and other revenue rose 60%.
- Management attributed lower operating expenses to reduced compensation and staffing, lower call-center and travel costs, and reduced legal and consulting spending amid cash constraints. A $503,125 liability forgiveness was recorded as a gain in 2016. Noncash warrant remeasurement produced a $2,450,045 nine-month expense in 2016, compared with a $2,161,845 gain in 2015; 2015 also included a $1,833,896 release of a Department of Energy liability.
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It was funding operations month to month, expected to require external financing over the next 12 months, and warned that failure to obtain capital could force spending cuts or cessation of operations. No specific operating or earnings guidance was provided.
- After quarter-end, the company received an initial $500,000 advance under a JMJ financing arrangement for up to $3,725,000, with further advances subject to milestones. The arrangement includes warrants and potentially variable-price conversion and share issuance provisions; additional advances were not assured.
- Related-party convertible notes bearing 18% interest were past due. On November 14, 2016, the company received defaults and demands for payment within seven days on notes totaling $410,000, including $295,000 more than 30 days past due. A separate $50,000 secured convertible note was also past due. The company said it was seeking extensions.
- Significant obligations and contingencies include a $3,005,277 accrued public-information fee, $916,875 of registration-rights penalties, and $752,000 of accrued Series C dividends. Series C had a stated liquidation preference, including accrued dividends, of $15,794,600 at quarter-end. Potential dilution is substantial: the filing reported 114.1 million potentially dilutive shares excluded from per-share calculations as anti-dilutive.
- Litigation includes an ITT Cannon arbitration over $737,425 of charging cables, a $172,645 services claim, and a JNS dispute seeking unspecified damages. The company disputed the cable claim and sought dismissal or settlement in other matters. Related-party compensation claims were also disclosed, as was a disputed claim for replacement warrants estimated by the claimant at approximately $1 million.
- Disclosure controls were deemed ineffective due to material weaknesses, including inadequate written procedures, limited accounting resources and segregation of duties, insufficient U.S. GAAP expertise, weak transaction-information communication, and ineffective board oversight. Management said it engaged financial consultants and performed additional procedures.
Most important facts to verify
- Whether the company obtained sufficient financing after the reported $500,000 JMJ advance, achieved the milestones for additional funding, and met its near-term obligations.
- The status and resolution of the $410,000 related-party default demands and other past-due secured debt, including any extensions or enforcement actions.
- Whether actual charging-service and grant revenue trends, gross margins, and operating cash use improved after September 30.
- Whether accrued penalties, preferred dividends and liquidation preferences, and potential conversions or warrant exercises create further cash demands or dilution.
- Whether material weaknesses were remediated and delinquent SEC reporting and related registration obligations were brought into compliance.
- The outcomes and any additional accruals arising from the disclosed litigation, related-party claims, and disputed warrant claim.