Blink Charging Co. annual report, FY2017

Blink Charging Co. — 2017 Form 10-K

Reporting period: Fiscal year ended December 31, 2017; comparisons are with the year ended December 31, 2016. The company owns and operates EV charging equipment and provides charging-network services. Its revenues come mainly from public charging, equipment sales, grants and network fees. The filing’s share figures reflect a 1-for-50 reverse split completed in August 2017.

Financial results and liquidity

Metric	2017	2016
Revenue	$2.50 million	$3.33 million
Gross profit (margin)	$1.05 million (41.8%)	$0.51 million (15.4%)
Operating loss	$7.42 million	$7.21 million
Net loss	$75.36 million	$7.70 million
Net loss attributable to common shareholders	$79.63 million	$9.17 million
Cash used in operations	$2.55 million	$2.75 million

Revenue fell 25%, primarily because product sales declined 56% to $495,086 and grant and rebate revenue fell 64% to $120,905. Charging-service revenue from company-owned stations rose 4% to $1.19 million.
Gross profit improved despite lower sales, reflecting lower cost of revenue, including reduced depreciation and amortization as assets became fully depreciated, lower network costs, and lower warranty and repair costs.
The net loss increase was principally driven by $67.94 million of other expense. Major items included a $43.87 million non-cash fair-value loss on FGI warrant liabilities, a $12.98 million settlement reserve, and a $7.57 million non-cash loss on warrant inducements. Thus, reported net loss substantially exceeded operating cash use.
At year-end, cash was $185,151, current assets $768,887, current liabilities $35.53 million, and working-capital deficit $34.76 million. Total assets were $2.69 million, total liabilities $38.78 million, and stockholders’ deficiency $36.92 million. Accumulated deficit was $156.44 million.
Balance-sheet debt included $3.25 million of convertible notes, $747,567 of related-party convertible notes, and $597,966 of notes payable. Derivative liabilities were $3.45 million; warrants payable were $1.15 million.

Material changes, financing and subsequent events

Revenue declined while gross profit improved; operating loss remained broadly similar year over year. The much larger net loss chiefly reflects unusual, largely non-cash financing and warrant-accounting items.
In May 2017, Blink deconsolidated 350 Green after it ceased to be a variable-interest entity; approximately $3.7 million of its liabilities were removed from consolidation. The company recorded a $97,152 loss on deconsolidation.
After year-end, Blink closed a public offering of 4,353,000 common shares and warrants to purchase 8,706,000 shares at a combined $4.25 per unit, plus additional warrants purchased through partial exercise of the underwriters’ over-allotment option. The filing reports approximately $18.5 million gross proceeds, but gives inconsistent net-proceeds figures: approximately $14.1 million after about $4.4 million of expenses in one section, and approximately $16.8 million after about $1.69 million in another. These figures are not reconciled in the filing text.
After the offering, approximately $26.0 million of liabilities were exchanged for equity. The company chose a no-cash-payment settlement option with JMJ; JMJ received Series D Preferred Stock convertible into 3,847,756 common shares. Additional post-period equity issuances settled obligations, including conversion of Series C Preferred Stock into 9,111,644 common shares. These transactions materially increased potential dilution.
Management stated that cash available as of filing was expected to fund operations and capital requirements for at least 12 months, but said additional capital would be needed thereafter and no further financing commitment was in place. Planned offering uses included debt and obligation repayment, approximately $4.0 million for charger deployment, $1.0 million for product development, $3.0 million for additional staff, and remaining proceeds for working capital and general corporate purposes.

Outlook, risks and unusual items

Management planned to launch next-generation charging equipment in the second half of 2018 and pursue growth through equipment sales, sales-channel expansion, greater utilization of company-owned stations, occupancy fees, subscriptions and advertising. These are plans, not quantified revenue or profit guidance.
As of March 2018, the company reported approximately 14,165 stations deployed, including 4,690 commercial Level 2 units, 113 DC fast chargers and 1,976 residential units on the Blink Network, plus partner-owned non-networked residential units. It also reported more than 114,000 registered drivers.
Key risks include persistent losses and dependence on external financing; intense competition and uncertain EV adoption; customer concentration (two customers represented 29% of 2017 revenue); and potential dilution from outstanding warrants, preferred stock, conversions and future share issuance.
The company disclosed delinquent sales-tax filings and payments, approximately $178,000 accrued for sales taxes, and approximately $632,000 of unpaid federal and state payroll taxes withheld from employees at year-end. Federal and state corporate income tax returns for 2014–2016 had not been filed; the company also said it had not filed 2017 returns.
Management concluded disclosure controls and internal control over financial reporting were not effective at year-end, citing undocumented controls, limited accounting resources and segregation of duties, inadequate communication, and insufficient evidence of control reviews. The company had not completed its ASC 606 implementation and could not quantify its adoption impact.
Material legal and settlement matters included the JNS charger repurchase and settlement, for which a further $100,000 cash payment was due within six months of the offering, and other vendor, professional-fee and creditor obligations. The company reported paying several settlements after the offering.
The independent auditor issued an unqualified opinion on the financial statements. The auditor did not express an opinion on internal control over financial reporting.

Important facts for investors to verify

Reconcile the public-offering net proceeds and expenses, and confirm the amounts actually received and deployed.
Review post-offering cash, operating burn and the basis for management’s stated 12-month liquidity expectation.
Assess the full dilution from Series D conversion, offering warrants, other warrants and options, preferred-stock conversions, and restricted shares issued after year-end.
Confirm settlement of payroll and sales taxes, delinquent tax returns, remaining creditor obligations, and the final resolution and payment status of legal matters.
Monitor remediation of internal-control weaknesses and completion of ASC 606 implementation, including any effects on reported revenue.
Track whether planned charger deployments, new products and proposed recurring revenue initiatives produce measurable growth and improved cash generation.