Registration No. 333-214461
As filed with the U.S. Securities and Exchange Commission on July 6 , 2017
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2 to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
CAR CHARGING GROUP, INC.
(Exact name of Registrant as specified in its charter)
| Nevada | 3612 | 03-0608147 | ||
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(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
3284 West 29 Court
Hollywood , Florida 33020-1320
(305) 521-0200
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Michael J. Calise
Chief Executive Officer
3284 West 29 Court
Hollywood , Florida 33020-1320
(305) 521-0200
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
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Joseph M. Lucosky Steven A. Lipstein Lucosky Brookman LLP 101 Wood Avenue South, 5th Floor Woodbridge, NJ 08830 (732) 395-4400 |
Barry I. Grossman Sarah E. Williams Ellenoff Grossman & Schole LLP 1345 Avenue of the Americas New York, NY 10105 (212) 370-1300 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company . See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large-Accelerated Filer | [ ] | Accelerated Filer | [ ] |
| Non-Accelerated Filer | [ ] | Smaller Reporting Company | [X] |
| Emerging Growth Company | [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [ ]
| CALCULATION OF REGISTRATION FEE | ||||||||
| Title of Each Class of Securities to be Registered |
Proposed Maximum
Aggregate
Offering
|
Amount of Registration Fee |
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| Common Stock, par value $0.001 per share(2)(3) | $ | 23,000,000 | $ | 2,665.70 | ||||
| Warrants to Purchase Common Stock (4)( 5 ) | — | — | ||||||
| Shares of Common Stock issuable upon exercise of the Warrants (2)(3)( 6 ) | $ | 28,750,000 | $ | 3,332.13 | ||||
| Total | $ | 51,750,000 | $ | 5,997.83 | ( 7 ) | |||
| (1) | Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. |
| (2) | Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions. |
| (3) | Includes shares of the Registrant’s Common Stock and/or warrant to purchase Common Stock which may be issued upon exercise of a 45-day option granted to the underwriters, to cover over-allotments, if any, equal to 15% of the number of shares of Common Stock and warrants sold in the offering. |
| (4) |
There will be issued a warrant to purchase one share of Common Stock for every one share of Common Stock offered. The Warrants will cost $0.01 per Warrant. |
| (5) |
The maximum number of the Warrants and the shares of the Registrant’s Common Stock underlying the Warrants are being simultaneously registered hereunder. Consistent with the response to Question 240.06 of the Securities Act Rules Compliance and Disclosure Interpretations, the registration fee with respect to the Warrants has been allocated to the shares of the Registrant’s Common Stock underlying the Warrants and those shares are included in the registration fee. |
| ( 6 ) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. The warrants are exercisable at a per share price of 125% of the Common Stock public offering price. |
| ( 7 ) | Fees in the amount of $5,361 were previously paid. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED JUlY 6 , 2017
2,162,162 Shares of Common Stock
Warrants to Purchase up to 2,162,162 Shares of Common Stock
Car Charging Group, Inc.
This is a firm commitment public offering of 2,162,162 shares of Common Stock, $0.001 par value per share (the “Common Stock”) , and warrants to purchase 2,162,162 shares of Common Stock, of Car Charging Group, Inc. The number of shares and warrants are based on an assumed public offering price of $9.25 per share, the last reported sales price for our Common Stock as reported on the OTC Pink Current Information Marketplace on June 26, 2017, as adjusted to reflect the 1:50 reverse stock split of the Common Stock that will be effected in connection with this offering (the “Reverse Stock Split”). The warrants are exercisable immediately, have an exercise price of $ per share, 125% of the combined public offering price of one share of Common Stock and one warrant offered in this offering, and expire five years from the date of issuance. We expect that the public offering price of our Common Stock will be between $ and $ per share and $0.01 per warrant.
Our Common Stock is presently quoted on the OTC Pink Current Information Marketplace under the symbol “CCGI”. We have applied to have our Common Stock and warrants listed on The NASDAQ Capital Market under the symbols “BLNK” and “BLNKW,” respectively. No assurance can be given that our application will be approved. There is no established public trading market for the warrants. No assurance can be given that a trading market will develop for the warrants.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 9 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Combined Per Share and Warrant |
Total (2) | |||||||
| Public offering price | $ | $ | ||||||
| Underwriting discounts and commissions (1) | $ | $ | ||||||
| Proceeds to us, before expenses | $ | $ | ||||||
| (1) | Does not include a non-accountable expense allowance equal to 1% of the gross proceeds of this offering payable to Joseph Gunnar & Co., LLC, the representative of the underwriters. See “Underwriting” for a description of compensation payable to the underwriters . |
| (2) | Assumes no exercise of the over-allotment option to purchase shares and/or warrants we have granted to the underwriters as described below. |
We have granted a 45-day option to the representative of the underwriters to purchase up to an aggregate of 324,324 additional shares of Common Stock and/or warrants to purchase shares of Common Stock equal to 15% of the number of shares of Common Stock and warrants sold in the offering, solely to cover over-allotments , if any.
The underwriters expect to deliver our shares and warrants to purchasers in the offering on or about , 2017.
Joseph Gunnar & Co.
The date of this prospectus is _______, 2017
TABLE OF CONTENTS
You should rely only on information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus. Neither the delivery of this prospectus nor the sale of our securities means that the information contained in this prospectus or any free writing prospectus is correct after the date of this prospectus or such free writing prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy our securities in any circumstances under which the offer or solicitation is unlawful or in any state or other jurisdiction where the offer is not permitted.
The information in this prospectus is accurate only as of the date on the front cover of this prospectus and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and prospects may have changed since those dates.
No person is authorized in connection with this prospectus to give any information or to make any representations about us, the securities offered hereby or any matter discussed in this prospectus, other than the information and representations contained in this prospectus. If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.
Through and including , 2017 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourself about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.
The mark “Blink” is our registered trademark in the U.S., Australia, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Philippines, South Africa, Singapore, Switzerland, Taiwan, and is a trademark registered under the Madrid Protocol and pursuant to the Community Trade Mark (“CTM”) in certain European countries. The mark “HQ” is our registered trademark in the U.S. We also use certain trademarks, trade names, and logos that have not been registered. We claim common law rights to these unregistered trademarks, trade names and logos.
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This summary highlights selected information appearing elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information you should consider before investing in our securities. You should read this prospectus carefully, especially the risks and other information set forth under the heading “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company” or “our Company” and “CarCharging” refer to Car Charging Group, Inc., a Nevada corporation, and its subsidiaries.
The Reverse Stock Split of our Common Stock will be effected prior to the pricing of this offering. With the exception of the securities that are not affected by the Reverse Stock Split as noted where applicable (principally warrant shares held by Michael Farkas our Executive Chairman)), all share amounts in this prospectus have been retroactively adjusted to give effect to the Reverse Stock Split, including the financial statements and notes thereto.
Overview
We are a leading owner, operator, and provider of electric vehicle (“EV”) charging equipment and networked EV charging services. We offer both residential and commercial EV charging equipment, enabling EV drivers to easily recharge at various location types.
Our principal line of products and services is our Blink EV charging network (the “Blink Network”) and EV charging equipment (also known as electric vehicle supply equipment) and EV related services. Our Blink Network is proprietary cloud-based software that operates, maintains, and tracks all of the Blink EV charging stations and the associated charging data. The Blink Network provides property owners, managers, and parking companies, who we refer to as our “Property Partners”, with cloud-based services that enable the remote monitoring and management of EV charging stations, payment processing, and provides EV drivers with vital station information including station location, availability, and applicable fees.
We offer our Property Partners a flexible range of business models for EV charging equipment and services. In our comprehensive and turnkey business model, we own and operate the EV charging equipment, manage the installation, maintenance, and related services; and share a portion of the EV charging revenue with the property owner. Alternatively, Property Partners may share in the equipment and installation expenses, with CarCharging operating and managing the EV charging stations and providing connectivity to the Blink Network. For Property Partners interested in purchasing and owning EV charging stations that they manage, we can also provide EV charging hardware, site recommendations, connectivity to the Blink Network, and service and maintenance services.
We have strategic relationships with hundreds of Property Partners that include well-recognized companies, large municipalities, and local businesses. The types of properties include airports, auto dealers, healthcare/medical, hotels, mixed-use, municipal locations, multifamily residential and condo, parks and recreation areas, parking lots, religious institutions, restaurants, retailers, schools and universities, stadiums, supermarkets, transportation hubs, and workplace locations. Some examples are Caltrans, City of Azusa, City of Chula Vista, City of Springfield, City of Tucson, Cracker Barrel, Federal Realty, Fred Meyer Stores, Inc., Fry’s Food & Drug, Inc., IKEA, JBG Associates, LLC, Kroger Company and Ralphs Grocery Company. We continue to establish contracts with Property Partners that previously had contracts with the EV services providers that we acquired, including ECOtality, Inc. (“ECOtality”), the former owner of the Blink related assets, which we acquired in October 2013.
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As of June 26 , 2017, we have approximately 14,370 charging stations deployed of which 4,972 are Level 2 public charging units, 119 DC Fast Charging EV chargers and 2,269 residential charging units in service on the Blink Network. Additionally, we currently have approximately 353 Level 2 charging units on other networks and there are also approximately an additional 6,657 non-networked, residential Blink EV charging stations. The non-networked, residential Blink EV charging stations are all partner owned. Level 2 EV chargers are ideal for commercial and residential use, and has the standard J1772 connector, which is compatible with all major auto manufacturer electric vehicle models. Our DC Fast Charging equipment (“DCFC”) currently has the CHAdeMo connector, which is compatible with Nissan, Kia, and Tesla electric vehicle models, and typically provides an 80% charge in less than 30 minutes.
Competitive Advantages/Operational Strengths
Early Mover Advantage : We continue to leverage our large and defendable first mover advantage and the digital customer experience we have created for both drivers and Property Partners. We have approximately 96,000 drivers currently registered with Blink that appreciate the value of EV charging sessions on a leading, established, and robust network. We have thousands of Blink chargers deployed across the United States and the goal is to keep our Property Partners on one consistent network when expanding on any given property.
Long-Term Contracts with Property Owners : We have strategic and often long term agreements with location exclusivity for Property Partners across numerous transit/destination locations, including airports, car dealers, healthcare/medical, hotels, mixed-use, municipal locations, multifamily residential and condo, parks and recreation areas, parking lots, religious institutions, restaurants, retailers, schools and universities, stadiums, supermarkets, transportation hubs, and workplace locations. We have hundreds of Property Partners that include well-recognized companies, large municipalities, and local businesses. Some examples are Caltrans, Carl’s Jr., City of Azusa, City of Chula Vista, City of Springfield, City of Tucson, Cracker Barrel, Federal Realty, Fred Meyer Stores, Inc., Fry’s Food & Drug, Inc., Garage Management Company, Icon Parking, IKEA, iPark, JBG Associates, Kohls, Kroger Company, LAZ Parking, Macy’s, McDonald’s, and Ralphs Grocery Company, Sears, Simon Properties, and SP+ Parking. We continue to establish new contracts with Property Partners that previously secured our services independently, or had contracts with the EV services providers that we acquired, including ECOtality, the former owner of the Blink related assets.
Flexible Business Model : We are able to offer and sell both EV charging equipment as well as access to our robust, cloud-based EV charging software, which we refer to as the Blink Network. We believe that we have an advantage in our ability to provide by offering various business models to Property Partners and leverage along with our technology to meet the needs of both Property Partners and EV drivers, we have an advantage compared to our competitors. Our Property Partner business model options include:
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| 1. | CarCharging Owns: We provide EV charging equipment, which we own and maintain, and operate the EV charging services through our Blink Network and share a portion of the revenues generated from the stations with our Property Partner. | |||
| 2. | Host Owned: The Property Partner purchases our EV charging equipment and pays for connectivity to our Blink Network as well as payment transaction fees and optional service fees. | |||
| 3. | Hybrid: We also offer customized business models that meet individual Property Partner needs and combines features from the aforementioned business models. | |||
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Ownership and Control of EV Charging Stations and Services : We own a large percentage of our stations, which is a significant differentiation between us and some of our primary competitors. This ownership model allows us to control the settings and pricing for our EV charging services, service the equipment as necessary, and have greater brand management and price uniformity.
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We are subject to a number of additional risks which you should be aware of before you buy our securities in this offering. These risks are discussed more fully in the section entitled “Risk Factors” following this prospectus summary.
Listing on The Nasdaq Capital Market
We have applied to list our Common Stock and warrants on The Nasdaq Capital Market (“NASDAQ”) under the symbols “BLNK” and “BLNKW.” If our listing application is approved, we expect to list our Common Stock and warrants on NASDAQ upon the closing of this offering and our Common Stock will cease to be traded on the OTC Pink Current Information Marketplace. No assurance can be given that our listing application will be approved. This offering will occur only if NASDAQ approves the listing of our Common Stock and warrants on NASDAQ. If NASDAQ does not approve the listing of our Common Stock and warrants, we will not proceed with this offering.
Going Concern Considerations
As reflected in our unaudited condensed consolidated financial statements for the year ended March 31, 2017, we had a cash balance, a working capital deficiency and an accumulated deficit of $2,988, $18,989,258 and $84,169,514, respectively. During the three months ended March 31, 2017, the Company incurred a net loss of $3,097,732. These factors raise substantial doubt about our ability to continue as a going concern within a year after the financial statement issuance date, as expressed in the notes to our unaudited condensed consolidated financial statements. Historically, we have been able to raise funds to support our business operations.
While we believe in the viability of our strategy to generate sufficient revenues and in our ability to raise additional funds through the completion of this offering, there can be no assurance that we will be able to generate sufficient revenues or complete this offering, raise anticipated proceeds, or that any other debt or equity financing will be available or, if available, that it will be available on terms acceptable to us. If we fail to complete this offering or raise anticipated proceeds, we may not be able to continue operations and as such our independent auditor’s report will continue to contain an uncertainty paragraph related to our ability to continue as a going concern.
Corporate Information
Car Charging Group, Inc., a Nevada corporation, is the parent company of Car Charging, Inc., a Delaware corporation, which serves as the main operating company and is, in turn, the parent company of several distinct wholly-owned subsidiary operating companies including, but not limited to, eCharging Stations LLC, Blink, Beam Charging LLC and EV Pass LLC. Car Charging Group, Inc. was formed in the State of Nevada on October 3, 2006, under our prior name, New Image Concepts, Inc. New Image Concepts, Inc. changed its name to Car Charging Group, Inc., on December 8, 2008. Car Charging, Inc. was incorporated in Delaware on September 8, 2009. We purchased the assets referred to as the Blink Network from ECOtality, Inc. on October 16, 2013. From April 22, 2013 to April 16, 2014, 350 Green LLC (“350 Green”) was a wholly-owned subsidiary of the Company in which the Company had full control and was consolidated. Beginning on April 17, 2014, when 350 Green’s assets and liabilities were transferred to a trust mortgage, 350 Green became a Variable Interest Entity. We determined that we were the primary beneficiary of 350 Green, and as such, 350 Green’s assets, liabilities and results of operations are included in our consolidated financial statements. On May 18, 2017, each of 350 Green and Green 350 Trust Mortgage LLC filed to commence an assignment for the benefit of creditors, which results in their residual assets being controlled by an assignee in a judicial proceeding. As a result, as of May 18, 2017, 350 Green is no longer a variable interest entity of the Company and, accordingly, 350 Green’s approximately $3.7 million of liabilities will, as of June 30, 2017, be deconsolidated from the Company’s financial statements.
We maintain our principal offices at 3284 West 29 Court, Hollywood , Florida, 33020 . Our telephone number is (305) 521-0200. Our Silicon Valley office houses our Chief Executive Officer (“CEO”). Our website is www.CarCharging.com and we can be contacted by email at info@CarCharging.com. Our website and the information contained in, or accessible through, our website will not be deemed to be incorporated by reference into this prospectus and does not constitute part of this prospectus.
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| THE OFFERING | |||||
| Securities offered by us: |
2,162,162 shares of our Common Stock and warrants to purchase 2,162,162 shares of our Common Stock, based on the assumed public offering price of $9.25 per share (the last reported sale price for our Common Stock on the OTC Pink Current Information Marketplace on June 26, 2017, as adjusted to reflect the Reverse Stock Split to be effected in connection with this offering). Each warrant will have an exercise price of $ per share (125% of the combined public offering price), is exercisable immediately and will expire five years from the date of issuance |
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| Common Stock outstanding before the offering as of June 26 , 2017: |
1,630,696 shares |
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| Common Stock to be outstanding after the offering: |
9,970,974 shares (consisting of the following shares of Common Stock issuable upon the closing of this offering in addition to the shares of Common Stock being offered: (A) 15,359 shares issuable to three employee members of the Board of Directors in settlement and consideration of services rendered during the period of April 1, 2016 through March 31, 2017; (B) 2,200,000 shares issuable pursuant to letter agreements, dated June 23, 2017 signed by the two holders of the Series A Convertible Preferred Stock (“Series A Preferred Shares”) (both of whom are executive officers of the Company) to convert 11,000,000 Series A Preferred Shares; (C) 102,568 shares issuable to the Series B Convertible Preferred Stock (“Series B Preferred Shares”) holders equal to $825,000 payable to the holders of Series B Preferred Shares to redeem the 8,250 shares divided by the assumed public offering price of $9.25, which is the last reported sales price for our Common Stock as reported on the OTC Pink Current Information Marketplace on June 26, 2017, as adjusted to reflect the Reverse Stock Split multiplied by a factor of 1.15; (D) 3,172,824 shares issuable to the holders of Series C Preferred Shares upon conversion of 204,164 Series C Preferred Shares based on 204,164 Series C Preferred Shares (i) multiplied by a factor of 115 (ii) divided by the assumed public offering price of $9.25 per share, as adjusted to reflect the Reverse Stock Split, (iii) multiplied by 80%; (E) 124,371 shares issuable upon conversion of 8,003 Series C Preferred Shares pursuant to drag-along rights under an amendment to the as-amended Certificate of Designations for the Series C Preferred Shares (the “Series C Amendment”) expected to be filed following the expected approval by the majority holder of the Series C Preferred Shares (an entity affiliated with Michael D. Farkas, our Executive Chairman), based on 8,003 Series C Preferred Shares (i) multiplied by a factor of 115 (ii) divided by the assumed public offering price of $9.25 per share, as adjusted to reflect the Reverse Stock Split, (iii) multiplied by 80%; (F) 411,638 shares issuable pursuant to letter agreements with regard to warrants to purchase 633,407 warrant shares; (G) 129,735 Origination Shares issuable to JMJ; and (H) 21,622 shares issuable pursuant to a settlement agreement.) |
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| Option to purchase additional shares: | We have granted the underwriters a 45-day option to purchase up to 324,324 additional shares of our Common Stock and/or warrants to purchase an additional 324,324 shares of Common Stock at their respective public offering prices as set forth on the cover of this prospectus, solely to cover over-allotments, if any. | ||||
| Use of proceeds: |
We intend to use the net proceeds of this offering for the following purposes :
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Approximately $3.3 million for the repayment of certain debt and other obligations including (i) $542,567 in principal and interest owed pursuant to convertible notes issued to an entity controlled by Mr. Farkas that are currently past due. The interest rate is 18%. The Company used the proceeds of these convertible notes for working capital; (ii) $2,500,100 owed to JMJ (not including the original issue discount of approximately 6% which we owe and which equals, as of June 26, 2017, approximately $150,000) with no interest rate and a maturity date of the earlier of July 15, 2017 or the third business day after the closing of this offering. The Company used the proceeds of the loans from JMJ for working capital; (iii) placement agent and legal fees of approximately $125,000 related to the JMJ Financing (of which $22,000 will be paid to Joseph Gunnar & Co., LLC, the representative of the underwriters of this offering, and $58,000 will be paid to Ardour Capital Investments, LLC (“Ardour”), an entity of which Mr. Farkas owns less than 5%)); and (iv) $50,000 owed to Chase Mortgage, Inc., pursuant to the Third Amendment to Secured Convertible Promissory Note dated November 9, 2015 with a monthly interest rate of 1.5% that is currently past due. The original Secured Convertible Promissory Note, dated as of November 13, 2014 was also amended February 20, 2015 and May 1, 2015. |
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Approximately $4.0 million for the deployment of charging stations; |
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| ● | Approximately $1.0 million to expand our product offerings including but not limited to completing the research and development, as well as the launch of our next generation of EV charging equipment; | ||||
| ● | Approximately $3.0 million to add additional staff in the areas of finance, sales, customer support, and engineering; and | ||||
| ● | The remainder for working capital and other general corporate purposes. | ||||
| See “Use of Proceeds” section on page 29 . | |||||
| Risk factors: | Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 9 before deciding to invest in our securities. | ||||
| Trading Symbol: | Our Common Stock is presently quoted on the OTC Pink Current Information Marketplace under the symbol “CCGI”. We have applied to have our Common Stock and warrants listed on The NASDAQ Capital Market under the symbols “BLNK” and “BLNKW,” respectively. | ||||
| Lock-up: | We and our directors, officers and principal stockholders have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Common Stock or securities convertible into Common Stock for a period of 180 days after the date of this prospectus, in the case of our directors and officers, and 90 days after the date of this prospectus, in the case of our principal stockholders. See “Underwriting” section on page 95 . | ||||
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NASDAQ listing requirements include, among other things, a stock price threshold. As a result, prior to effectiveness, we will need to take necessary steps to meet NASDAQ listing requirements, including but not limited to an expected 1 for 50 reverse stock split of our Common Stock.
The 1,630,696 shares of Common Stock outstanding as of June 26, 2017 excludes the following as of such date:
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| ● | 999,994 shares issuable upon exercise of outstanding warrants with a weighted average exercise price of $43.00; | |||
| ● | 3,000,000 shares of Common Stock issuable upon exercise of warrants held by an entity wholly-owned by Mr. Farkas which are not subject to the Reverse Stock Split at a weighted average exercise price of $0.70 (such exercise price is also not subject to the Reverse Stock Split); | |||
| ● | 148,034 shares issuable upon exercise of outstanding options with a weighted average exercise price of $58.00, under our equity compensation plans; | |||
| ● | 27,500,000 shares issuable to convert 11,000,000 Series A Preferred Shares as of June 26, 2017 if the Reverse Stock Split is not implemented (once the Reverse Stock Split is implemented, regardless of whether the offering ever closes, there will be 2,200,000 shares issuable to convert the 11,000,000 Series A Preferred Shares); | |||
| ● | 91,666 shares issuable to the Series B Preferred Shares holders as of June 26, 2017 to convert 8,250 Series B Preferred Shares; | |||
| ● | 606,191 shares issuable to the Series C Preferred Share holders as of June 26, 2017 to convert 212,167 Series C Preferred Shares; | |||
| ● | 17,360 shares issuable upon conversion of principal and interest owed pursuant to outstanding convertible notes; and | |||
| ● | the shares of Common Stock issuable upon exercise of warrants sold in this offering. | |||
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Unless otherwise stated, all information in this prospectus assumes no exercise of the underwriters’ over-allotment option to purchase additional shares and/or warrants.
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For The Three Months Ended March 31, |
For The Fiscal Years Ended December 31*, |
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(unaudited) 2017 |
(unaudited) 2016 |
2016 | 2015 | ||||||||||||||
| Revenues: | |||||||||||||||||
| Total Revenues | $ | 595,620 | $ | 840,137 | $ | 3,326,021 | 3,957,795 | ||||||||||
| Total Cost of Revenues | 432,407 | 746,775 | 2,813,680 | 2,861,738 | |||||||||||||
| Gross Profit (Loss) | 163,213 | 93,362 | 512,341 | 1,096,057 | |||||||||||||
| Operating Expenses: | |||||||||||||||||
| Compensation | 997,357 | 1,463,779 | 4,879,612 | 8,200,246 | |||||||||||||
| Other operating expenses | 242,941 | 344,803 | 1,451,683 | 1,662,748 | |||||||||||||
| General and administrative expenses | 313,708 | 268,904 | 1,393,954 | 2,552,857 | |||||||||||||
| Lease termination costs | 300,000 | — | — | — | |||||||||||||
| Impairments and loss of title of assets | — | — | — | 9,531,612 | |||||||||||||
| Total Operating Expenses | 1,854,006 | 2,077,486 | 7,725,249 | 12,415,851 | |||||||||||||
| Total Other (Expense) Income | (1,406,939 | ) | (2,416,668 | ) | (486,219 | ) | 3,074,870 | ||||||||||
| Net Loss | (3,097,732 | ) | (4,400,792 | ) | (7,699,127 | ) | (8,244,924 | ) | |||||||||
| Net Income Attributable to the Noncontrolling Interest | — | — | — | 389,600 | |||||||||||||
| Net Loss Attributable to Common Stockholders | $ | (3,852,632 | ) | $ | (4,719,192 | ) | $ | (9,167,627 | ) | $ | (9,584,624 | ) | |||||
| Net Loss Per Share | |||||||||||||||||
| Basic and Diluted | $ |
(2.39 |
) | $ |
(2.96 |
) |
(5.72 |
) |
(6.06 |
) | |||||||
|
Weighted Average Number of Shares of Common Stock Outstanding |
|||||||||||||||||
| Basic and Diluted |
1,609,530 |
1,591,691 |
1,603,139 |
1,580,584 |
|||||||||||||
|
For The Three Months Ended March 31, |
For The Fiscal Years Ended December 31*, |
|||||||||||
|
(unaudited) 2017 |
2016 | 2015 | ||||||||||
| Cash and cash equivalents | $ | 2,988 | $ | 5,898 | $ | 189,231 | ||||||
| Working capital (deficit) | $ | (18,989,258 | ) | $ | (21,184,871 | ) | $ | (14,437,434 | ) | |||
| Total assets | $ | 2,006,390 | $ | 1,910,881 | $ | 3,674,126 | ||||||
| Total liabilities | $ | 25,810,215 | $ | 21,898,035 | $ | 16,465,822 | ||||||
| Total stockholders’ equity (deficit) | $ | (24,628,825 | ) | $ | (20,812,154 | ) | $ | (13,616,696 | ) | |||
|
* Derived from audited consolidated financial statements.
The balance sheet table below presents consolidated balance sheets data as of March 31, 2017 on:
|
||||
| ● | an actual basis; | |||
| ● |
a pro forma basis, giving effect to
(1) the sale by us to JMJ of a Promissory Note in the amount of approximately $1.8 million offset by the Promissory Note discounts and issuance costs of:
(A) Common Stock purchase warrants for 51,574 shares of Common Stock issued to JMJ with an estimated fair value of $230,263 using the multi-nomial lattice pricing model based upon: (i) an expected life of 1.53 – 4.25 years ; (ii) estimated volatility of 149.3%; (iii) annual rate of expected dividends of 0%; (iv) a risk free interest rate of 1.50%; and (v) an estimated exercise price of $35.00;
(B) placement agent cash fees of $195,510 and warrants to purchase 5,157 shares of Common Stock with an estimated fair value of $23,022 using the multi-nomial lattice pricing model based upon: (i) an expected life of 1.53 – 4 years; (ii) estimated volatility of 149.3%; (iii) annual rate of expected dividends of 0%; (iv) a risk free interest rate of 1.50%; and (v) an estimated exercise price of $35.00. Such fees and warrants were issued in connection with the JMJ Financing; and
(C) Subsequent to March 31, 2017, the Company received an additional $695,000 from JMJ, issued to JMJ an additional 19,857 warrant shares valued at $39,899, became obligated to issue Origination Shares valued at $333,600, incurred additional placement fee issuance costs of approximately $69,000, an additional $168,000 of deferred issuance associated with the default conversion feature of the borrowings and incurred additional original issue discount of approximately $72,000.
(2) On May 8, 2017, the Company issued 61,740 Series C Preferred Shares to settle liabilities totaling $ 6,155,489 for the accrued public information fee, dividend payable, and registration rights penalty liabilities.
(3) On May 8, 2017, the Company issued 21,166 shares of Common Stock in settlement of $386,900 in various accrued expenses (including payments to a business development consultant , a law firm engaged for representation of the Company during the ECOtality bankruptcy, an accounting firm, and a sales agent).
(4) On May 18, 2017, each of 350 Green and Green 350 Trust Mortgage LLC filed to commence an assignment for the benefit of creditors in the state of Michigan, which results in their residual assets being controlled by an assignee in a judicial proceeding. As a result, as of May 18, 2017, 350 Green is no longer a variable interest entity of the Company and, accordingly, 350 Green’s approximately $3.7 million of liabilities will, as of June 30, 2017, be deconsolidated from the Company’s financial statements. The Company determined that pro forma financial statements are not required to be presented because 350 Green had no operations and no assets. In connection with the matter, the Company paid $71,000 of legal fees. |
|||
| - 7 - |
| ● |
a pro forma as adjusted basis, giving effect to the pro forma events above and for the sale by us of 2,162,162 shares of Common Stock in this offering at an assumed public offering price of $9.25 per share, which is the last reported sales price for our Common Stock as reported on the OTC Pink Current Information Marketplace on June 26, 2017, as adjusted to reflect the Reverse Stock Split, after deducting sales agents’ discounts and commissions and estimated offering expenses, and the following:
(1) As of June 26, 2017, the Company received agreements signed by certain holders of outstanding warrants to purchase Common Stock, pursuant to which at the closing of this offering, warrants to purchase an aggregate of 633,407 warrant shares will convert into 411,638 shares of Common Stock, based on the assumed public offering price per share of $9.25, as adjusted to reflect the Reverse Stock Split. The issuance of these 411,638 shares will result in an inducement charge of approximately $2.4 million and reduce derivative liabilities by approximately $1.86 million.
(2) On June 23, 2017, the two holders of the Series A Preferred Shares signed letter agreements pursuant to which, at the closing of this offering, 11,000,000 Series A Preferred Shares will convert into 2,200,000 shares of Common Stock. Pursuant to the original terms of the Series A Preferred Shares, the conversion price of the Series A Preferred Shares is not impacted by a reverse stock split such that the holders would have been entitled to 27,500,000 shares of Common Stock on a post-split basis. The Company recorded the contingent beneficial conversion feature with a value of $1,000,000 as a deemed dividend by recording an offsetting debit and credit to additional paid-in capital because the Company has an accumulated deficit. On May 19, 2017, the holder of the Series B Preferred Shares signed a conversion agreement pursuant to which, at the closing of this offering, 8,250 Series B Preferred Shares will convert into 102,568 shares of Common Stock which will result in an inducement charge of approximately $120,000. During May and June 2017, the holders of the Series C Preferred Shares signed letter agreements pursuant to which, at the closing of this offering, 204,164 Series C Preferred Shares will convert into 3,172,824 shares of Common Stock. The above number of shares are based on an assumed public offering price of $9.25, as adjusted to reflect the Reverse Stock Split. The conversion of the Series C Preferred Shares resulted in a deemed dividend of approximately $24.0 million which was recognized by recording an offsetting debit and credit to additional paid-in capital because the Company has an accumulated deficit.
(3) Pursuant to drag-along rights under the Series C Amendment expected to be filed following the expected approval by the majority holder of the Series C Preferred Shares (an entity affiliated with Mr. Farkas), 8,003 Series C Preferred Shares will convert into 124,371 shares of Common Stock which is equal to 8,003 Series C Preferred Shares (i) multiplied by a factor of 115 (ii) divided by the assumed public offering price per share of $9.25, as adjusted to reflect the Reverse Stock Split, (iii) multiplied by 80%. The conversion of the Series C Preferred Shares resulted in a deemed dividend of approximately $0.9 million which was recognized by recording an offsetting debit and credit to additional paid-in capital because the Company has an accumulated deficit.
(4) At the closing of this offering, the Company will repay: (i) $542,567 in principal and interest owed pursuant to outstanding convertible notes issued to an entity controlled by our Executive Chairman, Mr. Farkas; (ii) $2,500,100 to JMJ related to funding provided under the JMJ convertible financing (not including the original issue discount of approximately 6% which we owe and which equals, as of June 26, 2017, approximately $150,000); and (iii) placement agent and legal fees of approximately $125,000 related to the JMJ Financing (of which $22,000 will be paid to Joseph Gunnar & Co., LLC, the representative of the underwriters of this offering, and $58,000 will be paid to Ardour). See “Use of Proceeds” section on page 29.
(5) Concurrent with the closing of the offering, the Company will pay the former principals of 350 Green LLC $25,000 and $50,000 within 60 days thereafter in settlement of a $360,000 debt (inclusive of imputed interest) in accordance with a Settlement Agreement between the parties dated August 21, 2015.
(6) Concurrent with the closing of the offering, the Company will issue 15,359 shares of Common Stock to three employee Board members in settlement and consideration of services rendered during the period of April 1, 2016 through March 31, 2017.
(7) Concurrent with the closing of this offering, the Company will charge $617,000 against additional paid-in capital related to offering costs that have been deferred.
(8) On June 8, 2017, the Company entered into a settlement agreement with former external legal counsel to settle $475,394 in payables owed for legal services as of March 31, 2017 for $100,000 in consideration: (a) $25,000 to be paid in cash at the closing of this offering; and (b) $75,000 in the form of shares of Common Stock issuable upon the closing of this offering. As a result, the Company will show a $375,395 reduction in liabilities.
(9) The Company will issue 129,735 Origination Shares valued at $1,200,048, after the closing of this offering to JMJ pursuant to the Purchase Agreement.
(10) On June 13, 2017, the Company entered into an agreement with ITT Canon LLC whereby the Company reached a settlement regarding, as of March 31, 2017, an accrued liability of $175,000. The Company will issue 21,622 shares of Common Stock at the closing of this offering.
|
| The pro forma information will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. |
|
Actual (unaudited) |
Pro Forma (unaudited) |
Pro Forma As Adjusted (1) (unaudited) |
|||||||||||
| Consolidated Balance Sheet Data: | |||||||||||||
| Cash and cash equivalents | $ | 2,988 | $ | 626,988 | 15,359,366 | ||||||||
| Working capital (deficit) | $ |
(18,989,258 |
) | $ |
(15,011,768 |
) |
6,169,387 |
||||||
| Total assets | $ | 2,006,390 | $ | 2,630,390 | 16,745,331 | ||||||||
| Total liabilities | $ | 25,810,215 | $ | 16,301,236 |
9,852,459 |
||||||||
| Total stockholders’ equity (deficit) | $ | (24,628,825 | ) | $ | (14,495,846 | ) |
6,892,872 |
||||||
| (1) | A $1.00 increase or decrease in the assumed public offering price per share would increase or decrease our cash and cash equivalents, working capital (deficit), total assets and total stockholders’ equity (deficit) by approximately $1.9 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. | |
| - 8 - |
Investing in our Common Stock involves a high degree of risk. You should carefully consider the following risks and uncertainties described below, as well as other information included in this prospectus before deciding to purchase our securities. There are many risks that affect our business and results of operations, some of which are beyond our control. Our business, financial condition or operating results could be materially harmed by any of these risks. This could cause the trading price of our Common Stock to decline, and you may lose all or part of your investment. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.
Relating to Our Business
Our Revenue Growth Depends on Consumers’ Willingness to Adopt Electric Vehicles.
Our growth is highly dependent upon the adoption by consumers of electric vehicles (“EV”), and we are subject to a risk of any reduced demand for EVs. If the market for EVs does not gain broad market acceptance or develops more slowly than we expect, our business, prospects, financial condition and operating results will be harmed. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements, long development cycles for EV original equipment manufacturers, and changing consumer demands and behaviors. Factors that may influence the purchase and use of alternative fuel vehicles, and specifically EVs, include:
| ● | perceptions about EV quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of EVs; | |
| ● | the limited range over which EVs may be driven on a single battery charge and concerns about running out of power while in use; | |
| ● | improvements in the fuel economy of the internal combustion engine; | |
| ● | consumers’ desire and ability to purchase a luxury automobile or one that is perceived as exclusive; | |
| ● | the environmental consciousness of consumers; | |
| ● | volatility in the cost of oil and gasoline; | |
| ● | consumers’ perceptions of the dependency of the U.S. on oil from unstable or hostile countries and the impact of international conflicts; | |
| ● | government regulations and economic incentives promoting fuel efficiency and alternate forms of energy; | |
| ● | access to charging stations, standardization of EV charging systems and consumers’ perceptions about convenience and cost to charge an EV; and | |
| ● | the availability of tax and other governmental incentives to purchase and operate EVs or future regulation requiring increased use of nonpolluting vehicles. |
| - 9 - |
The influence of any of the factors described above may negatively impact the widespread consumer adoption of EVs, which would materially adversely affect our business, operating results, financial condition and prospects.
Changes to the Corporate Average Fuel Economy Standards May Impact the Electric Vehicle Market and Affect our Business and Results of Operations.
As regulatory initiatives have required an increase in the consumption of renewable transportation fuels, such as ethanol and biodiesel, consumer acceptance of electric and other alternative vehicles is increasing. To meet higher fuel efficiency and greenhouse gas emission standards for passenger vehicles, automobile manufacturers are increasingly using technologies, such as turbocharging, direct injection and higher compression ratios, that require high octane gasoline. If fuel efficiency of vehicles continues to rise, and affordability of vehicles using renewable transportation fuels increases, the demand for electric and high energy vehicles could diminish. If consumers no longer purchase electric vehicles, it would materially adversely affect our business, operating results, financial condition and prospects.
Computer Malware, Viruses, Hacking, Phishing Attacks and Spamming Could Harm Our Business and Results of Operations.
Computer malware, viruses, physical or electronic break-ins and similar disruptions could lead to interruption and delays in our services and operations and loss, misuse or theft of data. Computer malware, viruses, computer hacking and phishing attacks against online networking platforms have become more prevalent and may occur on our systems in the future.
Any attempts by hackers to disrupt our website service or our internal systems, if successful, could harm our business, be expensive to remedy and damage our reputation or brand. Our network security business disruption insurance may not be sufficient to cover significant expenses and losses related to direct attacks on our website or internal systems. Efforts to prevent hackers from entering our computer systems are expensive to implement and may limit the functionality of our services. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security and availability of our products and services and technical infrastructure may harm our reputation, brand and our ability to attract customers. Any significant disruption to our website or internal computer systems could result in a loss of customers and could adversely affect our business and results of operations.
We have previously experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, third-party service providers, human or software errors and capacity constraints. If our mobile application is unavailable when customers attempt to access it or it does not load as quickly as they expect, customers may seek other services.
Our platform functions on software that is highly technical and complex and may now or in the future contain undetected errors, bugs, or vulnerabilities. Some errors in our software code may only be discovered after the code has been deployed. Any errors, bugs, or vulnerabilities discovered in our code after deployment, inability to identify the cause or causes of performance problems within an acceptable period of time or difficultly maintaining and improving the performance of our platform, particularly during peak usage times, could result in damage to our reputation or brand, loss of revenues, or liability for damages, any of which could adversely affect our business and financial results.
We expect to continue to make significant investments to maintain and improve the availability of our platform and to enable rapid releases of new features and products. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
We have a disaster recovery program to transition our operating platform and data to a failover location in the event of a catastrophe and have tested this capability under controlled circumstances, however, there are several factors ranging from human error to data corruption that could materially lengthen the time our platform is partially or fully unavailable to our user base as a result of the transition. If our platform is unavailable for a significant period of time as a result of such a transition, especially during peak periods, we could suffer damage to our reputation or brand, or loss of revenues any of which could adversely affect our business and financial results.
| - 10 - |
Growing Our Customer Base Depends Upon the Effective Operation of Our Mobile Applications with Mobile Operating Systems, Networks and Standards That We Do Not Control.
We are dependent on the interoperability of our mobile applications with popular mobile operating systems that we do not control, such as Google’s Android and iOS, and any changes in such systems that degrade our products’ functionality or give preferential treatment to competitive products could adversely affect the usage of our applications on mobile devices. Additionally, in order to deliver high quality mobile products, it is important that our products work well with a range of mobile technologies, systems, networks and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks or standards.
We Need Additional Capital to Fund Our Growing Operations and Cannot Assure You That We Will Be Able to Obtain Sufficient Capital on Reasonable Terms or at All, and We May Be Faced to Limit the Scope of Our Operations.
We need additional capital to fund our growing operations and if adequate additional financing is not available on reasonable terms or available at all, we may not be able to undertake expansion or continue our marketing efforts and we would have to modify our business plans accordingly. The extent of our capital needs will depend on numerous factors, including (i) our profitability; (ii) the release of competitive products and/or services by our competition; (iii) the level of our investment in research and development; (iv) the amount of our capital expenditures, including acquisitions; and (v) our growth. We cannot assure you that we will be able to obtain capital in the future to meet our needs.
Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing stockholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our Common Stock. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.
The Report of Our Independent Registered Public Accounting Firm Contains an Explanatory Paragraph That Expresses Substantial Doubt About Our Ability to Continue as a Going Concern.
The report of our independent registered public accounting firm with respect to our financial statements as of December 31, 2016 and for the year then ended indicates that our financial statements have been prepared assuming that we will continue as a going concern. The report states that, since we have incurred net losses since inception and we need to raise additional funds to meet our obligations and sustain our operations, there is substantial doubt about our ability to continue as a going concern. Our plans in regard to these matters are described in Note 2 to our audited financial statements as of December 31, 2016 and 2015 and for the years then ended. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We Have a History of Significant Losses, and If We Do Not Achieve and Sustain Profitability, Our Financial Condition Could Suffer.
We have experienced significant net losses, and we expect to continue to incur losses for the foreseeable future. We incurred net losses of $7.7 million and $8.2 million the years ended December 31, 2016 and 2015, respectively, and as of December 31, 2016 our accumulated deficit was $81.1 million. We incurred a net loss of $3.1 million during the three months ended March 31, 2017, and as of March 31, 2017 our accumulated deficit was $84.2 million. Our prior losses, combined with expected future losses, have had and will continue to have, for the foreseeable future, an adverse effect on our stockholders’ equity and working capital. If our revenue grows more slowly than we anticipate, or if our operating expenses are higher than we expect, we may not be able to achieve profitability and our financial condition could suffer. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Whether we can achieve cash flow levels sufficient to support our operations cannot be accurately predicted. Unless such cash flow levels are achieved in addition to the proceeds from this offering, we may need to borrow additional funds or sell debt or equity securities, or some combination thereof, to provide funding for our operations. Such additional funding may not be available on commercially reasonable terms, or at all.
| - 11 - |
If the proceeds from this offering are insufficient for us to continue as a going concern, it could make it more difficult for us to raise additional capital, should it be needed, or cause our customers, suppliers and other business partners to lose confidence in us thereby resulting in a reduction of revenue, loss of supply resources and other effects that would be significantly harmful to our business. If adequate funds are not available when needed, our liquidity, financial condition and operating results would be materially and adversely affected, and we may not be able to operate our business without significant changes in our operations or at all.
We May Not Have The Liquidity to Support Our Future Operations and Capital Requirements.
Whether we can achieve cash flow levels sufficient to support our operations cannot be accurately predicted. Unless such cash flow levels are achieved, in addition to the proceeds from this offering, we may need to borrow additional funds or sell debt or equity securities, or some combination thereof, to provide funding for our operations. Such additional funding may not be available on commercially reasonable terms, or at all. If adequate funds are not available when needed, our financial condition and operating results would be materially and adversely affected and we may not be able to operate our business without significant changes in our operations, or at all.
We Have Failed to Pay Certain State and Federal Taxes and May be Subject to Penalties as a Result.
We are delinquent in filing and, in certain instances, paying sales taxes collected from customers in specific states that impose a tax on sales of our products. We have accrued an approximate $216,000 liability as of March 31, 2017 and December 31, 2016 related to this matter. In addition, we are currently delinquent in remitting approximately $247,000 and $244,000 as of March 31, 2017 and December 31, 2016, respectively, of federal and state payroll taxes withheld from employees. On March 29, 2017, we sent a letter to the Internal Revenue Service (“IRS”) notifying the IRS of our intention to resolve the delinquent taxes upon the receipt of additional working capital. We may be subject to penalties as a result of our failure to pay these taxes and such penalties may have an adverse effect on our business.
We Are Applying For Listing of Our Common Stock And Warrants on NASDAQ. We Can Provide No Assurance That Our Common Stock and Warrants Qualify to Be Listed, and if Listed, That Our Securities Will Continue to Meet NASDAQ Listing Requirements. If We Fail to Comply With The Continuing Listing Standards of NASDAQ, Our Securities Could Be Delisted.
We expect that our securities will be eligible to be listed on NASDAQ subject to our ability to satisfy the initial listing requirements. Our ability to have our securities become listed on NASDAQ will require us to, among other items, improve our balance sheet, which we may be unable to accomplish. As of December 31, 2016, we had accumulated stockholders’ deficiency of approximately $20.8 million . As of March 31, 2017, we had accumulated stockholders’ deficiency of approximately $20.8 million, and our stockholders’ deficiency may increase as a result of additional net losses in subsequent quarterly periods.
We can provide no assurance that our listing application will be approved, and that an active trading market for our Common Stock will develop and continue. If, after listing, we fail to satisfy the continued listing requirements of NASDAQ, such as the corporate governance requirements, stockholder equity requirements or the minimum closing bid price requirement, NASDAQ may take steps to delist our Common Stock . Such a delisting would likely have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase Common Stock underlying the units when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the NASDAQ minimum bid price requirement or prevent future non-compliance with NASDAQ’s listing requirements.
To meet the requirements of NASDAQ, we may be required to restructure certain of our equity securities or satisfy certain liabilities through the issuance of additional equity securities. Our ability to restructure certain of our equity securities may require us to enter into new agreements with the applicable security holders, which we may be unable to do on favorable terms or at all. Any such agreement may result in the issuance of new securities or the modification of the rights of existing securities in a manner that may be dilutive to our Common Stock holders. In addition, NASDAQ has certain requirements that are beyond our control, such as financial requirements that are based on the trading price of our stock. If we are unable to meet the minimum financial eligibility of NASDAQ, we may be unable to list our stock, and we may be unsuccessful in completing this offering. Moreover, it would prevent us from increasing liquidity in our shares of Common Stock and make it more difficult for us to raise capital on favorable terms, or at all.
| - 12 - |
The Unavailability, Reduction or Elimination of Government Incentives Could Have a Material Adverse Effect on Our Business, Financial Condition, Operating Results and Prospects.
As of December 31, 2016, and March 31, 2017 , government grants accounted for 10% and 6%, respectively , of our revenues. Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, fiscal tightening or other reasons may result in diminished revenues from government sources and diminished demand for our products. This could materially and adversely affect our business, prospects, financial condition and operating results.
Our growth depends in part on the availability and amounts of government subsidies for EV charging equipment. In the event such subsidies discontinue, our business outlook and financial conditions could be negatively impacted.
If We Are Unable to Keep Up With Advances in EV Technology, We May Suffer a Decline in Our Competitive Position.
The EV industry is characterized by rapid technological change. If we are unable to keep up with changes in EV technology, our competitive position may deteriorate which would materially and adversely affect our business, prospects, operating results and financial condition. As technologies change, we plan to upgrade or adapt our EV charging stations and Blink Network software in order to continue to provide EV charging services with the latest technology. However, due to our limited cash resources, our efforts to do so may be limited. For example, the EV charging network that we acquired from ECOtality was originally funded, in part, by the U.S. Department of Energy (“DOE”), which funding is no longer available to us. As a result, we may be unable to grow, maintain and enhance the network of charging stations that we acquired from ECOtality at the same rate and scale as ECOtality did prior to the acquisition or at levels comparable our current competitors. Any failure of our charging stations to compete effectively with other manufacturers’ charging stations will harm our business, operating results and prospects.
We Need to Manage Growth in Operations to Realize Our Growth Potential and Achieve Our Expected Revenues, and Our Failure to Manage Growth Will Cause a Disruption of Our Operations Resulting in the Failure to Generate Revenue and an Impairment of Our Long-Lived Assets.
In order to take advantage of the growth that we anticipate in our current and potential markets, we believe that we must expand our marketing operations. This expansion will place a significant strain on our management and our operational, accounting, and information systems. We expect that we will need to continue to improve our financial controls, operating procedures and management information systems. We will also need to effectively train, motivate and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect.
In order to achieve the above-mentioned targets, the general strategies of our Company are to maintain and search for hard-working employees who have innovative initiatives, as well as to keep a close eye on expansion opportunities through merger and/or acquisition.
If Our Estimates or Judgments Relating to Our Critical Accounting Policies Prove to Be Incorrect, Our Financial Condition And Results of Operations Could Be Adversely Affected.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this prospectus and in our consolidated financial statements included herein. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, allowance for doubtful accounts, inventory reserves, impairment of goodwill, indefinite-lived and long-lived assets, pension and other post-retirement benefits, product warranty, valuation allowances for deferred tax assets, valuation of Common Stock warrants, and share-based compensation. Our financial condition and results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our Common Stock .
| - 13 - |
We Face Risks Arising From Acquisitions.
In 2012 and 2013, we acquired certain assets from 350 Green and Beam Charging, LLC (“Beam Charging”). We may pursue similar strategic transactions in the future. Risks in acquisition transactions include difficulties in the integration of acquired businesses into our operations and control environment, difficulties in assimilating and retaining employees and intermediaries, difficulties in retaining the existing clients of the acquired entities, assumed or unforeseen liabilities that arise in connection with the acquired businesses, the failure of counterparties to satisfy any obligations to indemnify us against liabilities arising from the acquired businesses, and unfavorable market conditions that could negatively impact our growth expectations for the acquired businesses. Fully integrating an acquired company or business into our operations may take a significant amount of time. We cannot assure you that we will be successful in overcoming these risks or any other problems encountered with acquisitions and other strategic transactions. These risks may prevent us from realizing the expected benefits from acquisitions and could result in the failure to realize the full economic value of a strategic transaction or the impairment of goodwill and/or intangible assets recognized at the time of an acquisition. These risks could be heightened if we complete a large acquisition or multiple acquisitions within a short period of time. In addition, in connection with the acquisition of 50% of the interests of the ECOtality Estate in April 2015, we issued certain Series B Preferred Shares, which we believe constitute an exempt issuance as intended under agreements with certain of our investors as such shares (i) were issued to effectuate the strategic acquisition of ECOtality, and (ii) permit us, in our sole control, to settle these shares for cash at stated optional redemption dates, as opposed to a variable number of shares. However, there can be no assurance that our investors agree with our interpretation of our investment documents and won’t pursue any of the potential remedies that may be available to them.
We Have Limited Insurance Coverage, and Any Claims Beyond Our Insurance Coverage May Result in Our Incurring Substantial Costs and a Diversion of Resources.
We hold employer’s liability insurance generally covering death or work-related injury of employees. We hold public liability insurance covering certain incidents involving third parties that occur on or in the premises of our Company. We hold directors and officers liability insurance. We do not maintain key-man life insurance on any of our senior management or key personnel, or business interruption insurance. Our insurance coverage may be insufficient to cover any claim for product liability, damage to our fixed assets or employee injuries. Any liability or damage to, or caused by, our facilities or our personnel beyond our insurance coverage may result in our incurring substantial costs and a diversion of resources.
Our Future Success Depends, in Part, on the Performance and Continued Service of Our Officers.
We presently depend to a great extent upon the experience, abilities and continued services of our management team, which consists of Michael Calise (our CEO), Michael D. Farkas (our Executive Chairman), Michael Andrew Kinard “ Andy Kinard ” (our President) and Ira Feintuch (our Chief Operating Officer). The loss of services of Mr. Calise, Mr. Farkas, Mr. Kinard or Mr. Feintuch could have a material adverse effect on our business, financial condition or results of operation. Failure to maintain our management team could prove disruptive to our daily operations, require a disproportionate amount of resources and management attention and could have a material adverse effect on our business, financial condition and results of operations.
Our Future Success Depends, in Part, on Our Ability to Attract and Retain Highly Qualified Personnel.
Our future success also depends upon our ability to attract and retain highly qualified personnel. We are in the process of building our management team. Among other positions, we need to hire a Chief Financial Officer with public company experience. Although Mr. Calise currently acts as our interim principal financial officer and our interim principal accounting officer, in November 2016 we hired a financial reporting consultant with public company experience. Although we intend to hire a permanent Chief Financial Officer soon, there is no assurance that we will have sufficient financial resources to do so. Our accounting controls may continue to be deficient unless we obtain the services of an experienced Chief Financial Officer who can help us address material weaknesses. In addition, expansion of our business and the management and operation of our Company will require additional managers and employees with industry experience, and our success will be highly dependent on our ability to attract and retain skilled management personnel and other employees. There can be no assurance that we will be able to attract or retain highly qualified personnel. As our industry continues to evolve, competition for skilled personnel with the requisite experience will be significant. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees.
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We Are in an Intensely Competitive Industry and There Can Be No Assurance That We Will Be Able to Compete with Our Competitors Who May Have Greater Resources.
We face strong competition from competitors in the EV charging services industry, including competitors who could duplicate our model. Many of these competitors may have substantially greater financial, marketing and development resources and other capabilities than us. In addition, there are very few barriers to entry into the market for our services. There can be no assurance, therefore, that any of our current and future competitors, many of whom may have far greater resources, will not independently develop services that are substantially equivalent or superior to our services. Therefore, an investment in our Company is very risky and speculative due to the competitive environment in which we may operate.
Our competitors may be able to provide customers with different or greater capabilities or benefits than we can provide in areas such as technical qualifications, past contract performance, geographic presence and price. Furthermore, many of our competitors may be able to utilize substantially greater resources and economies of scale to develop competing products and technologies, divert sales away from us by winning broader contracts or hire away our employees by offering more lucrative compensation packages. In the event that the market for EV charging stations expands, we expect that competition will intensify as additional competitors enter the market and current competitors expand their product lines. In order to secure contracts successfully when competing with larger, well-financed companies, we may be forced to agree to contractual terms that provide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins. Our failure to compete effectively with respect to any of these or other factors could have a material adverse effect on our business, prospects, financial condition or operating results.
We Have Experienced Significant Customer Concentration in Recent Periods, And Our Revenue Levels Could Be Adversely Affected if Any Significant Customer Fails To Purchase Products From Us At Anticipated Levels.
We are subject to customer concentration risk as a result of our reliance on a relatively small number of customers for a significant portion of our revenues. The relative magnitude and the mix of revenue from our largest customers have varied significantly quarter to quarter. During the three months ended March 31, 2017, two customers accounted for 26% of our revenues. In addition, one of these customers accounted for 11% of total accounts receivable as of March 31, 2017 . The loss of these customers could have a material adverse effect on our business.
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If a Third Party Asserts That We Are Infringing Its Intellectual Property, Whether Successful or Not, It Could Subject Us to Costly and Time-Consuming Litigation or Expensive Licenses, and Our Business May Be Harmed.
The EV and EV charging industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets. As we face increasing competition, the possibility of intellectual property rights claims against us grows. Our technologies may not be able to withstand any third-party claims or rights against their use. Additionally, although we have acquired from other companies’ proprietary technology covered by patents, we cannot be certain that any such patents will not be challenged, invalidated or circumvented. Intellectual property infringement claims against us could harm our relationships with our customers, may deter future customers from subscribing to our services or could expose us to litigation with respect to these claims. Even if we are not a party to any litigation between a customer and a third party, an adverse outcome in any such litigation could make it more difficult for us to defend our intellectual property in any subsequent litigation in which we are a named party. Any of these results could harm our brand and operating results.
Any intellectual property rights claim against us or our customers, with or without merit, could be time-consuming, expensive to litigate or settle and could divert management resources and attention. An adverse determination also could prevent us from offering our services to our customers and may require that we procure or develop substitute services that do not infringe.
With respect to any intellectual property rights claim against us or our customers, we may have to pay damages or stop using technology found to be in violation of a third party’s rights. We may have to seek a license for the technology, which may not be available on reasonable terms, may significantly increase our operating expenses or require us to restrict our business activities in one or more respects. The technology also may not be available for license to us at all. As a result, we may also be required to develop alternative non-infringing technology, which could require significant effort and expense.
The Success of Our Business Depends in Large Part on Our Ability to Protect and Enforce Our Intellectual Property Rights.
We rely on a combination of patent, copyright, service mark, trademark, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. We cannot assure you that any patents will issue with respect to our currently pending patent applications, in a manner that gives us the protection that we seek, if at all, or that any future patents issued to us will not be challenged, invalidated or circumvented. Our currently issued patents and any patents that may issue in the future with respect to pending or future patent applications may not provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers. Also, we cannot assure you that any future service mark registrations will be issued with respect to pending or future applications or that any registered service marks will be enforceable or provide adequate protection of our proprietary rights.
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We endeavor to enter into agreements with our employees and contractors and agreements with parties with whom we do business in order to limit access to and disclosure of our proprietary information. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology or the reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property. The enforcement of our intellectual property rights also depends on our legal actions against these infringers being successful, but we cannot be sure these actions will be successful, even when our rights have been infringed.
Furthermore, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are available over the Internet. In addition, the legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in EV-related industries are uncertain and still evolving.
Changes to Federal, State or International Laws or Regulations Applicable To Our Company Could Adversely Affect Our Business.
Our business is subject to a variety of federal, state and international laws and regulations, including those with respect government incentives promoting fuel efficiency and alternate forms of energy, electric vehicles and others. These laws and regulations, and the interpretation or application of these laws and regulations, could change. Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, fiscal tightening or other reasons may result in diminished revenues from government sources and diminished demand for our products. In addition, new laws or regulations affecting our business could be enacted. These laws and regulations are frequently costly to comply with and may divert a significant portion of management’s attention. If we fail to comply with these applicable laws or regulations, we could be subject to significant liabilities which could adversely affect our business.
There are many federal, state and international laws that may affect our business, including measures to regulate charging systems, electric vehicles, and others. If we fail to comply with these applicable laws or regulations we could be subject to significant liabilities which could adversely affect our business.
There are a number of significant matters under review and discussion with respect to government regulations which may affect the business we intend to enter and/or harm our customers, and thereby adversely affect our business, financial condition and results of operations.
Our Ability to Use Our Net Operating Loss Carryforwards May Be Limited.
For the year ended December 31, 2016 , we had net operating loss carryforwards (“NOLs”) for U.S. federal income tax purposes of approximately $59 million. We generally are able to carry NOLs forward to reduce taxable income in future years. These NOLs may be offset against future taxable income through 2035 , if not utilized before that time. However, our ability to utilize the NOLs is subject to the rules of Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”). Section 382 generally restricts the use of NOLs after an “ownership change.” An ownership change generally occurs if, among other things, the stockholders (or specified groups of persons ) who own, have owned or are treated as owning, directly or indirectly, five percent or more of our stock increase their aggregate percentage ownership of our stock by more than 50 percentage points over the lowest percentage of the stock owned by these persons over a three-year rolling period. In the event of an ownership change, Section 382 generally imposes an annual limitation on the amount of taxable income that we may offset with NOLs. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOLs.
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The rules of Section 382 are complex and subject to varying interpretations. Because of our numerous capital raises, uncertainty exists as to whether we may have undergone an ownership change in the past or will undergo one as a result of the various transactions discussed herein or other future transactions. Accordingly, no assurance can be given that our NOLs will be fully available or utilizable.
Risks Associated with Our Common Stock
If We Fail to Establish and Maintain an Effective System of Internal Control, We May Not Be Able to Report Our Financial Results Accurately or Prevent Fraud. Any Inability to Report and File Our Financial Results Accurately and Timely Could Harm Our Reputation and Adversely Impact the Trading Price of Our Common Stock.
Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operations and access to capital. We have also experienced complications reporting as a result of material weaknesses and have at times been delinquent in our reporting obligations. We have carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that as of March 31, 2017 our internal controls over financial reporting (“ICFR”) were not effective at the reasonable assurance level:
| 1. | We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the year ended December 31, 2016. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness. | |
| 2. | We do not have sufficient resources in our accounting function, which restricts our ability to gather, analyze and properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness. | |
| 3. | We do not have personnel with sufficient experience with U.S. GAAP to address complex transactions. | |
| 4. | We have inadequate controls to ensure that information necessary to properly record transactions is adequately communicated on a timely basis from non-financial personnel to those responsible for financial reporting. Management evaluated the impact of the lack of timely communication between non–financial and financial personnel on our assessment of our reporting controls and procedures and has concluded that the control deficiency represented a material weakness. | |
| 5. | We have determined that oversight over our external financial reporting and internal control over our financial reporting by our audit committee is ineffective. The audit committee has not provided adequate review of our SEC filings and consolidated financial statements and has not provided adequate supervision and review of our accounting personnel or oversight of the independent registered accounting firm’s audit of our consolidated financial statement. |
We have taken steps to remediate some of the weaknesses described above, including by engaging third party financial consultants with expertise in accounting for complex transactions and SEC reporting. We intend to continue to address these weaknesses as resources permit.
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We are Required to Register Under the Securities Act the Resale of Shares of Our Common Stock by a Number of Our Security Holders. Our Failure to Comply With Our Contractual Obligations and Timely Register the Resale of Any Shares of Our Common Stock Has Resulted in, and Will Result in, Among Other Things, the Payment of Liquidated Damages, And Could Have a Material Adverse Effect on Our Ability to Raise Additional Funds in The Future And Have a Material Adverse Effect on Our Business.
We have entered into various agreements with purchasers of our securities from time to time which require us to register under the Securities Act of 1933, as amended (the “Securities Act”) the resale of shares of our Common Stock that we have issued or will be required to issue to such purchasers. We had failed to perform our obligations under these agreements and had accrued registration rights penalties, inclusive of accrued interest, in an aggregate amount equal to $1,245,212 as of March 31, 2017. On May 8, 2017, the Company issued a total of 61,740 Series C Preferred Shares to forty-eight (48) stockholders as payment in full , among other items, of registration rights penalties accrued through March 31, 2017. The Company is still assessing whether it needs to accrue any registration rights penalties going forward from April 1, 2017.
These additional issuances of securities had a dilutive effect on our other stockholders. In addition, our failure to timely register the resale of any shares of our Common Stock may result in reputational harm for our Company and could have a material adverse effect on our ability to raise additional funds in the future, which may have a material adverse effect on our business.
We are Required to Enable Some of our Stockholders to Sell Shares of Our Common Stock Pursuant to Rule 144 of the Securities Act. Our Failure to Comply With Our Contractual Obligations and Enable Such Sales Has Resulted in, and Will Result in, Among Other Things, the Payment of Liquidated Damages, And Could Have a Material Adverse Effect on Our Ability to Raise Additional Funds Through Private Placements in The Future And Have a Material Adverse Effect on Our Business.
The Company is a former shell company. As a result, to enable investors to sell shares of our Common Stock pursuant to Rule 144 of the Securities Act, we need to be: (A) subject to the reporting requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (B) current in filing such reports. We have entered into various agreements with purchasers of our securities from time to time which require us to enable sales of our Common Stock pursuant to Rule 144. Although we became current in our filings in August 2016, because we are not currently subject to the Exchange Act and make such filings voluntarily, investors are still not able to utilize Rule 144. We accrued public information failure rights penalties in an aggregate amount equal to $3,005,277, inclusive of accrued interest, as of March 31, 2017 due to our failure to perform our obligations under these agreements. On May 8, 2017, the Company issued a total of 61,740 Series C Preferred Shares to forty-eight (48) stockholders as payment in full, among other items, of these public information failure rights penalties accrued through March 31, 2017. The Company is still assessing whether it needs to accrue any public information failure rights penalties going forward from April 1, 2017.
Our failure to comply with our contractual obligations and timely register the resale of any shares of our Common Stock for any reason, including as a result of any unexpected delay in the completion of any offering, may result in additional breaches of the agreements with certain security holders and in the payment of liquidated damages as required under the terms of our agreements with certain security holders. These additional issuances of securities had a dilutive effect on our other stockholders. In addition, our failure to timely file our 10-Qs and 10-Ks may result in reputational harm for our Company and could have a material adverse effect on our ability to raise additional funds through private placements in the future, which may have a material adverse effect on our business.
Our Common Stock Is Currently Quoted Only on the OTC Pink Current Information Marketplace, Which May Have an Unfavorable Impact on Our Stock Price and Liquidity.
Our Common Stock is quoted on the OTC Pink Current Information Marketplace. The OTC Pink Current Information Marketplace is a significantly more limited market than the New York Stock Exchange or the NASDAQ stock market. The quotation of our shares on the OTC Pink Current Information Marketplace may result in a less liquid market available for existing and potential stockholders to trade shares of our Common Stock, could depress the trading price of our Common Stock and could have a long-term adverse impact on our ability to raise capital in the future.
There can be no assurance that there will be an active market for our shares of Common Stock either now or in the future. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result, holders of our securities may not find purchasers for our securities should they to desire to sell them. Consequently, our securities should be purchased only by investors having no need for liquidity in their investment and who can hold our securities for an indefinite period of time.
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Shares of Our Common Stock Which May Be Issued Upon Conversion of Indebtedness by JMJ May Dilute the Ownership Interests of Our Stockholders.
On October 7, 2016, we executed the Promissory Note in favor of JMJ in the amount up to $3,725,000 bearing interest on the unpaid balance at the rate of six percent. The initial amount borrowed under the Promissory Note was $500,000, with the remaining amounts permitted to be borrowed under the Promissory Note being subject to us achieving certain milestones. The Promissory Note is convertible into shares of our Common Stock based on the lesser of a per share price of $35.00 or 60% of the lowest trade prices in the 25 trading days prior to the date of conversion. If JMJ elects to convert the principal balance of the Promissory Note into shares of our Common Stock under the terms of the Promissory Note , our current stockholders would be subject to dilution of their interests. Pursuant to the terms of the Promissory Note, JMJ has agreed that it will not convert the note into more than 9.99% of our outstanding shares. JMJ currently does not own any shares of our Common Stock.
If we do not repay the Promissory Note on the maturity date and if we issue a variable security at any time the Promissory Note is outstanding, then in such event JMJ shall have the right to convert all or any portion of the outstanding balance of the Promissory Note into shares of Common Stock on the same terms as granted in any applicable variable security issued by us.
We initially issued one warrant to JMJ to purchase a total of 14,286 shares of our Common Stock at an exercise price equal to the lesser of: (i) 80% of the per share price of the Common Stock in our contemplated Registered Offering, (ii) $35.00 per share, (iii) 80% of the unit price in a public offering (if applicable), (iv) the exercise price of any warrants issued in the Registered Offering, or (v) the lowest conversion price, exercise price, or exchange price, of any security issued by us that is outstanding on October 13, 2016.
The initial amount borrowed under the Promissory Note was $500,000, with the remaining amounts permitted to be borrowed under the Promissory Note being subject to us achieving certain milestones. With the achievement of certain milestones in November 2016 (the filing with the SEC of a Preliminary Information Statement on Schedule 14C regarding the Reverse Stock Split), an additional advance of $500,000 under the Promissory Note occurred on November 28, 2016. Another warrant to purchase 14,286 shares of our Common Stock was issued as of November 28, 2016. With the achievement of certain milestones in February 2017 (the filing with the SEC of a revised Preliminary Information Statement and a Definitive Information Statement, each on Schedule 14C regarding the Reverse Stock Split), additional advances of $225,100 and $300,000 under the Promissory Note occurred on February 10 and February 27, respectively. Thus, two more warrants to purchase the Company’s Common Stock were issued, one for 6,431 shares and the other for 8,571 shares, respectively. All advances after February 28, 2017 have been at the discretion of JMJ without regard to any specific milestones occurring. Additional advances of $250,000 and $30,000 under the Promissory Note occurred on March 14, 2017 and March 24, 2017, respectively, and two more warrants to purchase the Company’s Common Stock were issued, one for 7,143 shares and the other for 857 shares. An additional advance of $400,000 occurred on April 5, 2017 and another warrant to purchase 11,429 shares of our Common Stock was issued on the same date. An additional advance of $295,000 occurred on May 9, 2017 and another warrant to purchase 8,429 share of the Company’s Common Stock was issued on the same date. As of June 26, 2017, eight (8) warrants to purchase a total of 71,432 shares of the Company’s Common Stock have been issued to JMJ.
On the fifth (5th) trading day after the closing of the Registered Offering, but in no event later than July 15, 2017, we will deliver to JMJ shares of our Common Stock (“Origination Shares”) equal to 48% of the consideration paid by JMJ under the Promissory Note divided by the lowest of (i) $35.00 per share, or (ii) the lowest daily closing price of our Common Stock during the ten days prior to delivery of the Origination Shares (subject to adjustment for stock splits), or (iii) 80% of the Common Stock offering price of the Registered Offering, or (iv) 80% of the unit price offering price of the Registered Offering (if applicable), or (v) the exercise price of any warrants issued in the Registered Offering. The number of Origination Shares will be determined based on the per share price of this Offering. If the Registered Offering does not occur prior to July 15, 2017, if JMJ owns Origination Shares at the time of a subsequent public offering where the pricing terms above would result in a lower Origination Share pricing, the Origination Shares pricing shall be subject to a reset based on the same pricing terms as described above.
The conversion of the Promissory Note, Origination Shares and warrants issued to JMJ, in addition to any other outstanding options, warrants, convertible notes, as well as potential future transactions, would result in dilution, possibly substantial, to present and prospective holders of our Common Stock.
Our Shares of Common Stock Are Very Thinly Traded, and the Price May Not Reflect Our Value and There Can Be No Assurance That There Will Be an Active Market for Our Shares of Common Stock Either Now or in the Future.
Our shares of Common Stock are very thinly traded, and the price, if traded, may not reflect our value. There can be no assurance that there will be an active market for our shares of Common Stock either now or in the future. The market liquidity will be dependent on the perception of our operating business and any steps that our management might take to increase awareness of our Company with investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. If a more active market should develop, the price may be highly volatile. Because there may be a low price for our shares of Common Stock , many brokerage firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to effect a transaction in the shares of our Common Stock , the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of such shares of Common Stock as collateral for loans.
We Have a Significant Number of Shares of Our Common Stock Issuable Upon Conversion of Certain Outstanding Options, Warrants, Debt Obligations, and Convertible Preferred Stock, and The Issuance of Such Shares Upon Exercise or Conversion Will Have a Dilutive Impact On Our Stockholders. Sales of a Substantial Number of Shares of Our Common Stock Following This Offering May Adversely Affect the Market Price of Our Common Stock and the Issuance of Additional Shares Will Dilute All Other Stockholders.
As of June 26, 2017, there were 27,500,000, 91,666 and 606,191 shares of Common Stock issuable upon conversion of our Series A, Series B and Series C Preferred Shares, respectively.
In addition, as of June 26, 2017, we had outstanding convertible debt convertible into 17,360 shares of our Common Stock issuable to Chase Mortgage, Inc. and The Farkas Group Inc. (“FGI”) (an entity wholly-owned by Mr. Farkas). In addition, as of June 26, 2017, we had outstanding stock options and warrants to purchase a total of 3,926,259 shares of our Common Stock consisting of: (i) 366,587 shares issuable upon exercise of outstanding warrants with a weighted average exercise price of $43.00; (ii) 411,638 shares issuable pursuant to letter agreements with regard to warrants to purchase 633,407 warrant shares; (iii) 3,000,000 warrant shares owned by FGI not subject to the Reverse Stock Split at a weighted average exercise price of $0.70 (such exercise price is also not subject to the Reverse Stock Split); and (iv) 148,034 shares issuable upon exercise of outstanding options with a weighted average exercise price of $58.00, under our equity compensation plans. The issuance of these shares of Common Stock will have a significant dilutive impact on our stockholders.
Sales of a substantial number of shares of our Common Stock in the public market or otherwise following this offering, or the perception that such sales could occur, could adversely affect the market price of our Common Stock. After completion of this offering at an assumed public offering price of $9.25 per share, the last reported sales price for our Common Stock as reported on the OTC Pink Current Information Marketplace on June 26, 2017, as adjusted to reflect the Reverse Stock Split, our existing stock holders will own approximately 18% of our Common Stock assuming there is no exercise of the underwriters’ over-allotment option to purchase shares and/or warrants.
After completion of this offering at an assumed public offering price of $9.25 per share, there will be 9,970,974 shares of our Common Stock outstanding. In addition, our articles of incorporation, as amended, permits the issuance of up to approximately 490,029,026 additional shares of Common Stock after the completion of this offering. Thus, we have the ability to issue substantial amounts of Common Stock in the future, which would dilute the percentage ownership held by the investors who purchase shares of our Common Stock in this offering.
Upon the closing of this offering, there will be 2,200,000, 102,568, and 3,297,195 shares of Common Stock issued upon conversion of our Series A, Series B and Series C Preferred Shares, respectively. As the convertible debt will be repaid with the proceeds from this offering, the 17,360 shares issuable to Chase Mortgage, Inc. and FGI will no longer be issuable.
For a more complete description concerning the dilution you will incur if you purchase Common Stock in this offering, see “Dilution.”
We and our officers, directors and certain stockholders have agreed, subject to customary exceptions, not to, without the prior written consent of Joseph Gunnar & Co., LLC, the representative of the underwriters of this offering, during the period ending 180 days from the date of this offering in the case of us and our directors and officers and 90 days from the date of this offering in the case of our stockholders who beneficially own more than 5% of our Common Stock, directly or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any of shares of our Common Stock, enter into any swap or other derivatives transaction that transfers to another any of the economic benefits or risks of ownership of shares of our Common Stock, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock or any other securities of our Company or publicly disclose the intention to do any of the foregoing.
After the lock-up agreements with our principal stockholders pertaining to this offering expire 90 days from the date of this offering unless waived earlier by the representative, up to of the shares that had been locked up will be eligible for future sale in the public market. After the lock-up agreements with our directors and officers pertaining to this offering expire 180 days from the date of this offering unless waived earlier by the representative, up to of the shares (net of any shares also restricted by lock-up agreements with our principal stockholders) that had been locked up will be eligible for future sale in the public market. Sales of a significant number of these shares of Common Stock in the public market could reduce the market price of the Common Stock.
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Future Issuance of Our Common Stock, Preferred Stock, Options and Warrants Could Dilute the Interests of Existing Stockholders.
We may issue additional shares of our Common Stock , preferred stock, options and warrants in the future. The issuance of a substantial amount of Common Stock, options and warrants could have the effect of substantially diluting the interests of our current stockholders. In addition, the sale of a substantial amount of Common Stock or preferred stock in the public market, or the exercise of a substantial number of warrants and options either in the initial issuance or in a subsequent resale by the target company in an acquisition which received such Common Stock as consideration or by investors who acquired such Common Stock in a private placement could have an adverse effect on the market price of our Common Stock .
We Have Established Preferred Stock Which Can Be Designated By The Board of Directors and Have Established Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares , Which Give The Holders Thereof a Liquidation Preference and The Ability to Convert Such Shares Into Our Common Stock.
We have 40,000,000 shares of preferred stock authorized, which includes 20,000,000 shares of designated Series A Preferred Shares of which 11,000,000 shares are issued and outstanding, 10,000 designated Series B Preferred Shares , of which 8,250 shares are issued and outstanding and 250,000 designated Series C Preferred Shares, of which 212,167 shares are issued and outstanding. The Series A Preferred Shares do not have a liquidation preference so long as any Series C Preferred Shares are outstanding. The Series B Preferred Shares have a liquidation preference of $100 per share. The Series C Preferred Shares have a liquidation preference of $100 per share, which is pari passu to the liquidation preference of the Series B Preferred Shares and payable prior to the liquidation preference on the Series A Preferred Shares . As a result, if we were to dissolve, liquidate or sell our assets, the holders of our Series A Preferred Shares would not have the right to receive any proceeds from any such transaction, holders of our Series B Preferred Shares would have the right to receive up to approximately $825,000 from any such transaction, and the holders of our Series C Preferred Shares would have the right to receive up to $16,192,700 from any such transaction, but before any amount is paid to the holders of our Common Stock . The payment of the liquidation preferences could result in Common Stock holders not receiving any consideration if we were to liquidate, dissolve or wind up, either voluntarily or involuntarily.
Additionally, the existence of the liquidation preferences may reduce the value of our Common Stock, make it harder for us to sell shares of Common Stock in offerings in the future, or prevent or delay a change of control. Furthermore, the conversion of Series A Preferred Shares , Series B Preferred Shares and Series C Preferred Shares into Common Stock may cause substantial dilution to our Common Stock holders . Because our Board of Directors (the “Board”) is entitled to designate the powers and preferences of the preferred stock without a vote of our stockholders, subject to NASDAQ rules and regulations, our stockholders will have no control over what designations and preferences our future preferred stock, if any, will have. In addition, we may be required to redeem any non-converted Series C Preferred Shares at the rate of $100 per share, plus accrued dividends; and (b) Series B Preferred Shares at the rate of $100 per share, which funds we may not have, or which may not be available on favorable terms, if at all.
We Have Outstanding Shares of Preferred Stock With Rights And Preferences Superior to Those of Our Common Stock.
The issued and outstanding Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares grant the holders of our preferred stock certain anti-dilution, voting, dividend and liquidation rights that are superior to those held by the holders of our Common Stock.
The issuance of shares of Common Stock in the future, issuances or deemed issuances of additional shares of Common Stock for a price below the applicable preferred shares conversion price will have the effect of diluting current stockholders. The rights of our preferred stockholders may increase our net losses, dilute our Common Stock holders, and allow such preferred stockholders to have approval rights and therefore to exert influence over certain corporate actions. For example, the holders of our Series C Preferred Shares are entitled to certain dividend, liquidation preference, and anti-dilution rights that are described in the as-amended Certificate of Designation of the Series C Preferred Shares (the “Series C Certificate of Designation ”) and the related securities purchase agreement dated as of March 11, 2016. In addition, the holders of our Series C Preferred Shares have certain redemption rights that may be exercised after December 2016 and, if such rights are exercised, could adversely affect our business and could require us to consider a range of strategic alternatives, including refinancing their securities or effecting a sale of our Company or its assets. We cannot assure you that the rights associated with the Series C Preferred Shares or our other series of preferred stock will not adversely affect the holders of our Common Stock.
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We Do Not Intend to Pay Dividends for the Foreseeable Future, and You Must Rely on Increases in the Market Prices of Our Common Stock for Returns on Your Investment.
For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our Common Stock . Accordingly, investors must be prepared to rely on sales of their Common Stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our Common Stock . Any determination to pay dividends in the future will be made at the discretion of our Board and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors the Board deems relevant.
Our Executive Officers and Directors, Including Our Executive Chairman Mr. Farkas and His Affiliates, Possess Controlling Voting Power With Respect to Our Common Stock, Which Will Limit Your Influence on Corporate Matters.
As of June 26, 2017, our directors and executive officers collectively beneficially own approximately 95.80% of the shares of our Common Stock on a fully-diluted basis including the beneficial ownership of our Executive Chairman and director Mr. Farkas and his affiliates, of 88.16% of the shares of our Common Stock on a fully-diluted basis.
Upon the closing of this offering, our directors and executive officers will collectively beneficially own approximately 66.24% of the shares of our Common Stock on a fully-diluted basis including the beneficial ownership of Mr. Farkas and his affiliates of 62.88% of the shares of our Common Stock on a fully-diluted basis.
As a result, our insiders have the ability to effectively control our management and affairs through the election and removal of our Board and all other matters requiring stockholder approval, including any future merger, consolidation or sale of all or substantially all of our assets. This concentrated control could discourage others from initiating any potential merger, takeover or other change-of-control transaction that may otherwise be beneficial to our stockholders. Furthermore, this concentrated control will limit the practical effect of your influence over our business and affairs, through any stockholder vote or otherwise. Any of these effects could depress the price of our Common Stock.
Our Executive Chairman Mr. Farkas May Be Able To Influence The Outcome of Stockholder Votes. Mr. Farkas’ Interests May Differ From Other Stockholders.
Upon the closing of this offering, Mr. Farkas and his affiliates will beneficially own 62.88% of the shares of our Common Stock on a fully-diluted basis.
Subject to any fiduciary duties owed to our other stockholders under Nevada law, Mr. Farkas may be able to exercise significant influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will have some control over our management and policies. Mr. Farkas may have interests that are different from yours. For example, Mr. Farkas may support proposals and actions with which you may disagree. The concentration of ownership could delay or prevent a change in control of our Company or otherwise discourage a potential acquirer from attempting to obtain control of our Company, which in turn could reduce the price of our stock. In addition, Mr. Farkas could use his voting influence to maintain our existing management and directors in office, delay or prevent changes in control of our Company, or support or reject other management and board proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions.
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In addition, we currently owe $542,567 in principal and interest pursuant to nine convertible notes issued to FGI between June 2016 and September 2016, which have matured and are past due. We have not satisfied this debt and are in negotiations with Mr. Farkas to extend the maturity dates of such notes. If we are unable to do so on favorable terms, or at all, Mr. Farkas could seek to enforce the notes against us, which could have an adverse effect on our business and reduce the market price of our Common Stock.
Our Articles of Incorporation Grants Our Board The Power to Issue Additional Shares of Common And Preferred Shares And to Designate Other Classes of Preferred Shares, All Without Stockholder Approval.
Our authorized capital consists of 540,000,000 shares of capital stock of which 40,000,000 shares are designated as preferred stock. Our Board, without any action by our stockholders, may designate and issue shares of preferred stock in such series as it deems appropriate and establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights, provided it is consistent with Nevada law.
The rights of holders of our preferred stock that may be issued could be superior to the rights of holders of our shares of Common Stock . The designation and issuance of shares of capital stock having preferential rights could adversely affect other rights appurtenant to shares of our Common Stock . Furthermore, any issuances of additional stock (common or preferred) will dilute the percentage of ownership interest of then-current holders of our capital stock and may dilute our book value per share.
Certain Provisions of Our Corporate Governing Documents And Nevada Law Could Discourage, Delay, or Prevent A Merger or Acquisition at a Premium Price.
Certain provisions of our organizational documents and Nevada law could discourage potential acquisition proposals, delay or prevent a change in control of our Company, or limit the price that investors may be willing to pay in the future for shares of our Common Stock. For example, our articles of incorporation and bylaws permit us to issue, without any further vote or action by the stockholders, up to 40,000,000 shares of preferred stock in one or more series and, with respect to each series, to fix the number of shares constituting the series and the designation of the series, the voting powers (if any) of the shares of the series, and the preferences and relative, participating, optional, and other special rights, if any, and any qualifications, limitations, or restrictions of the shares of the series.
Risks Related to the Offering
Investors in This Offering Will Experience Immediate and Substantial Dilution in Net Tangible Book Value.
The public offering price will be substantially higher than the net tangible book value per share of our outstanding shares of Common Stock . As a result, investors in this offering will incur immediate dilution of $8.57 per share, based on the assumed public offering price of $9.25 per share. Investors in this offering will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. See “Dilution” for a more complete description of how the value of your investment will be diluted upon the completion of this offering.
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In the Event That Our Common Stock and Warrants Are Listed on NASDAQ, Our Stock Price Could Fall and We Could Be Delisted in Which Case Broker-Dealers May Be Discouraged from Effecting Transactions in Shares of Our Common Stock Because They May Be Considered Penny Stocks and Thus Be Subject to the Penny Stock Rules.
The Securities and Exchange Commission (the “SEC”) has adopted a number of rules to regulate “penny stocks” that restricts transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our securities have in the past constituted, and may again in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our Common Stock , which could severely limit the market liquidity of such shares and impede their sale in the secondary market.
A U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the “penny stock” held in a customer’s account and information with respect to the limited market in “penny stocks”.
Stockholders should be aware that, according to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
Speculative Nature of Warrants.
The warrants offered in this offering do not confer any rights of Common Stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of our Common Stock at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the warrants may exercise their right to acquire the Common Stock and pay an exercise price of $11.56 per share, based on the assumed price of $9.25, the last reported sales price for our Common Stock as reported on the OTC Pink Current Information Marketplace on June 26, 2017, as adjusted to reflect the Reverse Stock Split (125% of the combined public offering price of our Common Stock and warrants in this offering), prior to five years from the date of issuance, after which date any unexercised warrants will expire and have no further value. Moreover, following this offering, the market value of the warrants is uncertain and there can be no assurance that the market value of the warrants will equal or exceed their public offering price. There can be no assurance that the market price of the Common Stock will ever equal or exceed the exercise price of the warrants, and consequently, whether it will ever be profitable for holders of the warrants to exercise the warrants.
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We May Need Additional Capital, and the Sale of Additional Shares or Equity or Debt Securities Could Result in Additional Dilution to Our Stockholders.
We believe that our existing cash, together with the net proceeds from this offering, will be sufficient to meet our anticipated cash needs for at least the next two years. We may, however, require additional cash resources due to changed business conditions or other future developments. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain one or more credit facilities. The sale of additional equity securities could result in additional dilution to our stockholders and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a Common Stock holder. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all.
If we raise additional funds through government grants, collaborations, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue stream or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.
We Have Broad Discretion in the Use of the Net Proceeds from This Offering and May Not Use Them Effectively.
Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section of this prospectus entitled “Use of Proceeds.” You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our securities to decline and delay the development of our product candidates. Pending the application of these funds, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
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If Securities or Industry Analysts Do Not Publish Research or Reports About Our Business, or Publish Inaccurate or Unfavorable Research Reports About Our Business, Our Share Price and Trading Volume Could Decline.
The trading market for our Common Stock will, to some extent, depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us from time to time should downgrade our shares or change their opinion of our business prospects, our share price would likely decline. If one or more of these analysts ceases coverage of our Company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Substantial Future Sales of Shares of Our Common Stock In The Public Market Could Cause Our Stock Price To Fall.
Shares of our Common Stock that we have issued directly or that have been or may be acquired upon exercise of warrants or the conversion of convertible securities are or may be covered by registration statements which permit the public sale of stock. Other holders of shares of Common Stock that we have issued, including shares of Common Stock issuable upon conversion and/or exercise of outstanding convertible notes, shares of preferred stock and warrants, may be entitled to dispose of their shares pursuant to an exemption from registration under the Securities Act. Additional sales of a substantial number of our shares of our Common Stock in the public market, or the perception that sales could occur, could have a material adverse effect on the price of our Common Stock. Our Common Stock is quoted on the OTC Pink Current Information Marketplace and there is not now, nor has there been, any significant market for shares of our Common Stock, and an active trading market for our shares may never develop or be sustained. If our Common Stock becomes listed on NASDAQ or if we register our Common Stock as a class pursuant to the Exchange Act, investors will be able to use Rule 144 to sell shares of our Common Stock in which case the then-prevailing market prices for our Common Stock may be reduced. Any substantial sales of our Common Stock or listing of our Common Stock on NASDAQ may have an adverse effect on the market price of our securities.
Sales of a substantial number of shares of our Common Stock in the public market following this offering could cause the market price of our Common Stock to decline. If there are more shares of Common Stock offered for sale than buyers are willing to purchase, then the market price of our Common Stock may decline to a market price at which buyers are willing to purchase the offered shares of Common Stock and sellers remain willing to sell the shares. All of the securities issued in the offering will be freely tradable without restriction or further registration under the Securities Act.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Forward-looking statements present our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results.
Forward-looking statements include, without limitation, statements about our market opportunities, our business and growth strategies, our projected revenue and expense levels, possible future consolidated results of operations, the adequacy of our available cash resources, our financing plans, our competitive position and the effects of competition and the projected growth of the industries in which we operate, as well as the following statements:
| ● | according to Navigant Research, the global market for electric vehicle supply equipment (EVSE) is expected to grow from 505,000 units in 2016 to 2.5 million in 2025. | |
| ● | that the EV charger industry as a whole is undercapitalized to deliver the full potential of the expected EV market growth in the near future; | |
| ● | that we expect to retain our leadership position with new capital; | |
| ● | that we do not anticipate paying any cash dividends on our Common Stock; | |
| ● | that we anticipate continuing to expand our revenues by selling our next generation of EV charging equipment, expanding our sales channels, and implementing EV charging station occupancy fees (fees for remaining connected to the charging station beyond an allotted grace period after charging is completed), subscription plans for our Blink-owned public charging locations, and advertising fees; | |
| ● | that we are unique in our ability to provide various business models to Property Partners and leverage our technology to meet the needs of both Property Partners and EV drivers; | |
| ● | Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to: | |
| ● | changes in the market acceptance of our products and services; |
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| ● | increased levels of competition; | |
| ● | changes in political, economic or regulatory conditions generally and in the markets in which we operate; | |
| ● | our relationships with our key customers; | |
| ● | adverse conditions in the industries in which our customers operate; | |
| ● | our ability to retain and attract senior management and other key employees; | |
| ● | our ability to quickly and effectively respond to new technological developments; | |
| ● | our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on our proprietary rights; and | |
| ● | other risks, including those described in the “Risk Factors” discussion of this prospectus. |
We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.
Certain of the market data and other statistical information contained in this prospectus are based on information from independent industry organizations and other third-party sources, including industry publications, surveys and forecasts. Some market data and statistical information contained in this prospectus are also based on management’s estimates and calculations, which are derived from our review and interpretation of the independent sources listed above, our internal research and our knowledge of the EV industry. While we believe such information is reliable, we have not independently verified any third-party information and our internal data has not been verified by any independent source.
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We estimate that the net proceeds from the sale of the Common Stock and warrants in the offering will be approximately $18.0 million, after deducting the underwriting discounts and commissions and estimated offering expenses, or $20.7 million if the underwriters exercise their over-allotment option to purchase shares and/or warrants in full.
We intend to use the net proceeds of this offering for the repayment of certain debt and other obligations, for the deployment of charging stations, to expand our product offerings, to add additional staff in the areas of finance, sales, and engineering, and for general working capital purposes.
We currently expect to use the net proceeds of this offering primarily for the following purposes:
| ● | approximately $3.3 million for the repayment of certain debt and other obligations including (i) $542,567 in principal and interest owed pursuant to convertible notes issued to an entity controlled by Michael D. Farkas, our Executive Chairman, that are currently past due. The interest rate is 18%. The Company used the proceeds of these convertible notes for working capital; (ii) $2,500,100 owed to JMJ (not including the original issue discount of approximately 6% which we owe and which equals, as of June 26, 2017, approximately $150,000) with no interest rate and a maturity date of the earlier of July 15, 2017 or the third business day after the closing of this offering. The Company used the proceeds of the loans from JMJ for working capital; (iii) placement agent and legal fees of approximately $125,000 related to the JMJ Financing (of which $22,000 will be paid to Joseph Gunnar & Co., LLC, the representative of the underwriters of this offering, and $58,000 will be paid to Ardour, an entity of which Mr. Farkas owns less than 5%); and (iv) $50,000 owed to Chase Mortgage, Inc., pursuant to the Third Amendment to Secured Convertible Promissory Note dated November 9, 2015 with a monthly interest rate of 1.5% that is currently past due. The original Secured Convertible Promissory Note, dated as of November 13, 2014 was also amended February 20, 2015 and May 1, 2015. | |
| ● | approximately $4.0 million for the deployment of charging stations; | |
| ● | approximately $1.0 million to expand our product offerings including but not limited to completing the research and development, as well as the launch of our next generation of EV charging equipment; | |
| ● | approximately $3.0 million to add additional staff in the areas of finance, sales, customer support , and engineering; | |
| ● | the remainder for working capital and other general corporate purposes. |
We believe that the expected net proceeds from this offering and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations for at least the next two years, although we cannot assure you that this will occur.
The amount and timing of our actual expenditures will depend on numerous factors, including the status of our development efforts, sales and marketing activities and the amount of cash generated or used by our operations. We may find it necessary or advisable to use portions of the proceeds for other purposes, and we will have broad discretion and flexibility in the application of the net proceeds. Pending these uses, the proceeds will be invested in short-term bank deposits.
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MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market and Other Information
Our Common Stock is quoted on the OTC Pink Current Information Marketplace under the trading symbol “CCGI”. We intend to apply to the NASDAQ to list our Common Stock under the symbol “BLNK” and our warrants under the symbol “BLNKW.”
As of June 26, 2017, there were approximately 210 holders of record of our Common Stock. The last reported sale price of our Common Stock on June 26 , 2017 on the OTC Pink Current Information Marketplace was $9.25 per share, giving effect the Reverse Stock Split.
The following table sets forth, for the periods indicated, the high and low bid prices per share for our Common Stock as reported by the relevant OTC quotation service. These bid prices represent prices quoted by broker-dealers on the relevant OTC quotation service. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions. These prices have all been adjusted to give effect to the Reverse Stock Split.
| Quarter ended | High | Low | ||||||
| April 1, 2017 through June 26 , 2017 | $ | 10.50 | $ | 8.00 | ||||
| March 31, 2017 | $ | 12.50 | $ | 5.00 | ||||
| December 31, 2016 | $ | 22.00 | $ | 5.50 | ||||
| September 30, 2016 | $ | 30.00 | $ | 13.00 | ||||
| June 30, 2016 | $ | 44.50 | $ | 12.50 | ||||
| March 31, 2016 | $ | 27.50 | $ | 5.00 | ||||
| December 31, 2015 | $ | 12.00 | $ | 4.50 | ||||
| September 30, 2015 | $ | 18.50 | $ | 10.00 | ||||
| June 30, 2015 | $ | 20.50 | $ | 12.50 | ||||
| March 31, 2015 | $ | 24.50 | $ | 15.50 | ||||
Dividend Policy
To date, we have not paid any dividends on our Common Stock and do not anticipate paying any such dividends in the foreseeable future. The declaration and payment of dividends on the Common Stock is at the discretion of our Board and will depend on, among other things, our operating results, financial condition, capital requirements, contractual restrictions or such other factors as our Board may deem relevant. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our Common Stock in the foreseeable future. The payment of cash dividends was prohibited under our Series C Preferred Shares financing agreements with Eventide Gilead Fund (“Eventide”). On February 7, 2017, BLNK Holdings LLC, a Delaware limited liability company (“BLNK”) for which Mr. Farkas has voting power and investment power with regard to this entity’s holdings, bought all of the Company’s securities owned by Eventide and now owns over 75% of the Series C Preferred Shares outstanding. In addition, under the as-amended Certificate of Designation for the Series B Preferred Shares (the “Series B Certificate of Designation”), for so long as any shares of the Series B Preferred Shares remain outstanding, we are restricted from paying cash dividends on any shares of our capital stock.
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The following table sets forth our consolidated cash and capitalization as of March 31, 2017. Such information is set forth on the following basis: |
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| ● | On an actual basis. | |
| On a pro forma basis, giving effect to | ||
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(1) the sale by us to JMJ of a Promissory Note in the amount of approximately $1.8 million offset by the Promissory Note discounts and issuance costs of:
(A) Common Stock purchase warrants for 51,574 shares of Common Stock issued to JMJ with an estimated fair value of $230,263 using the multi-nomial lattice pricing model based upon: (i) an expected life of 1.53 – 4.25 years; (ii) estimated volatility of 149.3%; (iii) annual rate of expected dividends of 0%; (iv) a risk free interest rate of 1.50%; and (v) an estimated exercise price of $35.00;
(B) the placement agent cash fees of $195,510 and warrants to purchase 5,157 shares of Common Stock with an estimated fair value of $23,022 using the multi-nomial lattice pricing model based upon: (i) an expected life of 1.53 – 4.25 years; (ii) estimated volatility of 149.3%; (iii) annual rate of expected dividends of 0%; (iv) a risk free interest rate of 1.50%; and (v) an estimated exercise price of $35.00. Such fees and warrants were issued in connection with the JMJ Financing; and
(C) Subsequent to March 31, 2017, the Company received an additional $695,000 from JMJ, issued to JMJ an additional 19,857 warrant shares valued at $39,899, became obligated to issue Origination Shares valued at $333,600, incurred additional placement fee issuance costs of approximately $69,000, an additional $168,000 of deferred issuance associated with the default conversion feature of the borrowings and incurred additional original issue discount of approximately $72,000.
(2) On May 8, 2017, the Company issued 61,740 Series C Preferred Shares to settle liabilities totaling $6,155,489 for the accrued public information fee, dividend payable, and registration rights penalty liabilities.
(3) On May 8, 2017, the Company issued 21,166 shares of Common Stock in settlement of $386,900 in various accrued expenses (including payments to a business development consultant, a law firm engaged for representation of the Company during the ECOtality bankruptcy, an accounting firm, and a sales agent).
(4) On May 18, 2017, each of 350 Green and Green 350 Trust Mortgage LLC filed to commence an assignment for the benefit of creditors in the state of Michigan, which results in their residual assets being controlled by an assignee in a judicial proceeding. As a result, as of May 18, 2017, 350 Green is no longer a variable interest entity of the Company and, accordingly, 350 Green’s approximately $3.7 million of liabilities will, as of June 30, 2017, be deconsolidated from the Company’s financial statements. The Company determined that pro forma financial statements are not required to be presented because 350 Green had no operations and no assets. In connection with the matter, the Company paid $71,000 of legal fees. |
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● On a pro forma as adjusted basis, giving effect to the pro forma events above and to the sale by us of 2,162,162 shares of Common Stock in this offering at an assumed public offering price of $9.25 per share, which is the last reported sales price for our Common Stock as reported on the OTC Pink Current Information Marketplace on June 26, 2017, as adjusted to reflect the Reverse Stock Split, after deducting sales agents’ discounts and commissions and estimated offering expenses and the following:
(1) As of June 26, 2017, the Company received agreements signed by certain holders of outstanding warrants to purchase Common Stock, pursuant to which at the closing of this offering, with regard to warrants to purchase 633,407 warrant shares will convert into 411,638 shares of Common Stock, based on the assumed public offering price per share of $9.25, as adjusted to reflect the Reverse Stock Split. The issuance of these 411,638 shares will result in an inducement charge of approximately $2.4 million and reduce derivative liabilities by approximately $1.86 million.
(2) On June 23, 2017, the two holders of the Series A Preferred Shares signed letter agreements pursuant to which, at the closing of this offering, 11,000,000 Series A Preferred Shares will convert into 2,200,000 shares of Common Stock. Pursuant to the original terms of the Series A Preferred Shares, the conversion price of the Series A Preferred Shares is not impacted by a reverse stock split such that the holders would have been entitled to 27,500,000 shares of Common Stock on a post-split basis. The Company recorded the contingent beneficial conversion feature with a value of $1,000,000 as a deemed dividend by recording an offsetting debit and credit to additional paid-in capital because the Company has an accumulated deficit. On May 19, 2017, the holder of the Series B Preferred Shares signed a conversion agreement pursuant to which, at the closing of this offering, 8,250 Series B Preferred Shares will, at the closing of this offering, convert into 102,568 shares of Common Stock which will result in an inducement charge of approximately $120,000. During May and June 2017, the holders of the Series C Preferred Shares signed letter agreements pursuant to which, at the closing of this offering, 204,164 Series C Preferred Shares will, at the closing of this offering, convert into 3,172,824 shares of Common Stock. The above number of shares are based on an assumed public offering price of $9.25, as adjusted to reflect the Reverse Stock Split. The conversion of the Series C Preferred Shares resulted in a deemed dividend of approximately $24.9 million which was recognized by recording an offsetting debit and credit to additional paid-in capital because the Company has an accumulated deficit.
(3) Pursuant to drag-along rights under the Series C Amendment expected to be filed following the expected approval by the majority holder of the Series C Preferred Shares (an entity affiliated with Mr. Farkas), 8,003 Series C Preferred Shares will convert into 124,371 shares of Common Stock which is equal to 8,003 Series C Preferred Shares (i) multiplied by a factor of 115 (ii) divided by the assumed public offering price per share of $9.25,, as adjusted to reflect the Reverse Stock Split, (iii) multiplied by 80%. The conversion of the Series C Preferred Shares resulted in a deemed dividend of approximately $0.9 million which was recognized by recording an offsetting debit and credit to additional paid-in capital because the Company has an accumulated deficit..
(4) At the closing of this offering, the Company will repay: (i) $542,567 in principal and interest owed pursuant to convertible notes issued to an entity controlled by our Executive Chairman, Mr. Farkas; (ii) $2,500,100 to JMJ related to funding provided under the JMJ convertible financing (not including the original issue discount of approximately 6% which we owe and which equals, as of June 26, 2017, approximately $150,000); and (iii) placement agent and legal fees of approximately $125,000 related to the JMJ Financing (of which $22,000 will be paid to Joseph Gunnar & Co., LLC, the representative of the underwriters of this offering, and $58,000 will be paid to Ardour). See “Use of Proceeds” section on page 29.
(5) Concurrent with the closing of the offering, the Company will pay the former principals of 350 Green LLC $25,000 and $50,000 within 60 days thereafter in settlement of a $360,000 debt (inclusive of imputed interest) in accordance with a Settlement Agreement between the parties dated August 21, 2015.
(6) Concurrent with the closing of the offering, the Company will issue 15,359 shares of Common Stock to three employee Board members in settlement and consideration of services rendered during the period of April 1, 2016 through March 31, 2017.
(7) Concurrent with the closing of this offering, the Company will charge $617,000 against additional paid-in capital related to offering costs that have been deferred.
(8) On June 8, 2017, the Company entered into a settlement agreement with former external legal counsel to settle $475,394 in payables owed for legal services as of March 31, 2017 for $100,000 in consideration: (a) $25,000 to be paid in cash at the closing of this offering; and (b) $75,000 in the form of shares of Common Stock issuable upon the closing of this offering. As a result, the Company will show a $375,395 reduction in liabilities.
(9) The Company will issue 129,735 Origination Shares valued at $1,200,048, after the closing of this offering to JMJ pursuant to the Purchase Agreement.
(10) On June 13, 2017, the Company entered into an agreement with ITT Canon LLC whereby the Company reached a settlement regarding, as of March 31, 2017, an accrued liability of $175,000. The Company will issue 21,622 shares of Common Stock at the closing of this offering.
|
||
| The pro forma information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and the related notes appearing elsewhere in this prospectus. | ||
| - 31 - |
|
Actual
(unaudited) |
Pro
Forma
(unaudited) |
Pro
Forma As
(unaudited) |
||||||||||
| Cash and cash equivalents | $ | 2,988 | $ | 626,988 | $ | 15,359,366 | ||||||
| Total indebtedness | 25,810,215 | 16,301,236 | 9,852,459 | |||||||||
| Series B Convertible Preferred Shares, 10,000 shares designated, 8,250 shares issued and outstanding as of December 31, 2016 | 825,000 | 825,000 | 0 | |||||||||
| Stockholders’ Deficiency: | ||||||||||||
| Preferred shares, $0.001 par value, 40,000,000 shares authorized; | ||||||||||||
| Series A Convertible Preferred Shares, 20,000,000 shares designated, 11,000,000 shares issued and outstanding as of March 31, 2017 and December 31, 2016 | 11,000 | 11,000 | 0 | |||||||||
| Series C Convertible Preferred Shares, 250,000 shares designated, 150,426 shares issued and outstanding as of March 31, 2017 and December 31, 2016 | 150 | 212 | 0 | |||||||||
| Common Stock, $0.001 par value, 500,000,000 shares authorized, 1,609,531 and 1,592,415 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively | 1,610 | 1,631 | 9,971 | |||||||||
| Additional paid-in capital | 63,359,243 | 73,635,711 | 93,589,188 | |||||||||
| Accumulated deficit | (84,169,514 | ) | (88,144,400 | ) | (86,706,287 | ) | ||||||
| Non-controlling interest | (3,831,314 | ) | 0 | 0 | ||||||||
| Total Stockholders’ Deficiency | $ | (24,628,825 | ) | $ | (14,495,846 | ) | $ | 6,892,872 | ||||
The outstanding historical share information in the table above is based on Common Stock outstanding as of March 31, 2017 and excludes as of such date the following:
| (i) | Preferred Shares |
| a. | 11,000,000 Series A Preferred Shares, issued and outstanding as of March 31, 2017, as if converted into 27,500,000 shares of Common Stock; | |
| b. |
8,250 Series B Preferred Shares, issued and outstanding as of March 31, 2017, as if converted into 85,490 shares of Common Stock; and |
|
| c. | 150,426 Series C Preferred Shares, issued and outstanding as of March 31, 2017, as if converted into 429,789 shares of Common Stock. |
| (ii) |
outstanding options to purchase an aggregate of 148,234 shares of our Common Stock, with a weighted-average exercise price of approximately $58.00 per share, under our equity compensation plans; |
| (iii) |
3,778,225 shares of our Common Stock issuable upon exercise of outstanding warrants which included 778,225 shares at a weighted average exercise price of $55.92 per share and 3,000,000 warrant shares owned by FGI not subject to the Reverse Stock Split at a weighted average exercise price of $0.70 (such exercise price is also not subject to the Reverse Stock Split); |
A $1.00 increase (decrease) in the assumed public offering price of $9.25, the last reported sales price for our Common Stock as reported on the OTC Pink Current Information Marketplace on June 26, 2017, as adjusted to reflect the Reverse Stock Split, would increase (decrease) each of cash, total shareholders’ equity and total capitalization by approximately $1.9 million, assuming the number of shares of Common Stock and warrants we are offering in this offering, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discount and estimated offering expenses payable by us. We may also increase or decrease the number of shares of Common Stock and warrants we are offering in this offering. Each increase (decrease) of 500,000 shares of Common Stock and warrants we are offering would increase (decrease) each of cash, total shareholders’ equity and total capitalization from this offering by approximately $4.2 million, assuming the assumed public offering price remains the same, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.
| - 32 - |
If you invest in our securities, your investment will be diluted immediately to the extent of the difference between the public offering price per share of Common Stock you pay in this offering, and the pro forma net tangible book value per share of Common Stock immediately after this offering.
Net tangible book value (deficit) per share represents the amount of our total tangible assets reduced by our total liabilities, divided by the outstanding shares of Common Stock. Tangible assets equal our total assets less intangible assets. As of March 31, 2017, our actual net tangible deficit value was $(25.4) million and our net tangible book deficit per share was $(15.76).
Our pro forma net tangible book value (deficit) of our Common Stock as of March 31, 2017 was $(15.2) million, or $(9.34) per share. Pro forma net tangible book value (deficit) represents pro forma total tangible assets less pro forma total liabilities and pro forma net tangible book value (deficit) per share represents pro forma net tangible book value divided by the total number of shares outstanding as of March 31, 2017, each after giving effect to:
(1) the sale by us to JMJ of a Promissory Note in the amount of approximately $1.8 million offset by the Promissory Note discounts and issuance costs of:
(A) Common Stock purchase warrants for 51,574 shares of Common Stock issued to JMJ with an estimated fair value of $230,263 using the multi-nomial lattice pricing model based upon: (i) an expected life of 1.53 – 4.25 years; (ii) estimated volatility of 149.3%; (iii) annual rate of expected dividends of 0%; (iv) a riskfree interest rate of 1.50%; and (v) an estimated exercise price of $35.00;
(B) placement agent cash fees of $195,510 and warrants to purchase 5,157 shares of Common Stock with an estimated fair value of $23,022 using the multi-nomial lattice pricing model based upon: (i) an expected life of 1.53 – 4.25 years; (ii) estimated volatility of 149.3%; (iii) annual rate of expected dividends of 0%; (iv) a riskfree interest rate of 1.50%; and (v) an estimated exercise price of $35.00. Such fees and warrants were issued in connection with the JMJ Financing; and
(C) Subsequent to March 31, 2017, the Company received an additional $695,000 from JMJ, issued to JMJ an additional 19,857 warrant shares valued at $39,899, became obligated to issue Origination Shares valued at $333,600, incurred additional placement fee issuance costs of approximately $69,000, an additional $168,000 of deferred issuance associated with the default conversion feature of the borrowings and incurred additional original issue discount of approximately $72,000.
(2) On May 8, 2017, the Company issued 61,740 Series C Preferred Shares to settle liabilities totaling $6,155,489 for the accrued public information fee, dividend payable, and registration rights penalty liabilities.
(3) On May 8, 2017, the Company issued 21,166 shares of Common Stock in settlement of $386,900 in various accrued expenses (including payments to a business development consultant, a law firm engaged for representation of the Company during the ECOtality bankruptcy, an accounting firm, and a sales agent).
(4) On May 18, 2017, each of 350 Green and Green 350 Trust Mortgage LLC filed to commence an assignment for the benefit of creditors in the state of Michigan, which results in their residual assets being controlled by an assignee in a judicial proceeding. As a result, as of May 18, 2017, 350 Green is no longer a variable interest entity of the Company and, accordingly, 350 Green’s approximately $3.7 million of liabilities will, as of June 30, 2017, be deconsolidated from the Company’s financial statements. The Company determined that pro forma financial statements are not required to be presented because 350 Green had no operations and no assets. In connection with the matter, the Company paid $71,000 of legal fees.
A pro forma as adjusted basis, giving effect to the pro forma events above and for the sale by us of 2,162,162 shares of Common Stock in this offering at an assumed public offering price of $9.25 per share, which is the last reported sales price for our Common Stock as reported on the OTC Pink Current Information Marketplace on June 26, 2017, as adjusted to reflect the Reverse Stock Split, after deducting sales agents’ discounts and commissions and estimated offering expenses, and the following:
(1) As of June 26, 2017, the Company received agreements signed by certain holders of outstanding warrants to purchase Common Stock, pursuant to which at the closing of this offering, warrants to purchase an aggregate of 633,407 warrant shares will convert into 411,638 shares of Common Stock, based on the assumed public offering price per share of $9.25, as adjusted to reflect the Reverse Stock Split. The issuance of these 411,638 shares will result in an inducement charge of approximately $2.4 million and reduce derivative liabilities by approximately $1.86 million.
(2) On June 23, 2017, the two holders of the Series A Preferred Shares signed letter agreements pursuant to which, at the closing of this offering, 11,000,000 Series A Preferred Shares will convert into 2,200,000 shares of Common Stock. Pursuant to the original terms of the Series A Preferred Shares, the conversion price of the Series A Preferred Shares is not impacted by a reverse stock split such that the holders would have been entitled to 27,500,000 shares of Common Stock on a post-split basis. The Company recorded the contingent beneficial conversion feature with a value of $1,000,000 as a deemed dividend by recording an offsetting debit and credit to additional paid-in capital because the Company has an accumulated deficit. On May 19, 2017, the holder of the Series B Preferred Shares signed a conversion agreement pursuant to which, at the closing of this offering, 8,250 Series B Preferred Shares will, at the closing of this offering, convert into 102,568 shares of Common Stock which will result in an inducement charge of approximately $120,000. During May and June 2017, the holders of the Series C Preferred Shares signed letter agreements pursuant to which, at the closing of this offering, 204,164 Series C Preferred Shares will, at the closing of this offering, convert into 3,172,824 shares of Common Stock. The above number of shares are based on an assumed public offering price of $9.25, as adjusted to reflect the Reverse Stock Split. The conversion of the Series C Preferred Shares resulted in a deemed dividend of approximately $24.9 million which was recognized by recording an offsetting debit and credit to additional paid-in capital because the Company has an accumulated deficit.
(3) Pursuant to drag-along rights under the Series C Amendment expected to be filed following the expected approval by the majority holder of the Series C Preferred Shares (an entity affiliated with Mr. Farkas), 8,003 Series C Preferred Shares will convert into 124,371 shares of Common Stock which is equal to 8,003 Series C Preferred Shares (i) multiplied by a factor of 115 (ii) divided by the assumed public offering price per share of $9.25,, as adjusted to reflect the Reverse Stock Split, (iii) multiplied by 80%. The conversion of the Series C Preferred Shares resulted in a deemed dividend of approximately $0.9 million which was recognized by recording an offsetting debit and credit to additional paid-in capital because the Company has an accumulated deficit.
(4) At the closing of this offering, the Company will repay: (i) $542,567 in principal and interest owed pursuant to outstanding convertible notes issued to an entity controlled by our Executive Chairman, Mr. Farkas; (ii) $2,500,100 to JMJ related to funding provided under the JMJ convertible financing (not including the original issue discount of approximately 6% which we owe and which equals, as of June 26, 2017, approximately $150,000); and (iii) placement agent and legal fees of approximately $125,000 related to the JMJ Financing (of which $22,000 will be paid to Joseph Gunnar & Co., LLC, the representative of the underwriters of this offering, and $58,000 will be paid to Ardour). See “Use of Proceeds” section on page 29.
(5) Concurrent with the closing of the offering, the Company will pay the former principals of 350 Green LLC $25,000 and $50,000 within 60 days thereafter in settlement of a $360,000 debt (inclusive of imputed interest) in accordance with a Settlement Agreement between the parties dated August 21, 2015.
(6) Concurrent with the closing of the offering, the Company will issue 15,359 shares of Common Stock to three employee Board members in settlement and consideration of services rendered during the period of April 1, 2016 through March 31, 2017.
(7) Concurrent with the closing of this offering, the Company will charge $617,000 against additional paid-in capital related to offering costs that have been deferred.
(8) On June 8, 2017, the Company entered into a settlement agreement with former external legal counsel to settle $475,394 in payables owed for legal services as of March 31, 2017 for $100,000 in consideration: (a) $25,000 to be paid in cash at the closing of this offering; and (b) $75,000 in the form of shares of Common Stock issuable upon the closing of this offering. As a result, the Company will show a $375,395 reduction in liabilities.
(9) The Company will issue 129,735 Origination Shares valued at $1,200,048, after the closing of this offering to JMJ pursuant to the Purchase Agreement.
(10) On June 13, 2017, the Company entered into an agreement with ITT Canon LLC whereby the Company reached a settlement regarding, as of March 31, 2017, an accrued liability of $175,000. The Company will issue 21,622 shares of Common Stock at the closing of this offering.
After giving effect to the sale of shares of Common Stock at the assumed public offering price of $9.25 per share, and after deducting the underwriting discount and commission and estimated offering expenses, our pro forma, as adjusted net tangible book value (deficit) as of March 31, 2017 would have been $6.8 million, or $0.68 per share. This represents an immediate increase in pro forma net tangible book value (deficit) of $32.1 million to existing stockholders and immediate dilution of $8.57 per share to new investors purchasing shares in the offering.
The following table illustrates this per share dilution and is calculated on a pro forma basis, giving effect to the conversion of 212,167 Series C Preferred Shares into 3,297,195 shares of Common Stock; the conversion of 633,407 warrant shares into 411,638 shares of Common Stock; and 8,250 Series B Preferred Shares into 102,568 shares of Common Stock.
| Assumed public offering price per share | $ | 9.25 | ||||||
| Historical net tangible book value (deficit) per share as of March 31, 2017 | $ | (15.76 | ) | |||||
| Pro Forma increase in net tangible book value (deficit) as of March 31, 2017 | $ | 6.42 | ||||||
| Pro forma net tangible book value (deficit) as of March 31, 2017 | $ | (9.34 | ) | |||||
| Pro Forma as adjusted increase in net tangible book value (deficit) as of March 31, 2017 | $ |
10.02 |
||||||
| Pro forma, as adjusted, net tangible book value (deficit) per share as of March 31, 2017 | $ | 0.68 | ||||||
| Dilution per share to new investors in this offering | $ | 8.57 |
If the underwriter’s overallotment option is exercised in full, our pro forma as adjusted net tangible book value per share following this offering will be $0.92 per share, which amount represents an immediate increase in net tangible book value of $10.26 per share of our Common Stock to existing shareholders and an immediate dilution in net tangible book value of $8.33 per share of our Common Stock to new investors purchasing shares in this offering.
The outstanding historical share information in the table above is based on Common Stock outstanding as of March 31, 2017 and excludes as of such date the following:
| (i) | Preferred Shares: |
| a. |
11,000,000 Series A Preferred Shares, issued and outstanding as of March 31, 2017, as if converted into 27,500,000 shares of Common Stock; |
|
| b. |
8,250 Series B Preferred Shares, issued and outstanding as of March 31, 2017, as if converted into 85,490 shares of Common Stock; and |
|
| c. |
150,426 Series C Preferred Shares, issued and outstanding as of March 31, 2017, as if converted into 429,789 shares of Common Stock. |
| (ii) | outstanding options to purchase an aggregate of 148,234 shares of our Common Stock, with a weighted-average exercise price of approximately $58.00 per share, under our equity compensation plans; and |
| (iii) | 3,778,225 shares of our Common Stock issuable upon exercise of outstanding warrants of which 778,225 shares are at a weighted average exercise price of $55.90 per share and 3,000,000 warrant shares owned by FGI not subject to the Reverse Stock Split at a weighted average exercise price of $0.70 (such exercise price is also not subject to the Reverse Stock Split). |
A $1.00 increase or decrease in the assumed public offering price per share would increase or decrease our pro forma as adjusted net tangible book value per share after this offering by approximately $0.04 per share, and increase or decrease the dilution per share to new investors by approximately $0.96 per share, assuming the number of shares of Common Stock offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the underwriting discount and estimated offering expenses payable by us.
If any Common Stock are issued upon exercise of outstanding options or warrants or conversion of outstanding Series A, B or C Preferred Shares, you may experience further dilution.
| - 33 - |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the “Summary Statements of Operations Data” and our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements reflecting our management’s current expectations that involve risks, uncertainties and assumptions. Our actual results and the timing of events may differ materially from those described in or implied by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this prospectus particularly on page 9 entitled “Risk Factors”.
Overview
We are a leading owner, operator, and provider of electric vehicle (“EV”) charging equipment and networked EV charging services. We offer both residential and commercial EV charging equipment, enabling EV drivers to easily recharge at various location types.
Our principal line of products and services is our Blink EV charging network (the “Blink Network”) and EV charging equipment (also known as electric vehicle supply equipment) and EV related services. Our Blink Network is proprietary cloud-based software that operates, maintains, and tracks all of the Blink EV charging stations and the associated charging data. The Blink Network provides property owners, managers, and parking companies, who we refer to as our Property Partners, with cloud-based services that enable the remote monitoring and management of EV charging stations, payment processing, and provide EV drivers with vital station information including station location, availability, and applicable fees.
We offer our Property Partners a flexible range of business models for EV charging equipment and services. In our comprehensive and turnkey business model, we own and operate the EV charging equipment, manage the installation, maintenance, and related services, and share a portion of the EV charging revenue with the property owner. Alternatively, Property Partners may share in the equipment and installation expenses, with CarCharging operating and managing the EV charging stations and providing connectivity to the Blink Network. For Property Partners interested in purchasing and owning EV charging stations that they manage, we can also provide EV charging hardware, site recommendations, connectivity to the Blink Network, and service and maintenance services.
As reflected in our unaudited condensed consolidated financial statements for the three months ended March 31, 2017, we had had a cash balance, a working capital deficiency and an accumulated deficit of $2,988, $18,989,258 and $84,169,514, respectively. During the three months ended March 31, 2017, we incurred a net loss of $3,097,732. These factors raise substantial doubt about our ability to continue as a going concern, as expressed in the notes to our unaudited condensed consolidated financial statements. Historically, we have been able to raise funds to support our business operations, although there can be no assurance we will be successful.
Through April 16, 2014, 350 Green was our wholly-owned subsidiary in which we had full control and the Company was consolidated. Beginning on April 17, 2014, when 350 Green’s assets and liabilities were transferred to a trust mortgage, 350 Green became a Variable Interest Entity (“VIE”). The consolidation guidance relating to accounting for VIEs requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE and perform ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE. We had determined that our Company was the primary beneficiary of 350 Green, and as such, 350 Green’s assets, liabilities and results of operations were included in our unaudited condensed consolidated financial statements. On May 18, 2017, each of 350 Green and Green 350 Trust Mortgage LLC filed to commence an assignment for the benefit of creditors, which results in their residual assets being controlled by an assignee in a judicial proceeding. As a result, as of May 18, 2017, 350 Green is no longer a VIE of the Company and, accordingly, 350 Green’s approximately $3.7 million of liabilities will, as of June 30, 2017, be deconsolidated from the Company’s financial statements.
| - 34 - |
Consolidated Results of Operations
Three Months Ended March 31, 2017 Compared With March 31 Ended March 31, 2016
Revenues
Total revenue for the three months ended March 31, 2017 was $595,620 compared to $840,137, a decline of $244,517, or 29%. The decline is primarily attributed to a $136,618, or 47%, decline in product sales that decreased to $153,587 for the three months ended March 31, 2017 compared to $290,205 for the three months ended March 31, 2016. The decrease was primarily due to lower volume of residential and commercial units sold during the three months ended March 31, 2017. In addition, the decline is attributed to a $66,970, or 29%, decline in grants and rebates revenue that decreased to $32,810 for the three months ended March 31, 2017 compared to $99,780 for the three months ended March 31, 2016. Grants and rebates relating to equipment and the related installation are deferred and amortized in a manner consistent with the depreciation expense of the related assets over their useful lives. The ability to secure grant revenues is typically unpredictable and, therefore, uncertain.
Charging service revenue company-owned charging stations was $267,874 for the three months ended March 31, 2017 compared to $292,743 for the three months ended March 31, 2016, a slight decrease of $24,869, or 8%. Charging services derived from revenue company-owned charging stations increased, despite a $54,099 decrease in revenue from a program sponsored by Nissan North America (called No Charge to Charge and currently still active) that the Company has participated in since July 2014. The Program Coordinator pays the Company based on the number of program participants and the percentage of DC Fast Chargers in the program. Starting in July 2015, the private company participating in this program began adding chargers to the program and we no longer were able to generate as much revenue from the percentage of chargers we have in the program. We expect revenues derived from this program during the balance of 2017 to continue to be lower than the revenues we derived from this program in the same periods in 2016.
Total revenue from warranty revenue, network fees and other revenue was $141,349 for the three months ended March 31, 2017, as compared to $157,409 for the three months ended March 31, 2016, a decrease of $16,060, or 10%. The decrease is primarily attributable to a decrease in non-company owned fee generating units on our network during the three months ended March 31, 2017 as compared to the three months ended March 31, 2016, partially offset by an increase in maintenance contracts entered into by the Company as compared to the prior period.
Cost of Revenues
Cost of revenues primarily consists of depreciation of installed charging stations, amortization of the Blink Network infrastructure, the cost of charging station goods and related services sold, repairs and maintenance, electricity reimbursements and revenue share payments to hosts when we are the primary obligor in the revenue share arrangement. Cost of revenues for the three months ended March 31, 2017 were $432,407 as compared to $746,775 for the three months ended March 31, 2016. The decrease is primarily attributable to a decrease of $158,032, or 50%, in total cost of revenues in connection with cost of charging services, host provider fees and cost of product sales primarily due to a decrease in charging service revenues and equipment sales, with margins remaining consistent as compared to the prior period, as well as a reduction in depreciation and amortization expense that declined to $112,153 for the three months ended March 31, 2017 as compared to $202,104 for the three months ended March 31, 2016, as the underlying assets became fully depreciated since the 2016 period. There is a degree of variability in our gross margins related to charging services revenues from period to period primarily due to (i) the mix of revenue share payment arrangements, (ii) electricity reimbursements, and (iii) the costs of maintaining charging stations not currently in operation. Any variability in our gross margins related to equipment sales depends on the mix of products sold.
| - 35 - |
Operating Expenses
Operating expenses consist of selling, marketing, advertising, payroll, administrative, finance and professional expenses.
Compensation expense decreased by $466,422, or 32%, from $1,463,779 (consisting of approximately $0.9 million of cash compensation and approximately $0.6 million of non-cash compensation) for the three months ended March 31, 2016 to $997,357 (consisting of approximately $0.8 million of cash compensation and approximately $0.2 million of non-cash compensation) for the three months ended March 31, 2017. The decrease was primarily attributable reduced payroll expenses of approximately $180,000 due to the departure of certain management and other personnel during the second half of 2016 and a reduction in non-cash compensation of approximately $400,000 (which includes a $201,000 reduction of stock-based compensation expense related to share-based payments made to our Chief Operating Officer during the three months ended March 31, 2016 under the terms of his employment agreement.)
Other operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $101,862, or 30%, from $344,803 for the three months ended March 31, 2016 to $242,941 for the three months ended March 31, 2017. The decrease was primarily attributable to decreased call center expenses as the Company inaugurated their own internal call center in Phoenix, Arizona during 2016 and reduced travel and third party IT expenses as compared to the prior period.
General and administrative expenses increased by $44,804, or 17%, from $268,904 for the three months ended March 31, 2016 to $313,708 for the three months ended March 31, 2017. The increase was primarily due to increased legal and consulting fees as compared to the three months ended March 31, 2016, partially offset by a general reduction in other expenditures due to cash constraints.
During the three months ended March 31, 2017, we incurred lease termination costs of $300,000 which represents the fair value of our remaining under our lease agreement.
Other Expense
Other expense decreased by $1,009,729, or 42%, from $2,416,668 for the three months ended March 31, 2016 to $1,406,939 for the three months ended March 31, 2017. The decrease was primarily attributable to a decrease in the change of the fair value of warrant liabilities of $1,550,119, or 77%, from $2,014,408 for the three months ended March 31, 2016 to $464,289 for the three months ended March 31, 2017, partially offset by an increase in amortization of discount on convertible notes of $614,901.
Net Loss
Our net loss for the three months ended March 31, 2017 decreased by $1,303,060, or 30%, to $3,097,732 as compared to $4,400,792 for the three months ended March 31, 2016. The decrease was primarily attributable to a decrease in operating expenses of $223,480 and other expenses of $1,009,729, partially offset by an increase in gross profit of $69,851. Our net loss attributable to Common Stock holders for the three months ended March 31, 2017 decreased by $866,560, or 18%, from $4,719,192 to $3,852,632 for the aforementioned reasons and due to an increase in the dividend attributable to Series C Preferred Shares of $436,500.
Year Ended December 31, 2016 Compared With Year Ended December 31, 2015
Revenues
Total revenue for the year ended December 31, 2016 was $3,326,021 compared to $ 3,957,795, a decline of $631,774 or 16%. The decline is primarily attributed to an $836,477 decline in grants and rebates revenue that decreased to $332,672, or 72% for the year ended December 31, 2016 compared to $1,169,149 for the year ended December 31, 2015. Grants and rebates relating to equipment and the related installation are deferred and amortized in a manner consistent with the depreciation expense of the related assets over their useful lives. Our grant revenue during the 2014 and 2015 fiscal years was primarily derived from our agreement with the Bay Area Air Quality Management District (the “BAAQMD”). Our agreement with the BAAQMD ended on December 31, 2015. Although we are not currently receiving funding under the grant, we are recognizing the funding received as revenue over the lives of the chargers to which they pertained.
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Charging service revenue company-owned charging stations was $1,144,016 for the year ended December 31, 2016 compared to $1,074,163 for the year ended December 31, 2015, a slight increase of $69,853 or 7%. Charging services derived from revenue company-owned charging stations increased, despite a $155,940 decrease in revenue from a program sponsored by Nissan North America (called No Charge to Charge and currently still active) , that the Company has participated in since July 2014. The Program Coordinator pays the Company based on the number of program participants and the percentage of DC Fast Chargers in the program. Starting in July 2015, the private company participating in this program began adding chargers to the program and we no longer were able to generate as much revenue from the percentage of chargers we have in the program. We expect revenues derived from this program during the balance of 2017 to continue to be lower than the revenues we derived from this program in the same periods in 2016.
Revenue from product sales was $1,126,939 for the year ended December 31, 2016 compared to $805,143 for the year ended December 31, 2015, an increase of $321,796 or 40%. The increase was primarily due to a higher volume of residential and commercial units sold in 2016.
Total revenue from warranty revenue, network fees and other revenue was $722,394 for the year ended December 31, 2016, compared to $909,340 the year ended December 31, 2015 a decrease of $186,946, or 21%. The decrease is attributed to a one-time gain of $209,086 associated with the settlement of accounts payable related to network fees.
Cost of Revenues
Cost of revenues primarily consists of depreciation of installed charging stations, amortization of the Blink Network infrastructure, the cost of charging station goods and related services sold, repairs and maintenance, electricity reimbursements and revenue share payments to hosts when we are the primary obligor in the revenue share arrangement. Cost of revenues for the year ended December 31, 2016 were $2,813,680 as compared to $2,861,738 for the year ended December 31, 2015, a decrease of $48,058, or 2%, primarily due to a reduction in warranty and repair costs that declined to $346,477 for year ended December 31, 2016 compared to $671,474 for the year ended December 31, 2015. There is a degree of variability in our gross margins related to charging services revenues from period to period primarily due to (i) the mix of revenue share payment arrangements, (ii) electricity reimbursements, and (iii) the costs of maintaining charging stations not currently in operation. Any variability in our gross margins related to equipment sales depends on the mix of products sold.
Gross Profit
The gross profit for the year ended December 31, 2016, was $512,341 compared to $1,096,057 for the year ended December 31, 2015, a decrease of $583,716. The reduction in gross profit contribution is largely attributed to a year over year reduction in grant and rebate revenue of $836,477. For the year ended December 31, 2016, the gross profit contribution from company-owned charging stations defined as charging service revenue from company-owned charging stations less cost of charging services- company-owned charging stations less host provider fees was $495,587 or 43% compared to $562,979 or 52% for the year ended December 31, 2015. The reduction in gross profit contribution from company-owned charging stations is attributed to the reduction in revenue from a program sponsored by Nissan North America (called No Charge to Charge and currently still active ) that the Company has participated in since July 2014.
Gross Profit from product sales defined as product sales less cost of equipment sales was $625,210 or 55% for the year ended December 31, 2016, compared to $434,217 or 54% for the year ended December 31, 2015 an improvement of $190,993. Management anticipates that product sales attributed to the launch of the Company’s next generation charging stations targeted in the second half of 2017 will contribute to increased gross profit from product sales.
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Operating Expenses
Operating expenses consist of selling, marketing, advertising, payroll, administrative, finance and professional expenses.
Compensation expense decreased by $3,320,634, or 40%, from $8,200,246 (consisting of approximately $4.3 million of cash compensation and approximately $3.9 million of non-cash compensation) for the year ended December 31, 2015 to $4,879,612 (consisting of approximately $4.1 million of cash compensation and approximately $0.8 million of non-cash compensation) for the year ended December 31, 2016. The decrease was primarily attributable to share-based payments with a fair value of approximately $1,750,000 made to our Chief Operating Officer during the year ended December 31, 2015 under the terms of an employment agreement, as well as reduced payroll expenses of approximately $1,251,000 due to the departure of certain management and other personnel during the second half of 2015.
Other operating expenses consist primarily of rent, travel and IT expenses. Other operating expenses decreased by $211,065, or 13%, from $1,662,748 for the year ended December 31, 2015 to $1,451,683 for the year ended December 31, 2016. The decrease was primarily attributable to decreased call center expenses as the Company inaugurated their own internal call center in Phoenix, Arizona during 2016 and reduced travel expenses as compared to the prior period.
General and administrative expenses decreased by $1,158,903, or 45%, from $2,552,857 for the year ended December 31, 2015 to $1,393,954 for the year ended December 31, 2016. The decrease was primarily due to reduced legal and consulting fees as compared to the year ended December 31, 2015, which was primarily attributable to a greater demand for legal and consulting services during the year ended December 31, 2015.
Other (Expense) Income
Other (expense) income decreased by $3,561,089, or 116%, from other income of $3,074,870 for the year ended December 31, 2015 to other (expense) of $(486,219) for the year ended December 31, 2016. The decrease was primarily attributable to a decrease in the gain of the fair value of warrant liabilities of $2,535,398, or 78%, from $3,262,637 for the years ended December 31, 2015 to $727,239 for the year ended December 31, 2016, partially offset by an increase in a gain of settlements or forgiveness of accounts payable of $780,028. In addition, there was $1,833,896 of income during the year ended December 31, 2015 which related to a notification from the DOE that it had no further property interest in certain direct current fast chargers, which resulted in the release of our liability to the DOE, partially offset by a decrease in the provision for non-compliance penalty for delinquent regular SEC filings of $1,150,674, or 67%, from $1,722,217 for the year ended December 31, 2015 to $571,543 for the years ended December 31, 2016.
Net Loss
Our net loss for the year ended December 31, 2016 decreased by $545,797, or 7%, to $7,699,127 as compared to $8,244,924 for the year ended December 31, 2015. The decrease was primarily attributable to a decrease in operating expenses of $4,690,602 and gross profit of $583,716, partially offset by an increase in other expenses of $3,561,089. Our net loss attributable to Common Stock holders for the year ended December 31, 2016 decreased by $416,997, or 4%, from $9,584,624 to $9,167,627 for the aforementioned reasons and due to an increase in the dividend attributable to holders of Series C Preferred Shares of $518,400 and a decrease in income attributable to our non-controlling interest of $389,600.
Liquidity and Capital Resources
During the three months ended March 31, 2017, we financed our activities from proceeds derived from debt and equity financing. A significant portion of the funds raised from the sale of capital stock have been used to cover working capital needs and personnel, office expenses and various consulting and professional fees.
For the three ended March 31, 2017 and 2016, we used cash of $783,135 and $823,037, respectively, in operations. Our cash use for the three months ended March 31, 2017 was primarily attributable to our net loss of $3,097,732, adjusted for net non-cash expenses in the aggregate amount of $1,477,377, partially offset by $837,220 of net cash provided by changes in the levels of operating assets and liabilities. Our cash use for the three months ended March 31, 2016 was primarily attributable to our net loss of $4,400,792, adjusted for net non-cash expenses in the aggregate amount of $3,188,644 partially offset by $389,111 of net cash provided by changes in the levels of operating assets and liabilities.
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During the three months ended March 31, 2017, cash used in investing activities was $206, which was used to purchase charger cables. Net cash used in investing activities was $5,836 during the three months ended March 31, 2016, which was used to purchase office and computer equipment.
Net cash provided by financing activities for the three months ended March 31, 2017 was $780,431, of which $805,100 was provided in connection with the issuance of convertible notes payable and $47,567 was provided in connection with proceeds from the issuance of notes payable to a related party, partially offset by $24,720 of payment of future offering costs, $39,000 of payment of debt issuance costs, repayment of notes payable of $3,604 and $4,912 of net cash used in connection with bank overdrafts. Cash provided by financing activities for the three months ended March 31, 2016 was $831,566 of which $855,000 of net proceeds (gross proceeds of $900,000 less cash issuance costs of $45,000) were from the sale of Series C Preferred Shares and warrants, partially offset by the repayment of notes payable of $23,434.
Charging service revenue derived from company-owned charging stations was $267,874 for the three months ended March 31, 2017 compared to $292,743 for the three months ended March 31, 2016, a slight decrease of $24,869, or 8%. Charging services revenue derived from company-owned charging stations increased, despite a $54,099 decrease in revenue from a program sponsored by Nissan North America that the Company has participated in since July 2014. The Program Coordinator pays the Company based on the number of program participants and the percentage of DC Fast Chargers in the program. Starting in July 2015, the private company participating in this program began adding chargers to the program and we no longer were able to generate as much revenue from the percentage of chargers we have in the program. We expect revenues derived from this program during the balance of 2017 to continue to be lower than the revenues we derived from this program in the same periods in 2016.
Our source of grant revenue for this period was from the Pennsylvania Turnpike Commission. Although we are not currently receiving funding under the grant, we are recognizing the funding received as revenue over the lives of the chargers to which they pertained. However, historically, the Company has secured and depended on incentives and intends to continue to pursue incentives from various governmental jurisdictions. As an example, the Company endorsed the Obama Administration’s announcement of, among other things, programs to release up to $4.5 billion in loan guarantees and invite applications to support the deployment of commercial EV charging facilities, and launch the Fixing America’s Surface Transportation (“FAST”) Act process to identify and develop corridors for zero emission and alternative fuel vehicles, which will include a network of EV fast charging stations.
Management anticipates that the gross profit contribution from company-owned charging stations as defined will improve as the company attains increased revenue contributions from its deployed base of charging stations and that product sales attributed to the launch of the Company’s next generation charging stations targeted in the second half of 2017 will contribute to increased gross profit from product sales.
We believe that our existing cash, together with the net proceeds from this offering, will be sufficient to meet our anticipated cash needs for at least the next two years . There can be no assurance that this offering will succeed. Given these conditions, there is substantial doubt about our ability to continue as a going concern and our future is contingent upon our ability to secure the levels of debt or equity capital we need to meet our cash requirements. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrants into established markets, the competitive environment in which we operate and the current capital raising environment.
Since inception, our operations have primarily been funded through proceeds from equity and debt financings. Although management believes that we have access to capital resources, there are currently no commitments in place for new financing at this time, except as described above under the heading Recent Developments, and there is no assurance that we will be able to obtain funds on commercially acceptable terms, if at all.
The funds we intend to raise pursuant to this offering will be used to fund our operations. The current level of cash and operating margins is insufficient to cover our existing fixed and variable obligations, so increased revenue performance and the addition of capital through issuances of securities are critical to our success. Should we not be able to raise additional debt or equity capital through this offering or some other financing source, we would take one or more of the following actions to conserve cash: further reductions in employee headcount, reduction in base salaries to senior executives and employees, and other cost reduction measures. Assuming that we are successful in our growth plans and development efforts, we believe that we will be able to raise additional debt or equity capital. There is no guarantee that we will be able to raise such additional funds on acceptable terms, if at all.
Through March 31, 2017, we incurred an accumulated deficit since inception of $84,169,514. As of March 31, 2017, we had a cash balance and working capital deficit of $2,988 and $18,989,258, respectively. During the three months ended March 31, 2017, we incurred a net loss of $3,097,732. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the issuance date of this filing. The report of our independent registered public accounting firm with respect to our financial statements as of December 31, 2016 and for the year then ended indicates that our financial statements have been prepared assuming that we will continue as a going concern. The report states that, since we have incurred net losses since inception and we need to raise additional funds to meet our obligations and sustain our operations, there is substantial doubt about our ability to continue as a going concern. Our plans in regard to these matters are described in Note 2 to our audited financial statements as of December 31, 2016 and 2015 and for the years then ended. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern.
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Recent Developments
Securities Purchase Agreement with JMJ Financial
In accordance with its terms, the Purchase Agreement became effective upon (i) execution by the Parties of the Purchase Agreement, the Promissory Note, and the October JMJ Warrant, and (ii) delivery of an initial advance pursuant to the Promissory Note of $500,000, which occurred on October 13, 2016. The Promissory Note and the October JMJ Warrant were issued on October 13, 2016. Pursuant to the Purchase Agreement, as amended on March 23, 2017, May 15, 2017 and June 15, 2017, JMJ purchased from our Company (i) the Promissory Note, convertible into Common Stock, in the aggregate principal amount of up to $3,725,000 due and payable on the earlier of July 15, 2017 or the third business day after the closing of an Registered Offering, and (ii) the October JMJ Warrant to purchase 14,286 shares of our Common Stock at an exercise price per share equal to the lesser of (i) 80% of the per share price in the contemplated Registered Offering, (ii) $35.00 per share, (iii) 80% of the unit price in the Registered Offering (if applicable), (iv) the exercise price of any warrants issued in the Registered Offering, or (v) the lowest conversion price, exercise price, or exchange price, of any security issued by us that was outstanding on October 13, 2016. Pursuant to the terms of the Promissory Note, JMJ has agreed that it will not convert the Promissory Note into more than 9.99% of our outstanding shares of Common Stock. JMJ currently does not own any shares of our Common Stock. The initial amount borrowed under the Promissory Note was $500,000, with the remaining amounts permitted to be borrowed under the Promissory Note being subject to us achieving certain milestones. The Promissory Notes each have an original issue discount of approximately 6%. This means that the Company will need to repay at least $530,000 for every $500,000 borrowed.
If we do not repay the Promissory Note on the maturity date (currently July 15, 2017), JMJ can convert all or part of the outstanding and unpaid principal, accrued interest, and any other fees into shares of Common Stock at a conversion price that is the lesser of $35.00 or 60% of the lowest trade price in the 25 trading days previous to the conversion. If we do not repay the Promissory Note on the maturity date and if we have issued a variable security at any time the Promissory Note is outstanding, then in such event JMJ shall have the right to convert all or any portion of the outstanding balance of the Promissory Note into shares of Common Stock on the same terms as granted in any applicable variable security issued by us.
With the achievement of certain milestones in November 2016 (the filing with the SEC of a Preliminary Information Statement on Schedule 14C regarding the Reverse Stock Split), an additional advance of $500,000 under the Promissory Note occurred on November 28, 2016. Another warrant to purchase 14,286 shares of our Common Stock was issued as of November 28, 2016. With the achievement of certain milestones in February 2017 (the filing with the SEC of a revised Preliminary Information Statement and a Definitive Information Statement, each on Schedule 14C regarding the Reverse Stock Split), additional advances of $225,100 and $300,000 under the Promissory Note occurred on February 10 and February 27, respectively. Thus, two more warrants to purchase the Company’s Common Stock were issued, one for 6,431 shares and the other for 8,571 shares, respectively. All advances after February 28, 2017 have been at the discretion of JMJ without regard to any specific milestones occurring. Additional advances of $250,000 and $30,000 under the Promissory Note occurred on March 14, 2017 and March 24, 2017, respectively, and two more warrants to purchase the Company’s Common Stock were issued, one for 7,143 shares and the other for 857 shares. An additional advance of $400,000 occurred on April 5, 2017 and another warrant to purchase 11,429 shares of our Common Stock was issued on the same date. An additional advance of $295,000 occurred on May 9, 2017 and another warrant to purchase 8,429 share of the Company’s Common Stock was issued on the same date. As of June 26, 2017, eight (8) warrants to purchase a total of 71,432 shares of the Company’s Common Stock have been issued to JMJ. The aggregate exercise price is $2,500,100. On the fifth (5th) trading day after the closing of the Registered Offering, but in no event later than July 15, 2017, we will deliver to JMJ the Origination Shares equal to 48% of the consideration paid by JMJ under the Promissory Note divided by the lowest of (i) $35.00 per share, or (ii) the lowest daily closing price of our Common Stock during the ten days prior to delivery of the Origination Shares (subject to adjustment for stock splits), or (iii) 80% of the Common Stock offering price of the Registered Offering, or (iv) 80% of the unit offering price of the Registered Offering (if applicable), or (v) the exercise price of any warrants issued in the Registered Offering. The number of shares to be issued will be determined based on the share price in this offering. If the Registered Offering does not occur prior to July 15, 2017, if JMJ owns Origination Shares at the time of a subsequent public offering where the pricing terms above would result in a lower Origination Share pricing, the Origination Shares pricing shall be subject to a reset based on the same pricing terms as described above.
In connection with the Purchase Agreement, the Company entered into a Representations and Warranties Agreement with JMJ regarding the Company’s existing debt as of October 7, 2016. The Company had agreed to obtain agreements, by December 15, 2016, with holders owning at least $7,000,000 of the outstanding liabilities as reflected on the Company’s balance sheet as of June 30, 2016, providing for those holders to convert their liabilities into Series C Preferred Shares or Common Stock of the Company at or prior to the time of the closing of the Registered Offering. The Company had agreed to also, by December 15, 2016, seek agreements so that the Company would not have, other than securities issued to JMJ, any variable securities. The Company is still seeking these letter agreements. Although the Company did not meet the December 2016 deadline, JMJ has not sought any remedies or assessed any fees for such failure.
On March 23, 2017, the parties amended the terms of the Promissory Note such that JMJ agreed to conditionally waive the defaults with regards to our failure to meet the original maturity date of the Promissory Note and the original delivery date of February 15, 2017 for the Origination Shares and extended the Maturity Date to May 15, 2017. JMJ did not waive any damages, fees, penalties, liquidated damages, or other amounts or remedies otherwise resulting from such defaults (which damages, fees, penalties, liquidated damages, or other amounts or remedies JMJ may choose in the future to assess, apply or pursue in its sole discretion) and JMJ’s conditional waiver is conditioned on us not being in default of and not breaching any term of the note, the securities purchase agreement, or any other transaction documents in connection therewith at any time subsequent to March 23, 2017. The parties amended the terms of the Promissory Note in a similar manner on May 15, 2017 (extending the Maturity Date to June 15, 2017) and June 15, 2017 (extending the Maturity Date to July 15, 2017). As of June 21, 2017, JMJ has not asserted its right to assess penalties resulting from the defaults with regards to our failure to meet the original (and amended) maturity date of the Promissory Note and the original (and amended) delivery date for the Origination Shares.
350 Green
On May 18, 2017, each of 350 Green and Green 350 Trust Mortgage LLC filed to commence an assignment for the benefit of creditors, which results in their residual assets being controlled by an assignee in a judicial proceeding. As a result, as of May 18, 2017, 350 Green is no longer a VIE of the Company and, accordingly, 350 Green’s approximately $3.7 million of liabilities will, as of June 30, 2017, be deconsolidated from the Company’s financial statements.
Critical Accounting Policies
Our critical accounting policies are included in Note 3 - Significant Accounting Policies of our consolidated financial statements included within this Annual report.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 - Revenue Recognition (“ASC 605”) and most industry-specific guidance throughout ASC 605. The standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The guidance in ASU 2014-09 was revised in July 2015 to be effective for interim periods beginning on or after December 15, 2017 and should be applied on a transitional basis either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. In 2016, FASB issued additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying performance obligations and licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). The Company has not yet selected a transition method and is currently evaluating the impact of the adoption of these ASUs on its consolidated financial position and results of operations.
In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” (“ASU 2015-11”). ASU 2015-11 amends the existing guidance to require that inventory should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out or the retail inventory method. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of ASU 2015- 011 is not expected to have a material impact on our consolidated financial statement or disclosures .
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”). ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The adoption of ASU 2016- 009 is not expected to have a material impact on our consolidated financial statement or disclosures.
In August 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. ASU 2016-15 requires adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently evaluating ASU 2016-15 and its impact on its consolidated financial statements or disclosures.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
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Evaluation of Disclosure Controls and Procedures
Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operations and access to capital. We have also experienced complications reporting as a result of material weaknesses and have at times been delinquent in our reporting obligations. We have carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that as of March 31, 2017 our internal controls over financial reporting (“ICFR”) were not effective at the reasonable assurance level:
| 1. | We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the year ended December 31, 2016. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness. | |
| 2. | We do not have sufficient resources in our accounting function, which restricts our ability to gather, analyze and properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness. | |
| 3. | We do not have personnel with sufficient experience with U.S. GAAP to address complex transactions. | |
| 4. | We have inadequate controls to ensure that information necessary to properly record transactions is adequately communicated on a timely basis from non-financial personnel to those responsible for financial reporting. Management evaluated the impact of the lack of timely communication between non–financial and financial personnel on our assessment of our reporting controls and procedures and has concluded that the control deficiency represented a material weakness. | |
| 5. | We have determined that oversight over our external financial reporting and internal control over our financial reporting by our audit committee is ineffective. The audit committee has not provided adequate review of our SEC filings and consolidated financial statements and has not provided adequate supervision and review of our accounting personnel or oversight of the independent registered accounting firm’s audit of our consolidated financial statement. |
We have taken steps to remediate some of the weaknesses described above, including by engaging third party financial consultants with expertise in accounting for complex transactions and SEC reporting. We intend to continue to address these weaknesses as resources permit.
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Overview
We are a leading owner, operator, and provider of EV charging equipment and networked EV charging services. We offer both residential and commercial EV charging equipment, enabling EV drivers to easily recharge at various location types.
Our principal line of products and services is our Blink Network and EV charging equipment (also known as electric vehicle supply equipment) and EV related services. Our Blink Network is proprietary cloud-based software that operates, maintains, and tracks all of the Blink EV charging stations and the associated charging data. The Blink Network provides property owners, managers, and parking companies, who we refer to as our Property Partners, with cloud-based services that enable the remote monitoring and management of EV charging stations, payment processing, and provides EV drivers with vital station information including station location, availability, and applicable fees.
We offer our Property Partners with a flexible range of business models for EV charging equipment and services. In our comprehensive and turnkey business model, we own and operate the EV charging equipment, manage the installation, maintenance, and related services; and share a portion of the EV charging revenue with the property owner. Alternatively, Property Partners may share in the equipment and installation expenses, with us operating and managing the EV charging stations and providing connectivity to the Blink Network. For Property Partners interested in purchasing and owning EV charging stations, that they manage, we can also provide EV charging hardware, site recommendations, connectivity to the Blink Network, and service and maintenance services.
We have strategic partnerships across numerous transit/destination locations, including airports, auto dealers, healthcare/medical, hotels, mixed-use, municipal locations, multifamily residential and condos, parks and recreation areas, parking lots, religious institutions, restaurants, retailers, schools and universities, stadiums, supermarkets, transportation hubs, and workplace locations. As of June 26, 2017, we have approximately 14,370 charging stations deployed of which 4,972 are Level 2 public charging units, 119 DC Fast Charging EV chargers and 2,269 residential charging units in service on the Blink Network. Additionally, we currently have approximately 353 Level 2 charging units on other networks and there are also approximately an additional 6,657 non-networked, residential Blink EV charging stations. The non-networked, residential Blink EV charging stations are all partner owned.
Industry Overview
We believe that the market for plug-in electric vehicles has experienced significant growth in recent years in response to consumer demand for vehicles with greater fuel efficiency, greater performance, and with lower environmental emissions. We believe that the demand for EVs has also been spurred in part by federal and state fuel economy standards and other state and local incentives and rebates for EVs. For example, the states of California, Oregon, New York, Maryland, Massachusetts and others have created mandates for EVs with the goal of 3.3 million EVs on the road by 2025. At the same time, oil and gas prices continue to experience spikes and fluctuations, while at the same time the cost of battery technology continues to fall as the battery industry achieves scale. In response, major automotive OEMs have accelerated the adoption of EV models, with more than 25 EV models currently available from Tesla, Nissan, Kia, GM, Ford, Fiat, BMW, Mercedes, Audi, Volkswagen, Toyota, Mitsubishi, Land Rover, Porsche, and many others. According to the Electric Drive Transportation Association, sales of plug-in vehicles since introduction to the market in 2010 is over 500,000 and according to a third-party researcher, sales are expected to grow by a factor of 12 to 2.5 million in 2025.
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However, we believe that a major impediment to EV adoption has been the lack of EV charging infrastructure, and that a viable model for continued deployment of EV charging infrastructure continues to evolve. Examples of federal programs designed to stimulate development of EV charging infrastructure includes the recent White House announcement of, among other things, programs to release up to $4.5 billion in loan guarantees and invite applications to support the deployment of commercial EV charging facilities, and the launching of the Fixing America’s Surface Transportation (FAST) Act process to identify and develop corridors for zero emission and alternative fuel vehicles, which will include a network of EV fast charging stations.
According to Navigant Research, the global market for electric vehicle supply equipment (EVSE) is expected to grow from 505,000 units in 2016 to 2.5 million in 2025. Major utility companies are also working to upgrade their grid infrastructure in order to prepare for mass consumption of electricity by electric vehicles.
While many believe that the majority of EV charging occurs at home, we believe the need for a robust, pervasive public EV charging infrastructure is required to eliminate range anxiety (that is, a worried feeling while driving an electric car caused by the driver thinking they might run out of power before reaching their destination). In addition to providing strategic, public charging stations, we believe that it is necessary to provide EV charging solutions to those drivers that do not live in single-family homes, but share parking facilities, including multifamily residential apartment buildings and condominiums. While there are a few, leading competitors and various, smaller EV charging equipment or service providers that have emerged in the market, we believe their products and services are limited. Typically, these companies offer EV charging equipment, an EV charging network, or EV charging services with third party equipment.
Our EV Charging Solutions
We offer a broad range of EV charging products and services to Property Partners and EV drivers.
EV Charging Products
| ● | Level 2 . We offer Level 2 (AC) EV charging equipment, which is ideal for commercial and residential use, and has the standard J1772 connector, which is compatible with all major auto manufacturer electric vehicle models. Our commercial equipment is available in pedestal or wall mount configurations, with the ability to connect to our robust Blink Network. Our non-networked residential product, Blink HQ, is available in a wall-mount configuration and offers a delay start feature that allows users to optimize charging by utility rates. Level 2 charging stations typically provide a full charge in two to eight hours. Level 2 chargers are ideally suited for low-cost installations and frequently used parking locations, such as workplace, multifamily residential, retail and mixed-use, parking garages, municipalities, colleges/schools, hospitals, and airports. | |
| ● | DCFC. Our DC Fast Charging equipment (“DCFC”) currently has the CHAdeMo connector, which is compatible with Nissan, Kia, and Tesla electric vehicle models (additional models may be potentially available in the future), and typically provides an 80% charge in less than 30 minutes. Installation of DCFC stations and grid requirements are typically greater than Level 2 charging stations, and are ideally suited for transportation hubs and locations between travel destinations. |
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We intend to enhance our current equipment offerings by developing and offering new generations of EV charging equipment.
EV Charging Services
| ● | Blink Network . Our proprietary, cloud-based Blink Network allows us to share convenient and advantageous station management features and pertinent data with Property Partners and EV drivers through user interfaces. These features include real-time station status, payment processing, detailed charging session information, monitoring and troubleshooting stations remotely, as well as standard and customized reporting capabilities on, among others, energy dispensed, greenhouse gases reduced, oil barrels saved, and gallons of fuel saved. | |
| ● | Blink Mobile application . Our proprietary mobile application, available for iOS and Android, provides EV drivers with vital station information, including the ability to locate EV charging stations on the Blink Network, view real-time station status information, pay and initiate EV charging sessions, become a Blink member, and manage their Blink account (billing information, radio frequency identification cards, text messaging, and email notifications). |
We believe that we are unique in our ability to provide various business models to Property Partners and leverage our technology to meet the needs of both Property Partners and EV drivers. Our property partner business model options include:
| 1. | Host Owned: The Property Partner purchases our EV charging equipment for use by EV drivers and pays for connectivity to the Blink Network as well as payment transaction fees. | |
| 2. | Car Charging Owned: We provide EV charging equipment, which we own and maintain, and operate the EV charging services through our Blink Network and share a portion of the revenues generated from the stations with our Property Partner. | |
| 3. | Hybrid: We also offer customized business models that meet individual Property Partner needs and combines features from the aforementioned business models. |
Competitive Advantages/Operational Strengths
Early Mover Advantage: We continue to leverage our large and defendable first mover advantage and the digital customer experience we have created for both drivers and Property Partners. We have approximately 96,000 drivers currently registered with Blink that appreciate the value of EV charging sessions on a leading, established, and robust network. We have thousands of Blink chargers deployed across the United States and the goal is to keep our Property Partners on one consistent network when expanding on any given property.
Long-Term Contracts with Property Owners : We have strategic and often long term agreements with location exclusivity for Property Partners across numerous transit/destination locations, including airports, car dealers, healthcare/medical, hotels, mixed-use, municipal locations, multifamily residential and condo, parks and recreation areas, parking lots, religious institutions, restaurants, retailers, schools and universities, stadiums, supermarkets, transportation hubs, and workplace locations. We have hundreds of Property Partners that include well-recognized companies, large municipalities, and local businesses. Some examples are Caltrans, Carl’s Jr., City of Azusa, City of Chula Vista, City of Springfield, City of Tucson, Cracker Barrel, Federal Realty, Fred Meyer Stores, Inc., Fry’s Food & Drug, Inc., Garage Management Company, Icon Parking, IKEA, iPark, JBG Associates, Kohls, Kroger Company, LAZ Parking, Macy’s, McDonald’s, Ralphs Grocery Company, Sears, Simon Properties, and SP+ Parking. We continue to establish new contracts with Property Partners that previously secured our services independently, or had contracts with the EV service providers that we acquired, including ECOtality, the former owner of the Blink related assets.
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Flexible Business Model : We are able to offer and sell both EV charging equipment as well as access to our robust, cloud-based EV charging software, which we refer to as the Blink Network. We believe that we have an advantage in our ability to provide various business models to Property Partners and leverage our technology to meet the needs of both Property Partners and EV drivers.
Ownership and Control of EV Charging Stations and Services : We own a large percentage of our stations, which is a significant differentiation between us and some of our primary competitors. This ownership model allows us to control the settings and pricing for our EV charging services, service the equipment as necessary, and have greater brand management and price uniformity.
Experience with Products and Services of Other EV Charging Service Providers. From our early days and through our acquisitions, we have had the experience of owning and operating EV charging equipment provided by other EV charging service providers, including General Electric, ChargePoint, and SemaConnect. This experience has provided us with the working knowledge of the benefits and drawbacks of other equipment manufacturers and their applicable EV charging networks.
Our Strategy
Our objective is to continue to be a leading provider of EV charging solutions by deploying mass scale EV charging infrastructure, and by doing so, enable the accelerated growth of EV adoption and the EV industry. Key elements of our strategy include:
| ● | Relentless Focus on Customer Satisfaction . Increase overall customer satisfaction with new and existing Property Partners and EV drivers by upgrading and expanding the EV charging footprint throughout high demand, high density geographic areas. In addition, improve productivity and utilization of existing EV charging stations, as well as to continue to enhance the valuable features of our EV charging station hardware and the Blink Network. | |
| ● | Leverage Our Early Mover Advantage . We continue to leverage our large and defendable first mover advantage and the digital customer experience we have created for both drivers and Property Partners. We believe that there are tens of thousands of Blink driver registrants that appreciate the value of transacting charging sessions on a leading, established, and robust network experience. We have thousands of Blink chargers deployed across the United States and the tendency, among users, is to stay within one consistent network for expansion on any given property. | |
| ● | Expand Sales and Marketing Resources . Our intention is to invest in sales and marketing infrastructure to capitalize on the growth in the market as well as to expand our go-to-market strategy. Today, we use a direct sales force and intend to continue to expand our efforts as well as invest in a wholesale channel go-to-market strategy that may include wholesale electrical distributors, independent sales agents, utilities, solar distributors, contractors, automotive manufacturers, and auto dealers. |
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| ● | Continue to Invest in Technology Innovation . We will continue to enhance the product offerings available in our EV charging hardware, cloud-based software, and networking capability. This includes the design and launch of our next generation of EV charging solutions, including accelerating the charge currents currently available in EV charging hardware and new, robust Blink Network features in order to distance ourselves from the competition. Our key service solutions allow us to remain technology agnostic, and if market conditions shift, we have the option to leverage pure play hardware providers to augment our products. | |
| ● | Properly Capitalize Our Business . We continue to pursue and welcome new potential capital sources to deliver on key operational objectives and the necessary resources to execute our overall strategy. The EV charger industry as a whole is undercapitalized to deliver the full potential of the expected EV market growth in the near future. We expect to retain our leadership position with new capital. |
Sales
We currently maintain an in-house field sales force that maintains business relationships with our Property Partners and develops new sales opportunities through lead generation and marketing. We also sell our EV charging hardware, software services (connectivity to Blink Network), and service plans through reseller partners, which then sell these products and services to property representatives and/or hosts.
Marketing is performed by our in-house staff. To promote and sell our services to property owners and managers, parking companies, and EV drivers, we also utilize marketing and communication channels including press releases, email marketing, websites ( www.CarCharging.com, www.BlinkNetwork.com , www.BlinkHQ.com ), Google AdWords, and social media. The information on our websites is not, and will not be deemed, a part of this prospectus or incorporated into any other filings we make with the SEC.
We continue to invest in the improvement of the service and maintenance of our Company-owned stations, as well as those stations with a service and maintenance plans, and expanding our cloud-based network capabilities. We anticipate continuing to expand our revenues by selling our next generation of EV charging equipment to current as well as new Property Partners, which includes airports, auto dealers, healthcare/medical, hotels, mixed-use, municipal locations, multifamily residential and condos, parks and recreation areas, parking lots, religious institutions, restaurants, retailers, schools and universities, stadiums, supermarkets, transportation hubs, and workplace locations, expanding our sales channels to wholesale distributors, utilities, auto original equipment manufacturers (“OEMs”), solar integrators, and dealers, which will include implementing EV charging station occupancy fees (after charging is completed, fees for remaining connected to the charging station beyond an allotted grace period), and subscription plans for EV drivers on our Blink-owned public charging locations.
Our revenues are primarily derived from fees charged to EV drivers for EV charging in public locations, EV charging hardware sales, and government grants. EV charging fees to EV drivers are based either on an hourly rate, a per kilowatt-hour (“kWh”) rate, or by session, and are calculated based on a variety of factors, including associated station costs and local electricity tariffs. EV charging hardware is sold to our Property Partners such as Green Commuter, IKEA, Nashville Music Center, and Wendy’s. In addition, other sources of fees from EV charging services are network fees and payment processing fees paid by our Property Partners.
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Our Customers and Partners
We have strategic partnerships across numerous transit/destination locations, including airports, auto dealers, healthcare/medical, hotels, mixed-use, municipal locations, multifamily residential and condos, parks and recreation areas, parking lots, religious institutions, restaurants, retailers, schools and universities, stadiums, supermarkets, transportation hubs, and workplace locations. We have hundreds of Property Partners that include well-recognized companies, large municipalities, and local businesses. Some examples are Caltrans, City of Azusa, City of Chula Vista, City of Springfield, City of Tucson, Cracker Barrel, Federal Realty, Fred Meyer Stores, Inc., Fry’s Food & Drug, Inc., IKEA, JBG Associates, LLC, Kroger Company and Ralphs Grocery Company. We continue to establish new contracts with Property Partners that previously secured our services independently, or had contracts with the EV services providers that we acquired, including ECOtality, the former owner of the Blink related assets.
Our revenues are primarily derived from EV charging hardware sales to our Property Partners, fees from public EV charging services to EV drivers, government grants, and marketing incentives. EV charging fees to EV drivers are based either on an hourly rate, a per kWh rate, or by session, and are calculated based on a variety of factors, including associated station costs and local electricity tariffs. In addition, other sources of fees from EV charging services are network fees and payment processing fees paid by our Property Partners.
We continue to invest in the improvement of the service and maintenance of our Company-owned stations, as well as those stations with a service and maintenance plans, and expanding our cloud-based network capabilities. We anticipate continuing to expand our revenues by selling our next generation of EV charging equipment, expanding our sales channels, and implementing EV charging station occupancy fees (after charging is completed, fees for remaining connected to the charging station beyond an allotted grace period), subscription plans for our Blink-owned public charging locations, and advertising fees.
Competition
The EV charging equipment and service market is highly competitive and we expect the market to become increasingly competitive as new entrants enter this growing market. Our products and services compete on the basis of product performance and features, total cost of ownership, sales capabilities, financial stability, brand recognition, product reliability and size of installed base. Our existing competition currently includes ChargePoint, which manufactures EV charging equipment and operates the ChargePoint Network; and EVgo , which offers home and public charging with pay-as-you-go and subscription models. There are other entrants into the connected EV charging station equipment market, such as General Electric, SemaCharge, EVConnect, and Greenlots. We believe these additional competitors struggle with gaining the necessary network traction but could gain momentum in the future. While Tesla does offer EV charging services, the connector type utilized currently restricts the chargers to Tesla vehicles. There are many other large and small EV charger companies that offer non-networked or “basic” chargers that have limited customer leverage, but could provide a low-cost solution for basic charger needs in commercial and home locations.
We believe we have competitive advantages over our competitors, such as our long-term contracts with property owners and managers, and our flexible business model where we are able to sell both EV charging stations as well provide access to a leading EV charging network. However, many of our current and expected future competitors have considerably greater financial and other resources than we do, and may leverage those resources to compete effectively.
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Government Regulation and Incentives
State, regional, and local regulations for installation of EV charging stations vary from jurisdiction to jurisdiction and may include permitting requirements, inspection requirements, licensing of contractors, and certifications as examples. Compliance with such regulation(s) may cause installation delays.
Currently, we apply charging fees by the kWh for our services in states that permit this policy and hourly and by session for our services in states that do not permit per kWh pricing. California, Colorado, District of Columbia, Florida, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, New York, Oregon, Pennsylvania, Utah, Virginia, and Washington have determined that companies that sell EV charging services to the public will not be regulated as utilities, therefore, allowing us to charge fees based on kW usage. These individual state determinations are not binding on any other regulator or jurisdiction; however, they demonstrate a trend in the way states view the industry. Other jurisdictions are in the process of adopting such reforms.
Historically, we have secured and depended on incentives, and intend to continue to pursue incentives from various governmental jurisdictions. As an example, we recently endorsed the Obama Administration’s announcement of, among other things, programs to:
| ● | Release up to $4.5 billion in loan guarantees and invite applications to support the deployment of commercial EV charging facilities; | |
| ● | Launch the Fixing America’s Surface Transportation (FAST) Act process to identify and develop corridors for zero emission and alternative fuel vehicles, which will include a network of EV fast charging stations; and | |
| ● | Host an “Electric Vehicle Hackathon” in order to determine insights and develop new EV charging solutions. |
We intend to continue to vigorously seek additional grants, loans, rebates, subsidies, and incentives as a cost effective means of reducing our capital investment in the promotion, purchase, and installation of charging stations where applicable. We expect that these incentives, rebates, and tax credits will be critical to our future growth. Additionally, there are incentives that are currently offered to support electric car adoption at the federal, state, and local levels, including a $7,500 federal income tax credit, and rebates/credits in California, Colorado, Delaware, Louisiana, Massachusetts, New York, and Rhode Island.
CESQG
As a Conditionally Exempt Small Quantity Generator (“CESQG”), we generate a limited quantity of hazardous waste, mostly solvent contaminated wipes that are transported to the local solid waste facility. Scrapped electronic boards are transported to a local recycler. A CESQG of hazardous waste is a generator that:
| ● | Produces no more than 100 kg (220lbs) of hazardous waste per month; | |
| ● | Produces no more than 1 kg (2.2lbs) of acute hazardous waste per month; | |
| ● | Does not accumulate more than 1000 kg(2204lbs) of hazardous waste on-site; and |
● a CESQG has no time limit for accumulation.
The use of our machinery and equipment must comply with the following applicable laws and regulations, including safety and environmental regulations:
● General Safety for all employees- includes health hazard communication, emergency exit plans, electrical safety-related work practices, office safety, and hand and hand-powered tools.
● Technicians and Engineers- Only authorized persons (technicians and engineers) perform product testing and repair in the production and engineering areas of the facility. Also, including those engineers involved in field service work. Regulations include control of hazardous energy, and personal protective equipment.
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● Logisticians- includes forklift operations, which are performed only by certified shipping/receiving personnel, and material handling and storage.
On May 22, 2017, the Company entered into a lease for 11,457 square feet of office and warehouse space in Phoenix, Arizona beginning June 1, 2017 and ending July 31, 2019. As of June 23, 2017, we are still transitioning to this new space. We anticipate completing the move by July 21, 2017. Until we fully move into our new Phoenix space, we will not be in full compliance with the environmental regulations in the General Industry category applicable to us as a CESQG. We will be in full compliance upon the completion of our move into Phoenix. Our operations are not currently impacted by our non-compliance.
OSHA
We are subject to the Occupational Safety and Health Act of 1970, as amended (“OSHA”). OSHA establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the Occupational Safety and Health Administration and various record keeping, disclosure and procedural requirements. Various standards, including standards for notices of hazards, safety in excavation and demolition work and the handling of asbestos, may apply to our operations. Until we fully move into our new Phoenix space, we will not be in full compliance with the OSHA regulations. We will be in full compliance upon the completion of our move into Phoenix. Our operations are not currently impacted by our non-compliance.
NEMA
The National Electrical Manufacturers Association (“NEMA”) is the association of electrical equipment and medical imaging manufacturers. NEMA provides a forum for the development of technical standards that are in the best interests of the industry and users, advocacy of industry policies on legislative and regulatory matters, and collection, analysis, and dissemination of industry data. All three of the Company’s products comply with the NEMA standards that are applicable to such products.
CAFÉ Standards
The regulations mandated by the Corporate Average Fuel Economy (“CAFE”) standards set the average new vehicle fuel economy, as weighted by sales, that a manufacturer’s fleet must achieve. Although we are not a car manufacturer and are thus not directly subject to the CAFÉ standards, we believe such standards may have a material effect on our business. The Energy Independence and Security Act of 2007 raised the fuel economy standards of America’s cars, light trucks, and Sport Utility Vehicles (“SUVs”) to a combined average of at least 35 miles per gallon by 2020—a 10 mpg increase over 2007 levels—and required standards to be met at maximum feasible levels through 2030. Building on the success of the first phase of the National Program, the second phase of fuel economy and global warming pollution standards for light duty vehicles covers model years 2017–2025. These standards were finalized by the U.S. Environmental Protection Agency and U.S. Department of Transportation in August 2012. These new standards will reduce average global warming emissions of new passenger cars and light trucks to 163 grams per mile (g/mi) in model year 2025. This is equivalent to 54.5 miles per gallon (mpg), if the standards were met exclusively with fuel efficiency improvements. Manufacturers may choose to comply with these standards by manufacturing more EVs which will mean that more charging stations of the type we manufacture will be needed.
Intellectual Property
We rely on a combination of patent, trademark, copyright, unfair competition and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish, maintain and protect our proprietary rights. Our success depends in part upon our ability to obtain and maintain proprietary protection for our products, technology and know-how, to operate without infringing the proprietary rights of others, and to prevent others from infringing our proprietary rights.
As of June 26, 2017, we had 6 patents issued in the U.S., 4 patents issued in Canada, and 4 patents issued in South Korea. These patents relate to various aspects of battery charging and EV charging design. We intend to continue to regularly assess opportunities for seeking patent protection for those aspects of our technology, designs and methodologies that we believe provide a meaningful competitive advantage. However, our ability to do so may be limited until such time as we are able to generate cash flow from operations or otherwise raise sufficient capital to continue to invest in our intellectual property. For example, maintaining patents in the United States and other countries requires the payment of maintenance fees which, if we are unable to pay, may result in loss of our patent rights. If we are unable to do so, our ability to protect our intellectual property or prevent others from infringing our proprietary rights may be impaired.
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Employees
As of June 26 , 2017, we have 19 full-time and 7 part-time employees. Our full-time employees work in the following places: 9 are located at our headquarters in Hollywood, Florida, 7 are located in Phoenix, Arizona, 1 is located in Los Gatos, California, 1 is located in New York, New York and 1 is located in Oregon. None of our employees are represented by a union or covered by a collective bargaining agreement. We have not experienced any work stoppages and we consider our relationship with our employees to be good.
Other Corporate Information
Car Charging Group, Inc., a Nevada corporation, is the parent company of Car Charging, Inc., a Delaware corporation, which serves as the main operating company and is, in turn, the parent company of several distinct wholly-owned subsidiary operating companies including, but not limited to, eCharging Stations LLC, Blink, Beam Charging LLC and EV Pass LLC. Car Charging Group, Inc. was formed in the State of Nevada on October 3, 2006, under our prior name, New Image Concepts, Inc. New Image Concepts, Inc. changed its name to Car Charging Group, Inc., on December 8, 2008. Car Charging, Inc. was incorporated in Delaware on September 8, 2009. We purchased the assets referred to as the Blink Network from ECOtality, Inc. on October 16, 2013. From April 22, 2013 to April 16, 2014, 350 Green was a wholly-owned subsidiary of the Company in which the Company had full control and was consolidated. Beginning on April 17, 2014, when 350 Green’s assets and liabilities were transferred to a trust mortgage, 350 Green became a VIE. We determined that we were the primary beneficiary of 350 Green, and as such, 350 Green’s assets, liabilities and results of operations are included in our consolidated financial statements. On May 18, 2017, each of 350 Green and Green 350 Trust Mortgage LLC filed to commence an assignment for the benefit of creditors, which results in their residual assets being controlled by an assignee in a judicial proceeding. As a result, as of May 18, 2017, 350 Green is no longer a VIE of the Company and, accordingly, 350 Green’s approximately $3.7 million of liabilities will, as of June 30, 2017, be deconsolidated from the Company’s financial statements.
We maintain our principal offices at 3284 West 29 Court, Hollywood , Florida, 33020 . Our telephone number is (305) 521-0200. Our Silicon Valley office houses our CEO. Our website is www.CarCharging.com; we can be contacted by email at info@CarCharging.com. The information on our websites is not, and will not be deemed, a part of this prospectus or incorporated into any other filings we make with the SEC.
Property
We maintain our principal offices at 3284 West 29 Court, Hollywood, Florida, 33020. We also had a five-year sublease for office and warehouse space in Phoenix, Arizona beginning December 1, 2013 and ending November 30, 2018. On February 28, 2017, we vacated the Phoenix, Arizona space and we have no further obligations in connection with the sublease. On May 22, 2017, the Company entered into a lease for 11,457 square feet of office and warehouse space in Phoenix, Arizona beginning June 1, 2017 and ending July 31, 2019. Monthly lease payments range from approximately $6,300 to $6,600 (with the Company paying approximately $6,300 in total during the first three months of the lease) for a total of approximately $155,000 for the total term of the lease. As of June 26, 2017, the Company has not yet moved into this new space in Phoenix.
Legal Proceedings
From time to time, we are a defendant or plaintiff in various legal actions that arise in the normal course of business. We record legal costs associated with loss contingencies as incurred and has accrued for all probable and estimable settlements.
With the exception of the foregoing, we are not involved in any material disputes and do not have any material litigation matters pending except:
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350 GREEN, LLC
There have been five lawsuits filed against 350 Green by creditors of 350 Green regarding unpaid claims. These lawsuits relate solely to alleged pre-acquisition unpaid debts of 350 Green. Also, there are other unpaid creditors, aside from those noted above, that claim to be owed certain amounts for pre-acquisition work done on behalf of 350 Green solely, that potentially could file lawsuits at some point in the future.
On August 7, 2014, 350 Green received a copy of a complaint filed by Sheetz, a former vendor of 350 Green alleging breach of contract and unjust enrichment of $112,500. The complaint names 350 Green, 350 Holdings LLC and the Company in separate breach of contract counts and names all three entities together in an unjust enrichment claim. The Company and 350 Holdings will seek to be dismissed from the litigation, because, as the complaint is currently plead, there is no legal basis to hold the Company or 350 Green liable for a contract to which they are not parties. As of December 31, 2016 and 2015, an amount of $112,500 is included in accounts payable of 350 Green. The Company settled with Sheetz and the parties signed two agreements on February 23, 2017: a General Release and Settlement Agreement and a Exclusive Electronic Vehicle Charging Services Agreement. The settlement involved a combination of DC charging equipment, installation, charging services, shared driver charging revenue and maintenance for two systems in exchange for no further legal action between 350 Holdings or the Company.
The Exclusive Electronic Vehicle Charging Services Agreement with Sheetz is for a five (5) year term. Pursuant to the agreement, Blink shall remit to Sheetz gross revenue generated by electric vehicle charging fees and advertising, minus (i) any and all taxes, (ii) 8% transaction fees, (iii) $18.00 per charger per month; and (iv) any electricity costs incurred by Blink ((i), (ii), (iii), and (iv) being referred to as the “Service Fees”). In the event the aggregate gross revenues are insufficient to cover the Service Fees incurred in a given month by the charging stations, such unpaid Service Fees will accrue to the following month. The agreement is subject to an automatic five year renewal unless written notice for the contrary is provided.
OTHER MATTER
On May 12, 2016, the SEC filed a complaint with the United States District Court in the Central District of California wherein the SEC alleges that an attorney who previously served as securities counsel to the Company was involved in a fraudulent scheme to create and sell seven (7) public “shell” companies. The SEC’s complaint indicates that one of the shell companies, New Image Concepts, Inc. (“NIC”) was the subject of the Company’s December 7, 2009 reverse merger, wherein following the merger, NIC was renamed Car Charging Group, Inc. The Company is not named as a defendant in the SEC’s complaint and, based on internal review and discussions, there were and are no continuing affiliations between any employees, directors, or investors of the pre-merger shell company and the Company. The Company has determined that no current or past employees of the Company were involved with the former shell company and it does not expect any additional actions to be necessary with respect to this matter.
LITIGATION UPDATES
On July 28, 2015, a Notice of Arbitration was received stating ITT Cannon has a dispute with Blink for the manufacturing and purchase of 6,500 charging cables by Blink, which had not taken delivery or made payment on the contract price of $737,425. ITT Cannon also seeks to be paid the cost of attorney’s fees as well as punitive damages. The Company contends that the product was not in accordance with the specifications in the purchase order and, as such, believes the claim is without merit. On June 13, 2017, Blink and ITT Cannon agreed to a settlement agreement. The parties agreed as follows: (a) the Blink purchase order dated May 7, 2014 for 6,500 charging cables is terminated, cancelled and voided; (b) three (3) business days following the closing date of a public offering of the Company’s securities and listing of such securities on the Nasdaq Capital Market, the Company shall issue to ITT Cannon shares of the same class of the Company’s securities with an aggregate value of $200,000; and (c) within seven (7) calendar days of the valid issuance of the shares in item (b) above, ITT Cannon shall ship and provide the remaining 6,500 charging cables to Blink and dismiss the arbitration without prejudice
On April 8, 2016, Douglas Stein filed a Petition for Fee Arbitration with the State Bar of Georgia against the Company for breach of contract for failure to pay invoices in the amount of $178,893 for legal work provided. The invoices have been accrued for in the periods in which the services were provided. The Company has responded to the claim and is simultaneously pursuing settlement options. The parties failed to settle after numerous attempts. On February 15, 2017, the case was brought to the Georgia Arbitration Committee. On February 26, 2017, The Stein Law firm was awarded a summary judgment for $178,893. The Company may appeal the decision and/or offer stock and/or cash in exchange for the awarded judgment at a later date.
On May 18, 2016, the Company was served with a complaint from Solomon Edwards Group, LLC for breach of written agreement and unjust enrichment for failure to pay invoices in the amount of $172,645 for services provided, plus interest and costs. The invoices have been accrued for in the periods in which the services were provided. The Company has responded to the claim and is simultaneously pursuing settlement options.
On September 9, 2015, the United States Court of Appeals for the Seventh Circuit of Chicago, Illinois affirmed the ruling of the United States District Court for the Northern District of Illinois in the matter of JNS Power & Control Systems, Inc. v. 350 Green, LLC in favor of JNS, which affirmed the sale of certain assets by 350 Green to JNS and the assumption of certain 350 Green liabilities by JNS. On April 7, 2016, JNS amended the complaint to add the Company alleging an unspecified amount of lost revenues from the chargers, among other matters, caused by the defendants. Plaintiff also seeks indemnity for its unspecified costs in connection with enforcing the Asset Purchase Agreement in courts in New York and Chicago. The parties concluded their efforts to mediate a settlement before Magistrate Judge Kim without achieving a settlement. Settlement discussions are ongoing between the parties. The next status hearing on the matter is set for July 12, 2017.
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DIRECTORS AND EXECUTIVE OFFICERS
As of the date of this prospectus, our directors, executive officers and significant employees are as follows:
| Name | Age | Principal Positions With Us | ||
| Michael D. Farkas | 45 | Executive Chairman of the Board of Directors (Principal Executive Officer) | ||
| Michael J. Calise | 56 | Chief Executive Officer (Interim Principal Financial Officer, and Interim Principal Accounting Officer) and Director | ||
| Andy Kinard | 51 | President and Director | ||
| Ira Feintuch | 46 | Chief Operating Officer | ||
| Andrew Shapiro | 49 | Director | ||
| Donald Engel | 85 | Director |
Set forth below is a brief description of the background and business experience of our directors and executive officers for the past five years.
Michael D. Farkas, Executive Chairman of the Board of Directors (Principal Executive Officer)
Mr. Farkas served as our Chief Executive Officer from 2010 through July 24, 2015. Mr. Farkas has served as a member of the Board since 2010 and has been the Executive Chairman of the Board since January 1, 2015. Effective June 15, 2017, we amended the employment agreement with Mr. Farkas. This amendment was approved by the Compensation Committee and the Board as a whole (with Mr. Farkas recusing himself from the vote regarding this amendment). This amendment clarified that, on a going-forward basis, the Executive Chairman position held by Mr. Farkas is the principle executive officer of the Company. Mr. Farkas is the founder and manager of FGI, a privately held investment firm. Mr. Farkas is the founder and CEO of Balance Labs, Inc., a consulting firm that provides business development and consulting services to startup development stage business. Mr. Farkas is a director at Balance Labs Inc. Mr. Farkas also currently holds the position of Chairman and Chief Executive Officer of the Atlas Group, where its subsidiary, Atlas Capital Services, was a broker-dealer that had successfully raised capital for a number of public and private clients until it withdrew its FINRA registration in 2007. Over the last 20 years, Mr. Farkas has established a successful track record as a principal investor across a variety of industries, including telecommunications, technology, aerospace and defense, agriculture, and automotive retail. Mr. Farkas attended Brooklyn College where he studied Finance.
Based on his work experience and education, the Company has deemed Mr. Farkas fit to serve on the Board.
Michael J. Calise, Chief Executive Officer (Interim Principal Financial Officer and Interim Principal Accounting Officer) and Director
Mr. Calise has served as our Chief Executive Officer since July 29, 2015 and as a member of the Board since March 9, 2016 . From June 2011 to February 2015, Mr. Calise was the Head of North America Electric Vehicle Solutions at Schneider Electric, a world leader in energy management and energy efficiency. While at Schneider, Mr. Calise was responsible for the electric vehicle strategy, product, and services, and took the business from its infancy to its position as one of the top contenders in the electric vehicle solutions industry. Prior to Schneider Electric, from March 2010 to May 2011, Mr. Calise was the founder and principal of EVadvise, an independent advisory firm focused on mass scale electric vehicle infrastructure. While at EVadvise, he helped develop the EV Charging infrastructure technology plan for Marin Transportation Authority’s (MTA) county-wide charger deployment. Mr. Calise received a Bachelor of Science Degree in Electrical Engineering from the University of Buffalo in New York, and has been a member of the Institute of Electrical and Electronics Engineers, California Clean Cars, Cleantech.org, Plug In America and the Electric Auto Association (EAA), and was a former board member of the Electric Drive Transportation Association (EDTA) and the BACC EV Strategic Council.
Based on his work experience in the EV industry and his education, we have deemed Mr. Calise fit to serve on the Board and as our Chief Executive Officer.
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Andy Kinard, President and Director
Mr. Kinard has served as our President and as a member of the Board since November 2009. Prior to his joining the Company Mr. Kinard sold electric vehicles in Florida for Foreign Affairs Auto from 2007 to 2009. From 2004 through 2005, he marketed renewable energy in Florida and was a Guest Speaker at the World Energy Congress. His first employer was Florida Power & Light (“FPL”), a power utility company , where he worked for 15 years. In his early years, his focus was on engineering. During his tenure at FPL, he performed energy analysis for large commercial accounts, and ultimately became a Certified Energy Manager. Simultaneously, Mr. Kinard was assigned to FPL’s electric vehicle program. FPL had their own fleet of electric vehicles that they used to promote the technology. He also served on the Board of Directors of the South Florida Manufacturing Association for 4 years. He has city, county, and state contacts throughout Florida, and has attended every car show and green fair in the state of Florida. Mr. Kinard holds a B.S. in Engineering from Auburn University.
Based on his work experience and education, the Company has deemed Mr. Kinard fit to serve on the Board.
Ira Feintuch, Chief Operating Officer
Mr. Feintuch commenced employment with our Company in 2009 and was appointed Chief Operating Officer on March 24, 2015 . Mr. Feintuch served as Vice President of Operations from March 2009 to March 2015. In this capacity, Mr. Feintuch has been responsible for the purchasing, installation, and maintenance of EV charging equipment, the selection and management of third-party electricians and service professionals for our Company and its subsidiaries, as well as developing strategic partnerships and collaborative relationships for our Company. Mr. Feintuch currently sits on the board of the ROEV Association, an EV industry trade association. Mr. Feintuch commenced personal bankruptcy proceedings in January 2016. Mr. Feintuch holds a B.S. in Management from Touro College.
Based on his work experience with our Company and his education, we have deemed Mr. Feintuch fit to serve on the Board and as our President.
Andrew Shapiro, Director
Mr. Shapiro has served on our Board since April 17, 2014 . Mr. Shapiro founded Broadscale Group in 2012 and serves as its leader. Broadscale is a new model of investment firm working with leading energy corporations to invest in and commercialize the industry’s most promising market-ready innovations. Prior to Broadscale, Mr. Shapiro founded GreenOrder in 2000. GreenOrder was a strategic advisory firm that worked with more than 100 enterprises to create energy and environmental innovation as a competitive advantage. In this capacity, Mr. Shapiro and his team worked with General Electric’s leadership on the creation and execution of its multi-billion dollar “ecomagination” initiative, provided strategic counsel to General Motors on the launch of the Chevrolet Volt, and served as the green advisor for 7 World Trade Center, New York City’s first LEED-certified (Leadership in Energy and Environmental Design) office tower. GreenOrder’s client list included Alcan, Allianz, Bloomberg, BP, Bunge, Citi, Coca-Cola, Dell, Disney, Duke Energy, DuPont, eBay, Hines, HP, JPMorgan Chase, KKR, McDonald’s, Morgan Stanley, NASDAQ OMX, National Grid, NBC Universal, NRG, Office Depot, Pfizer, Polo Ralph Lauren, Simon Property Group, Staples, Target, Tishman Speyer, TXU, and Waste Management. Mr. Shapiro and GreenOrder also co-founded the US Partnership for Renewable Energy Finance (US PREF), and created GO Ventures, a subsidiary to incubate and invest in environmentally innovative businesses, which cofounded and financed California Bioenergy, Class Green Capital, and GreenYour.com. In 2011, Mr. Shapiro led the sale of GreenYour.com to Recyclebank and joined Recyclebank’s Sustainability Advisory Council. Mr. Shapiro holds an A.B. in Anthropology from Brown University and a J.D. from Yale Law School.
Based on his experience with environmental innovation and his education, we have deemed Mr. Shapiro fit to serve on the Board.
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Donald Engel, Director
Mr. Engel has served on our Board since July 30, 2014 . Mr. Engel is currently a consultant to Palisades Capital Management LLC. Mr. Engel served as Managing Director and consultant at Drexel Burnham Lambert for 15 years. Mr. Engel managed and developed new business relationships and represented clients such as Warner Communications and KKR & Co., L.P. Mr. Engel also served as a consultant to Bear Stearns and as a Director of such companies as Revlon, Uniroyal Chemical, Levitz, Banner Industries, Savannah Pulp & Paper, and APL Corp. In the last decade, Mr. Engel consulted to Morgan Joseph TriArtisan. Mr. Engel attended the University of Richmond.
Based on his work experience, previous directorships and education, the Company has deemed Mr. Engel fit to serve on the Board.
Family Relationships
There are no family relationships between any of our officers or directors.
Director Independence
Upon the completion of this offering, our Common Stock is expected to be listed on The NASDAQ Capital Market. Under the rules of NASDAQ, “independent” directors must make up a majority of a listed company’s board of directors. In addition, applicable NASDAQ rules require that, subject to specified exceptions, each member of a listed company’s audit and compensation committees be independent within the meaning of the applicable NASDAQ rules. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act.
Our Board has undertaken a review of the independence of each director and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carryout out his responsibilities. As a result of this review, our Board determined that Messrs. Shapiro and Engel qualify as “independent” directors within the meaning of the NASDAQ rules. We plan on appointing two other “independent” directors prior to the closing of this offering . Upon the appointment of two other “independent” directors, a majority of our directors will be independent, as required under applicable NASDAQ rules. As required under applicable NASDAQ rules, we anticipate that our independent directors will meet in regularly scheduled executive sessions at which only independent directors are present.
Board Composition
Our Board is currently composed of five members. Our articles of incorporation and our bylaws permit our stockholders to establish by resolution the authorized number of directors, and six are currently authorized. Our directors hold office until their successors have been elected and qualified, or the earlier of their death, resignation or removal.
In addition, the Series C Certificate of Designation entitles the holders of our Series C Preferred Shares, exclusively and as a separate class, to elect one of our directors, whom we will refer to as our Series C Director. The Series C Director may be removed without cause, and only by, the affirmative vote of the holders of the shares of our Series C Preferred Shares. Since the resignation of Kevin Evans on December 8, 2016, the Board has not had a Series C Director. The holders of our Series C Preferred Shares have the right to appoint a new Board member. As of February 7, 2017, BLNK, for which Mr. Farkas has voting power and investment power with regard to this entity’s holdings, owns over 80% of the Series C Preferred Shares outstanding. BLNK does not plan on appointing a new Board member.
Board Committees
Our Board has established an audit committee, a compensation committee, and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of our Board are described below. Members serve on such committees until their resignation or until otherwise determined by our Board.
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Audit Committee
Our audit committee was established in November 2016 to oversee our corporate accounting and financial reporting processes. Our audit committee, among other things, be responsible for:
| ● | selecting and hiring the independent registered public accounting firm to audit our financial statements; | |
| ● | helping to ensure the independence and performance of the independent registered public accounting firm; | |
| ● | approving audit and non-audit services and fees; | |
| ● | reviewing financial statements and discussing with management and the independent registered public accounting firm our annual audited and quarterly financial statements, the results of the independent audit and the quarterly reviews, and the reports and certifications regarding internal controls over financial reporting and disclosure controls; | |
| ● | preparing the audit committee report that the SEC requires to be included in our annual proxy statement; | |
| ● | reviewing reports and communications from the independent registered public accounting firm; | |
| ● | reviewing earnings press releases and earnings guidance; | |
| ● | reviewing the adequacy and effectiveness of our internal controls and disclosure controls and procedures; | |
| ● | reviewing our policies on risk assessment and risk management; | |
| ● | reviewing related party transactions; | |
| ● | establishing and overseeing procedures for the receipt, retention and treatment of accounting related complaints and the confidential submission by our employees of concerns regarding questionable accounting or auditing matters; and | |
| ● | reviewing and monitoring actual and potential conflicts of interest. |
Our audit committee is comprised of Mr. Shapiro. Our Board has determined that each of the directors serving on the audit committee meets the requirements for financial literacy under applicable rules and regulations of the SEC and NASDAQ. In addition, our Board has determined that Mr. Shapiro meets the requirements of a financial expert as defined under the applicable rules and regulations of the SEC and who has the requisite financial sophistication as defined under the applicable rules and regulations of NASDAQ. Our Board has considered the independence and other characteristics of each member of our audit committee, and our Board believes that each member meets the independence and other requirements of NASDAQ and the SEC.
Our audit committee operates under a written charter that will satisfy the applicable standards of the SEC and NASDAQ. We intend to comply with future requirements to the extent they become applicable to us.
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Compensation Committee
Our compensation committee was established in November 2016 to oversee our corporate compensation policies, plans and benefit programs. Our compensation committee is, among other things, responsible for:
| ● | reviewing, approving and determining, or making recommendations to our Board regarding, the compensation of our executive officers, including our Chief Executive Officer and other executive officers; | |
| ● | administering our equity compensation plans and programs; | |
| ● | reviewing and discussing with our management our SEC disclosures; and | |
| ● | overseeing our submissions to stockholders on executive compensation matters. |
Our compensation committee is comprised of Messrs. Shapiro and Engel. Mr. Shapiro is the chairman of our compensation committee. Our Board has considered the independence and other characteristics of each member of our compensation committee. Our Board believes that each member of our compensation committee meets the requirements for independence under the current requirements of NASDAQ, is a nonemployee director as defined by Rule 16b-3 promulgated under the Exchange Act and is an outside director as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986 (the “Code”).
Our compensation committee operates under a written charter that satisfies the applicable rules and regulations of the SEC and the listing standards of NASDAQ.
Nomination of Directors
Our nominating and corporate governance committee was established in November 2016. Our nominating and corporate governance committee is comprised of Messrs. Shapiro and Engel. Our Board plans on adopting a nominating and corporate governance committee charter relating to the director nomination process. Under our policy, the independent directors of our Board will nominate our directors. When evaluating director nominees, our directors will likely consider the following factors:
| ● | the current size and composition of the Board and the needs of the Board and the respective committees of the Board; | |
| ● | such factors as character, integrity, judgment, diversity of experience, independence, area of expertise, corporate experience, length of service, potential conflicts of interest, other commitments and the like; and | |
| ● | other factors that the directors may consider appropriate. |
Our goal is to assemble a Board that brings together a variety of skills derived from high quality business and professional experience.
Code of Business Conduct and Ethics
The Company currently has a “Financial Code of Ethics” in place. We expect our Board to adopt a new code of business conduct and ethics prior to the closing of this offering. Our current “Financial Code of Ethics” only applies to our management. Our new code of business conduct and ethics will apply to all of our employees, officers and directors, including our principal executive and senior financial officers. A copy of our code of business conduct and ethics will be posted on our website at www.carcharging.com. A copy of our code of business conduct and ethics will be provided without charge to any person submitting a written request to the attention of the Chief Executive Officer at our principal executive office.
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Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
| ● | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| ● | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; | |
| ● | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; | |
| ● | been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
| ● | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| ● | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Term of Office
Our directors are appointed at the annual meeting of shareholders and hold office until the annual meeting of the shareholders next succeeding his or her election, or until his or her prior death, resignation or removal in accordance with our bylaws. Our officers are appointed by the Board and hold office until the annual meeting of the Board next succeeding his or her election, and until his or her successor shall have been duly elected and qualified, subject to earlier termination by his or her death, resignation or removal.
Section 16(a) Beneficial Ownership Reporting Compliance
We do not currently have a class of securities registered under the Exchange Act and therefore our directors, executive officers, and any persons holding more than ten percent of our Common Stock are not required to comply with Section 16 of the Exchange Act.
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Summary Compensation Table
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the years ended December 31, 2016 , and 2015 in all capacities. In 2015 and 2016, the named executive officers of the Company were Michael Farkas (Executive Chairman and Chief Executive Officer from January 2015 through July 2015 and Executive Chairman thereafter); Michael Calise (Chief Executive Officer from July 2015 to the present); and Ira Feintuch (Chief Operating Officer). Andy Kinard was not a named executive officer in 2015 and 2016, however, his compensation is listed below to fulfill the disclosure requirements for members of the Board.
| Name and |
Stock
Awards |
Option
Awards |
All Other | |||||||||||||||||||||||
| Principal Position | Year | Salary | Bonus | (1) | (1) | Compensation | Total | |||||||||||||||||||
| Andy Kinard, | 2016 | $ | 60,266 | $ | - | $ | 3,000 | $ | 930 | $ | 64,491 (2) | $ | 128,686 | |||||||||||||
| President | 2015 | $ | 74,949 | $ | - | $ | 12,000 | $ | 3,868 | $ | 11,621 (2) | $ | 102,438 | |||||||||||||
| Michael D. Farkas, | 2016 | $ | - | $ | - | $ | 15,000 | $ | 3,226 | $ | 362,792 (4) | $ | 381,018 | |||||||||||||
| Former Chief Executive Officer (3) | 2015 | $ | 460,000 | (5) | $ | - | $ | 18,000 | $ | 4,849 | $ | 225,134 | (4) | $ | 707,983 | |||||||||||
| Michael J. Calise | 2016 | $ | 275,000 | $ | 100,000 | $ | 3,000 | $ | 930 | $ | 82,098 | (7) | $ | 461,028 | ||||||||||||
| Chief Executive Officer (6) | 2015 | $ | 114,583 | $ | 25,000 | $ | 75,000 | $ | 302,850 | $ | - | $ | 517,433 | |||||||||||||
| Ira Feintuch | 2016 | $ | 250,000 | $ | - | $ | - | $ | - | $ | 249,428 (9) | $ | 499,428 | |||||||||||||
| Chief Operating Officer (8) | 2015 | $ | 270,833 | $ | - | $ | 1,750,000 | $ | - | $ | 90,972 | (9) | $ | 2,111,806 | ||||||||||||
| (1) | The amounts reported in these columns represent the grant date fair value of the stock and options awards granted during the year ended December 31, 2016 and 2015, calculated in accordance with FASB ASC Topic 718. |
| (2) | Mr. Kinard received $12,966 and $11,621 of Company paid health insurance benefits in calendar years 2016 and 2015, respectively. Mr. Kinard also earned the right to various options and Common Stock for each Board Meeting and each committee meeting of the Board attended during the year ended December 31, 2016. The Company accrued $51,525 of compensation expense related to the contractual obligation to issue options which is included within accrued expenses as accrued professional, board and other fees as of December 31, 2016. |
| (3) |