Business context and reporting period
Car Charging Group, Inc. (the issuer in this March 31, 2013 Form 10-Q; not identified in the filing as Blink Charging Co.) reported as a development-stage provider of electric-vehicle charging services. The quarter includes Beam Charging LLC only from its February 26, 2013 acquisition date. The filing was signed May 20, 2013.
The company reported 64 provider agreements and 328 installed charging units at March 31, 2013. Its business model generally funds equipment, installation, and maintenance in exchange for long-term service arrangements; it also sells charging hardware and receives grants and rebates.
Financial performance and position
| Metric | Three months ended March 31, 2013 | Comparable 2012 period |
|---|---|---|
| Revenue | $15,575 | $2,605 |
| Gross profit | $11,166 | $2,197 |
| Gross margin | Approximately 71.7% | Approximately 84.3% |
| Operating expenses | $2,011,428 | $1,534,970 |
| Operating loss | $(2,000,262) | $(1,532,773) |
| Net loss | $(2,223,061) | $(1,532,806) |
| Basic and diluted loss per share | $(0.05) | $(0.04) |
| Cash flow from operations | $228,298 provided | $1,036,694 used |
| Cash flow from investing | $1,030,622 used | $199,498 used |
| Cash flow from financing | $1,809,097 provided | $1,500,000 provided |
At quarter-end, cash was $1,020,189; current assets were $2,131,530 and current liabilities $2,093,214, leaving approximately $38,000 of working capital. Total assets were $7,666,183 and total liabilities $2,899,599. Current and long-term notes payable totaled $525,119 on the balance sheet, in addition to $141,209 of convertible notes, net of discount. The filing also reports $135,000 of warrants payable.
Cash from operations was supported in part by a $777,531 increase in deferred revenue and other working-capital movements; it should not be read as evidence of positive operating earnings. The company raised $1,958,069 net from common-stock sales during the quarter and repaid $146,000 of convertible notes. Common shares outstanding were 49,419,424 at March 31 and 51,108,698 as of May 17, 2013.
Material changes versus the prior period
- Revenue increased by $12,970, principally reflecting service fees rising to $10,576 from $2,605 and $4,999 of grant revenue; no hardware sales were reported in either quarter.
- Net loss widened by $690,255. Compensation expense rose, driven by stock-based compensation and higher payroll, while operating expenses overall increased by $476,458.
- Other expense increased to $222,799 from $33, including $117,992 of debt-discount amortization, a $47,856 loss on settling an account payable with stock, a $46,701 loss on repayment of convertible notes, and higher interest expense.
- Cash increased from $13,416 at year-end to $1,020,189, principally through equity financing. Investing outflows rose as the company bought charging stations and invested in Beam.
- The Beam acquisition added preliminary goodwill of $1,271,871 and intangible assets; acquisition valuation remained subject to a third-party valuation. Quarter-end shares increased from 42,434,705 at December 31, 2012 to 49,419,424.
Outlook, risks, contingencies, and unusual items
- Going concern: The filing says accumulated losses and dependence on external financing raise substantial doubt about the company’s ability to continue as a going concern. Management planned to seek additional equity, sell energy tax credits, and reduce costs, while stating it believed resources would fund operations through at least March 31, 2014.
- Demand and execution: Management said widespread use of charging stations was not expected until after the second half of 2014. Under its Nissan North America agreement, the company must build, own, and operate 48 fast chargers and a dealer promotion/referral program by December 31, 2013. It received $782,880 in March, recorded as deferred revenue, and reported charger purchase costs of $792,912.
- Acquisitions after quarter-end: On April 3, the company acquired EV Pass and rights to operate 68 Central New York charging stations, issuing 671,141 shares and agreeing to share 3.6% of net revenues from units at those locations. On April 22, it acquired 350Green for stated consideration of $1.25 million, comprising $750,000 in stock and a $500,000 note. These transactions were subsequent events and were not included in the March 31 results.
- 350Green contingency: The City of Chicago had issued 350Green a grant-project default notice citing unpaid subcontractors and other deficiencies. Transfer of the grant was conditional on settling claims and completing the project under a revised scope and budget. The filing gives no clear final cost or outcome.
- Debt and financing: Two secured convertible notes totaling $150,000 were past their April 2013 maturities and remained unpaid as of May 20, according to the notes. Certain Beam acquisition notes totaling $461,150 were paid April 15. Equity financing and stock-based compensation caused dilution; the January–March offering issued 4.79 million shares with warrants for a like number of shares.
- Other contingencies: A $41,000 consulting-fee lawsuit was reserved. A former officer’s labor claim remained unresolved at quarter-end. The company also disclosed a vendor dispute over a commitment to purchase 500 charging stations; its ultimate resolution was unknown. Management said other litigation was not expected to have a material adverse effect, but outcomes remain uncertain.
- Controls: Management concluded disclosure controls and procedures were ineffective as of March 31, 2013. It also disclosed no independent directors on the board acting as audit committee and no identified audit committee financial expert.
- Disclosure quality: The MD&A contains apparent period-label and amount inconsistencies, including its compensation comparison; investors should consult the financial statements and original filing for clarification. The filing provides no specific revenue or earnings guidance.
Important facts for investors to verify
- Reconcile the MD&A’s period and expense figures to the financial statements, and confirm the acquisition accounting once valuations are finalized.
- Assess the cash runway against the going-concern warning, limited working capital, overdue secured notes, and the company’s reliance on further financing.
- Track installation and operating performance of the 48 Nissan chargers by the December 31, 2013 deadline and the timing of deferred-revenue recognition.
- Verify the costs, liabilities, grant-transfer conditions, and integration results for Beam, EV Pass, and 350Green, including the Chicago project obligations.
- Monitor further share and warrant issuance, dilution, and remediation of the disclosed ineffective disclosure controls.