Business context and reporting period
Car Charging Group, Inc. (the registrant named in this filing; its EV charging network is branded Blink) reported unaudited results for the quarter ended March 31, 2017, compared with the three months ended March 31, 2016. It owns and operates EV charging stations, sells charging equipment, and provides network and related services.
Key financial metrics
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $595,620 | $840,137; down 29% |
| Gross profit and margin | $163,213; 27.4% | $93,362; 11.1% |
| Operating loss | $(1,690,793) | $(1,984,124) |
| Net loss | $(3,097,732) | $(4,400,792) |
| Net loss attributable to common shareholders | $(3,852,632), or $(0.05) per share | $(4,719,192), or $(0.06) per share |
| Cash used in operations | $(783,135) | $(823,037) |
| Cash at quarter-end | $2,988 | $191,924 at March 31, 2016 |
| Working capital deficiency | $18,989,258 | — |
| Total liabilities | $25,810,215 | $21,898,035 at December 31, 2016 |
| Accumulated deficit | $84,169,514 | $81,071,782 at December 31, 2016 |
Cash from financing activities was $780,431, principally from convertible-note advances. Investing cash outflow was $206. Current liabilities were $19.6 million against current assets of $578,706. The balance sheet included $2.34 million of derivative liabilities and substantial accounts payable and accrued expenses. Convertible notes and related-party notes were outstanding; certain related-party notes were past due.
Material changes versus the prior comparable period
- Revenue declined $244,517, mainly from lower product sales (down 47%) and grant and rebate revenue (down 67%). Management attributed lower product sales to fewer residential and commercial units sold.
- Company-owned charging service revenue fell 8%; management cited reduced revenue from the Nissan North America program and expected that program’s revenue to remain lower than the comparable 2016 periods for the rest of 2017.
- Gross profit increased by $69,851 and gross margin improved, while cost of revenue declined with lower sales and reduced depreciation and amortization.
- Operating expenses fell by $223,480, including lower compensation and other operating expenses, partly offset by $300,000 of lease termination costs and higher general and administrative expenses.
- Net loss improved by $1.30 million, primarily due to lower operating and other expenses. The comparison was affected by non-cash warrant fair-value changes; Q1 2017 also included $614,901 of convertible-debt discount amortization.
Outlook, risks, contingencies and unusual items
- Going concern: Management stated that the low cash balance, working-capital deficit and recurring losses raise substantial doubt about the company’s ability to continue as a going concern within a year after filing. Operations were being funded month to month. Management expected to need external funding over the next 12 months; no assurance was given that financing would be available on acceptable terms. Without it, the company might reduce costs or curtail operations.
- Financing and dilution: After quarter-end, the company received $695,000 of additional advances under a convertible-note arrangement; up to a further $999,900 could be released subject to milestones. The note’s maturity and share-issuance terms were amended, and the contemplated public offering remained important to repayment and share pricing. The filing also reports post-quarter issuance of 61,740 Series C preferred shares to satisfy about $6.2 million of liabilities, including registration penalties, public-information fees and preferred dividends.
- Defaults and obligations: Related-party notes were past due, including notes associated with the Executive Chairman; the company said it was negotiating extensions. It had accrued registration-rights and public-information penalties, and noted that delayed filings had resulted in penalties and could constrain future financing. The cover page marked “No” for having filed all required reports during the preceding 12 months.
- Contingencies: The company faced an eviction action relating to unpaid rent and accrued $300,000 for remaining lease obligations. It also disclosed delinquent sales and payroll tax payments, an arbitration dispute with ITT Cannon (with a proposed $200,000 stock settlement reflected as an accrual), a $178,893 arbitration award to the Stein Law firm, and other litigation and legacy 350 Green claims. Outcomes and additional exposure may vary.
- Controls and cyber risk: Management concluded disclosure controls were not effective and identified material weaknesses involving undocumented controls, limited accounting resources and expertise, inadequate information flow, and insufficient board oversight. The filing added cybersecurity, service disruption and mobile-platform interoperability risks.
- No quantified revenue or earnings guidance was provided. Management said it intended to pursue additional capital and improve revenue, while noting uncertainty around financing and grants.
Important facts for investors to verify
- Whether the company obtained sufficient financing, met the convertible-note milestones, and completed or otherwise resolved the contemplated offering and related maturity obligations.
- The terms and dilution effects of post-quarter preferred-stock and common-stock issuances, warrant exchanges, and any shares due under the JMJ financing arrangements.
- Cash runway, subsequent cash flows, and the status of the going-concern uncertainty and working-capital deficit.
- Resolution and potential cash or equity costs of past-due related-party debt, registration and public-information penalties, taxes, lease claims, and litigation.
- Whether the company remediated the disclosed material weaknesses and improved timely SEC reporting and internal-control oversight.