Business context and reporting period
Car Charging Group, Inc. (the issuer identified in this filing; now associated with Blink Charging) filed an unaudited Form 10-Q for the three months ended March 31, 2014. The company operated a U.S. public EV-charging network, selling charging hardware and providing charging services. Its 2013 acquisitions expanded the operating base; most acquired businesses were not included in the first-quarter 2013 results.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $355,685 | $15,575 |
| Gross profit (loss) | $(956,516) | $11,166 |
| Operating expenses | $3,189,224 | $2,011,428 |
| Operating loss | $(4,145,740) | $(2,000,262) |
| Net loss | $(3,858,917) | $(2,223,061) |
| Net loss per share | $(0.05) | $(0.05) |
| Operating cash flow | $(2,095,061) | $228,298 |
- Cash and cash equivalents were $4.90 million at March 31, 2014, down from $7.84 million at year-end; a further $450,046 was restricted as collateral for a vendor letter of credit.
- Working-capital deficit was $15.59 million. Current liabilities were $23.52 million; total liabilities were $24.37 million, against a stockholders’ deficit of $3.62 million.
- Notes payable totaled approximately $540,824, including current and long-term portions. Current liabilities also included a $9.72 million derivative warrant liability and $722,600 in warrants payable.
- Gross margin was negative; the filing reports no positive gross profit in Q1 2014. Cost of revenue included $745,877 of depreciation and amortization.
- Investing cash outflow was $359,788 and financing cash outflow was $478,163. The company reported no income-tax payments.
Material changes versus the prior period
- Revenue increased substantially, primarily because of charging locations and operations added through 2013 acquisitions. Service-fee revenue was $255,659 versus $10,576; equipment sales were $37,393 versus none. The filing says 47 residential chargers were sold in Q1 2014.
- Revenue growth did not produce positive gross profit: charging-station depreciation, network costs, electricity reimbursements and host revenue shares contributed to higher costs.
- Operating loss increased by approximately $2.15 million and net loss increased by approximately $1.64 million. Compensation expense rose by about $803,000, which management attributed mainly to staffing associated with acquisitions.
- Other income was $286,823 versus other expense of $222,799. It included a $493,400 gain from remeasuring Beam acquisition-related warrants, partly offset by a $209,035 derivative-liability loss.
- Common shares outstanding increased from 77.12 million at December 31, 2013 to 77.70 million at March 31, 2014. The 2014 weighted-average share count was 77.57 million versus 45.58 million in 2013; potential shares were excluded from diluted loss per share as anti-dilutive.
Outlook, risks, contingencies and unusual items
- Management said it believed resources were sufficient to fund operations through at least March 31, 2015. Four existing shareholders had committed up to $6.25 million through December 31, 2014 if additional financing was needed; availability on acceptable terms was not assured.
- The company expected greater EV-charging use as automakers expanded production after the second half of 2014. This was a forward-looking expectation, not a quantified revenue or earnings forecast.
- The company had installed five of 48 fast chargers under its Nissan agreement by March 31, 2014 and was required to install the remainder by June 30, 2014, as extended. Nissan retained legal remedies for failure to meet the deadline.
- After quarter-end, the company arranged to transfer 350 Green’s assets and liabilities to a Trust Mortgage for creditor administration. Five creditor lawsuits were disclosed, with possible additional claims. The company was also in default on a 350 Green acquisition note and reported litigation involving unpaid acquisition-related obligations.
- Other disclosed matters included a $2.32 million accrued Department of Energy fee, a $1.54 million registration-rights penalty accrual, and a supplier commitment concerning 500 charging stations; the company had purchased 90 and said the supplier’s performance was disputed.
- Management concluded disclosure controls and internal control over financial reporting were ineffective due to material weaknesses, including inadequate written control documentation, limited accounting resources and segregation of duties, untimely information flow, and insufficient audit-committee oversight.
- The filing states that no goodwill impairment was recorded in the quarter and reports no off-balance-sheet arrangements. It also describes significant Level 3 valuation inputs for warrant-related liabilities.
Important facts for investors to verify
- Whether the $6.25 million shareholder financing commitments were funded, and the company’s actual liquidity and cash runway given operating cash burn and the working-capital deficit.
- Progress and compliance with the Nissan 48-charger installation deadline, and any resulting revenue recognition or contractual exposure.
- The financial and legal outcome of the 350 Green Trust Mortgage, creditor claims, note default and related litigation, as well as the DOE fee and registration-rights penalty.
- The extent and timing of remediation of the disclosed material weaknesses in financial reporting controls.
- Revenue detail: the financial statements report grant and rebate revenue of $62,633, while the MD&A gives $62,233; investors should confirm the correct figure. The statement total revenue is $355,685.
- The dilution and valuation implications of 36.94 million outstanding warrants, 5.01 million options, 10 million Series A preferred shares convertible into 25 million common shares, and the warrant-related liabilities.