Car Charging Group, Inc. (now associated with Blink Charging Co.) — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. The filing is signed June 18, 2015; the registrant named in it is Car Charging Group, Inc. Financial statements are unaudited.
Business context and reporting period
The company operates a U.S. electric-vehicle charging network, generating revenue from charging services, equipment sales, grants and rebates, and related fees. Its 2014 results include acquired businesses; 2013 comparison periods include acquired operations only from their respective acquisition dates, so year-over-year comparisons are not fully comparable.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $1.020 million | $89,166 | $2.349 million | $182,480 |
| Gross profit (loss) | $(616,000) | $49,504 | $(2.179) million | $88,390 |
| Operating loss | $(8.561) million | $(7.111) million | $(20.660) million | $(14.545) million |
| Net loss | $(8.447) million | $(7.937) million | $(19.419) million | $(15.800) million |
| Net loss per common share | $(0.11) | $(0.19) | $(0.25) | $(0.37) |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $(6.664) million | $(1.219) million |
Gross margin was approximately -60% for Q3 and -93% for the nine-month period. Revenue rose substantially, mainly reflecting acquisitions, service activity, grants and equipment sales, but costs of revenue exceeded revenue. Nine-month operating expenses included $4.901 million of goodwill impairment and $2.854 million of charging-station impairment and title losses.
At September 30, 2014, cash was $152,924, current assets were $2.745 million and current liabilities were $17.694 million, implying a working-capital deficit of approximately $14.950 million. Total liabilities were $18.413 million; total stockholders’ deficit was $11.781 million. Notes payable totaled approximately $423,000, separate from other liabilities, including a $4.481 million derivative liability and substantial accrued obligations. The consolidated balance sheet includes 350 Green liabilities described as without recourse to the company.
Cash fell by $7.684 million during the first nine months of 2014, from $7.837 million to $153,000. Investing activities used $760,000 and financing activities used $260,000. Management reported cash of approximately $229,000 as of June 16, 2015.
Material changes versus the prior comparable period
- Nine-month revenue increased to $2.349 million from $182,000, but gross profit shifted from $88,000 to a $2.179 million loss, in part because depreciation and network operating costs were recorded in cost of revenue.
- Nine-month net loss increased by $3.619 million. Lower compensation and general and administrative expense were outweighed by weaker gross results and impairment and other operating charges.
- Goodwill was fully impaired for Beam ($1.602 million) and 350 Green ($3.299 million). The company also recorded $1.591 million for chargers it determined were owned by hosts after the Department of Energy grant was not novated, plus other charger impairments and abandoned deployments.
- Common shares outstanding increased to 77.698 million from 77.125 million at December 31, 2013. Potential dilution was substantial: the filing lists approximately 45.4 million warrants and 7.6 million options outstanding at September 30, 2014.
Outlook, risks, contingencies and unusual items
- Going concern: The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Management said expected operating cash flows and available proceeds would not cover anticipated operating costs and growth needs, and additional financing might be required. No assurance was given that financing could be obtained on acceptable terms.
- Subsequent financing: A December 2014 securities agreement provided for $6 million in exchange for Series C preferred shares and warrants, with some funds initially escrowed subject to milestones. The filing gives differing accounts of amounts released: one passage says $4 million was released in addition to the initial $2 million, while another says $3 million additional had been released by June 16, 2015. Confirm actual proceeds and any remaining escrow.
- Operating outlook: Management intended to seek additional debt or equity funding and described further headcount, salary and other cost reductions if financing was unavailable. It implemented cost-reduction measures in December 2014. No quantified revenue or earnings guidance is provided.
- Customer and grant exposure: Nissan terminated its joint marketing agreement in April 2015, citing material default, and planned to take 31 uninstalled chargers. The filing identifies $512,089 of related charger assets and $505,610 of deferred revenue at September 30, 2014. The DOE later confirmed its interest in certain installed fast chargers was extinguished; the company said it would reverse the related liability in Q2 2015.
- Legal and contractual matters: The filing describes litigation involving former 350 Green creditors and other parties, several settlements, and unpaid pre-acquisition 350 Green claims. Management believed the matters would not materially affect the company, but outcomes and potential costs remained uncertain. The company also disclosed a disputed supplier commitment and a defaulted 350 Green acquisition note in litigation.
- Reporting and controls: Management concluded disclosure controls were ineffective and identified material weaknesses, including inadequate written control documentation, limited accounting resources and segregation of duties, untimely communication of transaction information, and absence of an audit committee. The company also reported it had not completed specified historical audits for 350 Green and Blink Network, which it said could constrain fundraising from non-accredited investors.
- Unusual charges and income: Nine-month other income included gains from changes in fair value of warrant liabilities and a $483,000 DOE liability release; these items are not recurring operating revenue. The filing also records registration-rights and public-information penalties.
Important facts for investors to verify
- Cash available, burn rate, and actual proceeds and escrow status under the December 2014 $6 million financing; reconcile the filing’s inconsistent release amounts.
- Whether the company obtained sufficient new financing to meet obligations and support operations, given the going-concern warning and June 2015 cash balance.
- Resolution and financial effects of Nissan’s contract termination, charger ownership and removal issues, DOE-related liabilities, and 350 Green creditor claims.
- Whether the identified internal-control weaknesses and incomplete acquired-company audits were remediated, and whether subsequent filings corrected or clarified these matters.
- Potential dilution from preferred stock, warrants and options, including later changes to warrant exercise prices and additional equity issuances.