Car Charging Group, Inc. (now Blink Charging Co.) — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. The unaudited filing is by Car Charging Group, Inc., then a development-stage EV charging services company; Blink Network was acquired after quarter-end. Unless otherwise stated, amounts are U.S. dollars.
Business context and reporting period
The company installed and operated EV charging stations, shared service revenue with property owners, and also sold charging equipment. Results include Beam from February 26, EV Pass from April 3, and 350Green from April 22, 2013. The acquisitions expanded the network to 1,003 charging devices, including 27 DC fast chargers, as of September 30. Management said the company still lacked enough installed locations and EV usage to generate significant revenue.
Financial results and liquidity
| Metric | Three months ended Sept. 30, 2013 | Three months ended Sept. 30, 2012 | Nine months ended Sept. 30, 2013 | Nine months ended Sept. 30, 2012 |
|---|---|---|---|---|
| Revenue | $89,166 | $8,843 | $182,480 | $246,330 |
| Gross profit (margin) | $49,504 (55.5%) | $1,805 (20.4%) | $88,390 (48.4%) | $50,446 (20.5%) |
| Operating loss | $(7,110,945) | $(1,160,062) | $(14,544,598) | $(3,590,542) |
| Net loss | $(7,936,960) | $(1,166,529) | $(15,800,437) | $(3,597,551) |
| Net loss attributable to common shareholders | $(10,768,790) | $(1,166,529) | $(18,632,267) | $(3,597,551) |
| Basic and diluted loss per common share | $(0.19) | $(0.03) | $(0.37) | $(0.09) |
- Revenue remained very small. Nine-month revenue declined as equipment sales fell to $12,762 from $235,726, despite higher service fees and $86,052 of grant revenue.
- Operating expenses were $7.16 million in Q3 and $14.63 million for nine months. The largest reported expense was compensation, substantially increased by stock- and warrant-based compensation.
- Q3 and nine-month other expense included $687,286 of debt-conversion expense; nine-month other expense also included a $309,000 provision for warrant liability. A $2,831,830 deemed dividend from the Series B exchange increased the loss attributable to common shareholders, but was not part of net loss.
- Cash was $57,066 at September 30, versus $13,416 at December 31, 2012. Operating cash use was $1,218,611 for nine months; investing cash use was $1,122,405; financing provided $2,384,666, per the cash flow statement.
- Total assets were $13.39 million and total liabilities $10.79 million. Current liabilities were $9.95 million, including $2.92 million of liabilities held for sale; current assets were $3.30 million, including $2.60 million of assets held for sale. The filing reports a $6,645,498 working-capital deficit.
- Notes payable totaled $638,829, comprising current and long-term amounts shown on the balance sheet. Accounts payable and accrued expenses were $4,607,438. The company reported an accumulated deficit of $37,572,694.
Material changes versus comparable periods
- Q3 revenue rose from $8,843 to $89,166, primarily reflecting acquired charging networks; nine-month revenue fell from $246,330 to $182,480, largely because equipment sales dropped from 69 units to three.
- Nine-month operating loss widened to $14.54 million from $3.59 million, while net loss widened to $15.80 million from $3.60 million. Compensation expense increased to $9.82 million from $1.77 million, and general and administrative expense rose to $4.24 million from $1.44 million.
- Acquisitions added fixed assets, intangible assets and goodwill, but also substantial liabilities, including deferred revenue assumed with 350Green. Common shares outstanding increased to 57,409,360 at quarter-end from 42,434,705 at year-end 2012.
Outlook, risks, contingencies and unusual items
- Going concern and funding: Management planned an additional equity financing in Q4 2013 and said that, if its plan succeeded, resources could fund operations through at least September 30, 2014. The filing warns that financing might not be available on acceptable terms and that failure to obtain sufficient funding makes the company’s ability to continue as a going concern uncertain.
- Post-quarter Blink acquisition and financing: On October 16, 2013, the company closed on the Blink Network asset acquisition for approximately $3.335 million plus assumed contractual liabilities. A related October financing raised $5 million gross through common stock and warrants; post-quarter issuance costs and the financing terms add to dilution and should be assessed separately from September 30 balances.
- Demand outlook: Management anticipated a more meaningful increase in charging-station use as EV production and sales expanded, particularly after the second half of 2014. No quantified revenue or earnings guidance was provided.
- Nissan commitment: The company had received $782,880 under a joint marketing agreement to build and maintain 48 fast chargers by December 31, 2013. None had been installed by September 30; Nissan reserved legal remedies if the deadline was missed.
- 350Green/JNS litigation: A September 24 court order required transfer of specified Chicago-area assets and liabilities to JNS under an asset purchase agreement and could also require costs, attorneys’ fees or indemnification. The parties were still negotiating transfer details as of November 14; the company said it planned to appeal. The filing classified the assets and liabilities held for sale, with net liabilities of approximately $326,283.
- Other contingencies: The filing describes unpaid 350Green creditors and lawsuits, a disputed supplier commitment involving 500 charging stations, and other legal matters. Management stated its view that their ultimate resolution would not materially harm the company, but outcomes remain uncertain.
- Controls: Management concluded disclosure controls were not effective at the reasonable-assurance level due to material weaknesses: undocumented internal-control procedures and insufficient accounting resources/segregation of duties.
- Unusual compensation and dilution: Nine-month compensation included $7.91 million for warrants and options issued for services and incentive fees. The company also issued substantial equity and warrants, including replacement awards to a company owned by the CEO; related-party transactions and valuation assumptions merit review.
Most important facts for investors to verify
- Whether the planned financing and subsequent funding were sufficient to address the working-capital deficit, operating cash burn and going-concern uncertainty.
- The economics and integration of the Blink acquisition, including assumed liabilities, subsequent financing costs, warrant dilution and registration-rights deadlines and penalties.
- Whether the company completed the 48 Nissan fast chargers by the contractual deadline and the consequences of any delay.
- The final scope, value and timing of the JNS asset transfer, appeal, potential indemnities and any remaining 350Green creditor exposure.
- How quickly service revenue and charging utilization can grow relative to operating costs, especially substantial stock-based compensation and ongoing financing needs.
- Remediation of the disclosed material weaknesses and the adequacy of related-party approvals and equity-award accounting.