Blink Charging Co. (then Car Charging Group, Inc.) — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. The filing is for Car Charging Group, Inc. and subsidiaries, which operated EV charging stations and the Blink Network and sold charging equipment. The report was signed April 14, 2016; the company checked that it had not filed all required reports during the preceding 12 months.
Key financial results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $943,111 | $929,192 | $2,234,412 | $1,284,877 |
| Gross profit (loss) | $230,080 | ($606,706) | $513,307 | ($1,563,222) |
| Operating loss | ($3,159,823) | ($7,953,312) | ($6,689,900) | ($12,099,052) |
| Net loss | ($2,338,799) | ($7,113,648) | ($6,020,832) | ($10,972,565) |
| Net loss attributable to common shareholders | ($2,564,456) | ($7,113,648) | ($6,502,226) | ($10,972,565) |
| Basic and diluted loss per share | ($0.03) | ($0.09) | ($0.08) | ($0.14) |
- Gross margin was approximately 24% in Q2 2015 and 23% for the first half, versus gross losses in the comparable 2014 periods.
- Charging-service revenue rose 90% in Q2 and 72% year to date. Equipment sales increased to $185,172 in Q2 and $405,979 for the half. Grant and rebate revenue fell 73% in Q2 but increased 22% year to date; the filing attributes period-to-period movements largely to specific program and grant timing.
- At June 30, cash was $279,581, total assets $4.57 million, and total liabilities $17.50 million. The company reported a $15.30 million working-capital deficit and $70.83 million accumulated deficit. Stockholders’ deficiency was $13.75 million.
- Six-month operating cash use was $3.92 million, compared with $4.64 million in 2014; investing cash use was $253,452. Financing provided $2.83 million, primarily from $3.0 million released from escrow for Series C preferred stock. Cash declined from $1.63 million at year-end to $279,581.
- Current liabilities included $3.39 million of derivative liabilities and $2.46 million in accrued public-information fees. Notes and convertible notes payable totaled approximately $584,000, including current and noncurrent balances.
Material changes and unusual items
- Revenue increased modestly in Q2 and substantially for the first half; improved charging-service and equipment sales were partly offset in Q2 by lower grant revenue. Gross profit turned positive as cost of revenue declined, principally because 2014 asset impairments reduced subsequent depreciation and amortization.
- Net losses narrowed year over year, but the periods include significant non-operating and noncash items. Q2 2015 included a $1.83 million gain from release of a U.S. Department of Energy liability and a $1.29 million penalty for delinquent SEC filings; first-half amounts were $1.83 million and $1.75 million, respectively. The company also recorded gains from changes in warrant-liability fair value.
- Operating expenses remained substantial: $3.39 million in Q2 and $7.20 million for the half. First-half compensation rose 19%, partly due to $875,000 of stock awards to the COO. Preferred-stock dividends attributable to Series C holders were $212,400 in Q2 and $414,400 for the half.
- During the first half, the company issued 8,250 Series B preferred shares valued at $825,000 as part of the ECOtality transaction and released $3.0 million of Series C proceeds from escrow. A purchaser later elected to receive $1.0 million back from escrow, leaving $5.0 million received under the original agreement rather than the contemplated $6.0 million.
- Potential dilution was considerable: 58.1 million warrants and 7.7 million options were outstanding at June 30; the filing reports 107.2 million potentially dilutive common-share equivalents in total, excluded from diluted loss per share as anti-dilutive.
Outlook, risks and contingencies
- Going concern: Management and the filing state that substantial doubt exists about the company’s ability to continue as a going concern. Management said available cash and operating margins were insufficient for fixed and variable obligations, and external funding would be required for the next 12 months. No new financing commitments were in place at the reporting date; failure to raise funds could require further cost cuts or curtailment of operations.
- Subsequent financing: The filing reports $2.58 million received after June 30 from Series C preferred-stock sales and a further $2.25 million potentially payable upon milestones, with no assurance those milestones would be met. The March 2016 financing agreement included performance conditions, including 20% year-over-year revenue growth and quarterly growth in Generation 2 hardware purchase-order value with a minimum 40% average gross margin. Certain redemption and performance conditions could also trigger efforts to sell substantially all company assets.
- Commercial and legal risks: Nissan terminated its marketing agreement after alleging a material default and intended to repossess chargers; the parties later agreed Nissan would take 28 units, with related asset and deferred-revenue balances to be written off. The company also disclosed disputes involving ITT Cannon’s $737,425 cable contract, creditor claims concerning 350 Green, and litigation in which JNS later added CCGI as a defendant. A separate $87,167 legal-fee arbitration was reported settled.
- Reporting and controls: Disclosure controls were deemed ineffective, and management identified multiple material weaknesses in internal controls, including inadequate documentation, limited accounting resources and expertise, and ineffective audit-committee oversight. The filing also describes penalties and registration-related liabilities arising from SEC filing or compliance delays.
- Other obligations: Series C preferred stock had a stated liquidation preference of $8.60 million at June 30. The company had agreed to purchase up to 15,000 chargers over three years, subject to conditions, at an aggregate stated value of $10.3 million to $16.5 million; it paid an $83,000 initiation fee. The filing provides no general company revenue or earnings guidance.
Important facts for investors to verify
- Whether subsequent equity proceeds and milestone funding were received, and whether funding was sufficient to address the stated going-concern risk.
- Whether reported revenue growth and gross-margin improvement translated into lower cash burn and sustainable operating results.
- The status and amount of SEC filing penalties, public-information fees, and remaining registration-rights obligations.
- The outcome and potential financial exposure from the Nissan, ITT Cannon, JNS, and other disclosed disputes, and the accounting for the chargers to be returned.
- The company’s progress remediating material weaknesses and restoring timely SEC reporting.
- The terms, redemption rights, dividends, liquidation preferences, and potential dilution associated with preferred stock, warrants, and options.