Business context and reporting period
Car Charging Group, Inc. (the historical registrant identified in this filing; not named Blink Charging Co. in the filing) filed this unaudited Form 10-Q for the quarter ended March 31, 2012. The company was a development-stage provider of electric-vehicle charging services, installing stations at third-party properties and sharing service revenue with property owners. It reported service at 64 locations after adding 12 locations during the quarter.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $2,605 | $0 |
| Gross profit | $2,197 | $0 |
| Gross margin | 84.3% | Not meaningful |
| Operating expenses | $1,534,970 | $950,846 |
| Operating loss | $(1,532,773) | $(950,846) |
| Net income (loss) | $(1,532,806) | $2,370,583 |
| Net cash used in operations | $(1,036,694) | $(352,081) |
At March 31, 2012, cash was $670,667, total current assets were $1,222,564, and current liabilities were $1,329,484, implying a working-capital deficit of approximately $106,920. Total assets were $2,040,841; total liabilities were $1,375,124; and stockholders’ equity was $665,717. Liabilities included $1 million recorded for preferred stock not yet authorized or issued. The company reported a $57,050 automobile note payable, secured by the vehicle, bearing 4.75% interest; no convertible notes remained after the final conversion in February 2012.
Cash increased by $263,808 during the quarter, supported by $1.5 million of financing proceeds: $1 million for preferred stock and $500,000 for common stock. The company reported an accumulated development-stage deficit of approximately $15.18 million. The filing does not provide a clear operating margin in percentage terms; given minimal revenue and substantial operating costs, the operating margin was deeply negative.
Material changes versus the prior comparable period
- Service-fee revenue began to appear, but remained very small at $2,605, versus no revenue in Q1 2011.
- Operating expenses rose 61% to $1.535 million. Management attributed the increase mainly to outside consulting payments and stock-based compensation, partly offset by lower compensation expense.
- Q1 2011 net income was driven by a non-cash $3.333 million gain from a change in the fair value of derivative liabilities. No comparable gain occurred in Q1 2012; therefore, the prior-period profit is not representative of operating performance.
- Operating cash use increased to $1.037 million from $352,081. Investing cash use was $199,498, primarily for charging stations, a vehicle, and equipment.
- Common shares outstanding increased to 39,788,450 from 37,384,414 at year-end 2011. The filing separately reports 40,288,450 shares issued and outstanding as of May 15, 2012.
Outlook, risks, contingencies, and unusual items
- Management stated it believed available resources would fund operations through at least March 31, 2013, but the company had a history of losses and operating cash use and depended on debt and equity financing. A $1 million common-stock subscription receivable was outstanding at quarter-end; $500,000 was received April 3, with the remainder due in June 2012.
- Management anticipated EV supply and utilization becoming more significant in the fourth quarter of 2012. This was a forward-looking expectation, not a quantified revenue forecast or formal guidance.
- In April 2012, the company was awarded a $1 million Pennsylvania grant for EV infrastructure on the Pennsylvania Turnpike, subject to final documentation, spending restrictions, and company funding obligations.
- A preferred-stock purchase agreement provided for $1 million received in February and an option to purchase an additional $1.5 million of preferred stock. The preferred class had not yet been authorized or issued at quarter-end. Exercise of the option could also result in a 3% interest in the common stock of a planned European subsidiary being granted for consulting services.
- A related-party patent license signed March 29 provides for royalties equal to 10% of gross profits from covered products or processes.
- The company had a $41,000 lawsuit over consulting fees, for which it had recorded a reserve. A former officer and director filed actions in March and April concerning compensation, warrant exercise rights, and termination; management said it considered the suits without merit and intended to defend them.
- A charging-station supply commitment required purchase of 250 units during 2011 at more than $3,100 per unit; failure to take delivery could require reimbursement of certain discounts previously received.
- Disclosure controls and procedures were assessed as ineffective at March 31, 2012. The company also disclosed no independent directors on its board/audit committee and no audit committee financial expert.
- Warrant and share-based compensation were significant non-cash expenses. The filing reports approximately $450,000 of stock issued for services during the quarter and approximately $94,000 of warrant-vesting compensation; warrant disclosures also describe substantial grant-date fair values to be recognized over service periods.
Most important facts for investors to verify
- Confirm the issuer and corporate lineage: this filing is for Car Charging Group, Inc., and does not itself identify Blink Charging Co. as the registrant.
- Verify subsequent receipts of the remaining $500,000 subscription, authorization and issuance terms of the proposed preferred stock, and any exercise of the additional preferred-stock option.
- Track cash burn, working-capital needs, and whether management’s stated funding runway was achieved without further dilution or financing.
- Assess whether location growth translates into recurring charging revenue and materially improved unit economics; reported quarterly revenue was only $2,605.
- Monitor completion and restrictions of the Pennsylvania grant, the charging-station purchase commitment, related-party royalties, and the disclosed lawsuits.
- Review remediation of ineffective disclosure controls and governance limitations, as well as the effect of outstanding warrants and equity awards on dilution.