Business context and reporting period
Car Charging Group, Inc. (now associated with Blink Charging Co.) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2011. The company described itself as a development-stage business installing electric-vehicle charging stations at third-party properties and sharing charging-service fees with property owners. It reported no revenue from its primary business since inception.
Key financial metrics
| Metric | Three months ended June 30, 2011 | Six months ended June 30, 2011 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $664,506 | $1,615,352 |
| Operating loss | $664,506 | $1,615,352 |
| Net income (loss) | $(729,844) | $1,640,739 |
| Cash used in operating activities | Not separately stated | $1,024,779 |
The six-month net income was driven by a $3,278,163 noncash gain from changes in derivative fair value, including a $2,701,894 gain after noteholders agreed to fixed conversion terms. It did not reflect operating profitability. Gross margin and operating margin are not meaningful with no reported revenue.
At June 30, 2011, cash was $194,299; current assets were $412,986 and current liabilities were $199,805. Total liabilities were $389,507, including $189,702 of derivative liabilities. Convertible notes were reported at $25,313 net of discount; the filing states approximately $27,000 remained due in 2011 and was scheduled to mature September 25, 2011. Stockholders’ equity was $412,490, compared with a deficit of $2,879,772 at December 31, 2010.
Six-month cash flows were $(1,024,779) from operations, $(154,789) from investing and $999,999 from financing, for a $179,569 decrease in cash. The company raised $999,999 from common-stock sales during the period.
Material changes versus comparable periods
- Six-month net income of $1,640,739 compared with a $1,576,316 loss in the first half of 2010, primarily because of derivative fair-value gains; operating loss increased from $725,882 to $1,615,352.
- Second-quarter net loss narrowed to $729,844 from $3,562,838 in the 2010 quarter, largely because the prior-year quarter included a $3,244,249 derivative fair-value loss. Second-quarter operating loss increased from $311,232 to $664,506.
- Cash used in operations increased to $1,024,779 from $609,805 in the first half of 2010. Cash at period-end was $194,299, versus $35,032 a year earlier.
- Common shares outstanding rose to 25,543,405 at June 30 from 1,796,817 at December 31, 2010, chiefly reflecting note conversions and equity issuance. The cover reports 30,543,405 shares outstanding as of August 10, 2011; the filing says $12,500 of notes converted into 5,000,000 shares in August.
Outlook, risks and unusual items
Management said additional capital would be necessary and planned to seek private or public financing; it gave no assurance that funding would be available on acceptable terms. The filing states that substantial doubt existed about the company’s ability to continue as a going concern. Management expected electric-vehicle production and related charging use to become significant in the last quarter of 2011, but this was an expectation, not firm guidance.
For the first half of 2011, the company reported 11 provider agreements covering 722 locations and approximately 721,000 parking spaces; it had installed 17 units under agreements and two demonstrators. In the quarter, it reported seven units installed under provider agreements and two demonstrators. It also sold seven stations to the City of West Palm Beach for promotional purposes at a $1,340 loss; the company did not classify the transaction as revenue.
Other notable risks and items include significant dependence on future financing, possible dilution from note conversions and warrants, volatile derivative accounting, and ineffective disclosure controls as of June 30. The company also disclosed that it had no independent audit committee members or identified audit committee financial expert. It reported no material litigation, no defaults on senior securities and no off-balance-sheet arrangements.
Investor verification priorities
- Confirm current cash needs, financing plans and progress toward generating recurring charging-service revenue; the filing reports no primary-business revenue and substantial going-concern doubt.
- Reconcile the June and August share counts, note conversions, remaining debt maturities and potential additional shares from convertible notes and warrants.
- Assess how much reported earnings depends on noncash derivative remeasurement rather than operating performance.
- Verify the status and economics of provider agreements, locations, installed stations and expected utilization; agreements and parking-space counts do not establish realized demand.
- Track remediation of ineffective disclosure controls and the disclosed gaps in board and audit committee oversight.