Car Charging Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2013. The registrant was Car Charging Group, Inc. (a development-stage EV-charging company). Financial statements are unaudited.
Business context
The company develops and operates EV charging networks, sells charging equipment, and earns service fees and grant revenue. It acquired Beam Charging, EV Pass, and 350Green during the first half of 2013. The acquisitions added 679 charging units, bringing the reported network to 974 units and 87 strategic partners. Results include acquired operations only from their respective acquisition dates.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $77,739 | $234,882 | $93,314 | $237,487 |
| Gross profit | $27,720 | $46,444 | $38,886 | $48,641 |
| Gross margin | 35.7% | 19.8% | 41.7% | 20.5% |
| Operating loss | $(5,433,391) | $(897,707) | $(7,433,653) | $(2,430,480) |
| Net loss | $(5,640,416) | $(898,216) | $(7,863,477) | $(2,431,022) |
| Basic and diluted loss per share | $(0.11) | $(0.02) | $(0.16) | $(0.06) |
- Q2 revenue fell about 67% year over year, chiefly because equipment sales dropped to $12,762 from $231,472; the company sold three units versus 68. Service fees rose to $32,227 from $3,410, and grant revenue was $32,750.
- Six-month revenue fell about 61%, while service fees increased to $42,803 from $6,015. The company attributed the higher service revenue to the acquired charging units.
- Operating expenses reached $5.46 million in Q2 and $7.47 million for the six months. Higher stock-based compensation and consultant-related stock and warrant costs, acquisition-related professional fees, and depreciation contributed to the increase. Q2 also included a $187,000 provision for warrant liability; six-month other expense included $126,783 of convertible-debt discount amortization and other financing and settlement losses.
- Operating cash use was $993,031 for the six months, compared with $1,439,692 in 2012. Investing activities used $1,059,440; financing provided $2,204,220, including $2,208,000 from common-stock sales and $525,000 in subscriptions for shares issued after quarter-end. Cash increased by $151,749 to $165,165.
- At June 30, cash was $165,165, current assets $1.17 million, current liabilities $8.92 million, and working capital was negative $7,746,256. Total liabilities were $9,975,456. Accounts payable and accrued expenses were $4,896,058; deferred revenue totaled about $3.50 million.
- Common shares outstanding were 51,743,228 at June 30 and 56,319,360 as of August 17, 2013. The filing reports 47.5 million potentially dilutive shares excluded from diluted loss per share as anti-dilutive.
Material changes and notable items
- The acquisitions materially expanded assets and operations: EV charging stations, net, rose to $5.85 million from $960,234 at year-end; the balance sheet also reported $4.02 million of intangible assets and $2.73 million of goodwill. Acquisition valuations were preliminary.
- No charging-unit installations were completed during Q2 while the company focused on integrating acquired networks. Management reported seven additional units installed in July.
- The company received $782,880 under a Nissan marketing agreement tied to a 48-fast-charger network. None of those chargers had been installed by June 30; installation was required by December 31, 2013, and the incentive was deferred for recognition over the chargers’ lives after installation.
- The company raised equity and issued substantial stock and warrants for capital procurement, services, compensation, and acquisitions. The filing identifies 17.8 million warrants outstanding at quarter-end, in addition to options and convertible securities.
Outlook, liquidity, risks, and contingencies
- Going concern: Management disclosed recurring losses, negative working capital, and substantial doubt about the company’s ability to continue as a going concern. Plans included raising equity, selling energy tax credits, and reducing costs. Management believed these plans, if successful, could fund operations through at least June 30, 2014; there was no assurance they would succeed.
- Market outlook: Management expected EV adoption and charging demand to increase, but said widespread demand was not anticipated until the second half of 2014. The filing provides no quantified revenue or earnings guidance.
- Debt and financing: The balance sheet included $150,000 of convertible notes, $120,000 of related-party current notes, and other notes payable. The $150,000 convertible notes were past due; in August the company and holder agreed, subject to board approval, to a proposed conversion and warrant issuance. A shareholder provided $145,000 of 12% demand notes during Q2.
- Legal and contractual exposure: A dispute concerning 350Green and Chicago assets was pending in federal court. The company said it might have to sell Chicago assets and pay JNS costs and attorneys’ fees; JNS would then be required to assume approximately $1.6 million of 350Green liabilities. The 350Green Chicago grant also required settlement of subcontractor claims and completion of the project under revised terms. Separately, a charging-station purchase agreement for 500 units was disputed, with ultimate resolution unknown.
- A $41,000 consulting-fee lawsuit was reserved in accrued expenses. A former officer’s labor claim had not been resolved, and an arbitration involving a former consultant was pending after a July 2013 hearing.
- Controls: Management concluded disclosure controls were ineffective at the reasonable-assurance level because of two material weaknesses: undocumented internal-control policies and procedures, and insufficient accounting resources and segregation of duties. The company reported performing additional procedures to prepare the statements.
Important facts for investors to verify
- Whether the company obtained sufficient new financing or completed the planned cost reductions and asset-tax-credit sales to address its going-concern shortfall.
- Progress and costs for installing the Nissan fast chargers and fulfilling the Chicago grant and other installation commitments.
- Final acquisition valuations, integration results, and the resolution or financial impact of the Chicago/JNS and other legal matters.
- The status of overdue convertible notes, related-party borrowing, accounts payable, and the substantial deferred-revenue obligations.
- Share and warrant issuances after quarter-end, including the proposed note conversion and the dilution implications of outstanding securities.
- Whether management remediated the disclosed material weaknesses in financial-reporting controls.