Business context and reporting period
Car Charging Group, Inc. (a development-stage company; the historical issuer in this filing) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2012. It installs and operates electric-vehicle charging stations and also sells charging equipment. Management said significant revenue had not yet been established.
During the nine-month period, the company installed 62 units at 45 additional locations, bringing its reported network to 226 units at 139 locations. The filing also reported a term sheet to acquire 350Green LLC, subject to definitive terms and regulatory approval.
Financial results and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $8,843 (2012); $981 (2011) | $246,330 (2012); $60,471 (2011) |
| Gross profit (loss) | $1,805; $981 | $50,446; ($359) |
| Gross margin | About 20.4% (2012) | About 20.5% (2012) |
| Operating loss | ($1,160,062); ($1,658,484) | ($3,590,542); ($3,275,176) |
| Net income (loss) | ($1,166,529); ($1,568,932) | ($3,597,551); $71,807 |
| Operating cash flow | Not separately provided for the quarter | ($2,029,652); ($1,360,123) |
Nine-month equipment sales were $235,726, while service-fee revenue was $10,604. In the quarter, service fees were $4,589 and one charging station sale generated $4,254 in sales. The filing’s quarterly and nine-month revenue growth therefore came primarily from equipment sales, not recurring service revenue.
At September 30, cash was $19,963, down from $406,859 at December 31, 2011. Current assets were $684,149 and current liabilities $598,277, for working capital of approximately $85,872. Total assets were $1,874,903; total liabilities were $669,453. The company reported an accumulated deficit of $17,248,368.
Debt included a $65,000 unsecured convertible note issued September 14, bearing 12% interest and due March 14, 2013; it is shown net of discount at $6,500 on the balance sheet. The company also had an automobile note with a $59,877 balance, including $11,960 current and $47,917 long-term. Nine-month financing cash flow was $2,320,184, including $1,360,000 from common stock, $900,000 from preferred stock, and $65,000 from the convertible note.
Material changes versus prior comparable periods
- Quarterly revenue rose from $981 to $8,843, while the quarterly net loss narrowed by about $402,000. Management attributed the improved quarterly result mainly to lower general and administrative expense and higher revenue, partly offset by higher compensation costs.
- Nine-month revenue rose from $60,471 to $246,330, but operating loss increased by about $315,000. Compensation expense rose to $1,774,531 from $468,002, while general and administrative expense fell to $1,444,758 from $2,511,918.
- Nine-month net results swung from $71,807 income to a $3,597,551 loss. The prior-year period included a $3,372,543 non-cash gain from a change in derivative fair value; the 2012 period did not. The prior-year profit is therefore not a straightforward indicator of operating performance.
- Operating cash use increased to $2,029,652 from $1,360,123, and investing cash use increased to $677,428 from $185,633.
- Common shares outstanding increased from 37,384,414 at December 31, 2011 to 41,317,868 at September 30, 2012; the filing reported 41,825,094 issued and outstanding as of November 14, 2012.
Outlook, risks, contingencies, and unusual items
- No quantified revenue or earnings guidance was provided. Management said it expected to seek additional common or preferred stock financing and believed resources would fund operations through at least September 30, 2013, but stated there could be no assurance. The company had historically relied on debt and equity financing and continued to incur losses and use cash.
- After quarter-end, the company issued two asset-secured convertible notes totaling $150,000, each bearing 10% interest and due in April 2013. It also received $500,000 in an October private offering of common stock with warrants. These financings included conversion and warrant terms that may dilute shareholders.
- A vendor agreement committed the company to purchase 500 charging stations over a year; only 90 had been purchased by September 30. The company said the vendor had not performed according to the agreement, and the matter’s resolution was unknown. In November, the company returned 15 stations and software licenses valued at $40,185 as excess to current requirements.
- The company reported a $41,000 claim by a consulting firm, for which it had recorded a reserve, and lawsuits by a former officer and director concerning compensation, warrant rights, and termination. Management said it considered the latter suits without merit and intended to defend them; outcomes were uncertain.
- During the quarter, a landlord released the company from rent liability, resulting in reversal of a $55,200 accrued rent liability; the company also wrote off a related $34,000 security deposit. The quarter’s expenses and comparison were affected by these items.
- Disclosure controls and procedures were reported ineffective as of September 30, 2012. The filing also said the board had no independent directors and no identified audit committee financial expert. Management disclosed no material changes in internal control over financial reporting during the quarter.
- Other execution risks include dependence on external financing, very low service revenue relative to expenses, reliance on a single charging-station vendor for purchases to date, and substantial potential dilution. The filing identified 11,528,169 warrants outstanding and 10 million Series A preferred shares convertible at 2.5 common shares each, subject to ownership limits.
- The COO resigned effective October 3, 2012. The proposed 350Green acquisition remained subject to final agreement and regulatory approval; the filing did not report a completed acquisition.
Important facts for investors to verify
- Whether recurring charging-service revenue and station utilization are growing enough to reduce losses, given that most nine-month revenue came from equipment sales.
- Cash runway and financing needs, including the terms, security, conversion features, and dilution from subsequent notes, stock sales, preferred stock, and warrants.
- Resolution of the 500-unit vendor commitment and performance dispute, and the status of the proposed 350Green acquisition.
- Developments in the former officer/director lawsuits and the $41,000 consulting-fee claim.
- Remediation of ineffective disclosure controls and improvements to board and audit oversight.