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CCGI > SEC Filings for CCGI > Form 10-K on 16-Apr-2013All Recent SEC Filings

Show all filings for CAR CHARGING GROUP, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-K for CAR CHARGING GROUP, INC.


16-Apr-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations and financial condition for the year ended December 31, 2012 and 2011 should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. See "Forward-Looking Statements."

Overview

Car Charging Group, Inc. (formerly New Image Concepts, Inc.) was created as a result of a merger (Reverse Merger) on December 7, 2009, with Car Charging, Inc. New Image Concepts Inc. was a development stage entity with the intention of providing personal consultation services to the general public. Car Charging Inc. was formed on September 8, 2009 to develop a market to service electric vehicle charging. We are establishing a comprehensive network of EV charging stations that delivers easy, convenient access to drivers wherever they live, work and play. The charging stations are installed, maintained and owned by the Company and they are provided at no cost to the business/property owner "partner." The use of the stations is not anticipated in any significant volume until sometime after the fourth quarter of 2013, when it is anticipated automobile manufacturers are scheduled to mass produce and sell electric vehicles to the public.

To date, the Company's operations have been devoted primarily to raising capital for operations, entering into contracts with property owner/operators (the "Provider Agreements) and administrative functions. The Company has grown through internal development and selected acquisitions. During 2012, the Company installed 157 charging units at 113 locations pursuant to the terms of its Provider Agreements. The ability of the Company to achieve its business objectives, however, is contingent upon its success in raising additional capital until adequate revenues are realized from operations. Therefore, no substantial revenue or profit is anticipated in the near or foreseeable future.

During 2011, the Company increased its funding by $2,499,999 through additional private sales of its common stock.

During 2012, the Company raised $2,382,303 in capital, net of issuance costs, through private sales of common stock and its Series B Convertible Preferred Stock and issued $296,000 of convertible notes.

By December 31, 2012, the Company had entered into contracts to provide charging services on third party premises, "Provider Agreements", with 58 entities and completed installation of 263 charging units ("EV Devices").

The Company generally acquires charging stations from Coulomb Technologies Inc., but consistent with its policy and business plan, continuously reviews the availability of acquiring EV Devices from other manufacturers.

The Company's business plan anticipates that significant capital will be needed during 2013 and 2014 to continue building our network of charging stations throughout the United States and the integration of our new acquisitions during the first quarter of 2013. Accordingly, the amount of new capital needed will vary depending on several significant factors that include quantity of electric vehicle sales, gasoline prices, success of the Company's Provider Agreement program, vigorously seeking governmental grants, rebates, subsidies and equipment manufacturer incentives, cost of EV's and the Company's continued acceptance by the capital markets.


Pursuant to our business plan, to stimulate growth, control cash-flow and minimize costs, the Company has implemented a policy of both acquiring leads to property owners for Provider Agreements through independent contractors and the utilization of in-house personnel in pursuit of Provider Agreements. Company executives accordingly, are employed to close and maintain Provider Agreements and relationships, in addition to those who coordinate installations and operations of EV charging stations.

Wherever possible, the Company has adopted a policy of issuing warrants and stock to avoid cash compensation expenses and encourage stock sales (subscriptions). These warrant transactions can result in significant non-cash compensation charges and other non-cash charges that are generally reflected in the consolidated financial statements as "non cash compensation", "general and administrative" "compensation" or as "change in fair value" in the statements of operations and cash flow.

The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 of the FASB Accounting Standards Codification and paragraph 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the Statement of Operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In March 2011, agreements between the Company and the note holders to fix the conversion rate stated in the convertible notes effectively removed the embedded derivative from the convertible notes. Accordingly, as future conversions were no longer subject to reset, the derivative liability related to the notes was adjusted to $0 and the Company recognized a gain on the change in value of the derivative liability of $2,701,894 upon execution.

In October 2011, the Company executed an agreement with the warrant holders which eliminated the reset feature of these warrants. As a result, the derivative liability associated with the reset is no longer present and the Company recognized a gain on the change in value of derivative liability of $786,721.

We did not issue any instruments with embedded derivatives during 2012.

Recent Financings

Sale of Preferred Stock

On February 6, 2012, we entered into a stock purchase agreement to sell 1,000,000 shares of Series B Convertible Preferred stock at per share price of $1.00, resulting in gross proceeds to us of $1,000,000, before deducting offering expenses. Simultaneously with the issuance of the original 1,000,000 Series B Convertible Preferred shares, the purchaser was entitled to receive two percent (2%) of the issued and outstanding common stock of CarCharging Limited (a subsidiary formed September 2012) in exchange for consulting services for developing business relationships and obtaining charging station locations in Romania.

2012 Private Placements

On February 27, 2012, we entered into a stock purchase agreement for 500,000 shares of common stock in exchange for proceeds of $500,000.

On October 25, 2011 and November 14, 2012, we entered into definitive agreements with investors to sell in a private placement an aggregate of 525,000 shares of our common stock and warrants to purchase 525,000 shares of our common stock at a purchase price of $1.00 per unit, resulting in gross proceeds to us of $525,000. The warrants are exercisable at an exercise price of $2.25 per share and expire three years from the date of issuance.

Convertible Notes

On September 14, 2012, the Company issued an unsecured $65,000 convertible note payable, which bears interest at 12% per anum and is due with accrued interest on March 14, 2013. The note is convertible, at the discretion of the holder into the Company's common stock at the fixed rate of $1.00 per principal value for any unpaid principal and accrued interest thereon until the note is paid in full. In conjunction with the issuance of the note, the Company issued a warrant to purchase 65,000 shares of the Company's common stock at an exercise price of $1.00 per share. The warrant expires on September 14, 2014.

In October 2012 we issued convertible notes in the aggregate amount of $150,000 secured by all of our assets due April 2013 with interest at 12% per anum. The note is convertible, at the discretion of the holders into our common stock at the fixed rate of $1.00 per principal value for any unpaid principal and accrued interest thereon until the note is paid in full. . In conjunction with the issuance of the notes, we issued warrants to purchase 150,000 shares of our common stock at an exercise price of $1.00 per share. The warrants expire in October 2015.

In December 2012, we issued unsecured convertible notes in the amount of $76,000, due June 2013, with interest at 12% per anum. The note is convertible, at the discretion of the holders into our common stock at the fixed rate of $1.00 per principal value for any unpaid principal and accrued interest thereon until the note is paid in full. In conjunction with the issuance of the note, we issued warrants to purchase 76,000 shares of our common stock at an exercise price of $1.00 per share. The warrants expire on December 2014.


Results of Operations

Comparison of the years ended December 31, 2012 and December 31, 2011

Revenues

We have generated revenues of $16,743 from service fees related to installed EV Charging Stations for the year ended December 31, 2012 as compared to $2,799 in service fees for the year ended December 31, 2011. While the Company's primary strategy is to earn revenue through the installation and maintenance of EV Charging Stations, the Company will sell EV Charging Stations on occasions when the opportunity presents itself. During the year ended December 31, 2012, we sold 69 EV charging stations to a customer for a total price of $235,726 and at a gross profit of $41,670. During the year ended December 31, 2011, we sold seven EV charging stations to a customer for a total price of $59,490 and at a loss of $1,340. Additionally, we received a grant and a rebate totaling $59,988 to defray the cost of equipment and installation of 13 charging stations during 2012 from two governmental entities. The rebate and grant are deferred and amortized in a manner consistent with the depreciation expense of the related assets over their useful lives. As a result we amortized $5,595 into revenue during the year ended December 31, 2012. We intend to vigorously seek additional grants, rebates, subsidies and equipment manufacturer incentives as a cost effective means of reducing our capital investment in the purchase and installation of charging stations. We did not derive any revenue from grants or rebates in 2011.

Operating Expenses

Operating expenses selling, marketing and advertising, payroll, administrative, finance and professional expenses. Certain expenses incurred in the year ended December 31, 2011 have been reclassified to conform with the 2012 presentation.

Compensation expense increased by $1,618,037 from $760,276 for the year ended December 31, 2011 to $2,378,313 for the year ended December 31, 2012. The increase was attributable to higher payroll costs as a result of hiring a Chief Operating Officer and controller, the hiring of additional employees to support the growth in the number of EV charging installations and higher non-cash compensation costs as a result of the issuance of warrants, share of common stock and options to employees.

Other operating expenses increased by $116,780 from $430,573 for the year ended December 31, 2011 to $547,343 for the year ended December 31, 2012. The increase was attributable to an increase in travel expenses as a result of the increase in the number of EV charging station installations offset by a decrease in rent expense due to the accrued sublease liability from which the landlord of the building released us from liability.

General and administrative expenses decreased by $577,001 from $2,898,198 for the year ended December 31, 2011 to $2,321,197 for the year ended December 31, 2012. The decrease was primarily as a result of a decrease in non-cash outside consulting expenses during the year ended December 31, 2012.

Operating Loss

Our operating loss for the year ended December 31, 2012 increased by $1,088,086 from $4,088,805 for the year ended December 31, 2011 to $5,176,891 for the year ended December 31, 2012. The increase was attributable to an increase in compensation and other operating expenses offset by a decrease in general and administrative expenses and an increase in gross profit.

Other Income (Expense)

Other income (expense) decreased by $3,061,449 from income of $2,948,730 for the year ended December 31, 2011 to other expense of $112,719 for the year ended December 31, 2012. The decrease was attributable to a one-time gain of $3,488,615 from the change in fair value of a derivative liability offset by a loss on exchange of warrants for shares of common stock of $485,000; both in 2011 offset by the amortization of debt discount of $103,442 associated with convertible notes issued in 2012.

Net Loss

Our net loss for the year ended December 31, 2012 increased by $4,149,535 to $5,289,610 as compared to a net loss of $1,140,075 for the year ended December 31, 2011. The increase was attributable to a net increase in operating expenses of $1,146,816, an increase in other expenses of $3,061,449 offset by an increase in gross profit of $58,730.

Period from September 3, 2009 (date of inception) through December 31, 2012

Our cumulative net loss since inception, $18,940,427, including non-cash charges of $11,740,357 (which includes the fair value of warrants, options and common stock issued for services and compensation) primarily consisting of consulting, professional fees and public relations fees is attributable to the fact that we have not derived significant revenues from our operations to offset our business development expenses. Although auto manufacturers have initiated EV sales in the United States and that year over year increases in the number of Plug-in Electric Vehicles sold from 2012 to 2013 should lead to production of greater revenues, manufacture and demand of electric vehicles that will require utilization of the Company's services, the demand is not anticipated to be widespread until after the fourth quarter of 2013; this gives the Company adequate time to develop its distribution plan and additional capital sources.


Liquidity and Capital Resources

During 2012, we have financed our activities from sales of our capital stock and from loans from unrelated and related parties. A significant portion of the funds raised from the sale of capital stock has been used to cover working capital needs such as personnel, office expenses and various consulting and professional fees.

For the years ended December 31, 2012 and 2011, we used cash of $2,312,346 and $2,000,493 for operations, respectively, and $6,180,559 since inception. Such cash use and accumulated losses have resulted primarily from costs related to various personnel, consulting and professional fees. During the year ended December 31, 2012, cash used for investing activities consisted of $751,648 for purchases of electric vehicle charging stations, an automobile, domain names and office equipment as compared with $466,515 for the year ended December 31, 2011. Cash provided by financing activities for the year ended December 31, 2012 was $2,670,551 of which $1,482,303 was from the sale of shares of our common stock, net of issuance costs, and $900,000 from the sale of shares of our preferred stock, net of issuance costs and $296,000 from the issuance of convertible notes as compared to $2,499,999 provided by net proceeds from the sale of shares of our common stock for the year ended December 31, 2011. The net decrease in cash during the year ended December 31, 2012 was $393,443 as compared with a net increase of $32,991 for the year ended December 31, 2011.

Since inception, we have used cash for investing activities of $1,409,621 for the purchase of EV charging stations, office and computer equipment, an automobile and other assets. We have received cash provided by financing activities of notes payable of $396,000, and $7,215,348, net of issuance costs, primarily from sales of shares of our common and Series B Convertible Preferred stock.

At December 31, 2012, the Company had $13,416 in cash resources to meet current obligations. Although there can be no assurance, management believes that the Company has sufficient resources to fund the Company's operations through at least December 31, 2013.


Subsequent Events

Beam Acquisition

On February 26, 2013, the Company, entered into an equity exchange agreement (the "Exchange Agreement") by and among the Company, Beam Acquisition LLC, a Nevada limited liability company and wholly-owned subsidiary of the Company ("Beam Acquisition"), Beam Charging LLC, a New York limited liability company ("Beam"), and Manhattan Charging LLC, a New York limited liability company ("Manhattan Charging"), Eric L'Esperance ("L'Esperance"), and Andrew Shapiro ("Shapiro" and together with Manhattan Charging, L'Esperance and the individual members of Manhattan Charging LLC, the "Beam Members"). The Company had previously entered into an agreement, dated December 31, 2012, (the "Initial Agreement") with Beam Acquisition and Manhattan Charging, pursuant to which Beam Acquisition acquired all of the outstanding membership interests in Beam in exchange for 1,265,822 restricted shares (the "Exchange Shares") of the Company's common stock, par value $0.001 (the "Common Stock"). In the Exchange Agreement, the Company, through Beam Acquisition, further identified the specific terms under which it acquired all of the outstanding membership interests of Beam and Beam became a wholly owned subsidiary of Beam Acquisition (the "Equity Exchange").

As part of the Equity Exchange, the Company made a payment of $500,000 to Manhattan Charging, of which an aggregate amount of $461,150 was issued in the form of promissory notes (the "Promissory Notes"). The Promissory Notes accrue interest at a rate of 6% per annum on the aggregate principal amount, payable on April 15, 2013 (the "Maturity Date"). As a security for the Promissory Notes, the Company entered into a security agreement granting the Beam Members a first priority security interest in all the assets of Beam (the "Security Agreement") and a pledge and security agreement granting the Beam Members a first priority security interest in all of the equity interest in Beam (the "Pledge and Security Agreement"). In connection with the event of default under the Promissory Notes, the Company entered into an escrow agreement (the "Escrow Agreement") by and among the Company, Beam Acquisition, Beam, the Beam Members, the Law Office of Samuel A. Tversky P.C. ("Tversky"), and the Bernstein Law Firm ("Bernstein" each of Tversky and Bernstein an "Escrow Agent"). Pursuant to the terms of the Escrow Agreement, each of the Beam Members delivered to Bernstein an executed cancellation letter in connection with the transactions contemplated by the Exchange Agreement (the "Cancellation Letters"); Beam Acquisition delivered to Tversky a fully executed assignment of all ownership interest in Beam (the "Assignment of Beam Membership Interest"); and the Company, Beam Acquisition, and Beam delivered to Tversky an executed confession of judgment, to be held in escrow pursuant to the terms of the Escrow Agreement.

In conjunction with the Equity Exchange, the Company entered into an Assignment of Promissory Note (the "Note Assignment") with certain assignors (the "Assignors"), pursuant to which the Assignors sold to the Company two certain secured promissory notes (the "Notes") totaling an aggregate principal amount of $130,000. In connection with the Note Assignment, the Company entered into an Amendment to Promissory Note (the "Note Amendment"). Pursuant to the Note Amendment, the Notes held by the Company accrue interest at a rate of 8% per annum on the aggregate principal amount, payable on February 26, 2016. The Notes are secured by a lien on and continuing security interest in all of the Beam assets as described in the Note Amendment.

Synapse Acquisition

On April 3, 2013 (the "Closing Date"), the Company, entered into an equity exchange agreement (the "Exchange Agreement") by and among the Company, EV Pass, LLC, a New York limited liability company ("EV Pass") and Synapse Sustainability Trust, Inc., a New York non-profit corporation ("Synapse") pursuant to which the Company acquired from Synapse (i) all of the outstanding membership interests in EV Pass; (ii) the right to operate, maintain and receive revenue from 68 charging stations located throughout Central New York State ("CNY") in exchange for 671,141 shares (the "Exchange Shares") of the Company's common stock, par value $0.001 (the "Common Stock"); and (iii) title to the registered trademark "EV Pass" (the "Equity Exchange").

As part of the Equity Exchange, the Company made a payment of $100,000 to Synapse, of which $25,000 was paid on the Closing Date and $75,000 was issued in the form of a promissory note (the "Promissory Note"). The Promissory Note does not bear interest and is payable in three installment payments of $25,000 on each subsequent three month anniversary of the Closing Date.

On the Closing Date, the parties also executed (i) a Revenue Sharing Agreement wherein the Company agreed to pay Synapse 3.6% of the net revenues earned from all current and future charging units installed at any of the 68 CNY locations and (ii) a Bleed-Out Agreement pursuant to which Synapse agreed to limit its total daily trading of the Common Stock to no more than 5% of the total daily trading volume of the Company's shares.

Financing

On March 22, 2013, the Company completed a financing, under a private offering by entering into a Subscription Agreement (the "Subscription Agreement") with certain investors (the "Investors") for total gross proceeds to the Company of $2,495,000. Pursuant to the Subscription Agreement, the Company issued (i) an aggregate of 4,590,000 of our Common Stock (the "Financing Shares") at a purchase price of $0.50 per share, and (ii) warrants (the "Warrants") to purchase 4,590,000 shares of the Company's Common Stock (the "Warrant Shares") at an exercise price of $2.25 per share

Warrants

The Warrants are exercisable for an aggregate of 4,590,000 shares of the Company's Common Stock. The Warrants are exercisable for a period of three years from the original issue date. The exercise price with respect to the Warrants is $2.25 per share. The exercise price for the Warrants is subject to adjustment upon certain events, such as merger, combinations, dividends, reclassifications or other corporate change and dilutive issuances.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities" (SPEs).


Critical Accounting Policies

a. Basis of presentation

The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

b. Development stage company

The Company is a development stage company as defined by ASC 915-10 "Development Stage Entities." The Company is still devoting substantially all of its efforts on establishing the business and developing revenue generating opportunities through its planned principal operations. In the latter half of 2011, the Company's principal sales operations began however the Company did not recognize significant revenues during the period. All losses accumulated since inception have been considered as part of the Company's development stage activities.

c. Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

d. Discount on debt

The Company allocated the proceeds received from convertible debt instruments between the underlying debt instruments and has recorded the conversion feature as a liability in accordance with paragraph 815-15-25-1 of the FASB Accounting Standards Codification. The conversion feature and certain other features that are considered embedded derivative instruments, such as a conversion reset provision have been recorded at their fair value within the terms of paragraph 815-15-25-1 of the FASB Accounting Standards Codification as its fair value can be separated from the convertible note and its conversion is independent of the underlying note value. The conversion liability is marked to market each reporting period with the resulting gains or losses shown on the Statement of Operations.

e. Derivative instruments

The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 of the FASB Accounting Standards Codification and paragraph 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the Statement of Operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

f. Fair value of financial instruments

. . .

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