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CCGI > SEC Filings for CCGI > Form 10-K on 5-May-2014All Recent SEC Filings

Show all filings for CAR CHARGING GROUP, INC.

Form 10-K for CAR CHARGING GROUP, INC.


5-May-2014

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 years ended December 31, 2013 and the fiscal year ended December 31, 2012 should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Annual Report. 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. ("CarCharging") is a pioneer in nationwide public electric vehicle (EV) charging services, enabling EV drivers to easily recharge at locations throughout the United States. Headquartered in Miami Beach, FL with offices in San Jose, CA; New York, NY; and Phoenix, AZ; CarCharging's business model is designed to accelerate the adoption of public EV charging.

CarCharging offers various options to commercial and residential property owners for EV charging services. Our typical business model provides a comprehensive turnkey program where CarCharging owns and operates the EV charging equipment; manages the installation, maintenance, and related services; and shares a portion of the EV charging revenue with the property owner. Alternatively, property partners can share in the equipment and installation expenses with CarCharging operating and managing the EV charging stations and providing network connectivity. For properties interested in purchasing and owning EV charging stations, CarCharging can also provide EV charging hardware, site recommendations, connection to the Blink Network, and management and maintenance services.

Through its subsidiary, Blink Network, CarCharging also provides residential EV charging solutions for single-family homes. For more information, please visit www.BlinkHQ.com.

CarCharging has strategic partnerships across multiple business sectors including multi-family residential and commercial properties, parking garages, shopping malls, retail parking, and municipalities. CarCharging's partners include, but are not limited to Walgreens, IKEA, Wal-Mart, Simon Property Group, Equity One, Equity Residential, Forest City, Cinemark USA, Fox Studios, Facebook, PayPal, Kimpton Hotels and Restaurants, Mayo Clinic, San Diego Padres, University of Pennsylvania, Ace Parking, Central/USA Parking, Icon Parking, Rapid Parking, Parking Concepts, CVS, Related Management, Pennsylvania Turnpike Commission, Pennsylvania Department of Environmental Protection, City of Phoenix (AZ), City of Philadelphia (PA), and City of Miami Beach (FL).

CarCharging is committed to creating a robust, feature-rich network for EV charging and is hardware agnostic. CarCharging owns the Blink network, and owns and operates EV charging equipment manufactured by Blink, Aerovironment, ChargePoint, Efacec, General Electric, Nissan, and SemaConnect. CarCharging's Level II charging stations are compatible with EVs sold in the United States including the Tesla Model S, Nissan LEAF, Chevy Volt, Mitsubishi i-Miev, Toyota Prius Plug-In, Honda Fit EV, and Toyota Rav4 EV, as well as many others scheduled for release over the next few years.


In order to provide complete charging services to EV drivers, the Company also provides residential EV charging solutions, through its subsidiary, Blink Network LLC. Blink designs and sells its own residential and dedicated parking space equipment. Residential EV charging equipment provides EV drivers with an additional charging option beyond public EV charging stations.

Our revenues are primarily derived from hardware sales, public EV charging services, government grants, state and federal rebates, and marketing incentives. EV charging fees are based either on an hourly rate or a per kilowatt-hour rate, and are calculated based on a variety of factors, including local electricity tariffs, strength of location, competitive services, and the prices of other fuels (such as gasoline). We are also implementing subscription plans to include electricity for single-family homes, multifamily residential homes, and our public charging locations.

We purchase all of the Company's EV charging stations through our wholly-owned subsidiary, eCharging Stations, LLC. Stations are then installed and maintained though competitively bid subcontractor agreements with certified local vendors, to maintain the lowest installation and long-term costs possible. It is anticipated that automobile manufacturers are scheduled to mass produce and sell more models of electric vehicles to the public sometime after the second half of 2014. Accordingly, at that time we anticipate that there will be a significant increase in the use of our EV charging stations.

As a result of our acquisitions of four competitors, we currently have approximately 5,200 level 2 charging units and 105 DC Fast Charging EV Devices installed. As a result of recent partnerships with EV manufacturers, our network has broadened its offerings and includes units from numerous manufacturers, in addition to ChargePoint, whose charging units we have solely used in the past.

To generate leads and enter into additional strategic partnership agreements with property owners, we have utilized the services of independent contractors and in house personnel. We have found that by following this model, we are better able to stimulate growth, control cash-flow, and minimize costs. Accordingly, our independent contractors are able to close and maintain client relationships, as well as coordinate EV charging station installations and operations.

Recent Financings

2013 Private Placements

During the period of January 2013 through March 22, 2013, the Company sold 4,990,000 shares of its common stock at $0.50 per share and warrants to purchase 4,990,000 shares of the Company's common stock at an exercise price of $2.25 per share which vest immediately and expire three years from date of issuance for gross proceeds of $2,495,000.

During the period of July 1, 2013 through September 30, 2013 the Company sold 2,550,000 shares of its common stock at $0.50 per share and warrants to purchase 2,550,000 shares of the Company's common stock at an exercise price of $2.25 per share which vest immediately and expire three years from date of issuance for gross proceeds of $1,275,000.

On October 11, 2013, in conjunction with the purchase of the Blink Network, and certain assets and liabilities relating to the Blink Network, the Company sold 7,142,857 shares of its common stock at $0.70 per share and warrants to purchase 7,142,857 shares of the Company's common stock at an exercise price of $1.00 per share which vest immediately and expire five years from the date of issue for gross proceeds of $5,000,000.

On October 17, 2013 the Company sold 642,857 shares of its common stock at $0.70 per share and warrants to purchase 642,857 shares of the Company's common stock at an exercise price of $1.00 per share which vest immediately and expire five years from date of issuance for gross proceeds of $450,000.

On December 9, 2013 the Company sold 10,000,000 shares of its common stock at a $1.00 per share and warrants to purchase 10,000,000 shares of the Company's common stock at an exercise price of $1.05 per share which vest immediately and expire five years from date of issuance for gross proceeds of $10,000,000.

Demand Notes

During 2013, the Company had borrowed $440,000, and fully repaid $450,117, inclusive of interest at 12% per annum, for working capital purposes from a company of which the Company's CEO is a controlling party and now owns the Company.

In February 2013, the Company had borrowed $2,000 from a shareholder on an unsecured basis with interest at 12% due on demand. The loan was paid in full in eight days with accrued interest thereon of $5.


Results of Operations

The results of operations include the operations of Beam Charging LLC for the period of February 26, 2013, the acquisition date, through December 31, 2013, EV Pass LLC for the period of April 3, 2013, the acquisition date, through December 31, 2013, 350Green LLC for the period of April 22, 2013, acquisition date, through December 31, 2013, and Blink Network LLC for the period of October 16, 2013 through December 31, 2013.

Comparison of the years ended December 31, 2013 and December 31, 2012

Revenues

We have generated revenues of $327,971 from service fees related to installed EV Charging Stations for the year ended December 31, 2013 as compared to $16,743 in service fees for the year ended December 31, 2012. The increase in service fees is primarily attributable to the four acquisitions during the year. 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, 2013, we sold ten EV charging stations for a total price of $47,636 and at a profit of $11,440. Additionally, we received grants, rebates and incentives totaling $882,933 to defray the cost of equipment and installation of 108 charging stations during 2013. The rebates, incentive and grants 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 $90,796 into revenue during the year ended December 31, 2013 and $5,595 for 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.

Cost of Revenues

Cost of revenues primarily consists of depreciation of installed charging stations, amortization of the Blink Network infrastructure, the cost of charging station goods and related services sold, electricity reimbursements and revenue share payments to hosts. Cost of revenues for the year ended December 31, 2013 of $3,286,672 exceeded cost of revenues for the year ended December 31, 2012 of $199,092 primarily because in 2012, the Company was in the developmental stage and depreciation was considered general and administrative expense. The acquisition of Blink Network LLC, the commencement of the execution of its operational plans and the additional depreciation related to the number of installed charging stations acquired as a result of the four acquisitions completed during 2013 were the main factors that increased the cost of revenues for 2013.

Operating Expenses

Operating expenses consists of selling, marketing and advertising, payroll, administrative, finance and professional expenses.

Compensation expense increased by $8,658,653 from $2,367,313 for the year ended December 31, 2012 to $11,025,966 for the year ended December 31, 2013. The increase was attributable to an increase in non -cash compensation expense related to warrants and options granted under both our Omnibus Incentive Plans and non-Plan grants pursuant to existing compensation agreements, recognition of a full year of expenses associated with the 2012 Omnibus Incentive Plan as opposed to a shorter period in the year ended December 31, 2012, and as a result of the increased number of employees due to the four acquisitions completed during the year.

Other operating expenses increased by $514,714 from $547,353 for the year ended December 31, 2012 to $1,062,067 for the year ended December 31, 2013. The increase was attributable to an increase in office and warehouse space costs, insurance expenses, travel expenses and taxes as a result of the four acquisitions completed during the year.

General and administrative expenses increased by $2,155,877 from $2,321,197 for the year ended December 31, 2012 to $4,477,074 for the year ended December 31, 2013. The increase was primarily as a result of an increase in stock and warrants issued to consultants, and an increase in professional fees as a result of the acquisitions offset by the inclusion of EV charging station depreciation of $234,364 in the year ended December 31, 2012 and included in cost of revenue in the year ended December 31, 2013.

Operating Loss

Our operating loss for the year ended December 31, 2013 increased by $14,208,485 from $5,176,891 for the year ended December 31, 2012 to $19,385,376 for the year ended December 31, 2013. The increase was attributable to an increase in operating expenses and a decrease in gross profit.

Other Income (Expense)

Other income (expense) increased by $4,639,190 from other expense of $112,719 for the year ended December 31, 2012 to other expense of $4,751,909 for the year ended December 31, 2013. The increase was primarily attributable to:

A gain from the change in fair value of a derivative liability of $1,794,693 associated with warrants and warrant units issued to investors and placement agents in conjunction with sale of shares of our common stock during the fourth quarter of 2013 and a change in the fair value of the warrant liability associated with the anti-dilution protection offered the sellers associated with the Beam acquisition.

An expense incurred of $3,420,000 by the issuance of 2,000,000 shares of our common stock in settlement of a financing agreement.

A warrant expense of $1,480,000 representing anti-dilution protection offered the sellers associated with the Beam acquisition.

An expense attributable to a debt conversion expense of $687,286 as result of the fair value of the conversion of notes payable into common stock and warrants on conversion terms more favorable than the fair value of the conversion terms when the notes were initially issued.

An impairment loss of $606,685 related to intangible assets acquired from the EV Pass acquisition.

A $47,856 loss sustained by issuing shares of common stock in settlement of an account payable, an increase in interest expense $64,680 due to debt incurred in connection with the acquisitions and an increase in amortization of discount on convertible notes payable of $70,043.


Net Loss

Our net loss for the year ended December 31, 2013 increased by $18,847,675 to $24,137,285 as compared to $5,289,610 for the year ended December 31, 2012. The increase was attributable to a net increase in operating expenses of $11,329,244, a decrease in gross profit of $2,879,241 and an increase of other expense of $4,639,190. Our net loss attributable to common shareholders for the year ended December 31, 2013 increased by $21,679,505 from $5,289,610 to $26,969,115 for the aforementioned reasons and for the deemed dividend of $2,831,830 attributable to the fair value of the conversion terms of Series B Preferred shares into common shares and warrants on terms more favorable than the fair value of the initial conversion terms by which the Series B shares were initially issued. Our net loss per common share attributable to common shareholders-basic and diluted for the year ended December 31, 2013 was $(0.49) whereas the basic and fully diluted net loss per common share attributable to common shareholders for the year ended December 31, 2012 was $(0.13).

Liquidity and Capital Resources

During 2013, we have financed our activities from sales of our capital stock and from loans from 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, 2013 and 2012, we used cash of $3,789,542 and $2,351,641 for operations, respectively. Our cash use for 2013 was primarily attributable to our net loss of $24,137,285 offset by non cash reconciling items of $18,101,853 and changes in operating assets and liabilities of $2,245,890. During the year ended December 31, 2013, cash used for investing activities consisted of $1,138,222 for purchases of electric vehicle charging stations, $2,867 for the purchase of computer equipment, $163,292 the purchase of a note receivable related to the Beam acquisition and the cash paid for our acquisitions of $3,325,607, net of cash acquired. Net cash outflows for investing activities were $712,353 for the year ended December 31, 2012 which were primarily for capital expenditures. Cash provided by financing activities for the year ended December 31, 2013 was $16,243,453 of which $17,265,509 was from the sale of shares of our common stock, net of issuance costs and the proceeds from non-convertible notes totaling $442,000 offset by the repayment of notes of $1,464,056. Cash flows from financing activities for the year ended December 31, 2012 totaled $2,670,551 provided primarily by the net proceeds from the sale of shares of our common stock and preferred stock and the issuance of convertible debt for the year ended December 31, 2012. The net increase in cash during the year ended December 31, 2013 was $7,823,923 as compared with a net decrease of $393,443 for the year ended December 31, 2012.

At December 31, 2013, we had $7,837,339 in cash resources to meet current obligations. In addition, as of December 31, 2013, we had a net working capital deficit of $13,292,372. Historically, we have been dependent on debt and equity raised from individual investors to sustain our operations. The Company has obtained financing commitments totaling $6,000,000 through December 31, 2014 from three existing shareholders, in the event additional financing is necessary. Our management believes that we have sufficient resources to fund our operations through at least December 31, 2014.


Subsequent Events

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. Impairment of Long Lived Assets

The Company's long-lived assets, which include EV charging stations, office and computer equipment, automobiles, intangible assets, and machinery and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset's expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company determined that other than intangible assets acquired from EV Pass LLC, there were no other impairments of long-lived assets as of December 31, 2013 or December 31, 2012.

b. 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 Topic 810 of the FASB Accounting Standards Codification and Topic 815 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative, if required to be bifurcated, is marked-to-market each balance sheet date and recorded as a liability. The change in fair value is recorded in the Statement of Operations as a component of 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.

c. Fair value of financial instruments

The Company follows Topic 825 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and Topic 820 of the FASB Accounting Standards Codification ("Topic 820") to measure the fair value of its financial instruments. Topic 820 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Topic 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Topic 820 are described below:

Level 1 Quoted prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2 Observable inputs other than quoted prices included in Level 1, such as quotable prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar valuation techniques that use significant unobservable inputs.


The carrying amounts of the Company's financial assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company's notes payable approximates the fair value of such instruments based upon management's best estimate of interest rates that would be available to the Company for similar financial arrangement at December 31, 2013. The warrant liability associated with the Beam acquisition and the warrants and warrant units issued during the fourth quarter of calendar year 2013 in conjunction with the sale of shares the Company's common stock are measured at fair value on a recurring basis.

The Company has no other assets or liabilities measured at fair value on a recurring basis.

d. Revenue recognition

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists,
(ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. Accordingly, when a customer completes use of a charging station, the service can be deemed rendered and revenue is recognized based on the time duration of the session or the kilowatt hours drawn during the session. Sales of EV stations are recognized upon shipment to the customer, F.O.B. shipping point.

Governmental grants and rebates pertaining to expense reimbursement are recognized as income when the related expense is incurred. Government grants and rebates related to EV charging stations and their installation are deferred and amortized in a manner consistent with the recognition of the related depreciation expense of the related asset over their useful lives.

The Company entered into a joint marketing agreement with Nissan North America for which among other matters requires the Company to build, own, operate and maintain a network of 48 fast chargers throughout the United States and create an auto dealer network promotion and referral program so as to facilitate sales of electric vehicles to their potential customers. The Company identified the obligation to install and maintain the chargers and the obligation to create a referral and promotion program as separate elements under the agreement but determined that they did not qualify as separate units of accounting for purposes of recognizing revenue. The multiple deliverables are not separate units of accounting because Nissan North America has not delineated specific amounts of the revenue to particular elements of the agreement and the Company is unable to estimate the fair value or the selling price of the respective deliverables. The Company has recognized this revenue over the life of the charging station upon installation.

e. Stock Based Compensation for Employee Services

Stock based awards granted to employees have been appropriately accounted for as required by ASC topic 718 "Compensation - Stock Compensation" ("ASC topic 718"). Under ASC topic 718 share based awards are valued at fair value on the date of grant, and that fair value is recognized over the requisite service period. The Company values its stock based awards using the Black-Scholes option valuation model.

f. Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of section 505-50-30 of the FASB ASC. Pursuant to FASB Topic 505, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.

Recently Issued Accounting Pronouncements

There have been no accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2013 that are expected to have a material impact on the Company's financial position, results of operations or cash flows. Accounting pronouncements that became effective during the year ended December 31, 2013 did not have a material impact on disclosures or on the . . .

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