by Debra Fiakas CFA
The chief executive officer of Car Charging Group (CCGI: OTC/PK), Michael Farkas, made an appearance at the Marcum Microcap Investment Conference in New York this week. Farkas used the forum to brag a bit about this company’s practical accomplishments in providing electric vehicle charging stations and services to residential and commercial customers. Farkas is particularly proud of snapping up the EV charging network of bankrupt ECOtality (ECTYQ: OTC/PK) at a price he claims was about two pennies on a dollar of ECOtality’s government-funded assets. Only thinly disguised was his scorn for government investment to foster electric vehicle adoption and ECOtality’s management’s failure to make good.
A closer look at the track record for Car Charging suggests Farkas’ company has its own issues. It appears the company has ‘shifted into park’ at least as far as financial reporting is concerned.
The last time the Company filed the required financial reports with the SEC was for the quarter ending June 2014. The company filed a notice in November 2014, citing outstanding questions related the accounting treatment for a ‘deconsolidated subsidiary.’ The subsidiary in question was not specified, but the company listed forty-seven subsidiaries in its 2013 10K filing with the SEC, most of which relate to the company’s various agreements to provide charging services at parking structures. That list did not include Blink Network, LLC, which was formed when the company bought the ECOtality assets. Beginning in 2013, Farkas and his team went on a buying spree, folding up the assets of three other EV charging operations under the Car Charging umbrella – 350Green, Beam Charging and EVPass. Are any of these slated to be de-consolidated?
Apparently, the accounting treatment for such an action is less than straight forward and Car Charging wants ‘pre-clearance’ in advance from the SEC on the acceptable method. Just the same, the shareholders of Car Charging have to be wondering what is so critical about this accounting question that regulators have allowed management to let financial results to go unreported for over six months. As it is Car Charging has never been particularly conscientious about filing financial results in a timely manner. Only one quarter report in the last two years was filed on time.
Through the financial reports that the company has filed, we know that Car Charging had yet to post a profit and had only recorded $507,833 in total sales from 2001 to the end of the third quarter 2013 before acquiring ECOtality’s Blink network of EV charging stations. Car Charging has not disclosed how much of its revenue is attributable to the ECOtality assets, but it is clear the Blink network immediately became an important sales driver. In the December 2013 quarter, the first reporting period after the deal, Car Charging reported a spike in revenue to $278,923 – well more than the $187,480 in sales the Company had recorded in the first nine months of that year. Then in the first six months of 2014, the last public report Car Charging has made, the company recorded $973,268 in total sales.
Sales were headed in the right direction, but the bottom line was bleeding red ink at a faster rate than ever. In the first six months of 2014, Car Charging reported a net loss of $7.1 million on $973,268 in total sales. Operations used $4.6 million in cash to keep ‘stations charging.’ At the end of June 2015, Car Charging claimed $2.3 million in cash on its balance sheet. At the rate the company had been using cash that would only last about one quarter.
Thus it was not surprising that in December 2014, the Company headed to the private capital market, raising $6.0 million through the sale of convertible preferred shares to existing institutional shareholders. These private investors got to see what the rest of can only guess – financial results through December 2014. The terms of the private placement provide a few clues as to the conclusions of these ostensibly sophisticated investors. Only $2.0 million of the total investment was made available to the company with the rest held until Car Charging management achieves some milestones. One of those goals is the reduction of general and administrative expenses by 40%.
Let’s do a bit of math to figure out what that savings might be. In the first six months of 2014, the company reported $1.5 million in ‘general and administrative expense’ and another $4.9 million in ‘compensation’ and ‘other operating expense.’ We note that perhaps as much as half of the reported compensation expense could be in the form of non-cash stock and options grants. Based on the reported expenses in the first half of 2014, I estimate the annual mandated savings could be anywhere from $1.2 million a year ($1.5 million times 2 for the year and then times 40%) to $3.5 million ($1.5 million + $4.9 million less $2.0 million for stock compensation all times 2 for the year and times 40%).
Car Charging Group is included in the SmartGrid Group of Crystal Equity Research’s Mothers of Invention Index of energy alternative innovators. The company is worth watching, but until costs are under control and financial reports are up to date a stake in CCGI might not be worth the risk that someone new could end up bragging about assets bought at a few cents on the dollar and making smug remarks about investment failures.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.