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TMCNet:  CAR CHARGING GROUP, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operation

[August 22, 2014]

CAR CHARGING GROUP, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operation

(Edgar Glimpses Via Acquire Media NewsEdge) Cautionary Notice Regarding Forward Looking Statements This Quarterly Report on Form 10-Q (this "Report") contains "forward-looking statements" within the meaning of the Section 27A of the Securities Act, and Section 21E of the Exchange Act. Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as "anticipate," "believe," "estimate," "intend," "could," "should," "would," "may," "seek," "plan," "might," "will," "expect," "predict," "project," "forecast," "potential," "continue" negatives thereof or similar expressions. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash needs, business plans and future financial results, and any other statements that are not historical facts.


From time to time, forward-looking statements also are included in our other periodic reports on Form 10-K, Forms 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public. Any or all of the forward-looking statements included in this Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

31 Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

For discussion of other factors that we believe could cause our actual results to differ materially from expected and historical results see "Item 1A - Risk Factors" in our Annual Report on Form 10-K received by the Securities and Exchange Commission on May 2, 2014.

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.

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, Fox Studios, Facebook, 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).

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 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, ChargePoint, 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, through its subsidiary, Blink Network LLC, the Company also provides residential EV charging solutions. Blink designs and sells its residential charging equipment for residences with a dedicated parking space. 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 our public charging locations.

32 We purchase all of our 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. We believe 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 6,000 level 2 charging units and 117 DC Fast Charging (Level 3) EV Devices installed. As a result of our acquisitions and partnerships with EV manufacturers, our network has broadened its offerings and includes units from numerous manufacturers.

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.

Results of Operations The results of the Company's operations for the three and six months ended June 30, 2013 include the operations of Beam Charging LLC for the period of February 26, 2013, the acquisition date, through June 30, 2013, EV Pass LLC for the period of April 2, 2013, the acquisition date through June 30, 2013, 350 Green LLC for the period of April 22, 2013, the acquisition date, through June 30, 2013 and all subsidiaries for the three month and six month period ended June 30, 2014.

For the three months ended June 30, 2014 and 2013 Revenues We have generated revenues of $315,931 from service fees related to installed EV Charging Stations for the three months ended June 30, 2014 as compared to $32,227 in service fees for the three months ended June 30, 2013, an increase of $283,704 which is primarily as a result of the charging heads acquired from Blink. Grant revenue increased from $32,750 to $596,009. Grants, rebate and incentives, collectively "grant revenue" related to equipment and related installation are deferred and amortized in a manner consistent with the depreciation expense of the related assets over their useful lives. Grant revenue related to operating expenses is recognized as revenue when the expense is incurred. Grant revenue was primarily derived from a novated grant with the California Energy Commission ("CEC"), for which Electric Transportation Engineering Corporation of America ("ECOtality"), the entity from whom Blink Network LLC ("Blink") was acquired, had completed some of the work, prior to its filing for bankruptcy but was subject to 10% retainage to be released upon all deliverables under the agreement. ECOtality had completed some of the work, prior to its filing for bankruptcy, in accordance with the terms of the grant.

During the period of February 27, 2014 through May 15, 2014, the Company completed its contractual obligation to CEC by installing 22 electric vehicle charging stations. In June 2014, CEC paid the Company $763,698 representing $529,990 for amounts due as of December 31, 2013 and $233,708 for the recent 22 installations. The Company determined that $482,063 was recognized as revenue during the quarter ended June 30, 2014 and the remaining $281,635 was deferred as of June 30, 2014. 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. Equipment sales increased from $12,762 to $61,328 during the quarter ended June 30, 2014. During the quarter ended June 30, 2014 we sold 71 residential charging stations whereas we sold three stations during the quarter ended June 30, 2013.

33 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 three months ended June 30, 2014 of $1,597,974 exceeded cost of revenues for the three months ended June 30, 2013 of $50,019 primarily because in the second quarter of 2013 the Company was in the developmental stage and depreciation was considered general and administrative expense whereas in 2014 depreciation and amortization included in cost of revenues totaled $755,133. The acquisition of Blink Network LLC, the commencement of the execution of its operational plans and the additional $727,990 of network fees, electricity reimbursements and revenue share payments to hosts 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 2014.

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

Compensation expense decreased by $1,032,660 from $3,287,420 for the three months ended June 30, 2013 to $2,254,760 for the three months ended June 30, 2014. The decrease was attributable to the issuance of 2,200,000 warrants in 2013 to a Company owned by our Chief Executive Officer valued at $2,253,119 offset by incremental payroll cost associated with the acquisition of Beam and Blink.

Other operating expenses increased by $235,264 from $141,494 for the three months ended June 30, 2013 to $376,758 for the three months ended June 30, 2014. The increase was attributable to an increase in rent expense, rent expense for the Phoenix office and travel and sales and use tax expenses.

General and administrative expenses decreased by $1,474,606 from $2,032,197 for the three months ended June 30, 2013 to $557,591 for the three months ended June 30, 2014. The decrease was primarily as a result of decreased amortization of intangible assets ($66,441), a reduction in stock and warrants issued to consultants ($1,246,621), a reduction in professional fees ($220,623) and non-inclusion of EV charging station depreciation in general administrative and administrative expense in the quarter ended June 30, 2014. EV charging station depreciation is in Cost of Revenues for three months ended June 30, 2014 An increase in inducement expense of $858,118 for the issuance of warrants to four shareholders of the Company who have agreed to provide financial support to the Company in the amount of $6,250,000 through 2014 and placement agents for securing such financing during the three months ended June 30, 2014.

An increase in impairment charge to Goodwill in 2014 associated with the acquisition of 350 Green and its placement in a trust mortgage of $3,299,379.

Operating Loss Our operating loss for the three months ended June 30, 2014 of $7,953,312 increased by $2,519,921 as compared to the three months ended June 30, 2013 of $5,433,391 primarily as a result of an increase in operating expenses and a decrease in gross profit.

Other Income (Expense) Other income increased by $1,046,689 from other expense of $207,025 for the three months ended June 30, 2013 to other income of $839,664 for the three months ended June 30, 2014. The net increase in 2014 was attributable to: · A gain from the change in fair value of the warrant payable of $474,800 associated with the anti-dilution protection offered the sellers associated with the Beam acquisition as opposed to a provision to the warrant payable for $187,000 for the quarter ended June 30, 2013.

34 · An inducement expense of $368,688 associated with the issuance additional warrants and warrant units issued to three investors and one placement agent in conjunction with the sales of shares or our common stock during the fourth quarter who opted to extinguish the derivative liability feature of the warrants and warrant units.

· A gain in 2014 from the change in fair value of a derivative liability of $745,089 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;.

Net Loss Our net loss for the three months ended June 30, 2014 increased by $1,473,232 to $7,113,648 as compared to $5,640,416 for the three months ended June 30, 2013. The increase was attributable to an increase in operating expenses of $1,885,495 and a decrease in gross profit of $634,426 offset by an increase in Other Income of $1,046,689.

For the six months ended June 30, 2014 and 2013 Revenues We have generated revenues of $571,590, from service fees related to installed EV Charging Stations for the six months ended June 30, 2014 as compared to $42,803 in service fees for the six months ended June 30, 2013, an increase of $528,787 which is primarily as a result of the charging heads acquired from Beam, EVPass and 350 Green and Blink. Grant revenue increased from $37,749 to $658,642. Grants, rebate and incentives, collectively "grant revenue" related to equipment and related installation are deferred and amortized in a manner consistent with the depreciation expense of the related assets over their useful lives. Grant revenue related to operating expenses is recognized as revenue when the expense is incurred. Grant revenue was primarily derived from a novated grant with the California Energy Commission ("CEC"), for which ECOotality had completed some of the work, prior to its filing for bankruptcy but was subject to 10% retainage to be released upon all deliverables under the agreement.

ECOtality had completed some of the work, prior to its filing for bankruptcy, in accordance with the terms of the grant. During the period of February 27, 2014 through May 15, 2014, the Company completed its contractual obligation to CEC by installing 22 electric vehicle charging stations. In June 2014, CEC paid the Company $763,698 representing $529,990 for amounts due as of December 31, 2013 and $233,708 for the recent 22 installations. The Company determined that $482,063 was recognized as revenue during the quarter ended June 30, 2014 and the remaining $281,635 was deferred as of June 30, 2014. 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. Equipment sales increased from $12,762 to $98,721 during the six months ended June 30, 2014. During the six months ended June 30, 2014 we sold 118 residential charging stations whereas we sold three stations during the six ended June 30, 2013.

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 six months ended June 30, 2014 of $2,892,175 exceeded cost of revenues for the six months ended June 30, 2013 of $54,428 primarily because during the first six months of 2013, the Company was in the developmental stage and depreciation was considered general and administrative expense whereas in 2014 depreciation and amortization included in cost of revenues totaled $1,501,010. The acquisition of Blink Network LLC, the commencement of the execution of its operational plans and the additional $1,259,189 of network fees, electricity reimbursements and revenue share payments to hosts 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 2014.

35 Operating Expenses Operating expenses consist of selling, marketing and advertising, payroll, administrative, finance and professional expenses.

Compensation expense decreased by $229,986 from $4,305,473 for the six months ended June 30, 2013 to $4,075,487 for the six months ended June 30, 2014. The decrease was attributable to an increase in the number of employees due to the four acquisitions completed during 2013 offset by the issuance of 2,200,000 warrants valued at $2,253,119 in 2013 to a Company owned by our Chief Executive Officer.

Other operating expenses increased by $505,277 from $274,344 for the six months ended June 30, 2013 to $779,621 for the six months ended June 30, 2014. The increase was attributable to an increase in rent expense for the Phoenix office and sales and use tax expenses and travel expenses.

General and administrative expenses decreased by $1,369,497 from $2,892,722 for the six months ended June 30, 2013 to $1,523,225 for the six months ended June 30, 2014. The decrease was primarily as a result of the non inclusion of EV charging station depreciation in general administrative and administrative expense during the months ended June 30, 2014 and $632,174 included for the six months ended June 30, 2013 and a reduction in stock and warrants issued to consultants ($1,792,324). EV charging station depreciation is included in cost of revenue for the six months ended June 30, 2014.

An increase in inducement expense of $858,118 for the issuance of warrants to four shareholders of the Company who have agreed to provide financial support to the Company in the amount of $6,250,000 through 2014 and placement agents for securing such financing during the six months ended June 30, 2014.

An increase in impairment charge to Goodwill in 2014 associated with the acquisition of 350 Green and its placement in a trust mortgage of $3,299,379.

Operating Loss Our operating loss for the six months ended June 30, 2014 of $12,099,052 increased by $4,665,399 as compared to the six months ended June 30, 2013 of $7,433,653 primarily as a result of a decrease in gross profit and an increase in operating expenses.

Other Income (Expense) Other income increased by $1,556,311 from other expense of $429,824 for the six months ended June 30, 2013 to other income of $1,126,487 for the six months ended June 30, 2014. The net increase in 2014 was attributable to: · A gain from the change in fair value of the warrant payable of $968,200 associated with the anti-dilution protection offered the sellers associated with the Beam acquisition as opposed to a provision of $187,000 for the six months ended June 30, 2013.

· A $36,789 gain sustained by issuing shares of common stock and cash in settlement of an account payable, as opposed to a loss of $94,557 sustained in 2013 by issuing shares of common stock in settlement of an account payable and convertible notes payable.

· Amortization expense of note discount of $126,783 in 2013 with no equivalent expense in 2014.

· An inducement expense of $368,688 associated with the issuance additional warrants and warrant units issued to three investors and one placement agent in conjunction with the sales of shares or our common stock during the fourth quarter who opted to extinguish the derivative liability feature of the warrants and warrant units.

· A gain in 2014 from the change in fair value of a derivative liability of $536,054 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;.

· An increase in interest expense of $24,384 in 2014.

36 Net Loss Our net loss for the six months ended June 30, 2014 increased by $3,109,088 to $10,972,565 as compared to $7,863,477 for the six months ended June 30, 2013.

The increase was attributable to an increase in operating expense of $3,063,291, a decrease in gross profit of $1,602,108 offset by a net increase in Other Income of $1,556,311.

Liquidity and Capital Resources During 2014, we have financed our activities from sales of our capital stock and from loans from related parties during 2013. 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 six months ended June 30, 2014 and 2013, we used cash of $4,642,935 in 2014 and used cash $993,031 from operations in 2013, respectively. Our cash use for 2014 was primarily attributable to our net loss of $10,972,565 offset by changes in operating assets and liabilities of $289,511 and by non cash reconciling items of $6,040,119. During the six months ended June 30, 2014, cash used for investing activities consisted of $672,539 of which $535,374was for purchases of electric vehicle charging stations and $137,165 for the purchase of an automobile. Net cash outflows for investing activities were $1,059,440 for the six months ended June 30, 2013 which were primarily for capital expenditures. Cash provided used in financing activities for the six months ended June 30, 2014 was $241,859 of which $210,585 was from the purchase of Certificate of Deposit to serve as collateral for a letter of credit issued by the bank to serve as a security deposit for pending space rental in Miami Beach, Florida and the repayment of notes of $31,274. Cash flows from financing activities for the six months ended June 30, 2013 totaled $2,204,220 provided primarily by the net proceeds of $2,208,000 from the sale of shares of our common stock, proceeds from stock subscription payable of $525,000, proceeds of $145,000 from the issuance of notes payable offset by the payment of convertible notes and notes payable totaling $673,780. The net decrease in cash during the six months ended June 30, 2014 was $5,557,333 as compared with a net increase of $151,749 for the six months ended June 30, 2013.

Through June 30, 2014, the Company has incurred an accumulated deficiency since inception of $56,882,107. At June 30, 2014, the Company had a cash balance of $2,280,006. The Company has incurred additional losses subsequent to June 30, 2014. The Company has identified cost reduction and revenue generating measures which when implemented would result in a reduction in employee headcount, inventory sales, and other cost savings measures. These actions are expected to result in annual cost savings which should start to be realized toward the third quarter of 2014. At August 19, 2014, the Company had a cash balance of approximately $922,000 37 The Company expects that through the next 12 months, the capital requirements to fund the Company's growth and to cover the operating costs will consume substantially all of the cash flows that it expects to generate from its operations, as well as from the proceeds of intended issuances of debt and equity securities. The Company further believes that during this period, while the Company is focusing on the growth and expansion of its business, the gross profit that it expects to generate from operations will not generate sufficient funds to cover anticipated operating costs. Accordingly, the Company requires external funding to sustain operations and to follow through on the execution of its business plan. However, there can be no assurance that the Company's plans will materialize and/or that the Company will be successful in funding estimated cash shortfalls through additional debt or equity capital and through the cash generated by the Company's operations. Given these conditions, the Company's ability to continue as a going concern is contingent upon it being able to secure an adequate amount of debt or equity capital to enable it to meet its cash requirements. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrants into established markets, the competitive environment in which the Company operates and the current capital raising environment.

Since inception, the Company's operations have primarily been funded through proceeds from equity and debt financings. Although management believes that the Company has access to capital resources, there are currently no commitments in place for new financing at this time, and there is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all.

The Company intends to raise additional funds during the next six months. The additional capital would be used to fund the Company's operations. The current level of cash and operating margins is not enough to cover the existing fixed and variable obligations of the Company, so increased revenue performance and the addition of capital through issuances of securities are critical to the Company's success. Should the Company not be able to raise additional capital through a private placement or some other financing source, the Company would take one or more of the following actions to conserve cash: further reductions in employee headcount, reduction in base salaries to senior executives and employees, and other cost reduction measures. Assuming that the Company is successful in its growth plans and development efforts, the Company believes that it will be able to raise additional funds through sales of its stock. There is no guarantee that the Company will be able to raise such additional funds on acceptable terms, if at all.

We have not been able to complete the audit of 350 Green LLC and Blink Network LLC for the two calendar years prior to their respective acquisitions. Rule 505 and 506 of Regulation D requires that all non-accredited investors be provided with certain disclosure documents, including the audited financial statements for the prior two fiscal years. In the event that we will not be able to complete the audits for these two entities, we will not be able to raise any additional funds from non-accredited investors until such time that the audits for the two prior fiscal years are completed.

These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The Company's condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might be necessary should it be unable to continue as a going concern.

Off Balance Sheet Arrangements We have no off-balance sheet arrangements.

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