UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
Commission File Number:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Exchange on which Registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 1, 2022, a total of
Special Note Regarding Forward--Looking Statements
You should read this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ending December 31, 2021 (our “2021 Form 10-K”) completely and with the understanding that our actual future results, levels of activity, performance and achievements may be different from what we expect and that these differences may be material. We qualify all of our forward-looking statements by these cautionary statements.
Certain statements contained in this Form 10-Q, which reflect our current views with respect to future events and financial performance, and any other statements of a future or forward-looking nature, constitute “forward-looking statements” for the purpose of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions, or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors”. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
Any forward-looking statement in this Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our business, results of operations, industry, and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. No forward- looking statement is a guarantee of future performance. You should read this Form 10-Q in conjunction with our Annual Report on Form 10-K filed on March 29, 2022, and the documents that we reference herein and therein and have filed as exhibits hereto and thereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
This Quarterly Report on Form 10-Q also contains or may contain estimates, projections and other information concerning our industry, our business, and the markets for our products, including data regarding the estimated size of those markets and their projected growth rates. We obtained the industry and market data in this report from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors.” We caution you not to give undue weight to such projections, assumptions, and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies, and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements as predictions of future results. Our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
2 |
Charge Enterprises, Inc.
Quarterly Report on Form 10-Q
Table of Contents
PART I. FINANCIAL INFORMATION |
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3 |
Table of Contents |
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
CHARGE ENTERPRISES, INC. | ||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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Accounts receivable net of allowances of $ |
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Inventory |
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Deposits, prepaids and other current assets |
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Investments in marketable securities |
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Investments in non-marketable securities |
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Cost in excess of billings |
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Total current assets |
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Property, plant and equipment, net |
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Intangible assets, net |
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Finance lease asset |
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Operating lease right-of-use asset |
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Non-current assets |
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Goodwill |
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Deferred tax asset |
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Total assets |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable |
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Accrued liabilities |
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Deferred revenue |
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Derivative liability |
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Convertible notes payable, net of discount |
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Line of credit |
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Finance lease liability |
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Operating lease liability |
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Total current liabilities |
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Non-current liabilities |
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Finance lease liability, non-current |
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Operating lease liability, non-current |
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Notes payable, net of discount |
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Convertible notes payable, net of discount |
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Total liabilities |
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Mezzanine Equity |
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Series B Preferred Stock ( |
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Series C Preferred Stock ( |
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Total Mezzanine Equity |
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Commitments, contingencies and concentration risk (Note 16) |
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Stockholders' Equity |
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Preferred stock, $ |
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Series C: |
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Series D: |
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Common stock, $ |
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Common stock to be issued, |
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Additional paid in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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The accompanying notes are an integral part of these consolidated financial statements.
4 |
Table of Contents |
CHARGE ENTERPRISES, INC. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Unaudited) | ||||||||||||||||
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| For Three Months Ended September 30, |
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Revenues |
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Cost of Goods Sold |
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Gross Profit |
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Operating expenses |
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Stock based compensation |
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General and administrative |
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Salaries and related benefits |
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Professional fees |
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Depreciation and amortization expense |
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Total operating expenses |
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(Loss) from operations |
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Other income (expenses): |
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Loss on impairment |
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Income (loss) from investments, net |
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Amortization of debt discount |
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Amortization of debt discount, related party |
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Change in fair value of derivative liabilities |
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Interest expense |
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Other income (expense), net |
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Foreign exchange adjustments |
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Total other expenses, net |
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Income (loss) before income taxes |
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Income tax benefit (expense) |
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Net income (loss) |
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Less: Deemed dividend |
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Less: Preferred dividends |
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Net income (loss) available to common stockholders |
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Basic income (loss) per share available to common stockholders |
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Diluted income (loss) per share available to common stockholders |
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Weighted average number of shares outstanding, basic |
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Weighted average number of shares outstanding, diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
5 |
Table of Contents |
CHARGE ENTERPRISES, INC. | |||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||
(Unaudited) | |||||||||||||||||
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| Three Months Ended September 30, |
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Net income (loss) |
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Other comprehensive income (loss), net of tax |
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Foreign currency translation adjustment |
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Other comprehensive income (loss), net of tax |
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Comprehensive income (loss) |
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The accompanying notes are an integral part of these consolidated financial statements.
6 |
Table of Contents |
CHARGE ENTERPRISES, INC. | ||||||||||||||||||||||||||||||||||||||||
STATEMENTS OF STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||||||
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| Preferred Stock |
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Balance, December 31, 2021 |
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Stock-based compensation expense |
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Declaration of preferred dividends |
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Series C Preferred Stock |
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Deemed dividend in connection with Series C Preferred Stock |
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Common stock issued for acquisition |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt into common stock |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration of preferred dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D Preferred Stock |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for private placement |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants for private placement |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares committed in prior period |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of holdback shares for acquisition |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of restricted stock units |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B Preferred into common stock |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification of Preferred C to Mezzanine Equity |
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend in connection with reclass of warrants to Derivative Liability |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| ( | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units expense |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration of dividends |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
The accompanying notes are an integral part of these consolidated financial statements.
7 |
Table of Contents |
CHARGE ENTERPRISES, INC. | ||||||||||||||||||||||||||||||||||||||||
STATEMENTS OF STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| Common Stock to be Issued |
|
| Additional Paid-In |
|
| Accumulated Other Comprehensive |
|
| Accumulated |
|
|
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income |
|
| Deficit |
|
| Total |
| ||||||||||
Balance, December 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock from prior year issued |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt and accrued interest |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to par value |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||||||
|
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|
|
Shares of common stock from prior period issued |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
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| |||||||
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|
|
|
|
|
|
|
Common stock issued for services |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
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| ||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
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| |||||||
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|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with debt |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
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|
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| |||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability reclassed to equity |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
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| |||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | ||||
|
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|
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|
|
|
|
|
|
Balance, June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt and accrued interest |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
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| ||||||||
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
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| ||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
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| |||||||
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|
|
|
|
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|
|
|
|
|
|
Cancellation of stock options |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
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|
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|
| ( | ) | |||||
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units expense |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| |||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buyback of treasury stock |
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | ||||
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | ||||
|
|
|
|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
|
The accompanying notes are an integral part of these consolidated financial statements.
8 |
Table of Contents |
CHARGE ENTERPRISES, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(Unaudited) | ||||||||
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
| ||
Depreciation |
|
|
|
|
|
| ||
Stock-based compensation |
|
|
|
|
|
| ||
Stock issued for services |
|
|
|
|
|
| ||
Change in fair value of derivative liabilities |
|
| ( | ) |
|
|
| |
Amortization of debt discount |
|
|
|
|
|
| ||
Amortization of debt discount, related party |
|
|
|
|
|
| ||
Amortization of debt issue costs |
|
|
|
|
|
| ||
Loss on foreign currency exchange |
|
|
|
|
|
| ||
Loss on impairment |
|
|
|
|
|
| ||
Net (income) loss from investments |
|
|
|
|
| ( | ) | |
Other (income) expense, net |
|
|
|
|
| ( | ) | |
Income tax (benefit) expense |
|
| ( | ) |
|
| ( | ) |
Changes in working capital requirements: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| ( | ) |
|
|
| |
Accrued revenue |
|
|
|
|
| ( | ) | |
Inventory |
|
| ( | ) |
|
|
| |
Deposits, prepaids and other current assets |
|
| ( | ) |
|
|
| |
Other assets |
|
| ( | ) |
|
|
| |
Costs in excess of billings |
|
| ( | ) |
|
|
| |
Accounts payable |
|
|
|
|
| ( | ) | |
Other current liabilities |
|
| ( | ) |
|
|
| |
Deferred revenue |
|
|
|
|
|
| ||
Other comprehensive income |
|
|
|
|
| ( | ) | |
Net cash (used in) provided by operating activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Acquisition of fixed assets |
|
| ( | ) |
|
| ( | ) |
Disposal of fixed assets |
|
|
|
|
|
| ||
Sale of intellectual property |
|
|
|
|
|
| ||
Purchase of marketable securities |
|
| ( | ) |
|
| ( | ) |
Sale of marketable securities |
|
|
|
|
|
| ||
Purchase of non-marketable securities |
|
|
|
|
| ( | ) | |
Acquisition of ANS |
|
| ( | ) |
|
| ( | ) |
Acquisition of EV Depot |
|
| ( | ) |
|
|
| |
Cash acquired in acquisition |
|
|
|
|
| ( | ) | |
Net cash provided by (used in) investing activities |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Cash receipts from issuance of notes payable |
|
|
|
|
|
| ||
Cash receipts from issuance of convertible notes payable |
|
|
|
|
|
| ||
Proceeds from sale of Common Stock |
|
|
|
|
|
| ||
Proceeds from sale of Series C Preferred Stock |
|
|
|
|
|
| ||
Proceeds from exercise of warrants |
|
|
|
|
|
| ||
Proceeds from exercise of stock options |
|
|
|
|
|
| ||
Draws from revolving line of credit, net |
|
|
|
|
| ( | ) | |
Employee taxes paid for stock-based compensation |
|
| ( | ) |
|
| |
|
Cash paid for contingent liability |
|
|
|
|
| ( | ) | |
Payment on financing lease |
|
| ( | ) |
|
| ( | ) |
Payment of dividends |
|
| ( | ) |
|
|
| |
Redemption of Series B Preferred Stock |
|
| ( | ) |
|
|
| |
Net cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Foreign currency adjustment |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
|
|
| ( | ) | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest expense |
| $ |
|
| $ |
| ||
Cash paid for income taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Issuance of Series B Preferred Stock for acquisition |
| $ |
|
| $ |
| ||
Issuance of common stock for acquisition |
| $ |
|
| $ |
| ||
Debt discount associated with promissory notes |
| $ |
|
| $ |
|
The accompanying notes are an integral part of these consolidated financial statements.
9 |
Table of Contents |
CHARGE ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of operations
Charge Enterprises, Inc., through its subsidiaries (sometimes referred to herein as “we,” “us,” “our,” “Charge” or the “Company”) consists of a portfolio of global businesses with a vision to build the electrification and telecommunications infrastructure that will address and service requirements for EVC (“Electrical Vehicle Charging”) and WNI (“Wireless Network Infrastructure”) which includes 5G, tower, distributed antennae systems (“DAS”), small cell, and electrical infrastructure.
The Company operates in two segments: Telecommunications, which provides connection of voice calls, data, and Short Message Services (“SMS”) to global carriers; and Infrastructure, which builds physical wireless network elements, provides electrical construction services, and installs and maintains EV charging stations and infrastructure. Financial information about each business segment is contained in “Note 14 Reportable segments.”
Note 2 Summary of significant accounting policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 have not been audited by an independent registered public accounting firm. These unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, 2021 and reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of September 30, 2022 and the results of operations, equity, comprehensive income (loss), and cash flows for the periods presented herein.
The preparation of financial statements and related disclosures in conformity with Generally Accepted Accounting Principles (“GAAP”) in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from the amounts reported.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. References to GAAP in these notes are to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification™, sometimes referred to as the codification or “ASC.” These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission ("SEC") on March 29, 2022.
During the second quarter ended June 30, 2022, the Company identified Series C preferred stock that should be presented as mezzanine equity that previously had been presented in preferred stock for $
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and the Company has and intends to continue to take advantage of certain exemptions from various reporting requirements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. The consolidated financial statements and related disclosures, presented in U.S. dollars, have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC. The results and trends in these consolidated financial statements may not be representative for any future periods or the full year.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Credit Losses-Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted. While we will continue to evaluate the potential impacts of the new guidance, the Company does not believe the potential impact of the new guidance and related codification improvements will be material to its consolidated financial position or results of operations.
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 is effective for the Company beginning January 1, 2024, and early adoption is permitted. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements but currently does not believe ASU 2020-06 will have a significant impact on the Company’s accounting for its convertible debt instruments. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805) (“ASU 2021-08”). ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. ASU 2021-08 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of ASU 2021-08 should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption. Management is currently evaluating the effect of the adoption of ASU 2021-08 on the consolidated financial statements. The effect will depend on the composition and terms of business combinations, if any, that are consummated on or after the adoption date.
Note 3 Fair value measurements
Fair value is defined as the price that would be required to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the principal or, in the absence of a principal, most advantageous market for the specific asset or liability. We have certain assets and liabilities that are measured at fair value according to a fair value hierarchy that prioritizes the inputs, assumptions, and valuation techniques used to measure fair value.
GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:
| Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
|
|
|
| Level 2: Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
|
|
|
| Level 3: Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
10 |
Table of Contents |
Recurring Fair Value Measurements
The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Marketable securities (Note 4) |
| $ |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
| ||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivative liabilities (Note 12) |
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
| $ |
|
|
|
| ||||
Contingent consideration |
|
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
|
| $ |
|
A reconciliation of changes in Level 3 items measured at fair value on a recurring basis is as follows:
Contingent consideration liability: |
|
|
| |
Balance at December 31, 2021 |
| $ |
| |
Initial estimate upon acquisition |
|
|
| |
Remeasurement |
|
|
| |
Balance at September 30, 2022 |
| $ |
|
The contingent consideration liability is related to the Company's acquisition of EV Group Holdings LLC (see “Note 5 Business acquisitions”), and its settlement is expected to occur in the first quarter of 2023. The Company has determined the fair value of the contingent consideration liability using a Monte Carlo simulation, which includes assumptions around the probability of various future stock price outcomes, and is considered Level 3 of the GAAP fair value hierarchy. The primary significant unobservable input is stock price volatility. Based on this simulation, the Company estimates that the average share price for the month ending December 31, 2022 will result in the Company issuing additional shares of common stock to the sellers. The contingent consideration liability is reflected in accrued liabilities on the consolidated balance sheet, and the remeasurement is reflected in other income (expense), net on the consolidated statement of operations.
Nonrecurring Fair Value Measurements
We also have investments in non-marketable securities, which are equity securities in a non-public company and do not have readily determinable fair values. Such investments are initially recorded at cost and adjusted to fair value on a nonrecurring basis through earnings for observable price changes in orderly transactions for identical or similar transactions of the same company (Level 2 of GAAP fair value hierarchy). In September 2022, the non-public company issued similar securities to another investor. Based on the per-share price from that issuance, we calculated and recorded an unrealized gain of $
Note 4 Marketable securities and other investments
Our marketable securities are stated at fair value in accordance with ASC 321, Investments-Equity Securities. Any changes in the fair value of the Company’s marketable securities are included in net income under the caption of income (loss) from investments, net on the consolidated statement of operations. The market value of the securities is determined using prices as reflected on an established market. Realized and unrealized gains and losses are determined on an average cost basis. The marketable securities are investments predominantly in shares of large publicly traded securities which are being invested until such time as the funds are needed for operations.
The value of these marketable securities is as follows:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||||||||||||||||
|
| Brokerage Account |
|
| Other Securities |
|
| Total |
|
| Brokerage Account |
|
| Other Securities |
|
| Total |
| ||||||
Cost |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Gross unrealized losses |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Fair value |
| $ |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
The above marketable securities are reflected as Level 1 assets as the security prices are quotes in an established market. During the three months ended September 30, 2022, the Company recognized net losses of $
Note 5 Business acquisitions
EV Group Holdings LLC
The Company entered into an agreement and plan of merger, dated January 14, 2022, with the shareholders of EV Group Holdings LLC (“EV Depot”) pursuant to which the Company agreed to purchase all the issued and outstanding shares of EV Depot for an aggregate purchase price of $
11 |
Table of Contents |
The following tables summarize the total consideration as well as the preliminary fair values of the net assets acquired and liabilities assumed as of the January 14, 2022 acquisition date.
Cash |
| $ |
| |
Accrued expenses |
|
|
| |
Contingent consideration liability, net of $72,748 contingent consideration asset |
|
|
| |
Common stock (5,201,863 shares) |
|
|
| |
Total consideration |
| $ |
| |
|
|
|
|
|
Fair values of identifiable net assets and liabilities: |
|
|
|
|
Assets: |
|
|
|
|
Cash |
| $ |
| |
Deposits, prepaids and other current assets, net |
|
|
| |
Non-current assets |
|
|
| |
Operating lease right-of-use asset |
|
|
| |
Total assets |
|
|
| |
Liabilities: |
|
|
|
|
Accrued liabilities |
|
|
| |
Deferred revenue |
|
|
| |
Operating lease liability |
|
|
| |
Total liabilities |
|
|
| |
Total fair value of identifiable net assets and liabilities |
|
|
| |
Goodwill (consideration given minus fair value of identifiable net assets and liabilities) |
| $ |
|
As of September 30, 2022, the valuation studies necessary to determine the fair market value of identifiable net assets and liabilities are preliminary, primarily with regards to the determination of the fair value of the identified intangible assets.
Goodwill recognized for the EV Depot acquisition is the excess of consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets which cannot be individually identified and separately recognized. The recorded goodwill is not deductible for income tax purposes.
The inclusion of the EV Depot acquisition in our consolidated financial statements is not deemed material with respect to the requirement to provide pro-forma results of operations. As such, pro-forma information is not presented.
B W Electrical Services LLC
Our wholly owned subsidiary, Charge Infrastructure, Inc., entered into a securities purchase agreement, dated December 22, 2021, with the shareholders of B W Electrical Services LLC (“BW”) pursuant to which we agreed to purchase all the issued and outstanding shares of BW for an aggregate purchase price of $
We continue to finalize the preliminary fair values of the net assets acquired and liabilities assumed as of the December 27, 2021 acquisition date. During the period ended September 30, 2022, we reimbursed the shareholders of BW $1,991,338 for a loan from the Small Business Administration (see “Note 11 Notes payable” for additional information) with no impact to goodwill. We will continue to monitor for additional potential adjustments, primarily relating to the determination of and valuation of identifiable assets within the one-year period of acquisition. Any additional potential adjustments could be material in relation to the preliminary values presented below.
We continue to finalize the preliminary fair values of the net assets acquired and liabilities assumed as of December 27, 2021 acquisition date.
The Company analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted for as a business combination. The acquisition resulted in goodwill which was recorded to each reporting unit. The recorded goodwill is not deductible for income tax purposes.
ANS
The Company entered into a securities purchase agreement, dated May 7, 2021, with the shareholders of Nextridge, Inc. and its wholly owned subsidiary, Advanced Network Solutions (collectively “ANS”) pursuant to which we agreed to purchase all the issued and outstanding shares of ANS for an aggregate purchase price of $
The Company analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted for as a business combination. The acquisition resulted in goodwill which was recorded on the reporting unit’s books. The recorded goodwill is not deductible for income tax purposes.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
| Preliminary Estimate |
|
| Measurement Period Adjustments (1) |
|
| Final |
| |||
Identifiable intangible asset |
| $ |
|
| $ |
|
| $ |
| |||
Tangible assets acquired (net of tangible liabilities assumed) |
|
|
|
|
| ( | ) |
|
|
| ||
Goodwill |
|
|
|
|
| ( | ) |
|
|
| ||
Deferred tax for identifiable intangible asset |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Total |
| $ |
|
| $ |
|
| $ |
|
(1) Within one year of acquisition, the Company recorded measurement period adjustments primarily relating to the establishment of a customer relationship intangible asset of $
Note 6 Intangible assets
Intangible assets consist of customer relationships and are amortized on a straight-line basis over 15 years. The entire gross carrying amount of customer relationships relates to the acquisition of ANS and was recorded in the second quarter of 2022 along with amortization expense of $
|
| September 30, 2022 |
| |||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| |||
Customer relationships |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Total |
| $ |
|
| $ | ( | ) |
| $ |
|
Estimated future amortization expense for the remainder of 2022, the next five years and thereafter is as follows:
Remainder of 2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
2027 |
|
|
| |
Thereafter |
|
|
| |
Total |
| $ |
|
12 |
Table of Contents |
Note 7 Related party
During the first quarter of 2021, the Company granted Mr. Deutsch, a Board member of the Company, options to acquire
During 2021, the Company paid $
During the second quarter of 2022, the Company entered into a Special Advisor Agreement with KORR Acquisitions Group, Inc.. The agreement includes an upfront payment of $500,000 and a monthly advisory fee. Kenneth Orr, the former Chairman of the Company, has sole voting and dispositive power over the shares held by KORR Acquisitions Group, Inc..
Note 8 Convertible notes payable
The Company’s outstanding convertible notes payable are summarized below:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Issued on May 8, 2020 (8% interest) |
| $ |
|
| $ |
| ||
Issued on November 3, 2020 (8% interest) |
|
|
|
|
|
| ||
Issued on May 19, 2021 (8% interest) |
|
|
|
|
|
| ||
Issued on April 30, 2021 (6% interest) |
|
|
|
|
|
| ||
Total face value |
|
|
|
|
|
| ||
Less: unamortized discount |
|
|
|
|
| ( | ) | |
Total carrying value |
| $ |
|
| $ |
|
On June 30, 2022, convertible notes payable of Arena Investors LP with a face value of $
April 30, 2020 Sutton Global Note $
On April 30, 2020, the former CEO of Charge converted his payable into a convertible note with a face value of $
Interest expense and amortization of debt discount and debt issuance costs for the convertible notes payable are as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Interest expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Amortization of debt discount |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of debt issuance costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| |
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
The accrued interest relating to the convertible notes payable as of September 30, 2022 and December 2021 was $
Note 9 Convertible notes payable, related parties
The Company did not have any outstanding convertible notes payables to related parties as of September 30, 2022 and December 31, 2021. Interest expense and amortization of debt discount for nine months ended September 30, 2021 was $
KORR Value Financing
In May and June 2020, the Company entered into a securities purchase agreement with KORR Value LP, an entity controlled by Kenneth Orr, pursuant to which the Company issued convertible notes in an aggregate principal amount of $
On March 15, 2021, KORR Value converted $
9 Madison Inc. Financing
On September 2, 2020, the Company entered into a securities purchase agreement with 9 Madison, Inc., an entity controlled by Andrew Fox, the Company’s CEO, pursuant to which the Company issued a convertible note in the amount of $
On March 15, 2021, 9 Madison converted $
Note 10 Line of credit
Nextridge Inc. (“Nextridge”) and ANS have a revolving $
On October 25, 2022, Nextridge and ANS renewed the line of credit increasing the availability from $
BW has a revolving $
13 |
Table of Contents |
Note 11 Notes payable
The Company’s notes payables are summarized below:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Paycheck Protection Program loan issued February 10, 2021 |
| $ | - |
|
| $ |
| |
Notes payable issued May 19, 2021 (8% interest) |
|
|
|
|
|
| ||
Notes payable issued December 17, 2021 (7.5% interest) |
|
|
|
|
|
| ||
Total face value |
|
|
|
|
|
| ||
Less: unamortized discount |
|
| ( | ) |
|
| ( | ) |
Total carrying value |
| $ |
|
| $ |
|
Prior to our acquisition, BW was approved for a Paycheck Protection Program loan on February 10, 2021 from the Small Business Administration (“SBA”) in the amount of $
Interest expense and amortization of debt discount for the notes payable are as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Interest expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Amortization of debt discount |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
The accrued interest relating to the notes payable as of September 30, 2022 and December 2021 was $
Note 12 Derivative liabilities
The Company does not use financial derivative instruments to manage risk. In June 2022, the Company exchanged the outstanding convertible debt for Series D preferred stock. Concurrently, the warrants that were granted along with the original convertible debt were amended to provide, at the holders’ choice, the option to exercise for a to-be-issued class of our preferred stock, which shall be convertible into the same number of shares of common stock as would have been issued upon exercise of such warrants under the original terms. This amendment caused the instruments to be treated as a derivative liability beginning on June 30, 2022. The warrants were reclassified from equity to derivative liability and measured at fair value using a Black Scholes model (Level 2 of GAAP fair value hierarchy), which included inputs for exercise price, stock price, term to expiration, volatility, and interest rate. The impact was a derivative liability of approximately $
The Company recorded a derivative liability in 2020 related to convertible debt that contained certain cash true up provisions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics. No cash payment was triggered, the true up provision expired on June 1, 2021, and the derivative balance was reclassed to additional paid-in-capital in the second quarter of 2021.
The activity in the derivative liability is as follows:
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Derivative liability balance at December 31, |
| $ | - |
|
| $ |
| |
Reclass of derivative |
|
|
|
|
| ( | ) | |
Change in fair value of derivative liabilities |
|
| ( | ) |
|
| ( | ) |
Derivative liability balance at September 30, |
| $ |
|
| $ | - |
|
The change in fair value of the derivative liability is reflected in other income (expense), net in the consolidated statement of operations.
Note 13 Leases
In connection with the Company’s acquisition of EV Depot (see “Note 5 Business acquisitions”), the Company, as the lessor, recorded $
Note 14 Reportable segments
The Company currently primary operates in the United States. The Company has two reportable operating segments – Telecommunications and Infrastructure. The Company also has a non-operating corporate segment. All inter-segment revenues are eliminated.
Summary information with respect to the Company’s operating segments is as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Telecommunications |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Infrastructure |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Loss from operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Telecommunications |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Infrastructure |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-operating corporate |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total |
| $ | (9,973,976 | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
14 |
Table of Contents |
A reconciliation of the Company's consolidated segment loss from operations to consolidated loss from operations before income taxes and net income (loss) is as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Loss from operations |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Loss of impairment |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||
Income (loss) from investments, net |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Amortization of debt discount |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Amortization of debt discount, related party |
|
|
|
|
| - |
|
|
| - |
|
|
| ( | ) | |
Change in fair value of derivative liabilities |
|
|
|
|
| - |
|
|
| 28,669,066 |
|
|
| ( | ) | |
Interest expense |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Other income (expense), net |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Foreign exchange adjustments |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| (261,432 | ) | |
Total other expenses |
|
| 24,165,147 |
|
|
| (19,177,790 | ) |
|
| 15,045,723 |
|
|
| (16,966,610 | ) |
Income (loss) from operations before income taxes |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
Income tax benefit (expense) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Telecommunications |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Infrastructure |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Capital expenditures: |
|
|
|
|
|
| ||
Telecommunications |
| $ |
|
| $ |
| ||
Infrastructure |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Investments: |
|
|
|
|
|
| ||
Telecommunications |
| $ |
|
| $ |
| ||
Infrastructure |
|
|
|
|
|
| ||
Non-operating corporate |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Assets: |
|
|
|
|
|
| ||
Telecommunications |
| $ |
|
| $ |
| ||
Infrastructure |
|
|
|
|
|
| ||
Non-operating corporate |
|
|
|
|
|
| ||
Eliminations |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
|
Note 15 Equity
Permanent Equity
Preferred Stock
The Company has
The Company has evaluated each series of the preferred stock for proper classification under ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. ASC 480 generally requires liability classification for financial instruments that are certain to be redeemed, as they represent obligations to purchase shares of stock or represent obligations to issue a variable number of common shares. Both Series B and Series C preferred stock are classified as liabilities within mezzanine equity on the consolidated balance sheet as of September 30, 2022.
Series D: On June 30, 2022, the Company entered into an exchange agreement with funds affiliated with Arena Investors LP (“Arena Investors”) pursuant to which the Company issued
15 |
Table of Contents |
The Series D preferred stock has the following designations:
| · | Convertible at the option of the holder into common stock at $ |
| · | |
| · | The holders are entitled to receive cumulative quarterly dividends at a fixed annual rate of |
| · | No voting rights |
In addition to the exchange of convertible notes, the related
Common Stock
On April 20, 2022, the Company entered into a securities purchase agreement with an affiliate of Island Capital Group, LLC pursuant to which the Company issued
Mezzanine Equity
Preferred Stock
Series B: On May 21, 2021, the Company issued
The Series B preferred stock had the following designations:
| · | Convertible at option of holder |
| · | The holders are entitled to receive cumulative dividends at |
| · | |
| · | The Series B holders are entitled to receive liquidation in preference to the common holders or any other class or series of preferred stock |
| · | The Series B holders are entitled to vote together with the common holders as a single class |
| · | Mandatorily redeemable 180 days following the mandatory redemption date |
The shares of Series B preferred stock were mandatorily redeemable and, therefore, were required to be classified as a liability in the mezzanine section on the consolidated balance sheet as of December 31, 2021.
Series C: On December 17, 2021, the Company entered into a securities purchase agreement with funds affiliated with Arena Investors LP pursuant to which the Company issued
On February 25, 2022, the Company entered into a securities purchase agreement with an affiliate of Island Capital Group LLC (the “February 2022 Investors”) pursuant to which it issued
The Series C preferred stock has the following designations:
| · | Convertible at option of holder at a conversion price of $ |
| · | The holders are entitled to receive cumulative dividends at |
| · | In the event of reorganization, this class of Preferred will not be affected by any such capital reorganization |
| · | The Series C liquidation preference is equal to the stated value, plus any accrued and unpaid dividends |
| · | Change of control provision whereby the Series C Preferred shareholders would receive their stated value before all other shareholders |
| · | No voting rights |
| · | Redemption features: |
|
| ○ | If the closing price exceeds 200% of the effective conversion price, the Company may force the conversion of preferred stock with 10 days written notice; |
|
| ○ | At any time after the original issue date, the Company has the option to redeem some or all the outstanding preferred stock for cash with 10 days written notice; and |
|
| ○ | On the third anniversary of the issue date, the holder may request redemption, at the Company’s option of cash or common stock, at the conversion price equal to the four-year redemption amount (a) 100% of the aggregate stated value then outstanding, (b) accrued but unpaid dividends (c) additional cash consideration in order for the Purchasers to achieve a 20% internal rate of return and (d) all liquidated damages and other amounts due in respect of the preferred stock. |
The Series C preferred stock provides that the Company shall redeem the preferred stock for cash or common stock at the Company’s option and, therefore, are not considered mandatorily redeemable. However, due to the change in control provision, the Series C preferred stock have liquidation preference and are deemed a liability and presented within mezzanine equity on the consolidated balance sheet as of September 30, 2022.
Stock Options
Stock options activity is summarized as follows:
|
| Shares |
|
| Weighted Average Exercise Price |
| ||
Options outstanding at December 31, 2021 |
|
|
|
| $ |
| ||
Options granted |
|
|
|
|
|
| ||
Options exercised |
|
| - |
|
|
| - |
|
Options cancelled |
|
| ( | ) |
|
| ( | ) |
Options outstanding at March 31, 2022 |
|
|
|
| $ |
| ||
Options exercisable at March 31, 2022 |
|
|
|
| $ |
| ||
Options granted |
|
|
|
|
|
| ||
Options exercised |
|
| ( | ) |
|
| ( | ) |
Options cancelled |
|
| ( | ) |
|
| ( | ) |
Options outstanding at June 30, 2022 |
|
|
|
| $ |
| ||
Options exercisable at June 30, 2022 |
|
|
|
| $ |
| ||
Options granted |
|
|
|
|
|
| ||
Options exercised |
|
| ( | ) |
|
| ( | ) |
Options cancelled |
|
| ( | ) |
|
| ( | ) |
Options outstanding at September 30, 2022 |
|
|
|
| $ |
| ||
Options exercisable at September 30, 2022 |
|
|
|
| $ |
|
At September 30, 2022, the weighted average remaining life of the stock options is
16 |
Table of Contents |
Warrants
Warrants activity is summarized as follows:
|
| Number of Warrants |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Life |
| |||
Warrants outstanding at December 31, 2021 |
|
|
|
| $ |
|
| 3.0 years |
| |||
Issued |
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| N/A |
|
Expired |
|
| - |
|
|
|
|
|
| N/A |
| |
Warrants outstanding at March 31, 2022 |
|
|
|
| $ |
|
| 2.7 years |
| |||
Warrants exercisable at March 31, 2022 |
|
|
|
| $ |
|
| 2.7 years |
| |||
Issued |
|
|
|
|
|
|
| 2.8 years |
| |||
Exercised |
|
| ( | ) |
|
| ( | ) |
|
| N/A |
|
Expired |
|
|
|
|
|
|
|
| N/A |
| ||
Warrants outstanding at June 30, 2022 |
|
|
|
| $ |
|
| 2.3 years |
| |||
Warrants exercisable at June 30, 2022 |
|
|
|
| $ |
|
| 2.3 years |
| |||
Issued |
|
|
|
|
|
|
|
|
| |||
Exercised |
|
| ( | ) |
|
| ( | ) |
|
| N/A |
|
Expired |
|
| - |
|
|
| - |
|
|
| N/A |
|
Warrants outstanding at September 30, 2022 |
|
|
|
| $ |
|
| 2.0 years |
| |||
Warrants exercisable at September 30, 2022 |
|
|
|
| $ |
|
| 2.0 years |
|
Note 16 Commitments, contingencies, and concentration risk
Contingencies
During the normal course of business, the Company may be named from time to time as a party to lawsuits arising in the ordinary course of business related to its sales, marketing, and the provision of its services and equipment. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with ASC 450, Contingencies. Litigation and contingency accruals are based on our assessment, including advice of legal counsel, regarding the expected outcome of litigation or other dispute resolution proceedings. If the Company determines that an unfavorable outcome is probable and can be reasonably assessed, it establishes the necessary accruals. As of September 30, 2022 and December 31, 2021, the Company is not aware of any contingent legal liabilities that should be reflected in the consolidated financial statements.
Other Commitments
Indemnities
The Company generally indemnifies its customers for the services it provides under its contracts, as well as other specified liabilities, which may subject the Company to indemnity claims, liabilities, and related litigation. As of September 30, 2022 and December 31, 2021, the Company was not aware of any material asserted or unasserted claims in connection with these indemnity obligations.
Performance and Payment Bonds
Many customers, particularly in connection with new construction within Infrastructure, require the Company to post performance and payment bonds issued by a financial institution known as a surety. If the Company fails to perform under the terms of a contract or to pay subcontractors and vendors who provided goods or services under a contract, the customer may demand that the surety make payments or provide services under the bond. The Company must reimburse the surety for any expenses or outlays it incurs. To date, the Company is not aware of any losses to their sureties in connection with bonds the sureties have posted on their behalf, and do not expect such losses to be incurred in the foreseeable future. Generally,
Concentration of Credit Risk
The Company maintains accounts with financial institutions. All cash in checking accounts is non-interest bearing and is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to a $
Major Customer Concentration
There were two customers whose individual accounts receivable represented
The Company has two customers whose revenue individually represented
Labor Concentration
One of our operating subsidiaries within Infrastructure sources direct labor from local unions, which have collective bargaining agreements expiring at various times over the next four years. Although the Company’s experience has been favorable with respect to resolving conflicting demands with these unions, it is possible that contract negotiations are unsuccessful which could impact the renewal of the collective bargaining agreements.
Note 17 Income taxes
The following table includes the Company’s income (loss) before income taxes, income tax (expense) benefit, and effective tax rate:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Income (loss) before income taxes |
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
Income tax benefit (expense) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Effective tax rate |
|
| ( | )% |
|
| % |
|
| % |
|
| % |
For the three and nine months ended September 30, 2022 and 2021, the Company utilized the discrete effective tax rate method, as allowed by ASC 740-270-30-18 (ASC 740-270, Income Taxes-Interim Reporting). The discrete method treats the year-to-date period as if it was the annual period and calculates the income tax expense or benefit on a discrete basis. Currently, the Company believes the use of the discrete method represents the best estimate of our annual effective tax rate. The Company’s effective tax rate differed from the statutory rate primarily due to the company's permanent book-tax differences. The benefit rate decreased due to unfavorable differences relating to non-deductible stock based compensation, convertible debt, and other non-deductible book expenses, as well as a change in valuation allowance, offset by a favorable permanent difference relating to the change in fair value of derivative liabilities.
17 |
Table of Contents |
Note 18 Net income (loss) per share
Basic income (loss) per share available to common stockholders is calculated using the weighted average number of common shares outstanding during the applicable period. Diluted net income (loss) per share available to common stockholders is calculated using the weighted average number of common shares outstanding plus the number of dilutive potential common shares outstanding during the applicable period. Dilutive potential common shares consist of the incremental common shares (i) issuable upon the vesting of outstanding restricted stock units and the exercise of outstanding stock options using the treasury stock method, (ii) contingently issuable assuming that the end of the reporting period is the end of the contingency period, and (iii) issuable for non-participating preferred stock using the if-converted method. Our warrants and some of our preferred stock are considered participating securities pursuant to the two-class method. Dilutive potential common shares are excluded from the calculation of diluted net income (loss) per share available to common stockholders if their effect is antidilutive.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) available to common stockholders |
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
Less: Undistributed earnings allocated to participating securities |
|
| ( | ) |
|
|
|
|
|
|
|
| ||||
Numerator, basic |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Plus: Undistributed earnings allocated to participating securities |
|
|
|
|
| |
|
|
| |
|
|
| |
| |
Less: Undistributed earnings re-allocated to participating securities |
|
| ( | ) |
|
| |
|
|
| |
|
|
| |
|
Numerator, diluted |
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding, basic |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
| |
Contingently issuable shares |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
| |
Stock options |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
| |
Preferred stock |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
| |
Weighted average number of shares outstanding, diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share available to common stockholders |
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
Diluted income (loss) per share available to common stockholders |
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
The following potential common shares were excluded from the calculation of diluted net income (loss) per share available to common stockholders because their effect would have been antidilutive:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Restricted stock units |
|
| - |
|
|
|
|
|
|
|
|
|
| |||
Contingently issuable shares |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
| |
Warrants |
|
| - |
|
|
|
|
|
|
|
|
|
| |||
Stock options |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stock |
|
| - |
|
|
|
|
|
|
|
|
|
| |||
Convertible notes payable |
|
| - |
|
|
|
|
|
|
|
|
|
| |||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
18 |
Table of Contents |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ending December 31, 2021 filed on March 29, 2022. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in these forward-looking statements.
Throughout this Quarterly Report on Form 10-Q, the terms “Charge,” “we,” “our,” or “us” refer to Charge Enterprises, Inc. and its subsidiaries on a consolidated basis, unless stated or the context implies otherwise. The use of the term the “Company,” “partner,” or “partnering” in this report does not mean or imply a formal legal partnership and is not meant in any way to alter the terms of Charge’s relationship with any third parties.
Overview
Charge Enterprises, Inc. consists of a portfolio of global businesses with a vision to build the electrification and telecommunications infrastructure that will address and service requirements for Electrical Vehicle (“EV”) Charging (“EVC”) and Wireless Network Infrastructure (“WNI”) which includes 5G, tower, distributed antennae systems (“DAS”), small cell, and electrical infrastructure.
The Company operates in two segments: Telecommunications and Infrastructure. Financial information about each business segment is contained in Part I, Item 1, “Note 14 Reportable segments” to the Consolidated Financial Statements.
Telecommunications
Telecommunications provides routing of voice, data, and Short Message Services (SMS) to Carriers and Mobile Network Operators (“MNO”) globally and operates through our wholly owned subsidiary PTGI International Carrier Services, Inc. (“PTGI”). Telecommunications has contractual relationships with service providers in over 19 foreign countries primarily within Asia, Europe, the Middle East, Africa, and North America. The Company provides customers with internet-protocol-based and time-division multiplexing (“TDM”) access for the transport of long-distance voice and data minutes.
The Company operates a global telecommunications network consisting of domestic switching and related peripheral equipment, carrier-grade routers, and switches for internet and circuit-based services. To ensure high-quality communications services, our network employs digital switching and fiber optic technologies, incorporates the use of voice-over-internet protocols and SS7/C7 signaling, and is supported by comprehensive network monitoring and technical support services.
Infrastructure
Infrastructure has two areas of focus, including:
| · | Building physical wireless network elements including 4G and 5G, cell tower, small cell, and in-building applications. |
| · | Seamless EVC solutions including design, engineering, vendor specification, construction, installation, and maintenance of EV chargers and infrastructure. |
Products and services of Infrastructure include:
| · | Cell tower construction and modification services, |
| · | Wireless enterprise solutions, |
| · | Network monitoring and maintenance, |
| · | DAS RF engineering design, installation, and remote monitoring, |
| · | Direct Current and Uninterruptable Power Supply primary and secondary systems implementation, and |
| · | Seamless EVC solutions including design, engineering, vendor specification, construction, installation, and maintenance of EV chargers, |
Comparability to Past Periods
Due to acquisitions made over the course of 2021 and 2022, we are presenting both reported and proforma results for consolidated operations and our segments. Results of acquisitions are included in reported results from the date of acquisition closure. Within Infrastructure, the Company acquired Nextridge, Inc. and its wholly owned subsidiary, Advanced Network Solutions (collectively “ANS”) on May 21, 2021, B W Electrical Services LLC (“BW”) on December 27, 2021, and EV Group Holdings LLC (“EV Depot”) on January 14, 2022.
Our proforma presentation assumes a full three and nine month period for all our operations, including acquisitions, for both 2021 and 2022. Management believes that presenting pro forma results is important to understand our financial performance, providing better analysis of trends in our underlying businesses as it allows for comparability to prior period results. The unaudited pro forma results of operations are not intended to represent or be indicative of the consolidated results of operations or financial condition of our company that would have been reported had the acquisitions been completed as of their respective dates and should not be construed as representative of the future consolidated results of operations or financial condition of the combined entity.
Consolidated Results of Operations
|
| As Reported |
|
| As Reported |
| ||||||||||||||||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
|
|
|
|
|
|
|
| Increase |
|
|
|
|
|
|
|
| Increase |
| ||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
| ||||||
Revenues |
| $ | 185,857 |
|
| $ | 116,998 |
|
| $ | 68,859 |
|
| $ | 529,876 |
|
| $ | 357,709 |
|
| $ | 172,167 |
|
Cost of goods sold |
|
| 178,951 |
|
|
| 113,094 |
|
|
| 65,857 |
|
|
| 509,218 |
|
|
| 350,080 |
|
|
| 159,138 |
|
Gross profit |
|
| 6,906 |
|
|
| 3,904 |
|
|
| 3,002 |
|
|
| 20,658 |
|
|
| 7,629 |
|
|
| 13,029 |
|
Stock based compensation |
|
| 7,847 |
|
|
| 7,558 |
|
|
| 289 |
|
|
| 28,352 |
|
|
| 21,351 |
|
|
| 7,001 |
|
General and administrative |
|
| 3,516 |
|
|
| 1,929 |
|
|
| 1,587 |
|
|
| 10,420 |
|
|
| 5,325 |
|
|
| 5,095 |
|
Salaries and related benefits |
|
| 4,417 |
|
|
| 2,587 |
|
|
| 1,830 |
|
|
| 12,787 |
|
|
| 5,210 |
|
|
| 7,577 |
|
Professional fees |
|
| 667 |
|
|
| 432 |
|
|
| 235 |
|
|
| 2,580 |
|
|
| 1,264 |
|
|
| 1,316 |
|
Depreciation expense |
|
| 433 |
|
|
| 166 |
|
|
| 267 |
|
|
| 1,745 |
|
|
| 314 |
|
|
| 1,431 |
|
Income (loss) from operations |
|
| (9,974 | ) |
|
| (8,768 | ) |
|
| (1,206 | ) |
|
| (35,226 | ) |
|
| (25,835 | ) |
|
| (9,391 | ) |
Other (income) expenses |
|
| (24,165 | ) |
|
| 19,178 |
|
|
| (43,343 | ) |
|
| (15,045 | ) |
|
| 16,967 |
|
|
| (32,012 | ) |
Income tax expense (benefit) |
|
| (183 | ) |
|
| (2,716 | ) |
|
| 2,533 |
|
|
| (1,773 | ) |
|
| (5,908 | ) |
|
| 4,135 |
|
Net income (loss) |
| $ | 14,374 |
|
| $ | (25,230 | ) |
| $ | 39,604 |
|
| $ | (18,408 | ) |
| $ | (36,894 | ) |
| $ | 18,486 |
|
19 |
Table of Contents |
Comparison of the Reported results for three and nine months ended September 30, 2022 and 2021
Revenues
Revenues increased $68.9 million in the three month period and $172.2 million in the nine month period compared to 2021, representing growth of 59% and 48%, respectively. The increase in revenue in both periods was driven by the acquisitions of BW and EV Depot, organic growth in ANS, and an increase in wholesale traffic volumes within Telecommunications. The increase in the nine month period was also driven by the acquisition of ANS.
Cost of goods sold
Cost of goods sold increased $65.9 million in the three month period and $159.1 million in the nine month period compared to 2021. The increase in cost of goods sold in both periods was directly related to the increase in customer revenue. Overall gross margin percentage increased in both periods driven by the acquisitions of ANS, BW, and EV Depot, partially offset by a decline in Telecommunications margin.
Stock based compensation
Stock based compensation increased $0.3 million in the three month period and $7.0 million in the nine month period compared to 2021. The increase in both periods was due to new option grants to members of the Board, newly hired employees, and employees that joined our company as part of an acquisition.
General and administrative
General and administrative expense increased $1.6 million in the three month and $5.0 million in the nine month period compared to 2021. The increase in both periods was attributable to higher consulting, investor relations, and marketing expense related to growing our business, costs associated with our uplist to the Nasdaq, and the acquisitions of ANS, BW and EV Depot.
Salaries and related benefits
Salaries and benefits increased $1.8 million in the three month period and $7.6 million in the nine month period compared to 2021. The increase in both periods was principally attributable to investments in personnel associated with growth and the acquisitions of ANS, BW, and EV Depot.
Professional fees
Professional services fees increased $0.2 million in the three month period and $1.3 million in the nine month period compared to 2021. The increase in the three month period was primarily due to higher accounting fees and expenses related to regulatory requirements. The increase in the nine month period was primarily due to higher legal and accounting fees related to acquisitions, our uplist to the Nasdaq, and expenses related to regulatory requirements.
Depreciation and amortization
Depreciation and amortization increased $0.3 million in the three month period and $1.4 million in the nine month period compared to 2021. The increase in both periods was primarily driven by intangible amortization of ANS customer relationships, which included a true-up in the second quarter of 2022 related to final purchase accounting.
Other operating (income) expense, net
Other operating (income) expense changed by $43.4 million in the three month period, going from an expense of $19.2 million in 2021 to an income of $24.2 million in 2022, and $32.0 million in the nine month period, going from an expense of $17.0 million in 2021 to an income of $15.0 million in 2022. The change in the three month period was primarily driven by the income generated from the change in fair value of derivative, offset by an expense from contingent liabilities, in 2022 and expense from a goodwill impairment in 2021. The change in the nine month periods was driven by income from the change in fair value of derivative, offset by an expense from contingent liabilities, in 2022, the expense from a goodwill impairment in 2021, debt amortization costs associated with acquisitions over the past 12 months and the exchange of convertible notes in the second quarter of 2022, higher interest expense, and investment loss of $1.1 million in 2022 compared to $3.4 million in 2021.
Income tax benefit
The Company generated a lower income tax benefit in the three and nine month periods compared to 2021, primarily due to higher non-deductible expenses in the current quarter.
|
| Proforma |
|
| Proforma |
| ||||||||||||||||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
|
|
|
|
|
|
|
| Increase |
|
|
|
|
|
|
|
| Increase |
| ||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
| ||||||
Revenues |
| $ | 185,857 |
|
| $ | 124,683 |
|
| $ | 61,174 |
|
| $ | 530,108 |
|
| $ | 392,851 |
|
| $ | 137,257 |
|
Cost of goods sold |
|
| 178,951 |
|
|
| 118,429 |
|
|
| 60,522 |
|
|
| 509,306 |
|
|
| 375,946 |
|
|
| 133,360 |
|
Gross profit |
|
| 6,906 |
|
|
| 6,254 |
|
|
| 652 |
|
|
| 20,802 |
|
|
| 16,905 |
|
|
| 3,897 |
|
Stock based compensation |
|
| 7,847 |
|
|
| 7,558 |
|
|
| 289 |
|
|
| 28,352 |
|
|
| 21,351 |
|
|
| 7,001 |
|
General and administrative |
|
| 3,516 |
|
|
| 2,112 |
|
|
| 1,404 |
|
|
| 10,469 |
|
|
| 7,100 |
|
|
| 3,369 |
|
Salaries and related benefits |
|
| 4,417 |
|
|
| 3,310 |
|
|
| 1,107 |
|
|
| 12,800 |
|
|
| 10,536 |
|
|
| 2,264 |
|
Professional fees |
|
| 667 |
|
|
| 478 |
|
|
| 189 |
|
|
| 2,580 |
|
|
| 1,467 |
|
|
| 1,113 |
|
Depreciation expense |
|
| 433 |
|
|
| 167 |
|
|
| 266 |
|
|
| 1,745 |
|
|
| 549 |
|
|
| 1,196 |
|
Income (loss) from operations |
|
| (9,974 | ) |
|
| (7,371 | ) |
|
| (2,603 | ) |
|
| (35,144 | ) |
|
| (24,098 | ) |
|
| (11,046 | ) |
Other (income) expense |
|
| (24,165 | ) |
|
| 19,069 |
|
|
| (43,234 | ) |
|
| (15,037 | ) |
|
| 14,775 |
|
|
| (29,812 | ) |
Income tax expense (benefit) |
|
| (183 | ) |
|
| (2,650 | ) |
|
| 2,467 |
|
|
| (1,773 | ) |
|
| (5,710 | ) |
|
| 3,937 |
|
Net income (loss) |
| $ | 14,374 |
|
| $ | (23,790 | ) |
| $ | 38,164 |
|
| $ | (18,334 | ) |
| $ | (33,163 | ) |
| $ | 14,829 |
|
Comparison of the Pro Forma results for three and nine months ended September 30, 2022 and 2021
Revenues
Revenues increased $61.2 million in the three month period and $137.3 million in the nine month period compared to 2021, representing growth of 49% and 35%, respectively. The increase in both periods was driven by an increase in wholesale traffic volumes within Telecommunications, along with increased volume of wireless network and EV charging installations, and higher electrical construction volume within Infrastructure.
Cost of goods sold
Cost of goods sold increased $60.5 million in the three month period and $133.4 million in the nine month period compared to 2021. The increase in cost of goods sold in both periods was directly related to the increase in customer revenue within both Telecommunications and Infrastructure. Overall gross margin percentage was lower in both periods compared to 2021 with the decline driven by the mix of revenue between businesses, the mix of projects within businesses, labor and cost inflation in Infrastructure, and a decline in margin in Telecommunications.
Stock based compensation
Stock based compensation increased $0.3 million in the three month period and $7.0 million in the nine month period compared to 2021. The increase in both periods was due to new option grants to members of the Board, newly hired employees, and employees that joined our company as part of an acquisition.
General and administrative
General and administrative expense increased $1.4 million for the three month period and $3.4 million for the nine month period compared to 2021. The increase in both periods was attributable to higher consulting, investor relations, and marketing expense related to growing the business and costs associated with our uplist to the Nasdaq.
Salaries and related benefits
Salaries and benefits increased $1.1 million for the three month period and increased $2.3 million in the nine month period compared to 2021. The increase in both periods was principally attributable to investments in personnel associated with growth.
20 |
Table of Contents |
Professional fees
Professional services fees increased $0.2 million in the three month period and $1.1 million in the nine month period compared to 2021. The increase in the three month period was primarily due to higher accounting fees and expenses related to regulatory requirements. The increase in the nine month period was primarily due to higher legal and accounting fees related to acquisitions, our uplist to the Nasdaq, and expenses related to regulatory requirements.
Depreciation and amortization
Depreciation and amortization increased $0.3 million in the three month period and $1.2 million in the nine month period compared to 2021. The increase in both periods was primarily driven by intangible amortization of ANS customer relationships, which included a true-up in the second quarter of 2022 related to final purchase accounting.
Other operating (income) expense, net
Other operating (income) expense changed by $43.2 million in the three month period, going from an expense of $19.1 million in 2021 to an income of $24.2 million in 2022, and $29.8 million in the nine month period, going from an expense of $14.8 million in 2021 to an income of $15.0 million in 2022. The change in the three month period was primarily driven by income generated by the change in fair value of derivative, offset by an expense from contingent liabilities, in 2022 and expense from a goodwill impairment in 2021. The change in the nine month periods was driven by income from the change in fair value of derivative, offset by expense from contingent liabilities, in 2022, expense from a goodwill impairment in 2021, debt amortization costs associated with acquisitions over the past 12 months and the exchange of convertible notes in the second quarter of 2022, higher interest expense, and investment loss of $1.1 million in 2022 compared to $3.4 million in 2021.
Income tax benefit
The Company generated a lower income tax benefit in the three and nine month periods compared to 2021, primarily due to higher non-deductible expenses in the current quarter.
Financial Results by Segment
Telecommunications
|
| As Reported and Proforma |
|
| As Reported and Proforma |
| ||||||||||||||||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
|
|
|
|
|
|
|
| Increase |
|
|
|
|
|
|
|
| Increase |
| ||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
| ||||||
Revenues |
| $ | 159,105 |
|
| $ | 107,108 |
|
| $ | 51,997 |
|
| $ | 458,072 |
|
| $ | 344,195 |
|
| $ | 113,877 |
|
Cost of goods sold |
|
| 158,153 |
|
|
| 105,881 |
|
|
| 52,272 |
|
|
| 454,604 |
|
|
| 339,901 |
|
|
| 114,703 |
|
Gross profit |
|
| 952 |
|
|
| 1,227 |
|
|
| (275 | ) |
|
| 3,468 |
|
|
| 4,294 |
|
|
| (826 | ) |
General and administrative |
|
| 468 |
|
|
| 534 |
|
|
| (66 | ) |
|
| 1,477 |
|
|
| 1,321 |
|
|
| 156 |
|
Salaries and related benefits |
|
| 132 |
|
|
| 585 |
|
|
| (453 | ) |
|
| 630 |
|
|
| 1,472 |
|
|
| (842 | ) |
Professional fees |
|
| 28 |
|
|
| 18 |
|
|
| 10 |
|
|
| 63 |
|
|
| 34 |
|
|
| 29 |
|
Depreciation expense |
|
| 42 |
|
|
| 49 |
|
|
| (7 | ) |
|
| 128 |
|
|
| 149 |
|
|
| (21 | ) |
Income (loss) from operations |
|
| 282 |
|
|
| 41 |
|
|
| 241 |
|
|
| 1,170 |
|
|
| 1,318 |
|
|
| (148 | ) |
Other (income) expenses |
|
| 5 |
|
|
| (1,426 | ) |
|
| 1,431 |
|
|
| (68 | ) |
|
| (885 | ) |
|
| 817 |
|
Income tax expense (benefit) |
|
| 255 |
|
|
| (1,062 | ) |
|
| 1,317 |
|
|
| 3 |
|
|
| (1,237 | ) |
|
| 1,240 |
|
Net income (loss) |
| $ | 22 |
|
| $ | 2,529 |
|
| $ | (2,507 | ) |
| $ | 1,235 |
|
| $ | 3,440 |
|
| $ | (2,205 | ) |
Comparison of the Reported and Pro Forma results for three and nine months ended September 30, 2022 and 2021
Revenues
Revenues increased $52.0 million in the three month period and $113.9 million in the nine month period compared to 2021, representing growth of 49% and 33%, respectively. The increase in both periods was driven by an overall increase in wholesale traffic volumes compared to 2021 driven by higher voice demand. The rapid development of new technologies, services, and products has eliminated many of the traditional distinctions among wireless, cable, internet, local, and long-distance communication services. While revenues increased in the three and nine month periods, the Company continues to expect downward pressure on revenues over time due to the pace of technology development, emergence of new products, and intense competition.
Cost of goods sold
Cost of goods sold increased $52.3 million in the three month period and $114.7 million in the nine month period compared to 2021. The increase in both periods was driven by the increase in customer revenue. Gross margin percentage in this business decreased year over year due to customer mix.
General and administrative
General and administrative expense decreased by $0.1 million in the three month period and increased $0.2 million in the nine month period compared to 2021. The decrease in the three month period was driven by lower consulting and travel expense. The increase in the nine month period was due to changes in classification of certain resources between general and administrative and salaries and benefits.
Salaries and related benefits
Salaries and benefits decreased $0.5 million in the three month period and $0.8 million in the nine month period compared to 2021. The decrease in both periods was due to certain changes in classification between salaries and benefits and general and administrative as well as allocations to the non-operating corporate segment.
Other operating (income) expense, net
Other operating (income) expense increased $1.4 million in the three month period and $0.8 million in the nine month period compared to 2021. The increase in both periods is driven by a gain on the sale of assets in 2021.
21 |
Table of Contents |
Infrastructure
|
| As Reported |
|
| As Reported |
| ||||||||||||||||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
|
|
|
|
|
|
|
| Increase |
|
|
|
|
|
|
|
| Increase |
| ||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
| ||||||
Revenues |
| $ | 26,752 |
|
| $ | 9,890 |
|
| $ | 16,862 |
|
| $ | 71,804 |
|
| $ | 13,514 |
|
| $ | 58,290 |
|
Cost of goods sold |
|
| 20,798 |
|
|
| 7,213 |
|
|
| 13,585 |
|
|
| 54,614 |
|
|
| 10,179 |
|
|
| 44,435 |
|
Gross profit |
|
| 5,954 |
|
|
| 2,677 |
|
|
| 3,277 |
|
|
| 17,190 |
|
|
| 3,335 |
|
|
| 13,855 |
|
General and administrative |
|
| 1,437 |
|
|
| 696 |
|
|
| 741 |
|
|
| 3,644 |
|
|
| 1,594 |
|
|
| 2,050 |
|
Salaries and related benefits |
|
| 2,694 |
|
|
| 991 |
|
|
| 1,703 |
|
|
| 7,062 |
|
|
| 1,424 |
|
|
| 5,638 |
|
Professional fees |
|
| 70 |
|
|
| 32 |
|
|
| 38 |
|
|
| 211 |
|
|
| 51 |
|
|
| 160 |
|
Depreciation expense |
|
| 391 |
|
|
| 117 |
|
|
| 274 |
|
|
| 1,617 |
|
|
| 165 |
|
|
| 1,452 |
|
Income (loss) from operations |
|
| 1,362 |
|
|
| 841 |
|
|
| 521 |
|
|
| 4,656 |
|
|
| 101 |
|
|
| 4,555 |
|
Other (income) expenses |
|
| 92 |
|
|
| 18,132 |
|
|
| (18,040 | ) |
|
| 906 |
|
|
| 18,103 |
|
|
| (17,197 | ) |
Income tax expense (benefit) |
|
| 91 |
|
|
| (22 | ) |
|
| 113 |
|
|
| (14 | ) |
|
| (67 | ) |
|
| 53 |
|
Net income (loss) |
| $ | 1,179 |
|
| $ | (17,269 | ) |
| $ | 18,448 |
|
| $ | 3,764 |
|
| $ | (17,935 | ) |
| $ | 21,699 |
|
Comparison of the Reported results for the three and nine months ended September 30, 2022 and 2021
Revenues
Revenues increased $16.9 million in the three month period and $58.3 million in the nine month period compared to 2021. The increase in both periods was driven by the acquisitions of BW and EV Depot, and organic growth in ANS and the EV charging business. The increase in the nine month period was also driven by the acquisitions of ANS.
Cost of goods sold
Cost of goods sold increased $13.6 million in the three month period and $44.4 million in the nine month period compared to 2021, driven primarily by the increase in revenues.
General and administrative
General and administrative expense increased $0.7 million in the three month period and $2.1 million in the nine month period compared to 2021. The increase in both periods was driven primarily by the acquisitions of ANS, BW, and EV Depot, and spend to support the growth of the EV charging business.
Salary and related benefits
Salary and benefits increased $1.7 million in the three month period and $5.6 million in the nine month period compared to 2021. The increase in both periods was driven by the acquisitions of ANS, BW, and EV Depot, as well as new headcount to support the EV charging business.
Depreciation and amortization
Depreciation and amortization increased $0.3 million in the three month period and $1.5 million in the nine month period compared to 2021. The increase in both periods was primarily driven by intangible amortization of ANS customer relationships, which included a true-up in the second quarter of 2022 related to final purchase accounting.
Other operating (income) expense, net
Other operating (income) expense decreased $18.0 million in the three month period and $17.2 million in the nine month period compared to 2021. The decrease in the three month period was driven by the goodwill impairment in 2021. The decrease in the nine month period was driven by the goodwill impairment in 2021, partially offset by unrealized losses on marketable securities held in the operating segment.
|
| Proforma |
|
| Proforma |
| ||||||||||||||||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
|
|
|
|
|
|
|
| Increase |
|
|
|
|
|
|
|
| Increase |
| ||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
| ||||||
Revenues |
| $ | 26,752 |
|
| $ | 17,575 |
|
| $ | 9,177 |
|
| $ | 72,036 |
|
| $ | 48,656 |
|
| $ | 23,380 |
|
Cost of goods sold |
|
| 20,798 |
|
|
| 12,548 |
|
|
| 8,250 |
|
|
| 54,702 |
|
|
| 36,045 |
|
|
| 18,657 |
|
Gross profit |
|
| 5,954 |
|
|
| 5,027 |
|
|
| 927 |
|
|
| 17,334 |
|
|
| 12,611 |
|
|
| 4,723 |
|
General and administrative |
|
| 1,437 |
|
|
| 879 |
|
|
| 558 |
|
|
| 3,693 |
|
|
| 3,369 |
|
|
| 324 |
|
Salaries and related benefits |
|
| 2,694 |
|
|
| 1,714 |
|
|
| 980 |
|
|
| 7,075 |
|
|
| 6,750 |
|
|
| 325 |
|
Professional fees |
|
| 70 |
|
|
| 78 |
|
|
| (8 | ) |
|
| 211 |
|
|
| 254 |
|
|
| (43 | ) |
Depreciation expense |
|
| 391 |
|
|
| 118 |
|
|
| 273 |
|
|
| 1,617 |
|
|
| 400 |
|
|
| 1,217 |
|
Income (loss) from operations |
|
| 1,362 |
|
|
| 2,238 |
|
|
| (876 | ) |
|
| 4,738 |
|
|
| 1,838 |
|
|
| 2,900 |
|
Other (income) expense |
|
| 92 |
|
|
| 18,023 |
|
|
| (17,931 | ) |
|
| 915 |
|
|
| 15,911 |
|
|
| (14,996 | ) |
Income tax expense (benefit) |
|
| 91 |
|
|
| 44 |
|
|
| 47 |
|
|
| (14 | ) |
|
| 131 |
|
|
| (145 | ) |
Net income (loss) |
| $ | 1,179 |
|
| $ | (15,829 | ) |
| $ | 17,008 |
|
| $ | 3,837 |
|
| $ | (14,204 | ) |
| $ | 18,041 |
|
Comparison of the Pro Forma results for three and nine months ended September 30, 2022 and 2021
Revenues
Revenues increased $9.2 million in the three month period and $23.4 million in the nine month period compared to 2021, representing growth of 52% and 48%, respectively. The increase in both periods was driven by higher wireless network and EV charging installations, and an increase in electrical contracting services, including the leveraging of subsidiaries to win projects across geographies.
Cost of goods sold
Cost of goods sold increased $8.3 million in the three month period and $18.7 million in the nine month period compared to 2021, driven primarily by the change in revenues. Gross margin percentage decreased in both periods compared to 2021, driven by the mix of revenue between businesses, the mix of project within businesses, and labor and cost inflation.
22 |
Table of Contents |
General and administrative
General and administrative expense increased $0.6 million in the three month period and $0.3 million in the nine month period compared to 2021. The increase in both periods was driven by investments to support the growth of the segment.
Salary and related benefits
Salary and benefits increased $1.0 million in the three month period and $0.3 million in the nine month period compared to 2021. The increase in both periods was driven by increased hiring to support the growth of the business, with the increase in the nine month period partially offset by a one-time incentive payment in 2021.
Depreciation and amortization
Depreciation and amortization increased $0.3 million in the three month period and $1.2 million in the nine month period compared to 2021. The increase in both periods was primarily driven by intangible amortization of ANS customer relationships, which included a true-up in the second quarter of 2022 related to final purchase accounting.
Other operating (income) expense, net
Other operating (income) expense decreased $17.9 million in the three month period and $15.0 million in the nine month period compared to 2021. The decrease in the three month period was driven by the goodwill impairment in 2021. The decrease in the nine month period was driven by the goodwill impairment in 2021, partially offset by the gain upon forgiveness on the Paycheck Protection Program loan for BW recognized in the second quarter of 2021 and unrealized losses on marketable securities held in the operating segment.
Non-operating Corporate Segment
|
| As Reported and Proforma |
|
| As Reported and Proforma |
| ||||||||||||||||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
|
|
|
|
|
|
|
| Increase |
|
|
|
|
|
|
|
| Increase |
| ||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
| ||||||
Revenues |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Cost of goods sold |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Gross profit |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Stock based compensation |
|
| 7,847 |
|
|
| 7,558 |
|
|
| 289 |
|
|
| 28,352 |
|
|
| 21,351 |
|
|
| 7,001 |
|
General and administrative |
|
| 1,611 |
|
|
| 699 |
|
|
| 912 |
|
|
| 5,299 |
|
|
| 2,410 |
|
|
| 2,889 |
|
Salaries and related benefits |
|
| 1,591 |
|
|
| 1,011 |
|
|
| 580 |
|
|
| 5,095 |
|
|
| 2,314 |
|
|
| 2,781 |
|
Professional fees |
|
| 569 |
|
|
| 382 |
|
|
| 187 |
|
|
| 2,306 |
|
|
| 1,179 |
|
|
| 1,127 |
|
Depreciation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Income (loss) from operations |
|
| (11,618 | ) |
|
| (9,650 | ) |
|
| (1,968 | ) |
|
| (41,052 | ) |
|
| (27,254 | ) |
|
| (13,798 | ) |
Other (income) expenses |
|
| (24,262 | ) |
|
| 2,472 |
|
|
| (26,734 | ) |
|
| (15,883 | ) |
|
| (251 | ) |
|
| (15,632 | ) |
Income tax expense (benefit) |
|
| (529 | ) |
|
| (1,632 | ) |
|
| 1,103 |
|
|
| (1,762 | ) |
|
| (4,604 | ) |
|
| 2,842 |
|
Net income (loss) |
| $ | 13,173 |
|
| $ | (10,490 | ) |
| $ | 23,663 |
|
| $ | (23,407 | ) |
| $ | (22,399 | ) |
| $ | (1,008 | ) |
Comparison of the Reported and Pro Forma results for three and nine months ended September 30, 2022 and 2021
Stock based compensation
Stock based compensation increased $0.3 million in the three month period and $7.0 million in the nine month period compared to 2021. The increase in both periods was due to new option grants to members of the Board, newly hired employees, and employees that joined our company as part of an acquisition.
General and administrative
General and administrative expenses increased $0.9 million in the three month period and $2.9 million in the nine month period compared to 2021. The increase in both periods was driven by higher consulting, investor relations, and marketing related to growing the business, and costs associated with the uplist to the Nasdaq.
Salaries and related benefits
Salaries and benefits increased $0.6 million in the three month period and $2.8 million in the nine month period compared to 2021. The increase in both periods is driven by investments in personnel associated with the Company’s growth and certain allocations from Telecommunications.
Professional fees
Professional services fees increased $0.2 million in the three month period and $1.1 million in the nine month period compared to 2021. The increase in the three month period was primarily due to higher accounting fees and expenses related to regulatory requirements. The increase in the nine month period was primarily due to higher legal and accounting fees related to acquisitions, our uplist to the Nasdaq, and expenses related to regulatory requirements.
Other operating (income) expense
Other operating expenses changed by $26.7 million in the three month period, going from an expense of $2.5 million in 2021 to an income of $24.3 million in 2022, and $15.6 million in the nine month period, going from an expense of $0.3 million in 2021 to an expense of $15.9 million in 2022. The change in the three month period was primarily driven by income generated by the change in fair value of derivative, offset by expense from contingent liabilities, in 2022, lower debt amortization cost and lower unrealized losses on marketable securities. The change in the nine month periods was driven by income from the change in fair value of derivative, offset by expense from contingent liabilities, in 2022, partially offset by debt amortization costs associated with acquisitions over the past 12 months and the exchange of convertible notes in the second quarter of 2022, higher interest expense, and unrealized losses on marketable securities compared to an unrealized gain on marketable securities in 2021.
Liquidity and Capital Resources
Our current operations have been focused primarily on business planning, raising capital, and acquiring profitable companies to fuel investment within the emerging EVC market and our corporate structure. Our primary sources of liquidity are operating cash flows and private placement investment and debt. In order to finance acquisitions, we issued non-convertible promissory notes throughout 2020 and 2021, and those notes have an outstanding aggregate principal amount of approximately $27.8 million at September 30, 2022. We assess our liquidity in terms of our ability to generate cash to fund our short- and long-term cash requirements. We believe that our operating cash flows and access to funding is sufficient to fund our cash requirements for the next 12 months. In the event that our plans change or our cash requirements are greater than we anticipate, we may need to access the capital markets to finance future cash requirements. However, there can be no assurance that such financing will be available to us should we need it or, if available, that the terms will be satisfactory to us and not dilutive to existing shareholders.
On October 25, 2022, ANS renewed the line of credit available with a bank and increased borrowing capacity from $4.0 million to $8.0 million.
On April 20, 2022, we entered into a securities purchase agreement with an affiliate of Island Capital Group LLC pursuant to which we issued 1,428,575 shares of Charge’s common stock and three-year warrants to purchase up to 2,000,000 shares of Charge’s common stock at $8.50 per share for an aggregate purchase price of $10.0 million.
On February 25, 2022, we entered into a securities purchase agreement with an affiliate of Island Capital Group LLC pursuant to which we issued 3,856,000 shares of Series C preferred stock in an aggregate face value of $12.0 million for an aggregate purchase price of $10.8 million.
On December 17, 2021, we entered into a securities purchase agreement with funds affiliated with Arena Investors LP pursuant to which we issued a note payable in an aggregate face value of $15.9 million for an aggregate purchase price of $13.3 million. The note has a coupon of 7.5% and matures on November 19, 2023. In addition, as part of the securities purchase agreement, we issued (i) 2,370,370 shares of Series C preferred stock to the investors at an aggregate purchase price of $6.7 million and (ii) warrants to purchase up to 2,370,370 shares of Charge’s common stock at $4.00 per share.
23 |
Table of Contents |
On May 19, 2021, we entered into a securities purchase agreement with funds affiliated with Arena Investors LP pursuant to which we issued (i) convertible notes in an aggregate face value of $5.6 million for an aggregate purchase price of $5.0 million that are convertible at any time, at the holder’s option, into shares of our common stock at a conversion price of $3.00 per share and mature on May 19, 2024, and (ii) non-convertible notes payable in an aggregate face value of $11.9 million for an aggregate purchase price of $10.0 million, with a coupon of 8% and a maturity date of November 19, 2023. Both issuances are referred to as the “May 2021 Notes”. In connection with the issuance of the May 2021 Notes, we issued to the investors warrants to acquire 1,870,000 shares of Charge’s common stock. On June 30, 2022, we exchanged the convertible notes for Series D preferred stock. See “Note 15 Equity.”
Cash Flows
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Total cash provided by (used in): |
|
|
|
|
|
| ||
Operating activities |
| $ | (2,916,904 | ) |
| $ | 3,502,956 |
|
Investing activities |
|
| 483,515 |
|
|
| (19,926,990 | ) |
Financing activities |
|
| 20,385,574 |
|
|
| 14,586,769 |
|
Effect of foreign currency exchange rates on cash and cash equivalents |
|
| 45,261 |
|
|
| (366,306 | ) |
Net increase (decrease) in cash and cash equivalents |
| $ | 17,997,446 |
|
| $ | (2,203,571 | ) |
The following table summarizes our cash flow activity, as reported within the consolidated statement of cash flows, followed by a discussion of the major drivers impacting operating, investing, and financing cash flows:
Cash flows from operating activities
Net cash provided by operating activities primarily includes net loss adjusted for (i) non-cash items included in net income, such as depreciation and amortization, stock based compensation, and amortization of debt discount, and (ii) changes in the balances of operating assets and liabilities. The use of cash from operating activities for the nine months ended September 30, 2022 was driven by net loss offset by non-cash items and a positive change in net working capital. Cash provided by operating activities decreased compared to the prior period primarily due a larger net loss driven by expenses to support the growth of the business.
Cash flows from investing activities
The increase in net cash provided by investing activities during the nine months ended September 30, 2022 compared to the prior period was primarily driven by the acquisition of ANS on May 21, 2021 and a net sale of marketable securities in the current period compared to a net purchase of marketable securities in the prior period, partially offset by the acquisition of EV Depot on January 14, 2022.
Cash flows from financing activities
The increase in cash provided by financing activities during the nine months ended September 30, 2022 compared to the prior period was primarily due to higher cash proceeds in the current period from the issuance of $10.8 million of Series C preferred stock, the sale of $10.0 million of common stock and the exercise of warrants, compared to $15.0 million of proceeds from debt financing in 2021.
Off-Balance Sheet Arrangements
As of September 30, 2022 and December 31, 2021, Charge did not have any off-balance sheet arrangements.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. “Note 2 Summary of significant accounting policies” to the Consolidated Financial Statements in our 2021 Form 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2021 Form 10-K, are stock based compensation, revenue recognition, goodwill, and income taxes. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the consolidated financial statements, and actual results could differ materially from the amounts reported.
Recent Accounting Pronouncements
See Part I, Item 1, “Note 2 Summary of significant accounting policies” for a detailed description of Recent Accounting Pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were, in design and operation, effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the nine months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
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PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may be involved in legal proceedings in the ordinary course of business. We are currently not a party to any legal proceedings that we believe would have a material adverse effect on our business, financial condition, or results of operations.
ITEM 1A. RISK FACTORS.
An investment in our securities involves a high degree of risk. An investor or potential investor should consider the risks summarized below and under the caption “Risk Factors” in Part I, Item 1A of our 2021 Form 10-K and Part II, Item 1A of our Forms 10-Q for the quarters ended March 31, 2022 (our “First Quarter Form 10-Q") and June 30, 2022 (our “Second Quarter Form 10-Q") when making investment decisions regarding our securities. The risk factors that were disclosed in our 2021 Form 10-K, First Quarter Form 10-Q, and Second Quarter Form 10-Q have not materially changed since the date the Second Quarter Form 10-Q was filed except for those risk factors noted below.
Risks Related to Our Common Stock
Our outstanding warrants and preferred stock may affect the market price and liquidity of our common stock.
As of September 30, 2022, we had approximately 206,482,414 shares of common stock and warrants for the purchase of up to approximately an additional 17,902,121 shares of common stock outstanding. All of these warrants are exercisable as of the date of this filing (subject to certain beneficial ownership limitations) as follows: 7,599,556 warrants at an exercise price of $0.50 per share, 4,062,195 warrants at an exercise price of $2.00 per share, 4,240,370 warrants at an exercise price of $4.00 per share, and 2,000,000 warrants at an exercise price of $8.50 per share. We also have 6,226,370 shares of our Series C preferred stock outstanding (convertible into 6,226,370 shares of common stock) and 1,177,023 shares of our Series D preferred stock outstanding (convertible into 1,177,023 shares of common stock). Holders of our notes and warrants may elect to receive a substantial number of shares of common stock upon conversion of the notes and/or exercise of the warrants. The amount of common stock reserved for issuance may have an adverse impact on our ability to raise capital and may affect the price and liquidity of our common stock in the public market. In addition, the issuance of these shares of common stock will have a dilutive effect on current stockholders’ ownership.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Market Information
Our common stock has been listed on the Nasdaq Global Market since April 12, 2022. Our common stock was quoted on the Pink Open Market from January 27, 2021 to April 11, 2022. Our common stock is currently quoted under the trading symbol “CRGE”.
Recent Sales of Unregistered Securities
Except as set forth below, we did not sell any of our equity securities during the three months ended September 30, 2022 that were not registered under the Securities Act and were not previously reported on a Current Report on Form 8-K filed by us.
During the three months ended September 30, 2022, we issued 137,803 shares of common stock upon the exercise of previously issued warrants generating aggregate cash proceeds of $49,777 from the exercise of such warrants.
We deemed the issuances of the securities described above to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, including Regulation D and Rule 506 promulgated thereunder, relative to transactions by an issuer not involving a public offering.
Purchases of Equity Securities by the Issuer and Affiliate Purchasers
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
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ITEM 6. EXHIBITS.
See the exhibit index, which is incorporated herein by reference.
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101.INS |
| XBRL Instance Document |
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101.SCH |
| XBRL Taxonomy Extension Schema |
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101.CAL |
| XBRL Taxonomy Calculation Linkbase |
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101.LAB |
| XBRL Taxonomy Label Linkbase |
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101.PRE |
| XBRL Definition Linkbase Document |
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101.DEF |
| XBRL Definition Linkbase Document |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 14, 2022 | CHARGE ENTERPRISES, INC. | ||
By: | /s/ Andrew Fox | ||
| Name | Andrew Fox | |
Title: | Chief Executive Officer | ||
(Principal Executive Officer) |
By: | /s/ Leah Schweller | ||
| Name | Leah Schweller | |
Title: | Chief Financial Officer | ||
(Principal Financial Officer and Principal Accounting Officer) |
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