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 $237 and $623 and additional paid-in capital for $7.4 million and $19.5 million within stockholders’ equity on the consolidated balance sheet at December 31, 2021 and March 31, 2022, respectively. The Series C preferred stock is reflected in mezzanine equity net of a beneficial conversion feature at $16.6 million on the consolidated balance sheet beginning as of June 30, 2022. The Company concluded that this correction to presentation is not material to the prior year.
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. |
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) | | $ | 6,404,567 | | | | | | | | | $ | 9,618,743 | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | |
Derivative liabilities (Note 12) | | | | | | $ | 11,773,452 | | | | | | | | | | $ | - | | | | |
Contingent consideration | | | | | | | | | | $ | 3,513,132 | | | | | | | | | | | $ | - | |
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 | | | 79,575 | |
Remeasurement | | | 3,433,557 | |
Balance at September 30, 2022 | | $ | 3,513,132 | |
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 $75,416 in the three and nine months ended September 30, 2022. This unrealized gain is included in net income under the caption of income (loss) from investments, net on the consolidated statement of operations. The carrying amount of these equity securities is $175,416 and $100,000 as of September 30, 2022 and December 31, 2021, respectively, and is included in non-marketable securities on the consolidated balance sheet.
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 | | $ | 6,441,772 | | | $ | 9,300 | | | $ | 6,451,072 | | | $ | 10,428,724 | | | $ | 120,800 | | | $ | 10,549,524 | |
Gross unrealized losses | | | (41,699 | ) | | | (4,806 | ) | | | (46,505 | ) | | | (840,881 | ) | | | (89,900 | ) | | | (930,781 | ) |
Fair value | | $ | 6,400,073 | | | $ | 4,494 | | | | 6,404,567 | | | $ | 9,587,843 | | | $ | 30,900 | | | $ | 9,618,743 | |
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 $193,131, which included $527,588 of realized losses and $334,457 of unrealized gains. During the nine months ended September 30, 2022, the Company recognized net losses of $1,215,505, which included $226,168 of realized losses and $989,337 of unrealized losses. Net losses from investments are included within income (loss) from investments, net on the consolidated statement of operations.
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 $18,787,105. $17,530,278 of the aggregate purchase price payable to the shareholders of EV Depot will be payable through the issuance of 5,201,863 shares of common stock. The agreement includes a clause protecting the sellers whereby if the average price of Charge’s common stock for the month ending December 31, 2022 is less than the per share price of Charge’s common stock determined at closing, the Company will increase the number of shares of common stock issued. The Company recorded this as a contingent consideration liability of $3,513,132 as of September 30, 2022. The agreement also included a clause for gross margin protection to the Company should the 2022 gross margin of EV Depot fall below target levels, the Company will reduce the number of shares of common stock to be issued to EV Depot. The Company recorded this as a contingent consideration asset of $753,540 as of September 30, 2022. These contingent consideration clauses will be settled in the first quarter of 2023. The acquisition closed on January 14, 2022. This acquisition has been accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date. The final determination of the fair value of certain assets and liabilities will be completed within the one-year measurement period from the date of acquisition as required by ASC 805, Business Combinations. This will allow us time to adequately analyze all the factors used in establishing the asset and liability fair values as of the acquisition date. Any potential adjustments could be material in relation to the preliminary values presented below.
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 | | $ | 1,231,250 | |
Accrued expenses | | | 18,750 | |
Contingent consideration liability, net of $72,748 contingent consideration asset | | | 6,827 | |
Common stock (5,201,863 shares) | | | 17,530,278 | |
Total consideration | | $ | 18,787,105 | |
| | | | |
Fair values of identifiable net assets and liabilities: | | | | |
Assets: | | | | |
Cash | | $ | 104,485 | |
Deposits, prepaids and other current assets, net | | | 5,500 | |
Non-current assets | | | 390,625 | |
Operating lease right-of-use asset | | | 2,016,700 | |
Total assets | | | 2,517,310 | |
Liabilities: | | | | |
Accrued liabilities | | | 44,074 | |
Deferred revenue | | | 166,984 | |
Operating lease liability | | | 2,016,700 | |
Total liabilities | | | 2,227,758 | |
Total fair value of identifiable net assets and liabilities | | | 289,552 | |
Goodwill (consideration given minus fair value of identifiable net assets and liabilities) | | $ | 18,497,553 | |
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 $18,038,570. $4,538,570 of the aggregate purchase price payable to the shareholders of BW was payable through the issuance of 1,285,714 shares of common stock. The acquisition closed on December 27, 2021.
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 $19,798,324. $6,850,000 of the aggregate purchase price payable to the shareholders of ANS was payable through the issuance of 2,395,105 shares of our Series B preferred stock. The acquisition closed on May 21, 2021.
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 | | $ | - | | | $ | 11,924,617 | | | $ | 11,924,617 | |
Tangible assets acquired (net of tangible liabilities assumed) | | | 6,380,152 | | | | (134,377 | ) | | | 6,245,775 | |
Goodwill | | | 13,418,172 | | | | (8,400,490 | ) | | | 5,017,682 | |
Deferred tax for identifiable intangible asset | | | - | | | | (3,026,788 | ) | | | (3,026,788 | ) |
Total | | $ | 19,798,324 | | | $ | 362,962 | | | $ | 20,161,286 | |
(1) Within one year of acquisition, the Company recorded measurement period adjustments primarily relating to the establishment of a customer relationship intangible asset of $11,924,617 and related deferred tax liability of $3,026,788. See “Note 6 Intangible assets.”
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 $861,222 upon finalization of purchase accounting. The intangible assets were a measurement period adjustment to goodwill (see “Note 5 Business acquisitions”). Amortization expense of $198,744 and $1,059,966 is included within depreciation and amortization expense for the three and nine months ended September 30, 2022, respectively, on the consolidated statement of operations. The following is included in intangible assets, net on the consolidated balance sheet:
| | September 30, 2022 | |
| | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | |
Customer relationships | | $ | 11,924,617 | | | $ | (1,059,966 | ) | | $ | 10,864,651 | |
Total | | $ | 11,924,617 | | | $ | (1,059,966 | ) | | $ | 10,864,651 | |
Estimated future amortization expense for the remainder of 2022, the next five years and thereafter is as follows:
Remainder of 2022 | | $ | 198,746 | |
2023 | | | 794,974 | |
2024 | | | 794,974 | |
2025 | | | 794,974 | |
2026 | | | 794,974 | |
2027 | | | 794,974 | |
Thereafter | | | 6,691,035 | |
Total | | $ | 10,864,651 | |
Note 7 Related party
During the first quarter of 2021, the Company granted Mr. Deutsch, a Board member of the Company, options to acquire 1,500,000 shares of common stock, at an exercise price of $2.00, for services rendered related to financial consulting.
During 2021, the Company paid $320,000 to KORR Acquisitions Group, Inc. related to successful acquisition efforts. Kenneth Orr, the former Chairman of the Company, has sole voting and dispositive power over the shares held by KORR Acquisitions Group, Inc.
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) | | $ | - | | | $ | 3,000,000 | |
Issued on November 3, 2020 (8% interest) | | | - | | | | 3,888,889 | |
Issued on May 19, 2021 (8% interest) | | | - | | | | 5,610,000 | |
Issued on April 30, 2021 (6% interest) | | | - | | | | 66,400 | |
Total face value | | | - | | | | 12,565,289 | |
Less: unamortized discount | | | - | | | | (5,389,692 | ) |
Total carrying value | | $ | - | | | $ | 7,175,597 | |
On June 30, 2022, convertible notes payable of Arena Investors LP with a face value of $12,498,889 (net discounted value of $8,205,504) were exchanged for Series D preferred stock. See “Note 15 Equity” for more details.
April 30, 2020 Sutton Global Note $227,525 Face Value
On April 30, 2020, the former CEO of Charge converted his payable into a convertible note with a face value of $300,000. The note has a coupon rate of 6% and a maturity date of December 31, 2021. The note is convertible at a rate of $0.0005 per share. Since the note added a conversion option, it resulted in a debt modification requiring the Company to record a loss on modification of debt in the amount of $98,825. On March 25, 2021, Sutton Global Associates converted $149,000 in principal and $12,125 in accrued interest into 644,499 shares of the Company’s common stock. The remaining note balance was subsequently sold to an unrelated party who converted the entire principal and accrued interest balance into 319,950 shares of the company common stock on March 12, 2022.
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 | | $ | - | | | $ | 259,835 | | | $ | 497,053 | | | $ | 604,605 | |
Amortization of debt discount | | | - | | | | 912,767 | | | | 5,391,022 | | | | 1,895,555 | |
Amortization of debt issuance costs | | | - | | | | - | | | | - | | | | 7,397 | |
Total | | $ | - | | | $ | 1,172,602 | | | $ | 5,888,075 | | | $ | 2,507,557 | |
The accrued interest relating to the convertible notes payable as of September 30, 2022 and December 2021 was $0 and $183,067, respectively.
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 $6,019 and $95,127 respectively.
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 $550,000 for an aggregate purchase price of $495,000 (collectively, the “KORR Notes”). In connection with the issuance of the KORR Notes, the Company issued to KORR Value warrants to purchase an aggregate of 1,151,515 shares of common stock (collectively, the “KORR Warrants”). The KORR Notes and KORR Warrants are on substantially the same terms as the Notes and Warrants issued to the Selling Shareholders except that the KORR Notes are subordinated to the Notes. On August 27, 2020, notes totaling $288,889 and 658,667 warrants were assigned to an unrelated party.
On March 15, 2021, KORR Value converted $261,111 in principal and $17,798 in accrued interest related to the convertible notes issued May 8, 2020 into 1,115,638 shares of the Company’s common stock.
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 $110,000 for an aggregate purchase price of $100,000. The notes are convertible at the holder’s option at a conversion price of $0.25 per share. In connection with the issuance of the Notes, the Company issued to 9 Madison warrants to purchase an aggregate of 440,000 shares of common stock.
On March 15, 2021, 9 Madison converted $110,000 in principal and $4,677 in accrued interest related to the convertible notes issued September 2, 2020 into 458,709 shares of the Company’s common stock.
Note 10 Line of credit
Nextridge Inc. (“Nextridge”) and ANS have a revolving $4,000,000 line of credit available with a bank, collateralized by all the assets of Nextridge and ANS. Interest is payable monthly at the Wall Street Journal prime rate (6.25% as of September 30, 2022 and 3.25% as of December 31, 2021). There are no financial commitments or covenants on the line of credit. As of September 30, 2022 and December 31, 2021, the Company had an outstanding balance of $2,152,388 and $1,898,143, respectively, on this line of credit.
On October 25, 2022, Nextridge and ANS renewed the line of credit increasing the availability from $4,000,000 to $8,000,000. Borrowings under the line of credit will bear interest at a floating rate at the Wall Street Journal prime rate with a floor of 5%. Advances under the line of credit are limited to 70% and 50% of Nextridge and ANS’ eligible accounts receivable and work in progress, respectively. Nextridge and ANS at each fiscal year end must maintain a minimum debt service coverage ratio of 1.2:1, and maximum debt/tangible net worth ratio of 3:1. The outstanding balance on line of credit is payable upon demand by the bank. In addition to the security interest in the assets of Nextridge and ANS, the line of credit is guaranteed by the Company and Charge Infrastructure Holdings, Inc., the parent of Nextridge and ANS and subsidiary of the Company.
BW has a revolving $3,000,000 line of credit available with a bank, collateralized by all the assets of BW. Interest is payable monthly at the Wall Street Journal prime rate (6.25% as of September 30, 2022 and 3.25% as of December 31, 2021). There are no financial commitments or covenants on the line of credit. On May 26, 2022, BW renewed the facility with substantially the same terms and an expiration of August 1, 2023. As of September 30, 2022 and December 31, 2021, the Company had no outstanding balance on the line of credit.
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 | | $ | - | | | $ | 2,000,000 | |
Notes payable issued May 19, 2021 (8% interest) | | | 11,860,055 | | | | 11,860,055 | |
Notes payable issued December 17, 2021 (7.5% interest) | | | 15,925,926 | | | | 15,925,926 | |
Total face value | | | 27,785,981 | | | | 29,785,981 | |
Less: unamortized discount | | | (5,037,990 | ) | | | (3,698,458 | ) |
Total carrying value | | $ | 22,747,991 | | | $ | 26,087,523 | |
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 $2,000,000. In the second quarter of 2022, the loan was forgiven by the SBA. Although the loan was forgiven by the SBA, per our purchase agreement with the sellers of BW in December 2021, if such an event occurred, the Company is obligated to reimburse the SBA loan of $2,000,000 to such sellers. As such, the $2,000,000 SBA loan was reclassified from notes payable to accrued liability on the consolidated balance sheet as of June 30, 2022 and was reimbursed to the sellers of BW during the third quarter of 2022.
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 | | $ | 484,642 | | | $ | 209,160 | | | $ | 1,453,926 | | | $ | 278,114 | |
Amortization of debt discount | | | 494,561 | | | | 252,039 | | | | 2,547,207 | | | | 252,039 | |
Total | | $ | 979,203 | | | $ | 461,199 | | | $ | 4,001,133 | | | $ | 530,153 | |
The accrued interest relating to the notes payable as of September 30, 2022 and December 2021 was $161,547 and $115,250, respectively.
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 $40.4 million and a deemed dividend of approximately $32.8 million. This derivative liability will be revalued on a recurring basis through the consolidated statement of operations.
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, | | $ | - | | | $ | 749,600 | |
Reclass of derivative | | | 40,442,518 | | | | (749,200 | ) |
Change in fair value of derivative liabilities | | | (28,669,066 | ) | | | (400 | ) |
Derivative liability balance at September 30, | | $ | 11,773,452 | | | $ | - | |
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 $1,138,555 and $3,549,307 of lease revenue relating to EV Depot’s operating leases within revenues in the consolidated statements of operations for the three and nine months ended September 30, 2022, respectively. The Company had no lessor revenues in 2021.
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 | | $ | 159,104,070 | | | $ | 107,108,649 | | | $ | 458,071,311 | | | $ | 344,194,552 | |
Infrastructure | | | 26,753,059 | | | | 9,889,437 | | | | 71,804,320 | | | | 13,514,232 | |
Total | | $ | 185,857,129 | | | $ | 116,998,086 | | | $ | 529,875,631 | | | $ | 357,708,784 | |
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Loss from operations: | | | | | | | | | | | | |
Telecommunications | | $ | 281,765 | | | $ | 40,856 | | | $ | 1,169,017 | | | $ | 1,317,421 | |
Infrastructure | | | 1,363,736 | | | | 840,622 | | | | 4,656,895 | | | | 100,656 | |
Non-operating corporate | | | (11,619,477 | ) | | | (9,648,538 | ) | | | (41,052,238 | ) | | | (27,253,232 | ) |
Total | | $ | (9,973,976 | ) | | $ | (8,767,060 | ) | | $ | (35,226,326 | ) | | $ | (25,835,155 | ) |
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 | | $ | (9,973,976 | ) | | $ | (8,767,060 | ) | | $ | (35,226,326 | ) | | $ | (25,835,155 | ) |
Loss of impairment | | | - | | | | (18,119,592 | ) | | | - | | | | (18,119,592 | ) |
Income (loss) from investments, net | | | (117,715 | ) | | | (840,911 | ) | | | (1,140,090 | ) | | | 3,420,417 | |
Amortization of debt discount | | | (494,561 | ) | | | (1,164,806 | ) | | | (7,938,229 | ) | | | (2,147,594 | ) |
Amortization of debt discount, related party | | | - | | | | - | | | | - | | | | (95,127 | ) |
Change in fair value of derivative liabilities | | | 28,669,066 | | | | - | | | | 28,669,066 | | | | (400 | ) |
Interest expense | | | (520,834 | ) | | | (485,542 | ) | | | (2,001,615 | ) | | | (934,225 | ) |
Other income (expense), net | | | (3,346,462 | ) | | | 1,181,781 | | | | (2,432,871 | ) | | | 1,171,343 | |
Foreign exchange adjustments | | | (24,347 | ) | | | 251,280 | | | | (110,538 | ) | | | (261,432 | ) |
Total other expenses | | | 24,165,147 | | | | (19,177,790 | ) | | | 15,045,723 | | | | (16,966,610 | ) |
Income (loss) from operations before income taxes | | | 14,191,171 | | | | (27,944,850 | ) | | | (20,180,603 | ) | | | (42,801,765 | ) |
Income tax benefit (expense) | | | 183,184 | | | | 2,715,260 | | | | 1,772,804 | | | | 5,908,091 | |
Net income (loss) | | $ | 14,374,355 | | | $ | (25,229,590 | ) | | $ | (18,407,799 | ) | | $ | (36,893,674 | ) |
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Depreciation and amortization: | | | | | | | | | | | | |
Telecommunications | | $ | 42,253 | | | $ | 49,048 | | | $ | 128,175 | | | $ | 148,643 | |
Infrastructure | | | 390,668 | | | | 117,383 | | | | 1,616,865 | | | | 165,691 | |
Total | | $ | 432,921 | | | $ | 166,431 | | | $ | 1,745,040 | | | $ | 314,334 | |
| | Nine Months Ended September 30, | |
| | 2022 | | | 2021 | |
Capital expenditures: | | | | | | |
Telecommunications | | $ | - | | | $ | - | |
Infrastructure | | | 204,893 | | | | 1,274,687 | |
Total | | $ | 204,893 | | | $ | 1,274,687 | |
| | September 30, 2022 | | | December 31, 2021 | |
Investments: | | | | | | |
Telecommunications | | $ | - | | | $ | - | |
Infrastructure | | | 1,399,550 | | | | 2,279,978 | |
Non-operating corporate | | | 5,180,434 | | | | 7,438,765 | |
Total | | $ | 6,579,984 | | | $ | 9,718,743 | |
| | September 30, 2022 | | | December 31, 2021 | |
Assets: | | | | | | |
Telecommunications | | $ | 79,713,973 | | | $ | 73,658,598 | |
Infrastructure | | | 84,660,457 | | | | 56,700,602 | |
Non-operating corporate | | | 106,790,722 | | | | 79,579,215 | |
Eliminations | | | (83,620,694 | ) | | | (66,328,903 | ) |
Total | | $ | 187,544,458 | | | $ | 143,609,512 | |
Note 15 Equity
Permanent Equity
Preferred Stock
The Company has 20,000,000 shares of preferred stock authorized with a par value of $0.0001. No shares of Series A preferred stock were issued and outstanding as of September 30, 2022 and December 31,2021.
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 1,177,023 shares of Series D preferred stock. The Series D preferred stock was issued in exchange for the Arena Investors’ $3,000,000 principal amount of convertible notes issued on May 8, 2020, $3,888,889 principal amount convertible notes issued on November 3, 2020, and $5,610,000 principal amount convertible notes issued on May 19, 2021. The total principal was $12,498,889. The remaining unamortized discount as of June 30, 2022 of $4,293,385 was fully amortized during the period ended June 30, 2022 and included in the amortization of debt discount on the consolidated statement of operations. As of September 30, 2022, there were 1,177,023 shares of Series D preferred stock issued and outstanding.
The Series D preferred stock has the following designations:
| · | Convertible at the option of the holder into common stock at $0.4248 per share |
| · | The Series D liquidation preference is equal to $10.6191 per share |
| · | The holders are entitled to receive cumulative quarterly dividends at a fixed annual rate of 2.25% of the liquidation preference, or $0.23893 per share |
| · | No voting rights |
In addition to the exchange of convertible notes, the related 11.8 million outstanding warrants to purchase common stock were amended to allow the holder 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 transition to derivative accounting created a derivative liability of $40.4 million and a related deemed dividend of $32.8 million. Future changes in the fair value of the derivative liability will be marked to market through the consolidated statement of operations in the respective period.
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 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 $10,000,025. The purchase price was allocated between common stock and warrants and is reported within common stock and additional paid-in capital on the consolidated balance sheet.
Mezzanine Equity
Preferred Stock
Series B: On May 21, 2021, the Company issued 2,395,105 shares as part of the acquisition of ANS at an aggregate purchase price of $6,850,000. On June 20, 2022, 2,155,594 shares were converted to 2,155,594 shares of common stock. On August 22, 2022, the remaining 239,511 shares were redeemed. As of September 30, 2022, there were no shares of Series B preferred stock issued and outstanding. As of December 31, 2021, there were 2,395,105 shares of Series B preferred stock issued and outstanding.
The Series B preferred stock had the following designations:
| · | Convertible at option of holder |
| · | The holders are entitled to receive cumulative dividends at 4% per annum, payable quarterly on January 1, April 1, July 1, and October 1 |
| · | 1 preferred share is convertible to 1 common share |
| · | 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 2,370,370 shares of Series C preferred stock at an aggregate face value of $7,407,406 for an aggregate purchase price of $6,666,800. In connection with the issuance of the Series C preferred stock, the Company also issued warrants to purchase 2,370,370 shares of the Company’s common stock. The Company has valued and recorded the beneficial conversion feature of the Series C preferred stock and the warrants resulting in a deemed dividend at the time of issuance.
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 3,856,000 Series C preferred stock at an aggregate face value of $12,050,000 for an aggregate purchase price of $10,845,000. The Company has valued and recorded the beneficial conversion feature of the Series C preferred stock resulting in a deemed dividend at the time of issuance. As of September 30, 2022 and December 31, 2021, there were 6,226,370 and 2,370,370 shares, respectively, of Series C preferred stock issued and outstanding.
The Series C preferred stock has the following designations:
| · | Convertible at option of holder at a conversion price of $3.125 per share |
| · | The holders are entitled to receive cumulative dividends at 6% per annum, payable monthly |
| · | 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 | | | 44,920,000 | | | $ | 1.78 | |
Options granted | | | 2,550,000 | | | | 3.47 | |
Options exercised | | | - | | | | - | |
Options cancelled | | | (565,000 | ) | | | (3.16 | ) |
Options outstanding at March 31, 2022 | | | 46,905,000 | | | $ | 1.85 | |
Options exercisable at March 31, 2022 | | | 14,737,501 | | | $ | 1.14 | |
Options granted | | | 3,475,000 | | | | 5.00 | |
Options exercised | | | (10,000 | ) | | | (2.00 | ) |
Options cancelled | | | (687,500 | ) | | | (2.96 | ) |
Options outstanding at June 30, 2022 | | | 49,682,500 | | | $ | 2.06 | |
Options exercisable at June 30, 2022 | | | 18,361,001 | | | $ | 1.47 | |
Options granted | | | 985,000 | | | | 2.36 | |
Options exercised | | | (261,959 | ) | | | (0.55 | ) |
Options cancelled | | | (482,500 | ) | | | (4.46 | ) |
Options outstanding at September 30, 2022 | | | 49,923,041 | | | $ | 2.05 | |
Options exercisable at September 30, 2022 | | | 18,797,522 | | | $ | 1.52 | |
At September 30, 2022, the weighted average remaining life of the stock options is 4.68 years. At September 30, 2022, there was $31,632,307 in unrecognized costs related to the stock options granted.
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 | | | 24,084,772 | | | $ | 1.74 | | | 3.0 years | |
Issued | | | - | | | | - | | | | - | |
Exercised | | | - | | | | - | | | | N/A | |
Expired | | | - | | | | - | | | | N/A | |
Warrants outstanding at March 31, 2022 | | | 24,084,772 | | | $ | 1.74 | | | 2.7 years | |
Warrants exercisable at March 31, 2022 | | | 24,084,772 | | | $ | 1.74 | | | 2.7 years | |
Issued | | | 2,000,000 | | | | 8.50 | | | 2.8 years | |
Exercised | | | (8,044,848 | ) | | | (1.60 | ) | | | N/A | |
Expired | | | - | | | | - | | | | N/A | |
Warrants outstanding at June 30, 2022 | | | 18,039,924 | | | $ | 2.55 | | | 2.3 years | |
Warrants exercisable at June 30, 2022 | | | 18,039,924 | | | $ | 2.55 | | | 2.3 years | |
Issued | | | - | | | | - | | | | - | |
Exercised | | | (137,803 | ) | | | (0.91 | ) | | | N/A | |
Expired | | | - | | | | - | | | | N/A | |
Warrants outstanding at September 30, 2022 | | | 17,902,121 | | | $ | 2.56 | | | 2.0 years | |
Warrants exercisable at September 30, 2022 | | | 17,902,121 | | | $ | 2.56 | | | 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, 10% of bonding needs are held in cash on the balance sheet.
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 $250,000 limit. At times, cash balances may exceed the maximum coverage provided by the FDIC on insured depositor accounts. The Company believes it mitigates its risk by depositing its cash and cash equivalents with major financial institutions. At September 30, 2022 and December 31, 2021, the Company had $24,656,441 and $17,503,737 in excess of FDIC insurance, respectively.
Major Customer Concentration
There were two customers whose individual accounts receivable represented 10% or more of the Company’s total accounts receivable and whose accounts receivable in aggregate accounted for approximately 24% of the Company’s total accounts receivable as of September 30, 2022. The company had two customers whose accounts receivable individually represented 10% or more of the Company’s total accounts receivable and whose accounts receivable in aggregate accounted for approximately 25% of the Company’s total accounts receivable as of December 31, 2021.
The Company has two customers whose revenue individually represented 10% or more of the Company’s total revenue and whose revenue in aggregate accounted for approximately 32% and 29% of the Company’s total revenue for the three and nine months ended September 30, 2022, respectively. The Company had three customers whose revenue individually represented 10% or more of the Company’s total revenue and in aggregate accounted for approximately 41% of the Company’s total revenue for the three and nine months ended September 30, 2021, respectively.
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 | | $ | 14,191,171 | | | $ | (27,944,850 | ) | | $ | (20,180,603 | ) | | $ | (42,801,765 | ) |
Income tax benefit (expense) | | | 183,184 | | | | 2,715,260 | | | | 1,772,804 | | | | 5,908,091 | |
Effective tax rate | | | (1.3 | )% | | | 9.7 | % | | | 8.8 | % | | | 13.8 | % |
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.
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 | | $ | 14,071,914 | | | $ | (25,229,590 | ) | | $ | (56,027,370 | ) | | $ | (36,893,674 | ) |
Less: Undistributed earnings allocated to participating securities | | | (2,630,305 | ) | | | - | | | | - | | | | - | |
Numerator, basic | | | 11,441,609 | | | | (25,229,590 | ) | | | (56,027,370 | ) | | | (36,893,674 | ) |
Effect of dilutive securities | | | | | | | | | | | | | | | | |
Plus: Preferred stock dividends | | | 295,819 | | | | - | | | | - | | | | - | |
Plus: Undistributed earnings allocated to participating securities | | | 2,630,305 | | | | - | | | | - | | | | - | |
Less: Undistributed earnings re-allocated to participating securities | | | (2,392,897 | ) | | | - | | | | - | | | | - | |
Numerator, diluted | | $ | 11,974,836 | | | $ | (25,229,590 | ) | | $ | (56,027,370 | ) | | $ | (36,893,674 | ) |
| | | | | | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding, basic | | | 206,224,561 | | | | 152,222,589 | | | | 196,126,428 | | | | 150,397,062 | |
Effect of dilutive securities: | | | | | | | | | | | | | | | | |
Restricted stock units | | | 77,088 | | | | - | | | | - | | | | - | |
Contingently issuable shares | | | 1,769,884 | | | | - | | | | - | | | | - | |
Stock options | | | 16,953,621 | | | | - | | | | - | | | | - | |
Preferred stock | | | 6,363,233 | | | | - | | | | - | | | | - | |
Weighted average number of shares outstanding, diluted | | | 231,388,387 | | | | 152,222,589 | | | | 196,126,428 | | | | 150,397,062 | |
| | | | | | | | | | | | | | | | |
Basic income (loss) per share available to common stockholders | | $ | 0.06 | | | $ | (0.17 | ) | | $ | (0.29 | ) | | $ | (0.25 | ) |
Diluted income (loss) per share available to common stockholders | | $ | 0.05 | | | $ | (0.17 | ) | | $ | (0.29 | ) | | $ | (0.25 | ) |
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 | | | - | | | | 36,836 | | | | 154,410 | | | | 12,324 | |
Contingently issuable shares | | | - | | | | - | | | | 1,685,294 | | | | - | |
Warrants | | | - | | | | 21,714,402 | | | | 16,878,277 | | | | 20,765,652 | |
Stock options | | | 25,122,445 | | | | 38,699,396 | | | | 48,905,800 | | | | 32,417,096 | |
Preferred stock | | | - | | | | 2,395,105 | | | | 16,950,976 | | | | 1,162,330 | |
Convertible notes payable | | | - | | | | 51,551,453 | | | | 33,249,524 | | | | 41,404,494 | |
Total | | | 25,122,445 | | | | 114,397,192 | | | | 117,824,281 | | | | 95,761,896 | |