Charge Enterprises Inc. - CRGE
Get Charged!!!
Recently upgraded from the pink sheets to full NASDAQ, I’m not exactly sure where this thing is in the hype process, but if you’re a fan of crappy worthless shells in search of a new business, then it’s something you may want to check out. These folks are trying to build some sort of a vertical vehicle charging company, and have decided to buy up all the necessary components: electrical contractors, telecom services, tower construction, and charger designers and installers. They’ve somehow managed to back into a $2 billion or so market cap, which may be a tad excessive if you look at where they got their start.
Charge Enterprises Inc. ( CRGE - $7.93)
Shares Outstanding: 190M + 24M warrants (all in the money) + 45M options (likewise in the money) + 4.8M convertible preferred shares = 264M shares
From their roots in 2003 as “E-Education Network” to “GoIP Global” and later to “Transworld Holdings,” the current Charge Enterprises was a virtually worthless and empty shell company until the current rollup strategy got started a couple years back. Beginning with the April 2020 acquisition of Transworld Holdings for $3M, the company has been on something of an acquisition spree: in September 2020 they purchased GetCharged in exchange for 60M shares of stock and soon changed the corporate name to Charge Enterprises; PTGi-ICS in October 2020 for $892,000; in May 2021 they purchased something called Nextridge Inc. for $20M in preferred shares; in December BW Electrical Services for $13.5M plus 1.28M shares of stock; and most recently, they announced the purchase of EV Group Holdings for $18.7M. So why would anyone give these folks this much cash to buy some seemingly random companies?
Concentrated Ownership – Kenneth Orr of the KORR Acquisitions Group was the Chairman and primary architect of their revival. The most recent 10K places his current ownership at only 18.2M shares, but there are multiple transfers he or his firm have made (over 10% of the outstanding shares) to either relatives or current management members, some at incredibly attractive prices. Back on September 23rd , for example, KORR sold 20.2M shares at $2 to a trust for the benefit of Kenneth Orr’s children. Some of the other transfers were also to members of management including CEO Andrew Fox, now owner of 35.8M shares. A couple of recent investors, Arena Structured Private Investments and Island Capital Group, are also large owners of stock, and taken all together own around 90% of the fully diluted shares outstanding.
Board of Directors – while Kenneth Orr may not be on the board any more, he managed to assemble an eclectic group of individuals to manage and advise the company going forward. Of course we have Andrew Fox from GetCharged as the new CEO and Chairman, and Craig Denson from PTGI is the COO and director as well. They also have Baron Davis, former NBA all-star basketball player and UCLA standout player, along with Benjamin Carson Jr., a Tufts graduate like Kenneth Orr, and the son of, well, Benjamin Carson Sr., which was likely a more worthy consideration for board selection. Mr. Davis received $2.8M worth of option awards since his appointment, and Mr. Carson about $1.2M. There are also a couple of ladies that also serve as directors for LSI Industries (LYTS), which has been on the short radar in the past, along with some folks coming from various consulting or money management backgrounds.
Financing the rollup – their rollup strategy is apparently so brilliant and worthy of investment such that the leaders of respected institutions like Island Capital Group are approaching them to form a strategic relationship.
“When Andrew Farkas, who founded Insignia Financial Group, Inc. (which ultimately was merged into what is now CBRE Group), approached Charge with respect to a possible strategic relationship, we were thrilled to walk them through our strategy and vision," said Charge's Chairman and CEO Andrew Fox. "We are very excited to work with Island Capital Group and to expand our relationship with them."
They purchased a $12M face value note for $10.8M and it pays out a 6% preferred dividend convertible into shares at $3.25. At the end of December Arena Investors contributed $20M towards the purchase of BW Electrical in a $22.2M debt and convertible preferred financing deal. Looking through the pages of financings they have done over the last couple of years, the discounted note seems to be a particular favorite tool of theirs.
The Rollup Begins - CRGE now says that they have 2 separate business divisions: Telecommunications & Infrastructure. The “GetCharged” , “BW Electrical”, “Nextridge”, and “EV Group” acquisitions fall under the “Infrastructure” division; PTGi is their “Telecommunications” division. What do we know about any of these companies?
Transworld Holdings – according to their recent prospectus, “In this case, TransWorld did not have any assets. As such the value of the consideration was valued at $3,057,907, which was the value of the Series D and Series F Preferred stock. The entire value was recoded as goodwill. As of December 31, 2020, we determined that the full amount of goodwill related to this transaction needed to be impaired. As such we recorded a loss on impairment of goodwill in the amount of $3,057,907.” So the carrying value for TransWorld Holdings, what Kenneth Orr used to reverse merge into the publicly traded shell known as GoIP Global, is basically worth nothing.
GetCharged Inc. – purchased for 60M shares for what was then worth around $28.2M, which if you read through the releases, is a bit more than the original agreement for $17.5M. Of the $28.2M acquisition value, $27.3M of it was recognized as goodwill, and they immediately wrote down $10.7M which was the amount that was paid over the original agreement amount. They don’t really explain why they did that. They would later take an additional $16.6M impairment charge for this acquisition, along with a $1.5M charge against some fixed assets they had, and basically writing down the value of the acquisition down to zero. They paid a 3% “finder’s fee” to Kennth Orr, their executive Chairman, of the KORR Value LP fund family, or $525,000, upon closing, and the “serial entrepreneur” founder of GetCharged, one Andrew Fox, became the new CEO of the combined company. What did they get for $28.2M? GetCharged did $60,483 in revenues for the first 9 months of 2020, prior to the acquisition, and only $6,819 in all of 2019, but hey, they were growing at, what, like 900%, so what a deal, right? Well, not so fast; turns out GetCharged did less than $3K in revenues during Q4 2020, which may just explain why they decided to write down the value of the acquisition to zero.
PTGi-ICS – the jewel in the acquisition crown, so-to-speak, was picked up for $892,000 in 2020; PTGi is a wholesale provider of telecom “voice termination” services. PTGi also came with very little in the form of actual assets, and even with the cheap acquisition price of $892,000, they still recorded $550,000 in goodwill. What they got was a mountain of incredibly low margin revenues: PTGi supposedly did $696M in 2019 revenues and $793M in 2018 revenues, though only $430M for the first 9 months of 2020, but with only about 2.4% gross margins. So a shrinking revenue stream, but it likely circumvents a future need to show “pro forma” revenues or even acquired company financials since anything they buy will be dwarfed by these numbers and likely will be labeled as “immaterial.” Skinny gross margins and high operating costs pretty much removed any kind of profitability for their shareholders. This was apparently another Kenneth Orr special find, since they paid a $505,000 “success fee” to the KORR Value LP upon closing, which is almost as much as they paid for the company itself. The CEO of PTGi would later become the President and COO of CRGE.
So now it appears they have all the pieces together. PTGI will apparently be handling all of their telecom services related to their infrastructure build-out; BW Electrical is an electrical contractor, for building out their charging infrastructure; EV Group Holdings supposedly does real estate acquisition services for the parking, maintenance, and EV charging resources; Nextridge supposedly is big into the installation of fixed wireless sites including towers and small cells; and this will all be under the “GetCharged” umbrella, which brought, well, nothing really, except for the CEO.
About those pro forma revenues – their 10K states that 2021 revenues were $477M, up from $84.726M in 2020. Looks pretty good, right? PTGI was purchased on October 2nd, 2020, and contributed $84.723M of overall 2020 revenues, or basically 99.9%. Their base business that existed prior to this acquisition? All of $2,791, and that’s not in millions. In 2021, PTGI contributed $452.8M vs. $84.7M in 2020, while the “infrastructure” segment contributed $24.3M vs. $2.791K. On a pro forma basis, which includes all of 2020 and 2021 in the calculations, the Telecom business contributed $452.8M vs. $545.5M, or down almost 20%, while the Infrastructure business did $63.5M vs. $61.5M, or up about 3% year over year. Net net, pretty large declines for the overall company, though the management team is pointing to some positive signs: Q4 pro forma revenues of $126.8M were only down $4.5M vs. $131.3M in 2020, which they hope is a sign of some stability.
Aborted Acquisitions or, “when do I get my money back?” – The acquisition train got off to a bit of a rocky start prior to their GetCharged deal. On August 10th 2020, they attempted to buy Romolos Corp for $900,000 and paid a $90,000 deposit. The acquisition was later called off, and “The Company has requested the deposit to be returned.” From the “fool me once, shame on me, fool me twice, shame on you” school of acquisition planning, they later attempted to purchase APS Transportation Inc. for $525,000 and put down another 10%, or $52,500 deposit. Once again, after deciding not to close, “The Company has requested the deposit to be returned.”
Changing the subject for a moment… - Both former Chairman Kenneth Orr and CEO Andrew Fox popped up in the news earlier this year when the SEC decided to level some fraud charges against the father-son duo running taxi company Medallion Financial (MFIN). Apparently Kenneth Orr, through his value fund along with personal holdings, is the owner of 5% or so of the public stock, and KORR has been so impressed by what Andrew Fox is doing over at CRGE and so unimpressed with the father-son duo running TAXI and all of the cash they pay themselves, that he wants both to be kicked off the board and Andrew Fox (along with fellow board member Philip P. Scala) to be installed on the Medallion board of directors. https://nypost.com/2022/01/03/nyc-taxi-medallion-dynasty-faces-shareholder-revolt-over-sec-fraud-claims/
Don’t look too closely or you may find charges of money-laundering and ill-gotten gains – In this SEC order https://www.sec.gov/litigation/admin/34-50941.htm or https://www.sec.gov/litigation/admin/34-50363.htm from 2004, the SEC filed a permanent injunction against Kenneth Orr from being associated with any broker-dealer. He would also agree to disgorging ill-gotten gains of $55K and paying a $55K penalty and $44K in interest, and he also pled guilty to one count of conspiracy to launder money, for which he got probation and paid a $3K fine. On his company’s bio page, this oddly seems to have been left out of the glowing review of his time leading First Cambridge Securities. https://korracquisitions.com/korr-leadership/ Sort of a junior Jordan Belfort, except Mr. Orr opted to stick with crappy microcap stocks, while Mr. Belfort is apparently now a crypto guru.
Insider Shenanigans – Hmm. So if I own 44% of XYZ and their CEO personally agrees to buy 10M shares of my $3 stock for only $2, that’s totally above-board.
“On September 23, 2021, KORR sold an aggregate of 10,000,000 shares of the Company’s common stock to two unaffiliated third parties, in which neither KORR nor Kenneth Orr are in any way related or have any beneficial interest in, for an agreed upon purchase price of $20,000,000. Mr. Orr has a longstanding personal relationship with the principals of each of the third party purchasers who acquired the shares from KORR referenced in the above paragraph. Specifically, the principal of one of the third party purchasers is also the CEO and director of Optimus Healthcare Services, Inc., a company in which Mr. Orr is the largest shareholder and in which Mr. Orr beneficially owns approximately 44% of the common stock based on publicly available information on the Securities and Exchange Commission’s website. Further, the principal of the other third party purchaser is a shareholder of an entity that owns approximately 25% of KORR, based on information provided by KORR. Further, based upon information provided by KORR and Mr. Orr to the Company, neither KORR nor Mr. Orr have any interest in, or control of, either of the third party entities (or in any of their assets) to which the shares were sold.
What is Optimus Healthcare Services? It doesn’t seem to currently trade (was HOPS, now OHCS), though they did file an S1 recently, and oddly enough, it happens to share quite a few directors with the folks over at CRGE. Phil Scala, Justin Deutsch, and James Murphy all happen to be on this “unaffiliated” company’s board of directors, of which KORR owns over 17M shares or 44% of the company, and they also happen to be on the board of directors for CRGE. Fascinating. Until June 2021 OHCS used to be known as “Between Dandelions” (and another half dozen names before that) but changed their name at the behest of Kenneth Orr, their executive chairman, in order to more fully reflect their renewed focus long-term strategic vision. What’s that vision? Buying interests in other healthcare-related companies. Mark Wiener, the CEO of OHCS, owns 4.25M shares, and apparently had the cash to buy a decent chunk of that 10M share stake that KORR was looking to sell. Mr. Wiener is apparently the owner of several companies that have so-far been reverse merged into OHCS, including VaccinationsRx and Worker’s Health Rx, making OHCS something of a healthcare oriented CRGE and Mr. Wiener is analogous to Mr. Fox. Like Mr. Fox, Mr. Wiener’s bio describes him as a “serial entrepreneur.”
The CEO makes a timely purchase. CEO Andrew Fox purchased 500K Series A preferred shares from KORR for $1M on September 23rd, 2021. The stock supposedly closed at $3.40 on this date. A month later, on October 28th 2021, the company converted all series A preferred shares into 12.5% of the company’s fully-diluted shares, or 30.75M shares. Mr Fox’s windfall? His stake converted into 15.377M shares of a stock that closed at $3. So, a $45M windfall for $1M. Not bad for a month’s work.
“On September 23, 2021, KORR sold 500,000 shares of the Company’s series A preferred stock to Andrew Fox, the Company’s chief executive officer, for an agreed upon purchase price of $1,000,000. The series A preferred stock was entitled to convert, on one occasion, at the sole option of the holders into an aggregate of 12.5% of the Company’s fully-diluted shares of common stock on the date of conversion. On October 28, 2021, all outstanding shares of series A preferred stock were converted into an aggregate of 30,754,896 shares of common stock, of which 15,377,448 shares of the Company’s common stock were issued to Andrew Fox, the Company’s chief executive officer, and the remainder of which were issued to a trust for the benefit of the children of Kenneth Orr.”
The Virtual Company -
“Our principal executive offices are located at 125 Park Avenue, 25th Floor, New York, NY 10017. We lease our virtual office for approximately $140.00 per month pursuant to a lease which terminates on February 29, 2022, provided if either party does not terminate the agreement within (30) days prior to the end of the initial term, the lease shall automatically renew for successive one (1) month periods on the same terms”
A nice puff piece - https://www.businessinsider.com/electric-vehicle-startup-charge-enterprises-spending-spree-what-acquisitions-targeting-2022-2?op=1
Mistaken corporate notes filing. This amended 8K from February 4th 2022 describes a December offering of OID corporate notes in the amount of $13,333,184 rather than the $133,333,184 as originally stated in the December release. Those pesky decimals.
Back a couple short years ago, if you thought charging companies were the way to play the whole electrified vehicle game, then you pretty much only had BLNK and maybe NIO out there to buy. Since then we’ve seen either the IPO’s or, mostly, SPAC acquisition vehicles buy up things like DCFC, CHPT, BEEM, VLTA, EVGO, PTRA, and WBX. So if somebody really thinks buying an infrastructure play is the way to go, then they now have quite a few options from which to choose, and most of which are actually somewhat real companies. Like CRGE, they all have pretty healthy market caps given their decided lack of profitable revenues, but at least they have a product and business. Only CRGE, though, is buying up disparate businesses in the hopes that at some point, they will be able to cobble together a network of charging stations; notice that an actual charger they do not yet actually own, though I’m sure some sort of a joint venture or announcement will be forthcoming.