UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

2019

[   ] 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 001-35496

Securities registered pursuant to Section 12(g) of the Act:

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.  Yesþ  No o.o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).   Yesþ No o.o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer oAccelerated filer                   o

Non-accelerated filer   oSmaller reporting companyþ

Large accelerated filero	Accelerated filer                   o
Non-accelerated filer   þ	Smaller reporting company  þ
Emerging growth companyo

Indicate by check mark whether the registrant is a shell company (as defined by Section 12b-2 of the Exchange Act). Yes oNoþ.  

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 standard provided pursuant to Section 13(a) of the Exchange Act.           ¨

The number of shares of the issuer’s common stock, $0.001 par value, outstanding as of November 13, 201714, 2019, was 25,055,833.31,502,310.

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Summer Energy Holdings, Inc.

FORM 10-Q

2

PART I – FINANCIAL INFORMATION3

ITEM 1.  FINANCIAL STATEMENTS3

CONDENSED CONSOLIDATED BALANCE SHEETS3

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS4

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY5

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY6

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS7

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS8

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS24

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK29

ITEM 4.  CONTROLS AND PROCEDURES29

PART II – OTHER INFORMATION29

ITEM 1A.  RISK FACTORS29

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS29

ITEM 5.   OTHER INFORMATION30

ITEM 6.  EXHIBITS31

SIGNATURES32

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUMMER ENERGY HOLDINGS, INC. AND SUBSIDIARIES

SUMMER ENERGY HOLDINGS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)     September 30, 2019   December 31, 2018 ASSETS          Current assets:          Cash $ 1,701,380 $ 451,995  Restricted cash   3,696,652   3,402,890  Accounts receivable, net   49,468,018   34,270,548  Prepaid and other current assets   3,662,759   4,014,194  Total current assets   58,528,809   42,139,627            Property and equipment, net   53,726   82,209            Deferred financing cost, net   4,688   9,375            Operating lease right-of use assets, net   1,032,832   -            Intangible asset, net   1,279,746   2,165,724            Total assets $ 60,899,801 $ 44,396,935           LIABILITIES AND STOCKHOLDERS’ EQUITY          Current liabilities:          Accounts payable $ 1,496,440 $ 3,208,088  Accrued wholesale power purchased   28,495,248   12,202,099  Accrued transportation and distribution charges   6,461,340   4,151,678  Accrued expenses   3,778,641   4,636,911  Current-portion operating lease obligation   162,623   -  Current-portion of obligations   5,696,793   -  Total current liabilities   46,091,085   24,198,776           Long-term liabilities:          Long-term obligations, net of current portion   5,381,215   11,956,006            Total liabilities   51,472,300   36,154,782            Commitments and contingencies                    Stockholders’ equity           Common stock - $.001 par value, 100,000,000 shares authorized,           31,502,310 and 27,480,833 shares issued and outstanding at           September 30, 2019 and December 31, 2018, respectively   31,501   27,480   Subscription receivable   (52,000)   (52,000)   Additional paid-in capital   30,158,576   23,357,951   Accumulated deficit   (20,710,576)   (15,091,278)   Total stockholders’ equity   9,427,501   8,242,153           Total liabilities and stockholders’ equity $ 60,899,801 $ 44,396,935           AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
	September 30, 2017	December 31, 2016
ASSETS
Current Assets
Cash	$1,481,050	$1,523,008
Restricted cash	1,659,339	1,904,898
Accounts receivable, net	26,796,465	15,655,886
Prepaid and other current assets	454,117	325,640
Total current assets	30,390,971	19,409,432
Property and equipment, net	135,512	238,793
Deferred financing costs, net	67,458	134,916
Total assets	$30,593,941	$19,783,141
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$629,405	$407,602
Accrued wholesale power purchased	10,417,059	5,636,942
Accrued expenses	9,526,199	5,256,595
Short-term debt	2,500,000	-
Total current liabilities	23,072,663	11,301,139
Long-Term Liabilities
Long-term debt, net of debt discount	-	2,500,000
Total long-term liabilities	-	2,500,000
Total liabilities	23,072,663	13,801,139
Stockholders' Equity
Common Stock - $0.001 par value, 100,000,000 shares authorized, 22,877,921 and 22,463,424    shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	22,877	22,463
Subscription receivable	(52,000)	(52,000)
Additional paid in capital	15,234,956	14,615,555
Accumulated deficit	(7,684,555)	(8,604,016)
Total stockholders’ equity	7,521,278	5,982,002
Total liabilities and stockholders' equity	$30,593,941	$19,783,141

See accompanying notes to the condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying notes to the condensed consolidated financial statements.

4SUMMER ENERGY HOLDINGS, INC. AND SUBSIDIARIES

SUMMER ENERGY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
	Nine Months Ended September 30,
	2017	2016
Cash Flows from Operating Activities
Net Income (Loss)	$919,461	$1,591,246
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Non-cash financing costs	67,458	532,988
Stock compensation expense	169,815	16,234
Depreciation of property and equipment	125,491	158,502
Bad debt expense	512,019	1,572,679
Changes in operating assets and liabilities:
Accounts receivable	(11,652,598)	(7,925,707)
Prepaid and other current assets	(128,477)	(119,369)
Accounts payable	221,803	133,753
Accrued wholesale power purchases	4,780,117	3,120,462
Accrued expenses	4,269,604	1,954,370
Net cash (used in) provided by operating activities	(715,307)	1,035,158
Cash Flows from Investing Activities
Purchase of restricted cash	(77,341)	(168,725)
Cash restricted as collateral on letters of credit	322,900	(1,258,400)
Purchase of property and equipment	(22,210)	(70,214)
Net cash (used in) provided by investing activities	223,349	(1,497,339)
Cash Flows from Financing Activity
Deferred financing costs	-	(157,402)
Proceeds from long term note payable	-	2,500,000
Repayment on long term notes payable	-	(3,000,000)
Proceeds from advance from loan note	-	356,600
Repayment on advance from loan note	-	(467,657)
Payment of dividends in cash on Series B Preferred stock	-	(86,795)
Proceeds from issuance of common stock in a private placement offering	450,000	4,228,450
	,
Net cash provided by financing activities	450,000	3,373,196
Net Increase (Decrease) in Cash	(41,958)	2,911,015
Cash at Beginning of Period	1,523,008	382,490
Cash at End of Period	$1,481,050	$3,293,505
Supplemental Disclosure of Cash Flow Information:
Income taxes paid	$-	$11,210
Interest paid, net	$376,972	$424,551
Non-Cash Transactions:
Conversion of Series B Preferred stock to common stock	$-	$1,900,000
Series B Preferred stock dividends	$-	$23,145
Cashless exercise of warrants	$5	$-

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

See accompanying notes to the condensed consolidated financial statements.

5SUMMER ENERGY HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) – CONTINUED SUMMER ENERGY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See accompanying notes to the condensed consolidated financial statements.

SUMMER ENERGY HOLDINGS, INC.

AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - ORGANIZATION

The condensed consolidated financial statements include the accounts of Summer Energy Holdings, Inc. and its wholly-owned subsidiaries Summer Energy, LLC (“Summer LLC”), Summer Energy Midwest, LLC (“Summer Midwest”), Summer EM Marketing, LLC (“Marketing LLC”) and Summer Energy of Ohio,Northeast, LLC (“Summer Ohio”Northeast”) (collectively referred to as the “Company,” “we,” “us,” or “our”).  All significant intercompany transactions and balances have been eliminated in these consolidated financial statements.

Summer LLC is a retail electric provider in the state of Texas under a license with the Public Utility Commission of Texas (“PUCT”).  Summer LLC procures wholesale energy and resells it to commercial and residential customers.  Summer LLC was organized on April 6, 2011 under the laws of the state of Texas.  The operations of Summer LLC are the Company’s sole line of business.  

Marketing LLC was formed in the state of Texas on November 6, 2012 to provide certain marketing services to Summer LLC.

Summer Midwest (formerly Summer Energy of Ohio, LLC) was formed in the state of Ohio on December 16, 2013 to procure and sell electricity in the state of Ohio.   The Public Utilities Commission of Ohio (“PUCO”) issued a certificate as a Retail Electric Service Provider to Summer OhioMidwest on June 16, 2015.   At this time,On May 2, 2019, the Illinois Commerce Commission approved Summer Midwest as a Retail Electric Service Provider in the state of Illinois.

Marketing LLC was formed in the state of Texas on November 6, 2012 to provide marketing services to Summer LLC.   Marketing LLC is currently inactive and there is no business activityactivity.

Summer Northeast, a Texas limited liability company formerly named REP Energy, LLC, was acquired on November 1, 2017 and became a wholly-owned subsidiary of Summer Energy Holdings, Inc.   Summer Northeast is a retail electric provider serving electric load to both residential and commercial customers in the state of Ohio.

NOTE 2 - BASIS OF PRESENTATION

The accompanying financial statements have been preparedNortheastern U.S. and holds licenses in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements pursuant to the rulesMassachusetts, New Hampshire, Connecticut and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission (“SEC”) on March 30, 2017.Rhode Island.  

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period.  Actual results may differ from these estimates.

NOTE 32 - SIGNIFICANT ACCOUNTING POLICIES

Revenue RecognitionThe accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.  These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission (“SEC”) on April 11, 2019.

Our electricity revenue is recognized by our Company upon deliveryThe preparation of electricityfinancial statements in conformity with GAAP requires management to a customer’s meter.  This methodmake estimates and assumptions that affect the reported amounts of revenue recognition is commonly referred to as the flow method.  The flow methodassets and liabilities and disclosure of revenue relies upon Electric Reliability Council of Texas (“ERCOT”) settlement statements to determine the estimated revenue for a given month. Supply delivered to customers for the month, measured on a daily basis, provides the basis for revenues.  Electricity revenue consists of proceeds from energy sales, including pass through charges from the Transmissioncontingent assets and Distribution Providers (“TDSPs”) billed to the customerliabilities at cost.

Unbilled Revenue and Accounts Receivable

Electric services not billed by month-end are accrued based upon estimated deliveries to customers, as tracked and recorded by ERCOT, multiplied by our average billing rate per kilowatt hour (“kWh”) in effect at the time.  At the end of each

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calendar month, revenue is accrued to unbilled receivables based on the estimated amount of power delivered to customers using the flow technique.  Unbilled revenue also includes accruals for estimated TDSP charges and monthly service charges applicable to the estimated electricity usage for the period.  All charges that were physically billed to customers in the calendar month are recorded from the unbilled account to the customer receivable account.  Unbilled accounts as of September 30, 2017 and December 31, 2016 were estimated at $19,339,973 and $10,922,288, respectively. Accounts receivable are customer obligations billed at the customer’s monthly meter read date for that period’s electricity usage and due within 16 days of the date of the invoice.  Balances past due are subject to a late fee that is assessed on that billing.financial statements as well as the reported amount of revenues and expenses during the reporting period.  Actual results may differ from these estimates.

The Company determines the allowance for doubtful accounts based upon a review of outstanding receivables, historical write-off experienceRevenue and existing economic conditions. Receivables past due over 90 days are considered delinquent and reviewed individually for collectability. After all means of collection have been exhausted, delinquent receivables are written off. Management has determined that the allowance for doubtful accounts as of September 30, 2017, and December 31, 2016 is $1,207,745 and $999,046 respectively. Bad debt expense for the nine months ended September 30, 2017 and 2016 is $512,019 and is $1,572,679, respectively.  Net write offs and recoveries for the nine months ended September 30, 2017 and 2016 were $548,795 and $929,340, respectively.Cost Recognition

Cost RecognitionOur revenues are primarily derived from the sale of electricity to residential and small commercial customers.  Revenues for sales of electricity are recognized under the accrual method of accounting.

Direct energy costs are recorded when the electricity is delivered to the customer’s meter.

Cost of goods sold (“COGS”) within the Texas market include electric power purchased and pass through charges from the TDSPstransmission and distribution service providers (“TDSPs”) in the areas serviced by the Company.  TDSP charges are costs for metering services and maintenance of the electric grid.  TDSP charges are established by regulation of the PUCT.   COGS within the Independent System Operator (“ISO”) for the New England market is comprised of wholesale costs based upon the wholesale power tariff rate for volumes purchased during the delivery month and scheduling fees.  Summer Midwest began flowing electricity within the Pennsylvania, Jersey, Maryland Power Pool (“PJM”) market in July 2019, and the COGS for the PJM market is comprised of wholesale costs based upon the wholesale power tariff for volumes purchased during the delivery month as well as scheduling fees.

The energy portion of our COGS is comprised of two components: bilateral wholesale costs and balancing/ancillary costs.  These two cost components are incurred and recognized differently as follows:

Bilateral wholesale costs are incurred through contractual arrangements with wholesale power suppliers for firm delivery of power at a fixed volume and fixed price.  We are invoiced for these wholesale volumes at the end of each calendar month for the volumes purchased for delivery during the month, with payment due 20 days after the end of the month.

Balancing/ancillary costs are based on the customer load and are determined by ERCOTthe Electric Reliability Council of Texas (“ERCOT”) and ISO New England through a multiple step settlement process.  Balancing costs/revenues are related to the differential between supply that we provided through our bilateral wholesale supply and the supply required to serve our customer load.  The Company endeavors to minimize the amount of balancing/ancillary costs through our load forecasting and forward purchasing programs.

Recent PronouncementsCash and Restricted Cash

In May 2014, the FASB issued ASU No. 2014-09, Revenue from ContractsThe Company considers all short-term investments with Customers, which requires an entityoriginal maturity of three months or less to recognizebe cash equivalents. There were no such investments at September 30, 2019 or December 31, 2018.

Restricted cash in the amount of revenue to$3,696,652 as of September 30, 2019 and $3,402,890 as of December 31, 2018 represents funds held in escrow for customer deposits, funds in a lockbox account in which it expects to be entitledEDF Trading North America, LLC (“EDFTNA”) has a security interest and funds securing two irrevocable stand-by letters of credit.  The letters of credit were issued for the transfer of promised goods or services to customers. The standard permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferralbenefit of the Effective Date,following parties: Connecticut Department of Public Utility Control, in the amount of $250,000, which deferredwas set to expire on May 26, 2019 and was automatically extended to May 26, 2020; and the effective dateState of New Hampshire Public Utilities Committee in the amount of $500,000, which is set to expire on May 1, 2020.  

Basic and Diluted (Loss) Per Share

Basic income/(loss) per share are computed by dividing net income/(loss) applicable to the weighted-average number of shares outstanding during the period.  Diluted income per share is determined using the weighted-average number of shares outstanding during the period, adjusted for the dilutive effect of share equivalents, using the treasury method, consisting of shares that might be issued upon exercise of share equivalents. In periods beginning after December 15, 2017. Early adoption is permitted onlywhere losses are reported, the weighted average number of shares excludes share equivalents, because their inclusion would be anti-dilutive. 

For the nine months ended September 30, 2019 and 2018, the weighted average number of shares outstanding excludes share equivalents, because their inclusion would be anti-dilutive.  The Company had potentially dilutive securities totaling approximately 4,741,434 and 4,278,730, respectively, as of annual reporting periods beginning after December 15, 2016. In December 2016, the FASB further issued ASU No. 2016-20, Technical CorrectionsSeptember 30, 2019 and Improvements to Topic 606, Revenue from Contracts with Customers, to increase stakeholders' awareness of the proposals and to expedite improvements to ASU 2014-09. 2018. 

Accounting Standards Recently Adopted

The Company plans to adopt the standardadopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as of January 1, 2018, using the modified retrospective approach.  After assessingThe modified retrospective approach provides a method for recording existing leases at the application date.  In addition, the Company elected the available practical expedients permitted under the transaction guidance within the new standard.  The most significant impact from the adoption of the new standard was the recognition of operating lease right-of-use assets and operating lease liabilities.  Adoption of the new standard resulted in the recording of  assets and liabilities of $1,265,562 as of January 1, 2019.  The standard did not materially impact the consolidated net income and had no impact on cash flows.

Recently Issued Accounting Standards Not Yet Adopted

The Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company expectsbelieves that thereno other pronouncements will be no material impactshave a significant effect on its financial statements.

NOTE 3 - REVENUE

The table below represents the Company’s reportable revenues for the three-month and nine-month periods ended September 30, 2019 and 2018, respectively, from customers, net of respective provisions for refund:

Presented in the following table are the components of accounts receivable and accrued revenue:

The Company recognizes revenue from the sale of electricity to ourconsumers and is recognized upon the performance obligation to deliver electricity to the customer’s meter.  This method of revenue recognition procedures, except for information compilationis commonly referred to as the flow method. The Company’s customer base consists of a mix of residential and commercial customers in the ERCOT and ISO New England markets.Summer Midwest began flowing electricity in the state of Ohio in the PJM market in July 2019 and the anticipated customer base as this market grows will consist of residential and commercial customers. Also, the Company recognizes revenues from contract cancellation fees, disconnection fees and late fees.

The invoice practical expedient within the accounting guidance allows for the new required disclosures.recognition of revenue from performance obligations in the amount of consideration to which there is a right to invoice the customer and when the amount for which there is a right to invoice corresponds directly to the value transferred to the customer. The purpose of the invoice practical expedient is to depict an entity’s measure of progress toward completion of the performance obligation within a contract and can only be applied to performance obligations that are satisfied over time and when the invoice is representative of services provided to date. The Company elected to apply the invoice practical expedient to recognize revenue for performance obligations satisfied over time as the invoices from the respective revenue streams are representative of services or goods provided to date to the customer.

Performance Obligations

Residential and Commercial – The Company has performance obligations for the service to deliver electricity to its customers and it satisfies these performance obligations over time as electricity is provided continuously to the customer who simultaneously receives and consumes the benefits provided. The Company recognizes revenue at a fixed base amount and a price per kilowatt hour as it provides these services on a fixed term contract. Contracts generally have fixed terms of 3-month increments not to exceed a 24-month fixed term.  For customers whose fixed contracts have expired, the Company recognizes revenue at the market price per kilowatt hour as the service is provided.  

Residential pre-paid – The Company has performance obligations for the service to deliver electricity to its customers and these performance obligations are satisfied over time as electricity is provided continuously to the customer who simultaneously receives and consumes the benefits provided.  Revenues in the pre-paid market are variable at the market rate per kilowatt hour as the service is provided.

Accounts Receivable and Unbilled Revenue

Account receivables are comprised of trade receivables and unbilled receivables (accrued revenue).  Customers are billed monthly in cycles having billing dates that do not generally coincide with the end of a calendar month.  This results in customers having received electricity that they have not been billed for as of month-end.  Therefore, at the end of each calendar month, revenue is accrued to unbilled receivables based on the estimated amount of power delivered to customers using the flow technique. Unbilled revenue also includes accruals for estimated TDSP charges and monthly service charges applicable to the estimated electricity usage for the period.  All charges that were physically billed in the calendar month are recorded from the unbilled account to the customer’s receivable account.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"Texas market, electricity revenues not billed by month-end are accrued based upon estimated deliveries to customers as tracked and recorded by ERCOT multiplied by our average billing rate per kilowatt hour (“kWh”). ASU 2016-02 amends in effect at the existing accounting standards for lease accounting by requiring entitiestime.  At the end of each calendar month, revenue is accrued to include substantially all leasesunbilled receivables based on the balance sheet by requiringestimated amount of power delivered to customers using the recognition of right-of-use assetsflow technique.  Unbilled revenue also includes accruals for estimated TDSP charges and lease liabilitiesmonthly service charges applicable to the estimated electricity usage for all leases. Entities may electthe period.  All charges that were physically billed in the calendar month are recorded from the unbilled account to not recognize leases with a maximum possible term of less than 12 months. For lessees, a lease is classified as finance or operating and the asset and liabilitycustomer’s receivable account.  Accounts receivable are initially measuredcustomer obligations billed at the present valuecustomer’s monthly meter read date for that period’s electricity usage and due within 16 days of the lease payments. For lessors, accounting for leasesdate of the invoice. The past due customer balances are subject to a late fee that is largely unchanged from previous guidance. ASU 2016-02 also requires qualitative disclosures along with certain specific quantitative disclosures for both lessees and lessors. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, with early adoption permitted, and are effective for interim periodsassessed on that billing. Unbilled accounts in the yearTexas market as of adoption. The

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ASU should be applied using a modified retrospective approach, which requires lesseesSeptember 30, 2019 and lessors to recognizeDecember 31, 2018 were estimated at $36,573,761 and measure leases at the beginning of the earliest period presented. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.$25,811,607, respectively.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” This ASU provides guidance onISO New England market, electricity services not billed by month-end are accrued based upon estimated deliveries to customers as tracked and recorded by ISO New England multiplied by our average billing rate per kilowatt hour (“kWh”) in effect at the presentation of restricted cash or restricted cash equivalentstime.  The customer billing in the statementISO New England market is performed by the local utility company. Unbilled accounts in the ISO New England market as of cash flows. This standard is effective for interimSeptember 30, 2019 and annual reporting periods beginning after December 15, 2017. The Company will adopt this standard effective January 1,31, 2018 as it is expected it to be applicable to the Companywere estimated at that time.$1,022,553and $1,006,895, respectively.

In January 2017,The Company began serving customers in the FASBPJM market during the month of July 2019.   As of September 30, 2019, the Company had billed customers $2,540 and the outstanding billed accounts receivable balance was $1,502.

The Company, in the Texas market, determines an allowance for doubtful accounts based upon a review of outstanding receivables, historical write-off experience and existing economic conditions. Receivables past due over 90 days are considered delinquent and reviewed individually for collectability. After all means of collection have been exhausted, delinquent receivables are written off. Billed receivables over 90 days and 2% of unbilled receivables are reserved by the Company.  Management has determined that the allowance for doubtful accounts as of September 30, 2019 and December 31, 2018 was $999,414 and $821,424, respectively.  

Bad debt expense, write-offs and recoveries were as follows:  

Within the ISO New England market, the local utility companies in the state of Massachusetts purchase the Company’s billed receivables at a statutory published discounted rate without recourse; therefore, no allowance for doubtful accounts was recorded as of September 30, 2019 or December 31, 2018.

NOTE 4 - LETTERS OF CREDIT

As of September 30, 2019, Summer Northeast secured two irrevocable stand-by letters of credit totaling $750,000.  The letters of credit were issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifyingfor the Definitionbenefit of the following parties: Connecticut Department of Public Utility Control in the amount of $250,000 which was set to expire on May 26, 2019 and was extended to May 26, 2020; and the State of New Hampshire Public Utilities Committee in the amount of $500,000 which is set to expire on May 1, 2020.  

As of September 30, 2019, none of the letters of credit issued on behalf of the Company were drawn upon.

NOTE 5 - SURETY BONDS

As of September 30, 2019, Summer Midwest had a Business ("ASU 2017-01"). ASU 2017-01 clarifiessurety bond in the definitionamount of $300,000 issued to the Illinois Commerce Commission and a businesssurety bond in the amount of $250,000 issued to the Pennsylvania Public Utility Commission.   Both bonds are secured with $300,000 in cash held by the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 will be effective for annual periods beginning after December 15, 2017, including interim periods within those periods, and is not expected to have a material impact on the Company's consolidated financial statements.surety bond company.

NOTE 6 - FINANCING FROM FIRST INSURANCE FUNDING

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) ("ASU 2017-09"). ASU 2017-09 provides guidance on when changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all of the following are met:

• The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified

• The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified

• The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.

The amendments in ASU 2017-09 are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments should be applied prospectively to an award modified on or after the adoption date. ASU 2017-09 is not expected to have a material impact on the Company's consolidated financial statements.

NOTE 4 - PRIVATE PLACEMENT OFFERING

On June 28, 2017,2019, the Company entered into a Securities Purchase Agreementfinance agreement with an investorFirst Insurance Funding to finance the Company’s Director’s and Officer’s insurance policy premium for such investor to purchase fromthe period of May 1, 2019 through May 1, 2020.    The amount for the premiums, taxes and fees totaled $150,575.   A cash down payment in the amount of $22,586 was made by the Company 409,091 sharesin May 2019 leaving a remaining balance of $127,989 to be paid in 10 installments from June 1, 2019 through March 1, 2020.  The annual percentage interest rate of the Company’s common stock for an aggregate purchase price of $450,000.  financing is 6.450%.

The Company intends to useAt September 30, 2019, the proceeds from this sale for general corporate and working capital purposes.outstanding balance was $76,793.

NOTE 57 - LETTERS OF CREDITFINANCING FROM BLUE WATER CAPITAL FUNDING LLC

On June 29, 2016, Summer LLC entered into a Loan Agreement (the “Agreement”) with Blue Water Capital Funding, LLC (“Blue Water”) and guaranteed by the Company (the “Guaranty”).  Pursuant to the Agreement, Blue Water agreed to provide a revolving loan (the “Loan”) to Summer LLC, and Summer LLC agreed to borrow and repay funds loaned by Blue Water. Further, in connection with the Agreement, Summer LLC granted to Blue Water a second position security interest in and to Summer LLC’s collateral, which includes receivables, equipment, inventory, personal property, other intangibles, and proceeds from any of these, to secure Summer LLC’s payment of its obligation under the Loan.

The amount of available credit under the Loan was $5,000,000.  The Loan was revolving in nature and is evidenced by a Revolving Promissory Note (the “Note”).  The maturity date of the Loan was June 30, 2018.

On June 27, 2018, Summer LLC entered into an amendment to the agreement (the “Amendment”) with Blue Water with respect to the Agreement.  

Pursuant to the Amendment, the maturity date of the Note was extended through June 30, 2020, and the interest rate on the Note was changed from 11% per annum to a variable rate equal to the Prime Rate published by the Wall Street Journal plus 475 basis points.   As of September 30, 2017,2019, the interest rate was 9.75%.  The amount of credit available pursuant to the Agreement, as amended by the Amendment, continues to be $5,000,000.  The Note continues to include a minimum monthly financing fee of $22,500 per month.  Interest is payable on the tenth day of each month and on the maturity date of the Note. Summer LLC and Blue Water agreed that the security interest granted pursuant to the Agreement remains in effect, and the Company had six secured irrevocable stand-by lettersreaffirmed its obligations under the Guaranty.

Further, under the Agreement, Summer LLC is subject to certain restrictive covenants that, among other things, may limit our ability to obtain additional financing for working capital requirements, product development activities, debt service requirements, and general corporate or other purposes. These restrictive covenants include, without limitation, restrictions on Summer LLC’s ability to: (1) incur additional indebtedness; (2) incur liens; (3) make certain dispositions of credit totaling $615,300assets; (4) merge, dissolve, consolidate or sell all or substantially all of its assets; and (5) enter into certain transactions with affiliates during the term of the Agreement.  If Summer LLC breaches any of these restrictive covenants or is unable to pay the indebtedness under the Agreement when due, this could result in a financial institutiondefault under the Agreement. In such event, the Lender may elect (after the expiration of any applicable notice or grace periods) to declare all outstanding borrowings, together with accrued and unpaid interest and other amounts payable under the Agreement, to be immediately due and payable.  As of September 30, 2019, Summer LLC was in compliance with the covenants of the Agreement.

At September 30, 2019 and December 31, 2018, the outstanding balance of financing from Blue Water Capital was $4,920,000.

Interest was accrued by the Company for the benefit of the TDSPs that provide transition services to the Company.  The six letters of credit renewed during the third quarter of 2017 and are subject to automatic extension and renewal provisions until the second quarter of 2018.Blue Water Capital funding as follows:

NOTE 8 - COMERICA BANK LOAN 

TheOn December 18, 2018, the Company hassigned a secured irrevocable stand-by letter of creditsingle payment note (the “Comerica Note”) with Comerica Bank (the “Bank”) in the amount of $250,000 for the benefit of the Company’s wholesale power provider (Note 9).$2,900,000.   The letter of credit was issued in February 2016 and is subject to automatic extension and renewal provisions.

As of September 30, 2017, none of the letters of credit issued on behalf of the Company were drawn upon.

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NOTE 6 - ADVANCE TO LOAN AMOUNT NOTE

On April 18, 2014, the Company signed an Advance to Loan AmountComerica Note with Comerica Bank in the amount of $1,500,000.  The Advance to Loan Amount Note had an originalhas a maturity date of December 22, 2014, which was extended through February 22, 2015. On February 22, 2015, the Advance to Loan Amount Note was increased from $1,500,000 to $1,700,000 and extended again to November 4, 2016,June 11, 2020, with interest thereon at a per annum rate equal to the "Prime“Prime Referenced Rate"Rate” plus the "Applicable“Applicable Margin."”   The "Prime“Prime Referenced Rate"Rate” means, for any day, a per annum interest rate which is equal to the "Prime Rate"“Prime Rate” in effect on such day, but in no event and at no time shall the "Prime Reference Rate"“Prime Referenced Rate” be less than the sum of the Daily Adjusting LIBORLondon InterBank Offered Rate (“LIBOR”) rate for such day plus 2.5%two and one-half percent (2.5%) per annum.   "Prime Rate"“Prime Rate” means the per annum rate established by Comericathe Bank as its prime rate for its borrowers at any such time.   "Applicable Margin"“Applicable Rate” means 2%0.25% per annum.

Accrued and unpaid interest on the unpaid principal balance outstanding shall beon the Note is payable monthly in arrears, on the first business day of each month.month, commencing on February 1, 2019.

GuarantyAs of September 30, 2019, the Advanceinterest rate was 5.5% payable to Loan Amount NoteComerica Bank, and the outstanding balance of financing from Comerica Bank was made by four members of$700,000.  Interest accrued on the Company's board of directors ("Guarantors").  The Company agreed to issue the four Guarantors a total of 120,000 shares of the Company's common stock per month (30,000 shares of common stock per month per Guarantor) reduced accordinglyComerica Bank loan was as the loan is reduced for agreeing to act as a Guarantor of the Advance to Loan Amount.follows:

In May 2016, the Company released the Guarantors from the obligation to guaranty the Advance to Loan Amount Note and stock payments for such guaranty were discontinued as of May 31, 2016.   The Advance to Loan Amount Note was paid in full on June 14, 2016 and at such time of payoff the loan terminated.  

During the nine months ended September 30, 2017 and 2016, the Company issued 0 shares and 482,158 shares of common stock, respectively, to the Guarantors, and the Company recognized $0 and $532,988, respectively, in financing costs.

NOTE 7 9- FINANCING FROM BLACK INK ENERGY LLCWHOLESALE POWER PURCHASE AGREEMENT WITH EDF

On March 2, 2015, Summer Energy, LLC (the “Borrower”), a wholly owned subsidiary ofMay 1, 2018, Summer Energy Holdings, Inc. (“SEH”(for purposes of this Note, “SEH”), entered into a Second Lien Term Loan Agreement (the “Agreement”)together with Black Ink Energy,its subsidiaries Summer LLC (“BIE”).  

Pursuant toand Summer Northeast (collectively the Agreement, BIE agreed to provide a term loan (the “Term Loan”“Company”) to the Borrower, and the Borrower agreed to borrow and repay funds loaned by BIE.  

The amount of the Term Loan was $3,000,000, and the loan was not revolving in nature.  Pursuant to the Agreement, any amounts prepaid or repaid could not be re-borrowed by the Borrower.  The maturity date of the loan was September 2, 2016.  The Term Loan bore interest at a rate of 15% per annum, except in the occurrence of an event of default, at which point the default interest rate increased to 18%.  Interest was payable in arrears on the last day of each month and on the maturity date of the loan. The Term Loan was not evidenced by a promissory note.

The Term Loan to BIE in the amount $3,000,000 was paid in full during the second quarter of 2016, and the agreements between the Company and BIE were terminated.

During the nine months ended September 30, 2017 and 2016, the Company paid interest expense in the amount of $0 and $227,500, respectively, to BIE.

NOTE 8 - WARRANTS

The Company has issued warrants to purchase shares of the Company’s common stock associated with certain agreements and has vested warrants from a previously terminated Master Marketing Agreement.

Effective August 9, 2017, the Company issued 5,406 shares of common stock to Cambria Capital, LLC (“Cambria”) pursuant to the cashless exercise of a warrant dated September 21, 2012, issued by the Company to Cambria to purchase 21,000 shares of common stock of the Company at $1.50 per share. The Cambria warrant was terminated and cancelled upon the issuance of the 5,406 shares of common stock.

No new warrants were issued or vested during the quarter ended September 30, 2017.

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As of September 30, 2017, the outstanding number of warrants to purchase the Company’s common stock was 1,870,000 of which 1,604,763 were vested.

NOTE 9 - WHOLESALE POWER PURCHASE AGREEMENT

On April 25, 2014, the Company closed a transaction with DTEEDF Energy Services, LLC and EDF Trading Inc. (“DTE”North America, LLC (collectively, “EDF”), with an effective date of April 1, 2014..  As part of the transaction, the CompanySummer LLC, Summer Northeast and DTEEDF entered into an Energy MarketingServices Agreement for Electric Power (the “Energy MarketingServices Agreement”). Pursuant pursuant to the terms of the Energy Marketing Agreement, the Companywhich Summer LLC and Summer Northeast agreed to purchase itstheir electric power and associated services requirements from DTE,EDF, and DTEEDF agreed to provide the CompanySummer LLC and Summer Northeast with certain credit facilities to assist the CompanySummer LLC and Summer Northeast in the purchase of itstheir electric power and associated service requirements.  The Company also agreed to pay DTE a fixed monthly fee, as well as certain fees based on megawatt hours purchased.requirements (such transaction with EDF, the “Original Transaction”).  The terms of the Energy MarketingServices Agreement are governed by the ISDA 2002 Master Agreement, as well as a Schedule and Power Annex thereto and the ISDA 2002 Master Agreement.    Credit Support Annex thereto.

In conjunction therewith, the Company and DTEEDF also entered into a Credit Agreement, a Security Agreement (the “Security Agreement”), a Pledge Agreement (the “Pledge Agreement”) and a Membership Interest Pledge Agreement.

PursuantGuaranty (the “Guaranty”) in favor of EDF.  The Energy Services Agreement has a term of three years, and automatically renews for successive one-year periods unless either party provides written notice of termination 180 days prior to the Credit Agreement, among other things DTE agreed to (i) provide a guaranty (a “Credit Guaranty”)renewal date. In addition to the Electric Reliability Councilmarket-based commodity price charged by EDF for each underlying commodity transaction, the Company will pay a “Commodity Fee” for each megawatt hour (“MWh”) of Texas (“ERCOT”)power that the Company requests for delivery from EDF during the benefitterm of the Energy Services Agreement.  In addition, the Company and (ii) provide commodity loansis responsible for the purchase of electricity (“Commodity Loans”).  Each Commodity Loan andother mutually agreed upon fees incurred by EDF on its behalf.  The Company is also responsible for any Credit Guaranty shallreasonable transmission or transportation costs incurred in connection with power transactions.  Monthly supply obligations will accrue interest at a rate equal to three-month LIBOR plus 6% per annum.  Any additional credit support will bear interest onat the outstanding principal amount thereof, fromper annum rate equal to the date such Commodity Loan or Credit Guaranty is issued until it becomes due or is revoked, respectively, atlesser of (i) a rate per annum equal to three-month LIBOR rate plus 3% per annum, and (ii) the Prime Rate (as reportedmaximum rate of interest permitted by the Wall Street Journal) plus 2%.  The Company covenanted not to, among other things, (a) merge or consolidate with any other person, (b) acquire all or substantially all of the capital stock or property of another person, (c) create, assume or suffer to exist any lien on any property now owned or hereafter acquired by the Company except for permitted liens (as set forth in the Credit Agreement) or (d) become liable for any indebtedness (other than permitted indebtedness, as set forth in the Credit Agreement).applicable law.  

In consideration of the services and credit support provided by DTEEDF to the Company,Summer LLC and Summer Northeast, and pursuant to the Security Agreement, the Company is requiredSummer LLC and Summer Northeast agreed to, among other things (i) grant a priority security interest to DTEEDF in all of itstheir assets, equipment and inventory; (ii) require itstheir customers to remit monthly payments into a lockbox account over which DTEEDF has a security interest; and (iii) deliver monthly and annual forecasted and audited statements to DTE.EDF.  

Pursuant to the Membership Interest Pledge Agreement, the CompanySEH pledged to DTE,EDF, and granted to DTEEDF a security interest in, all of the membership interests of Summer Energy, LLC and Summer Northeast owned by the Company,SEH as well as all additional membership interests of Summer Energy, LLCsuch subsidiaries from time to time acquired by SEH.  Pursuant to the Guaranty, SEH agreed to guaranty the obligations of Summer LLC and Summer Northeast under the Energy Services Agreement.

The foregoing is only a brief description of the material terms of the transaction with EDF and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the text of the Energy Services Agreement, the ISDA Master Agreement, the Security Agreement, the Pledge Agreement and the Guaranty, which are filed as Exhibits 10.1 through 10.5, respectively, to our quarterly report on Form 10-Q filed with the SEC on August 14, 2018.

On June 19, 2019, the Company closed a transaction (the “Amendment Transaction”) with EDF Trading North America, LLC (“EDFTNA”) in order to amend and/or restate certain of the agreements with EDF entered into in the Original Transaction.

Pursuant to the Amendment Transaction, the Company and EDFTNA entered into an Amended and Restated Energy Services Agreement, which amended and restated the Energy Services Agreement (the “Amended Energy Services Agreement”), an amendment to ISDA Master Agreement which amends the ISDA Agreement (the “Amended ISDA Agreement”), an Omnibus Amendment to Pledge Agreement and Security Agreement and Joinder, which amends both the Security Agreement and the Pledge Agreement (the “Omnibus Amendment”) and an Amended and Restated Guaranty, which amends and restates the Guaranty (the “Amended Guaranty”).  In general, the Amended Energy Services Agreement, the Amended ISDA Agreement, the Omnibus Amendment and the Amended Guaranty amend and/or restate the documents from the Original Transaction to (i) remove EDF Energy Services, LLC as a party to the agreements and (ii) add an additional subsidiary of SEH, Summer Midwest, as a party to the agreements, such that Summer Midwest is able to purchase its electric power and associated services requirements from EDFTNA and also utilize EDFTNA’s credit support.   The term, pricing and interest payable under the Amended Energy Services Agreement are unchanged from the original Energy Services Agreement.  

Pursuant to the Omnibus Amendment, in consideration of the services and credit support provided by EDFTNA to the Company, Summer Midwest agreed to, among other things (i) grant a priority security interest to EDFTNA in all of its assets, equipment and inventory; and (ii) require its customers to remit monthly payments into a lockbox account over which EDFTNA has a security interest.  The security interest previously granted by Summer LLC and Summer Northeast is unchanged, except that EDFTNA is now the sole secured party.  Also pursuant to the Omnibus Amendment, SEH pledged to EDFTNA, and granted to EDFTNA a security interest in, all of SEH’s membership interest in Summer Midwest. The previous pledge by SEH of its membership interest in Summer LLC and Summer Northeast is unchanged, except that EDFTNA is now the sole secured party.   Pursuant to the Guaranty, SEH agreed to guaranty the obligations of Summer LLC, Summer Northeast and Summer Midwest under the Amended Energy Services Agreement.      

The foregoing is only a brief description of the material terms of the Amendment Transaction and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the text of the Amended Energy Services Agreement, the Amended ISDA Master Agreement, the Omnibus Amendment and the Amended Guaranty, which are filed as Exhibits 10.1 through 10.4, respectively, to our Quarterly Report on Form 10-Q filed with the SEC on August 14, 2019. On July 18, 2019, the Company repaid EDF for credit support in the amount of $588,000 related to the decreased TDSP collateral requirements of the local utility company.   As of September 30, 2019, EDF has provided credit support in the amount of $4,511,006 for cash collateral as well as to secure letters of credit (Note 4) for the benefit of the Company.

The Company accrued interest to EDF as follows:

NOTE 10 - LEASE LIABILITY

The Company leases office space and equipment.  Leases with an initial term of 12 months or less are not recorded on the balance sheet.  Lease expense is recognized on a straight-line basis over the term of the lease.  For leases beginning in 2018 and later, the Company accounts for lease components separately from the non-lease components.

Most leases include one or more options to renew.  The exercise of the lease renewal options is at the sole discretion of the Company.  Certain leases also include options to purchase the leased property.  The depreciable life of the assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

As of September 30, 2019, the operating lease right-of-use assets and operating lease liabilities were $1,032,832, respectively.  The long-term portion of the operating lease liabilities, $870,209, is included in long-term obligations (see Note 11).

Operating lease expense related to right-of-use assets above was included as part of operating expenses as follows:

As of September 30, 2019, the weighted-average remaining lease term for operating leases was 5.6 years.  As of September 30, 2019, the weighted-average discount rate for operating leases was 6.5%.

Operating lease future minimum payments together with their present values as of September 30, 2019 are summarized as follows:

NOTE 1011 – LONG-TERM OBLIGATIONS

Long-term obligations of the Company are comprised as follows:

Interest expense consists of the following components for the periods indicated: