UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Amendment No. 1)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _________ to _________

Commission file number: __________

ALTERNUS ENERGY INC.

(Exact name of registrant as specified in its charter)

(980) 875-4199

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

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. Yes ¨ No x

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 14th 2019, there were 82,892,601 shares of the registrant’s Class A and B common stock outstanding.

ALTERNUS ENERGY INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTSEXPLANATORY NOTE

			Page
PART I.FINANCIAL INFORMATION			3
ITEM 1.	Condensed Consolidated Financial Statements		3
	Condensed Consolidated Balance Sheets as September 30, 2019 (unaudited) and December 31, 2018 (audited)		3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)		4
	Condensed Consolidated Statement of Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (unaudited)		6
	Notes to Condensed Consolidated Financial Statements		8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		21
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		34
ITEM 4.	Controls and Procedures		34
PART II.OTHER INFORMATION			36
ITEM 1.	Legal Proceedings		36
ITEM 1A.	Risk Factors		36
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36
ITEM 3.	Defaults Upon Senior Securities		37
ITEM 4.	Mine Safety Disclosures		37
ITEM 5.	Other Information		37
ITEM 6.	Exhibits		38
SIGNATURES			39

The sole purpose of this Amendment No. 1 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019 of Alternus Energy Inc. (the “Company”) filed with the Securities and Exchange Commission on November 15, 2019 (the “Form 10-Q”) is to include Exhibit 101 to the Form 10-Q, which contains the XBRL (eXtensible Business Reporting Language) Interactive Data File for the financial statements and notes.

No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.

2

Item 6. Exhibits

Table31.1		Certification pursuant to Section 302 of Contentsthe Sarbanes-Oxley Act of 2002
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document.*
101.SCH		XBRL Taxonomy Extension Schema Document.*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.*
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.*

________  

PART I – FINANCIAL INFORMATION* Filed herewith

ALTERNUS ENERGY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018

See accompanying notes to the unaudited condensed consolidated financial statements

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ALTERNUS ENERGY INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPETEMBER 30, 2019 AND 2018

See accompanying notes to the unaudited condensed consolidated financial statements

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ALTERNUS ENEGY INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

																		Additional				Other
		Preferred Shares								Common stock issued								Paid-In				Comprehensive				Accumulated
		Series D&E				Amount				Shares				Amount				Capital				Income/(Loss)				(Deficit)				Total
Balance at January 1, 2019			-				-				110,726,725			$	110,727			$	13,164,601			$	(260,424	)		$	(7,980,540	)		$	5,034,364
Stock Compensation			-				-				21,915,876				21,916				1,395,948				-				-				1,417,864
Amortization of debt discount			-				-				-				-				123,804				-				-				123,804
Unrealized loss on currency translation adjustment			-				-				-				-				-				(317,664	)			-				(317,664	)
Net Loss			-				-				-				-				-				-				(1,384,279	)			(1,384,279	)
Balance at March 31, 2019			-				-				132,642,601			$	132,643			$	14,684,353			$	(578,088	)		$	(9,364,819	)		$	4,874,089
Stock Compensation											250,000				250				40,000				-				-				40,250
Reclassification of derivative liability			-				-				-				-				471,837				-				-				471,837
Amortization of debt discount																			146,118												146,118
Unrealized gain on currency translation adjustment			-				-				-				-				-				149,864				-				149,864
Net income			-				-				-				-				-				-				1,956,121				1,956,121
Balance at June 30, 2019			-				-				132,892,601			$	132,893			$	15,342,308			$	(428,224	)		$	(7,408,698	)		$	7,638,279
Transfer for Common Shares to Series E Preferred Shares			5,000,000				5,000				(50,000,000	)		$	(50,000	)			45,000				-				-				-
Unrealized loss on currency translation adjustment			-				-				-				-				-				(421,960	)			-				(421,960	)
Net loss			-				-				-				-				-				-				(1,174,936	)			(1,174,936	)
Balance at September 30, 2019			5,000,000			$	5,000				82,892,601			$	82,893			$	15,387,308			$	(850,184	)		$	(8,583,634	)		$	6,041,383
Balance at January 1, 2018			30,000,000			$	30,000				71,476,725			$	71,477			$	11,949,748			$	205,875			$	(6,127,827	)		$	6,129,273
Unrealized gain on currency translation adjustment			-				-				-				-				-				133,121				-				133,121
Net loss			-				-				-				-				-				-				(196,593	)			(196,593	)
Balance at March 31, 2018			30,000,000			$	30,000				71,476,725			$	71,477			$	11,949,748			$	338,996			$	(6,324,421	)			6,065,801
Stock Compensation			-				-				250,000				250				27,250				-				-				27,500
Amortization of debt discount			-				-				-				-				680,309				-				-				680,309
Unrealized loss on currency translation adjustment			-				-				-				-				-				(385,684	)			-				(385,684	)
Net loss			-				-				-				-				-				-				(881,919	)			(881,919	)
Balance at June 30, 2018			30,000,000			$	30,000				71,726,725			$	71,727			$	12,657,307			$	(46,688	)		$	(7,206,340	)		$	5,506,007
Unrealized gain on currency translation adjustment			-				-				-				-				-				59,450				-				59,450
Amortization of debt discount			-				-				-				-				27,294				-				-				27,294
Net loss			-				-				-				-				-				-				(432,429	)			(432,429	)
Balance at September 30, 2018			30,000,000			$	30,000				71,726,725			$	71,727			$	12,684,601			$	12,762			$	(7,638,769	)		$	5,160,322

See accompanying notes to the unaudited condensed consolidated financial statements

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ALTERNUS ENERGY INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 and 2018

See accompanying notes to the unaudited condensed consolidated financial statements

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ALTERNUS ENERGY INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED SUPPLEMENTAL STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 and 2018

See accompanying notes to the unaudited condensed consolidated financial statements

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ALTERNUS ENERGY INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Formation

Basis of Presentation

The unaudited condensed consolidated financial statements include the consolidated balance sheet, statements of operations and comprehensive loss, changes in shareholders’ equity and cash flows of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) from records maintained by the Company. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s 2018 audited annual consolidated financial statements and accompanying notes included in its Form 10 filed with the Securities and Exchange Commission on August 13, 2019. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary, in management’s opinion, to state fairly the Company’s financial position and results of operations for the reported periods. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the operating results for the full fiscal year for any future period.

Alternus Energy Inc. (formerly Power Clouds, Inc.) (“We”, “ALTN” or the “Company”) was incorporated in the State of Colorado on January 1, 2000, then reorganized as a Nevada corporation on November 8, 2006. On September 11, 2008 the corporation changed its name from Asset Realization, Inc. to World Assurance Group, Inc. On April 24, 2015, the Company changed its name from World Assurance Group, Inc. to Power Clouds Inc. On November 29, 2018, the Company changed its name from Power Clouds Inc. to Alternus Energy Inc. and related stock ticker symbol change from PWCL to ALTN.

AE Europe B.V. (formerly Power Clouds Europe B.V.)

In August of 2016, the Company incorporated a new wholly owned subsidiary in the Netherlands, AE Europe B.V. (formerly named Power Clouds Europe B.V.) This company was incorporated to ultimately hold the Company’s European operating companies and sub-holding companies as appropriate.

PC-Italia-01 S.R.L. (Formerly Power Clouds Wind Italia S.R.L.)

In June of 2015, ALTN incorporated a company in Italy, PC_Italia_01 S.R.L. (formerly named Power Clouds Wind Italia S.R.L.). This company was incorporated to acquire Italian special purpose vehicles (SPVs), power plants and / or other assets located in Italy.

PC-Italia-02 S.p.A. (Formerly PC-Italia-02 S.R.L.)

In August of 2016, the Company incorporated a new company in Italy, PC_Italia_02 SRL as a wholly owned subsidiary of AE Europe B.V. This Company was incorporated to acquire Italian special purpose vehicles, power plants and/or other assets located in Italy. In April of 2019, PC-Italia-02 acquired four additional SPVs in Italy, CIC Rooftop 2 S.r.l., CIC RT Treviso S.r.l., SPV White One S.r.l., CTS Power 2 S.r.l., Sant’Angelo Energia S.r.l.

PCG_HoldCo GmbH & PCG_GP UG

In June of 2018, the Company acquired 100% of the share capital of two companies in Germany which were renamed as PCG_HoldCo GmbH and PCG_GP UG immediately thereafter. These two companies were acquired in order to acquire German special purpose vehicles, PV solar parks and/or other assets located in Germany. During the twelve months ended December 31, 2018, the Company completed the acquisitions of 4 SPVs in Germany, PSM 20 GmbH & Co KG, GRK 17.2 GmbH & Co KG, GRT 1.1 GmbH and PSM 40 GmbH & Co KG. In December of 2018, the Company acquired 100% of the share capital of another company in Germany which was renamed to ALTN HoldCo UG.

Alternus Energy International Limited

In March of 2019, the Company incorporated a new wholly owned subsidiary in Ireland, Alternus Energy International Limited. This company was incorporated to establish our European operations center.

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AEN 01 B.V.

In June of 2019, the Company incorporated a new wholly owned subsidiary in the Netherlands, AEN 01 B.V. This company was incorporated to acquire Netherlands special purpose vehicles (SPVs), project rights and other solar energy assets in the Netherlands.

Summary:

Alternus Energy, Inc (ALTN) is a holding company that operated through nineteen subsidiaries as of September 30, 2019:

*Non-controlling interest is not material

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2. Liquidity

The financial statements for three and nine months ended September 30, 2019 and 2018 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of our business. As reflected in the accompanying financial statements, the Company had net loss of ($603,093) and a net loss of ($1,510,941) for the nine months ended September 30, 2019 and 2018, respectively.

The Company had total shareholders’ equity of $6,041,383 and $5,034,365 as of September 30, 2019 and December 31, 2018, respectively, and a working capital deficit of $13,338,540 and $14,114,723 as of September 30, 2019 and December 31, 2018, respectively. At September 30, 2019, the Company had $822,639 of cash on hand.

Given the current level of cash resources, receivables and long-term supply contracts, management believes the Company’s current level of operations is sufficient to mitigate such uncertainty for a period of time for at least a twelve months from the time these financials are available. The working capital deficit for 2019 and 2018 is largely related to the acquisition of long-term assets that are planned to be refinanced. These assets will also provide long term cash flow to the Company. The Company has executed a term sheet for approximately $15M with a leading European bank to refinance the short term acquisition facility related to the Italian acquisitions and anticipates to close on such financing by year end. The new financing will recapitalize the existing short term debt and eliminate the working capital deficit.

As a result, the accompanying financial statements do not include any adjustments related to recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the company be unable to continue as a going concern.

3. Summary of Significant Accounting Policies

Basis of consolidation

The unaudited condensed consolidated financial statements as of September 30, 2019 and December 31, 2018 include the accounts of the Company and the aforementioned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The results of subsidiaries acquired or disposed of during the respective periods are included in the unaudited consolidated financial statements from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Use of estimates

The preparation of unaudited condensed consolidated 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 consolidated financial statements and reported amounts of revenues and expenses for the periods presented. The most significant estimates with regard to these statements relate to the assumptions utilized in the calculation of stock and warrant compensation expense, asset retirement obligations and impairment of long-lived assets. Actual results could differ from these estimates.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and has since issued amendments thereto (collectively referred to as “ASC 606”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and the guidance defines a five-step process to achieve this core principle. ASC 606 also mandates additional disclosure about the nature, amount, timing and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted ASC 606 as of January 1, 2019. Results for the reporting periods beginning after January 1, 2019 are presented under ASC 606, while prior period results are not adjusted and continue to be reported in accordance with its historic accounting under ASC Topic 605. The Company determined that the new standard did not have any impact on revenue recognition and measurement in its consolidated financial statements. 

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The Company derives revenues through its subsidiaries from the sale of electricity and the sale of solar renewable energy credits. Energy generation revenue and solar renewable energy credits revenue are recognized as electricity is generated by the solar energy facility and delivered to the grid at which time all performance obligations have been delivered. Revenues are based on actual output and contractual sale prices set forth in

long-term contracts.

Disaggregated Revenues

The following table shows the Company’s revenues disaggregated by pricing plans offered to customers:

		For the Three months Ended September 30
Net Revenue, by Offtake Type		2019				2018
Feed in Tariff		$	694,331			$	273,478
Green Certificates			227,157				194,519
Energy Offtake Agreements			71,517				343,741
Total		$	993,005			$	811,738

During the nine months ended September 30, 2019, two customers represented 51% and 30% of revenues and 72% and 4% of accounts receivable balance. During the nine months ended September 30, 2018, one of same customer and one different customer represented 32% and 21% of revenues.

During the three months ended September 30, 2019, two customers represented 41% and 30% of revenues and. During the three months ended September 30, 2018, one of same customer and one different customer represented 40% and 18% of revenues.

Risks and Uncertainties

The Company's operations are subject to significant risk and uncertainties including financial, operational, technological, and regulatory risks including the potential risk of business failure. Also see Note 3 regarding liquidity matters.

Fair Value of Financial Instruments

The Company measures its financial instruments at fair value under GAAP. establishes a framework for measuring fair value and disclosures about fair value measurements.

To increase consistency and comparability in fair value measurements and related disclosures, GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy are described below:

Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2 Pricing inputs other than quoted prices in active markets included in Level 1 that are either directly or indirectly observable as of the reporting date.

Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data.

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The Company has level 3 asset and liabilities consisting of asset retirement obligations and warrant liabilities. The asset retirement obligations are not material.

As of April 15, 2019 the exercise price of the warrants previously issued in conjunction with the Inmost note became fixed at a price of $0.122 and the derivative liability of $471,837 was reclassified to equity. During the nine months ended September 30, 2019, the Company recorded a change in fair value of $132,976. There was no change in fair value for the three months ended September 30, 2019 or for the three and nine months period ended September 30, 2018. The change in derivative liabilities for the nine months ended September 30, 2019 was as follows:

Balance as of January 1, 2019		$	338,861
Change in fair value of derivative liability			132,976
Reclassification of derivative liability			(471,837	)
Balance as of September 30, 2019		$	-

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We valued the derivative using the Black Scholes method. We calculated the stock price as of the data of revaluation, with a remaining term of the warrants of 2.5 years. The volatility was calculated at 3.3 using the historical stock price and share volume of the company. We used 2.94% as the risk free rate, based on the Treasure rates for the similar period. The warrants were valued using the floor price of $0.122 with a valuation date of April 15, 2019.

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts payable, approximate their fair value because of the short maturity of those instruments.

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

Income Taxes

The Company accounts for income taxes using the liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences arising between the tax bases of assets and liabilities and their reported amounts for financial reporting purposes. The Company records valuation allowances to reduce its deferred tax assets to the amount expected to be realized. In assessing the adequacy of recorded valuation allowances, the Company considers a variety of factors including the scheduled reversal of deferred tax liabilities, future taxable income and prudent and feasible tax planning strategies. The Company follows applicable authoritative guidance on accounting for uncertainty in income taxes, which, among other things, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest, and penalties, accounting in interim periods and disclosure. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. As of September 30, 2019 and December 31, 2018, the Company is anticipating to reflect a tax loss for the year and therefore no provision was recorded. Penalties and interest assessed by income tax authorities would be included in income tax expense. For the three and nine months ended September 30, 2019 and 2018, the Company did not incur any penalties or interest. As of December 31, 2018, the Company accrued $180,000 related to noncompliance of administrative filing for their foreign entities for the periods 2012 – 2017.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (ASC) 718. Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

Net income (loss) per common share

Net income (loss) per common share is computed pursuant to section 260 of the FASB ASC. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants. As of September 30, 2019, the Company had 13,053,235 of warrants, and 9,087,048 of convertible shares associated with debt issuance. As of September 30, 2018, the Company had 6,986,828 of warrants, and 2,772,218 of convertible shares associated with debt issuance.

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Foreign Currency and Other Comprehensive Loss

The functional currency of our foreign subsidiaries is typically the applicable local currency which is Romania Lei, Japanese Yen or European Union Euros. The translation from the respective foreign currency to United States Dollars (U.S. Dollar) is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement accounts using an average exchange rate during the period. Gains or losses resulting from such translation are included as a separate component of accumulated other comprehensive income. Gains or losses resulting from foreign currency transactions are included in foreign currency income or loss except for the effect of exchange rates on long-term inter-company transactions considered to be a long-term investment, which are accumulated and credited or charged to other comprehensive income.

Transaction gains and losses are recognized in our results of operations based on the difference between the foreign exchange rates on the transaction date and on the reporting date. The Company had an immaterial net foreign exchange loss for the period ended September 30, 2019 and 2018, respectively. The foreign currency exchange gains and losses are included as a component of general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. For the nine months ended September 30, 2019 and 2018, the increase (decrease) in accumulated comprehensive gain (loss) was ($589,760) and ($193,113), respectively. For the three months ended September 30, 2019 and 2018, the increase (decrease) in accumulated comprehensive gain (loss) was ($421,960) and $59,450 in 2018, respectively.

Preferred Stock

We apply the accounting standards for distinguishing liabilities from equity under GAAP when determining the classification and measurement of our convertible preferred stock. Preferred Stock subject to mandatory redemption is classified as liability instruments and is measured at fair value. Conditionally redeemable Preferred Stock (including preferred stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, preferred stock is classified as permanent equity.

Subsequent Events

The Company follows the guidance in Section 855 of the FASB ASC for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. The Company considers its financial statements issued when they are widely distributed to users, such as through filing them with OTC Markets. No subsequent events required disclosure except for those in Note 11.

Recent Accounting Standards Adopted

On January 1, 2019, the Company adopted ASU 2016-18. The adoption had an impact on the Company’s beginning of the period and end of the period cash and cash equivalents balance in its statement of cash flows. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheet that equals the total of the same amounts reported in the consolidated statement of cash flows:

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The guidance in this ASU expands the scope of ASC Topic 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. This amendment is effective for annual and interim on January 1^st, 2019. The ASU No. 2018-07 adoption did not have a material impact on its financial position, results of operations or financial statement disclosure.

In December 2018 the FASB issued ASU 2018-02 “02 Income Statement—Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The adoption of ASU No. 2018-02 did not have a material impact on the Company’s financial position, results of operations or financial statement disclosure.

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Recent Accounting Standards Not Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. In June 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which further clarifies how to apply certain aspects of the new lease standard. Topic 842 is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018 and for all other entities for fiscal years beginning after December 15, 2019 with early adoption permitted. The Company is currently evaluating the effect that the adoption of ASU 2016-02 will have on its consolidated financial statement.

In November 2016 the FASB issued ASU 2016-18, which amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The amendments in this update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. This update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update do not provide a definition of restricted cash or restricted cash equivalents. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The company believe the adoption of ASU No. 2018-10 will not have a material impact on the Company’s financial position, results of operations or financial statement disclosure.

4. Acquisitions

2019 Acquisition of Risen Energy SPV.

In April 2019, PC-Italia-02 S.R.l., a wholly owned subsidiary of Alternus Energy Inc.’s (the “Company”) Netherlands’ subsidiary, completed the acquisition of 100% of the share capital of 4 out of 5 SPVs (Special Purpose Vehicles) the Company planned to purchase under a definitive sale and purchase agreement signed with Risen Energy PV Holding Italy GmbH and Risen Energy (HongKong) Co., Limited. The total acquisition consisted of 7 operating photovoltaic plants located in Italy having a total installed capacity of 5.1 MWs in exchange for approximately $8.1M cash, less $1.5M held back for the acquisition of the 5^th SPV, and less $0.4M held in escrow for 2 months from closing against certain tax open items and as a hold back for any unexpected items not found in due diligence. The purchase was treated as business combination, as defined by ASC 805, Business Combinations.

The fair value of the purchase consideration issued to the sellers of the project was allocated to the net assets acquired. The Company accounted for the acquisition as the purchase of a business under U.S. GAAP under the acquisition method of accounting, and the assets and liabilities acquired were recorded as of the acquisition date at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately $9.9 million. The excess of the aggregate fair value of the net tangible assets has been treated as a gain on bargain purchase in accordance with ASC 805. The purchase price allocation was based, in part, on management’s knowledge of the project and the results of a fair value assessment that the Company performed.

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The Company then undertook a review to determine what factors might contribute to a bargain purchase and if it was reasonable for a bargain purchase to occur. The main reason for the bargain purchase price was a motivated seller who was looking to exit the business. The seller is manufacture of product for the solar industry and not an operator. Part of their strategy to increase product sales is to develop and construct solar projects. The seller is not a long-term operator like Alternus, so their strategy is to not keep operating assets on their books for the long-term. Also, because of the small size of the operating assets we purchased and the fact that they were spread out across Italy made it more difficult for Risen to manage the assets since they are not an operator. This led to their willingness to sale the assets at a market discount. Subsequent to the acquisition of Risen facility, Alternus Energy signed a letter of intent with Risen to purchase an additional 10MWs of similar solar Projects at a price of 18.5M (euros). The price per MW was 1.85M (Euros) for an uninstalled asset as compared to the 1.35M (euros) they sold the operating asset for. This further supports that the Company position that Risen was a motivated seller and did not want to be an operator. Further, at the time of sale, Alternus has no side agreement or other commitment to purchase any assets from Risen. The difference between the bargain purchase gain at acquisition and the amount on the income statement is due to foreign currency translation.

Proforma Results

The following presents the nine months proforma combined results of operations as if the entities were combined on January 1, 2018:

The following presents the three months proforma combined results of operations as if the entities were combined on January 1, 2018:

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5. Investment in Energy Property and Equipment

As of September 30, 2019, the Company had $23,205,969 of net investment in energy property, as outlined in the table below.

The estimated useful life remaining on the investment in energy property and intangible asset is between 15 and 25 years.

Depreciation and amortization expense for the nine months ended September 30, 2019 and 2018, was $831,184 and $541,314, respectively.

Depreciation expense for the three months ended September 30, 2019 and 2018, was $344,980 and $152,079, respectively.

The Company leases various equipment under capital leases. Assets held under capital leases are included in property and equipment as follows:

6. Capital Leases

We have acquired equipment through a capital lease obligations for the Sant’Angelo park in Italy. As of September 30, 2019, there was $1,005,526 remaining on the lease of which $81,387 was the short-term portion. The lease commenced in 2011, has a term of 18 years and will expire in September 2029. Interest is calculated on the outstanding principal based on EURIBOR 3 months (EUR3M) plus an agreed margin for the lender. The average interest rate based on previous years is approximately 4.5% per annum. This interest amount may vary due to future changes in EUR3M index.

Capital lease future minimum payments for each of the next five years and thereafter is as follows:

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7. Convertible and Nonconvertible Promissory Notes

The following table reflects the total debt balances of the Company as of September 30, 2019 and December 31, 2018:

Note principal payments next five years and thereafter:

Senior secured debt:

In March of 2019, in order to complete additional solar park acquisitions in Italy, the Company entered into certain loan agreement with a third party accredited investor (the “Lender”), in connection with the Company’s Netherlands subsidiary, AE Europe B.V. The loan amount as of September 30, 2019 was $2,893,986 with an interest rate of 12% and a term of twelve months. The proceeds of which were used to pay down existing senior secured debt.

Promissory Note:

In June of 2019, the Company entered into certain agreements with a third party accredited investor (the “Lender”), in connection with the Company’s Netherlands subsidiary, AE Europe B.V. The loan amount as of September 30, 2019 was $9,418,549 with an interest rate of 7.5% and a term of ten months. The proceeds of which were used to pay down existing senior secured debt.

Related Party Notes:

In February of 2019, the terms under which all cash previously loaned by VestCo Corp., a company owned and controlled by, the Company’s CEO, to the Company to date has been amended and restated under the identical investment transaction terms as described below, pursuant to which the Corporation executed a Securities Purchase Agreement with VestCo Corp. and issued to VestCo Corp. i) a convertible promissory note with a 15% OID, and therefore having a Principal Amount of $291,539, having a two year term, secured behind a third party accredited investor via a US UCC filing on all assets of the Corporation, having a call option right for the noteholder, a redemption right for the Corporation, and convertible at $0.20 per share, and ii) a warrant to purchase up to 619,522 shares of the Corporation’s common stock, exercisable at $0.25 per share or through its cashless exercise provision and having a 4 year term.

Convertible Promissory Notes:

In February of 2019, the Company entered into a Securities Purchase Agreement with 4 accredited investors (the “Lenders”), in connection with an investment of a total amount of $300,000, and pursuant to which the Company issued i) a convertible promissory note with a 15% OID, having a two year term, secured behind a third party accredited investor via a US UCC filing on all assets of the Company, having a call option right for the noteholder, a redemption right for the Corporation, and convertible at $0.20 per share., and ii) a warrant to purchase shares of the Corporation’s common stock equal to 50% of the total number of shares if the Note is fully converted, divided by the Exercise Price of $0.25, (equal to a total of 750,000 warrants) subject to adjustment as provided therein, exercisable at $0.25 per share or through its cashless exercise provision and having a 4 year term. We recorded a debt discount of $123,805 related to the warrants issued for both the February 2019, related party note and convertible promissory note.

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In May of 2019, the Corporation entered into Securities Purchase Agreements with 4 accredited investors (the “Lenders”), in connection with an investment of up to a total amount of $150,000, and pursuant to which the Corporation issued a convertible promissory note with a 15% OID, having a two year term, secured behind an accredited investors via a US UCC filing on all assets of the Corporation, having a call option right for the noteholder, a redemption right for the Corporation, and convertible at $0.25 per share, and a warrant to purchase shares of the Corporation’s common stock equal to 25% of such Lender’s investment divided by the Conversion Price of $0.25, subject to adjustment as provided therein, exercisable at $0.30 per share and having a 3 year term. We recorded $36,000 for the warrant cost allocated to debt discount and $110,118 for the beneficial conversion cost related to the convertible debt.

In May of 2019, the Corporation entered into a Securities Purchase Agreement with another accredited investor (the “Lender”), in connection with an investment of $500,000, and pursuant to which the Corporation issued a convertible promissory note accruing 12% interest per annum with bi-annual interest payments, having a two year term, senior in priority to all obligations of the Company other than the Company’s obligations to an accredited investor and its affiliated investment funds, or a similar replacement thereto, having a call option right for the noteholder, a redemption right for the Corporation, and convertible at $0.25 per share.

On September 30, 2015, the Company issued a convertible loan note for $1,000,000 to World Global Assets Pte. Ltd. (WGA), in conjunction with the spin out of WRMT. The note had a three-year term, accrued no interest, and was convertible at a fixed price of $0.20 per share, subject to certain triggers and restrictions. In 2016 a portion of the convertible loan note of approximately $300,000 was assigned to various third parties and is now convertible at market price, with a floor price of $0.20 per share and a maturity date of September 30, 2019. As of September 30, 2019 the remaining principal amount was $244,800.

8. Commitments and Contingencies

Litigation

The Company is not currently involved in or aware of any litigation that could result in a loss. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of its subsidiaries, threatened against or affecting the Company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Operating Leases

On March 6, 2019, the Company signed a lease for office space located in Dublin, Ireland, having a term of ten years, with a break option at the end of year five. The estimated payments is $53,673 per annum, to be paid quarterly. Also the Company paid a six month security deposit in the sum of $28,134.

Our Romanian operations lease the land for the solar park. The combined estimated annual cost of $8,871 for 2019 and $7,376 thereafter. The leases commenced in 2013 and run for 25 years.

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9. Shareholders’ Deficit

Common Stock Issuances:

During the nine months ended September 30, 2019, 5,855,000 shares of common stock were issued to consultants for services rendered, 310,876 shares were issued as fees related to third party investment and 16,000,000 shares were issued to officers and directors for continued services and performance. The total value was based on the closing stock price of our common stock on the various dates of issuance, and equals $1,458,114.

Preferred Stock Issuance:

On August 19, 2019 a Stock Exchange Agreement was entered into by and among Alternus Energy Inc. (the “Company”) and its majority shareholder, Growthcap Investments Inc. (“GII”) whereby GII returned 50,000,000 shares of ALTN common stock, which were cancelled and returned to the total authorized but unissued shares of common stock of the Company, in exchange for 5,000,000 shares of Series E Convertible Preferred Stock of the Company. The Series E Convertible Preferred, with respect to dividends, rank pari passu with the Common Stock, and with respect to distributions upon liquidation, dissolution or winding up of the Company, rank senior to the Common Stock and junior to any other series of Preferred Stock. The fair value attributed to the liquidation preference was not deemed material and was limited to the stated value of the preferred stock.

Stock Incentive Plan:

In June, 2019, the Board of Directors approved the Company’s 2019 Stock Incentive Plan (the “2019 Plan”). The 2019 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, stock grants, and stock units (collectively, the “Awards”). Awards may be granted under the 2019 Plan to our employees, directors and consultants (collectively, the “Participants”). The maximum number of shares of common stock available for issuance under the 2019 Plan is 22,500,000 shares. The shares of common stock subject to stock awards granted under the 2019 Plan that expire, are forfeited because of a failure to vest, or otherwise terminate without being exercised in full will return to the 2019 Plan and be available for issuance under the 2019 Plan. As of September 30, 2019 no awards have been granted.

Warrants:

As of September 30, 2019, warrants to purchase up to 13,053,235 shares of restricted common stock were issued and outstanding. For the nine months ended September 30, 2019, the Company issued 1,257,022 warrants exercisable at $0.25 per share and having a 4 year term from the date of issuance. The Company also issued 150,000 warrants exercisable at $.30 per share having a 3 year term from the date of issuance. These warrants related to financing activities and were recorded as a debt discount using the relative fair value method.

10. Related Party Transactions

John Thomas, a Director of the Company, is also the owner and managing director of a merchant bank offering advisory services. The Company contracted with the related party in June of 2017 to provide certain consulting services to the Company. The related party was paid $50,000 and $10,000 for the nine months ended 2019 and 2018 respectively. As of June 28, 2019, this agreement was terminated.

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11. Geographical Information

The Company has one operating segment and the decision-making group is the senior executive management team. The Company manages the segment by country focusing on gross profit by country.

		For the Nine Months Ended Sep 30
Net Revenue, by Country		2019				2018
Italy		$	1,397,061			$	772,429
Romania			777,237				1,450,008
Germany			122,666				-
Total		$	2,296,964			$	2,222,437

		For the Three Months Ended Sep 30th
Net Revenue, by Country		2019				2018
Italy		$	644,132			$	273,478
Romania			298,674				538,260
Germany			50,199				-
Total		$	993,005			$	811,738

		For the Three Months Ended Sep 30th
Gross Profit, by Country		2019				2018
Italy		$	546,080			$	210,912
Romania			151,533				226,417
Germany			50,199				-
Total		$	747,812			$	437,329