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, 2019March 31, 2020
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) |
Nevada |
| 46-4996419 |
(State or other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
One World Trade Center, Suite 8500 New York, NY |
| 10007 |
(Address of Principal Executive Offices) |
| (Zip Code) |
(980) 875-4199(212) 220-7434
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading symbol(s) | Name of exchange on which registered | |
None | N/A | N/A |
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.
Large accelerated filer |
| Accelerated filer |
|
Non-accelerated filer |
| Smaller reporting company |
|
|
| Emerging Growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 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,October 5, 2020, there were 82,892,601120,520,492 shares of the registrant’s Class A and 15,000,000 shares of Class B common stock outstanding.
ALTERNUS ENERGY INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019MARCH 31, 2020
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ITEM 1. | Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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2 |
PART I – FINANCIAL INFORMATION
ALTERNUS ENERGY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2019MARCH 31, 2020 AND DECEMBER 31, 20182019
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
|
| (unaudited) |
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|
| (unaudited) |
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ASSETS | ASSETS | ASSETS |
| |||||||||||||
Current Assets |
|
|
|
|
|
|
|
|
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| ||||||
Cash and cash equivalents |
| $ | 822,639 |
| $ | 1,026,533 |
|
| $ | 765,679 |
| $ | 1,076,995 |
| ||
Accounts receivable |
| 949,849 |
| 307,307 |
|
| 88,502 |
| 210,032 |
| ||||||
Other receivables, sale of asset |
| 412,934 |
| 531,717 |
| |||||||||||
Unbilled energy incentives earned |
| 61,771 |
| 164,687 |
| |||||||||||
Prepaid expenses and other current assets, short term portion |
| 401,132 |
| 334,078 |
| |||||||||||
Other receivable, sale of asset |
| 29,937 |
| 383,819 |
| |||||||||||
Prepaid expenses and other current assets, short-term portion |
| 535,102 |
| 502,054 |
| |||||||||||
Taxes recoverable |
|
| 535,140 |
|
|
| 178,995 |
|
|
| 528,466 |
|
|
| 610,919 |
|
Total Current Assets |
| 3,183,465 |
| 2,543,317 |
|
| 1,947,686 |
| 2,783,819 |
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Investment in Energy Property and Equipment, Net |
| 23,205,969 |
| 14,739,767 |
|
| 32,362,386 |
| 33,459,478 |
| ||||||
Construction in Process |
| 7,144,143 |
| 6,979,080 |
|
| 7,580,763 |
| 7,270,194 |
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|
|
|
|
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Prepaid expenses and other current assets, long term portion |
| 482,849 |
| - |
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Restricted cash for Italian acquisition |
|
| - |
|
|
| 8,857,966 |
| ||||||||
Prepaid expenses and other current assets, long-term portion |
| 317,931 |
| 396,639 |
| |||||||||||
Goodwill |
| 1,438,013 |
| 1,353,998 |
| |||||||||||
Restricted cash |
|
| 342,729 |
|
|
| 349,434 |
| ||||||||
Total Assets |
| $ | 34,016,426 |
|
| $ | 33,120,130 |
|
| $ | 43,989,508 |
|
| $ | 45,613,562 |
|
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LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||
Current Liabilities |
|
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Accounts payable and accrued liabilities |
| $ | 2,610,834 |
| $ | 1,696,200 |
|
| $ | 3,952,511 |
| $ | 3,700,796 |
| ||
Convertible and non-convertible promissory notes, current portion |
| 13,779,018 |
| 14,510,204 |
|
| 23,107,839 |
| 22,705,665 |
| ||||||
Capital lease, current portion |
| 81,387 |
| 85,325 |
|
| 86,101 |
| 87,785 |
| ||||||
Derivative liability |
| - |
| 338,861 |
| |||||||||||
Taxes payable |
|
| 50,766 |
|
|
| 27,450 |
|
|
| 69,911 |
|
|
| 61,575 |
|
Total Current Liabilities |
| 16,522,005 |
| 16,658,040 |
|
| 27,216,362 |
| 26,555,821 |
| ||||||
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Convertible and non-convertible promissory notes, net of current portion |
| 10,388,120 |
| 10,320,240 |
|
| 13,638,090 |
| 14,109,417 |
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Capital lease, net of current portion |
| 924,139 |
| 1,032,453 |
|
| 885,085 |
| 923,948 |
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Asset retirement obligation |
|
| 140,779 |
|
|
| 75,031 |
|
|
| 144,965 |
|
|
| 146,215 |
|
Total Liabilities |
| 27,975,043 |
| 28,085,765 |
|
| 41,884,502 |
| 41,735,401 |
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Commitments and Contingencies |
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Shareholders' Equity |
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Preferred Shares, $0.001 par value; 50,000,000 shares authorized, 5,000,000 issued and outstanding (Liquidation value of $5,000 as of September 30, 2019) |
| 5,000 |
| - |
| |||||||||||
Common stock, $0.001 par value; 450,000,000 shares authorized, 82,892,601 and 110,726,725 shares issued and outstanding as of September 30, 2019 and December 31, 2018 respectively. |
| 82,893 |
| 110,727 |
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Shareholders' equity |
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Preferred Shares, $0.001 par value; 50,000,000 shares authorized, 0 and 5,000,000 issued and outstanding as of March 31, 2020 and December 31, 2019 |
| - |
| 5,000 |
| |||||||||||
Common stock, $0.001 par value; 450,000,000 shares authorized, 118,351,219 and 68,182,602 shares issued and outstanding as of March 31, 2020 and December 31, 2019 respectively. |
| 118,352 |
| 68,183 |
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Common stock, $0.001 par value; 15,000,000 shares of Class B stock authorized, issued and outstanding as of March 31, 2020 and December 31, 2019 respectively |
| 15,000 |
| 15,000 |
| |||||||||||
Additional paid in capital |
| 15,387,308 |
| 13,164,601 |
|
| 15,426,099 |
| 15,442,118 |
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Other comprehensive loss |
| (850,184 | ) |
| (260,424 | ) |
| (772,877 | ) |
| (642,682 | ) | ||||
Accumulated deficit |
|
| (8,583,634 | ) |
|
| (7,980,539 | ) |
|
| (12,681,567 | ) |
|
| (11,009,458 | ) |
Total Shareholders' Equity |
|
| 6,041,383 |
|
|
| 5,034,365 |
|
|
| 2,105,007 |
|
|
| 3,878,161 |
|
Total Liabilities and Shareholders' Equity |
| $ | 34,016,426 |
|
| $ | 33,120,130 |
|
| $ | 43,989,508 |
|
| $ | 45,613,652 |
|
See accompanying notes to the unaudited condensed consolidated financial statements
3 |
Table of Contents |
ALTERNUS ENERGY INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND NINE MONTHS ENDED SEPETEMBER 30, 2019 AND 2018
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
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|
| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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| March 31, 2020 |
| March 31, 2019 |
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Revenues |
| $ | 993,005 |
| $ | 811,738 |
| $ | 2,296,964 |
| $ | 2,222,437 |
|
| $ | 697,703 |
| $ | 370,131 |
| ||||
Cost of revenues |
|
| (245,193 | ) |
|
| (374,409 | ) |
|
| (563,779 | ) |
|
| (1,078,433 | ) |
|
| (326,973 | ) |
|
| (157,008 | ) |
Gross Profit |
| 747,812 |
| 437,329 |
| 1,733,185 |
| 1,144,004 |
|
| 370,730 |
| 213,123 |
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Operating Expenses |
|
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Selling, general and administrative |
| 926,514 |
| 225,330 |
| 2,978,418 |
| 774,265 |
|
| 868,798 |
| 542,557 |
| ||||||||||
Loss on disposal of investment in energy asset |
| - |
| 351,723 |
| - |
| 351,723 |
| |||||||||||||||
Depreciation and amortization |
|
| 344,980 |
|
|
| 152,079 |
|
|
| 831,184 |
|
|
| 541,314 |
|
|
| 509,332 |
|
|
| 167,471 |
|
Total Operating Expenses |
| 1,271,494 |
| 729,132 |
| 3,809,602 |
| 1,667,302 |
|
| 1,378,130 |
| 710,028 |
| ||||||||||
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Loss from Operations |
| (523,682 | ) |
| (291,803 | ) |
| (2,076,417 | ) |
| (523,298 | ) |
| (1,007,400 | ) |
| (496,905 | ) | ||||||
|
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Other income (expense) |
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Other Expense |
|
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Interest expense |
| (563,812 | ) |
| (140,626 | ) |
| (2,478,521 | ) |
| (987,643 | ) |
|
| (664,641 | ) |
|
| (887,374 | ) | ||||
Change in fair value of derivative liability |
| - |
| - |
| (132,976 | ) |
| - |
| ||||||||||||||
Gain on bargain purchase |
|
| (87,442 | ) |
|
| - |
|
|
| 4,084,821 |
|
|
| - |
| ||||||||
Total other income (expense) |
|
| (651,254 | ) |
|
| (140,626 | ) |
|
| 1,473,324 |
|
|
| (987,643 | ) | ||||||||
Net Loss before Provision for Income Taxes |
| (1,174,936 | ) |
| (432,429 | ) |
| (603,093 | ) |
| (1,510,941 | ) | ||||||||||||
Provision for Income Taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| ||||||||
Total other expense |
|
| (664,641 | ) |
|
| (887,374 | ) | ||||||||||||||||
Loss before provision for income taxes |
| (1,672,041 | ) |
| (1,384,279 | ) | ||||||||||||||||||
Provision for income taxes |
|
| - |
|
|
| - |
| ||||||||||||||||
Net Loss |
| $ | (1,174,936 | ) |
| $ | (432,429 | ) |
| $ | (603,093 | ) |
| $ | (1,510,941 | ) |
| $ | (1,672,041 | ) |
| $ | (1,384,279 | ) |
|
|
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Basic and diluted loss per share |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
| $ | (0.02 | ) |
| $ | (0.01 | ) |
|
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Weighted average shares outstanding: |
|
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|
|
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| ||||||||||
Basic and diluted |
| 94,216,514 |
| 71,726,725 |
| 108,370,612 |
| 71,600,361 |
|
| 71,679,845 |
| 114,384,791 |
| ||||||||||
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Comprehensive loss: |
|
|
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|
|
|
|
|
|
|
|
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| ||||||||||
Net loss |
| $ | (1,174,936 | ) |
| $ | (432,429 | ) |
| $ | (603,093 | ) |
| $ | (1,510,941 | ) |
| $ | (1,672,041 | ) |
| $ | (1,384,279 | ) |
Unrealized gain (loss) on currency translation adjustment |
|
| (421,960 | ) |
|
| 59,450 |
|
|
| (589,760 | ) |
|
| (193,113 | ) | ||||||||
Comprehensive Loss |
| $ | (1,596,896 | ) |
| $ | (372,979 | ) |
| $ | (1,192,853 | ) |
| $ | (1,704,054 | ) | ||||||||
Current translation adjustment unrealized loss |
|
| (130,263 | ) |
|
| (317,664 | ) | ||||||||||||||||
Comprehensive loss |
| $ | (1,802,304 | ) |
| $ | (1,701,943 | ) |
See accompanying notes to the unaudited condensed consolidated financial statements
4 |
Table of Contents |
ALTERNUS ENEGY INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2020 AND 2019 AND 2018
|
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| Comprehensive |
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|
| Preferred Shares |
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| Class A Common stock |
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| Class B Common stock |
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| Paid-In |
|
| Income/ |
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| Accumulated |
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| Series D |
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| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| (Loss) |
|
| (Deficit) |
|
| Total |
| ||||||||||
Balance at January 1, 2020 |
|
| 5,000,000 |
|
| $ | 5,000 |
|
|
| 68,182,601 |
|
| $ | 68,183 |
|
|
| 15,000,000 |
|
| $ | 15,000 |
|
| $ | 15,442,118 |
|
| $ | (642,614 | ) |
| $ | (11,009,458 | ) |
| $ | 3,878,229 |
|
Conversion of preferred shares to Class A common shares |
|
| (5,000,000 | ) |
|
| (5,000 | ) |
|
| 50,000,000 |
|
|
| 50,000 |
|
|
| - |
|
|
| - |
|
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| (45,000 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Stock Compensation |
|
| - |
|
|
| - |
|
|
| 168,618 |
|
|
| 169 |
|
|
| - |
|
|
| - |
|
|
| 28,981 |
|
|
| - |
|
|
| - |
|
|
| 29,150 |
|
Unrealized loss on currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (130,263 | ) |
|
| - |
|
|
| (130,263 | ) |
Net Loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,672,109 | ) |
|
| (1,672,109 | ) |
Balance at March 31, 2020 |
|
| - |
|
| $ | - |
|
|
| 118,351,219 |
|
| $ | 118,352 |
|
|
| 15,000,000 |
|
| $ | 15,000 |
|
| $ | 15,426,099 |
|
| $ | (772,877 | ) |
| $ | (12,681,567 | ) |
| $ | 2,105,007 |
|
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 Stock Compensation Amortization of debt discount Unrealized loss on currency translation adjustment Net Loss Balance at March 31, 2019 Stock Compensation Reclassification of derivative liability Amortization of debt discount Unrealized gain on currency translation adjustment Net income Balance at June 30, 2019 Transfer for Common Shares to Series E Preferred Shares Unrealized loss on currency translation adjustment Net loss Balance at September 30, 2019 Balance at January 1, 2018 Unrealized gain on currency translation adjustment Net loss - Balance at March 31, 2018 Stock Compensation Amortization of debt discount Unrealized loss on currency translation adjustment Net loss Balance at June 30, 2018 Unrealized gain on currency translation adjustment Amortization of debt discount Net loss Balance at September 30, 2018 - - 110,726,725 $ 110,727 $ 13,164,601 $ (260,424 ) $ (7,980,540 ) $ 5,034,364 - - 21,915,876 21,916 1,395,948 - - 1,417,864 - - - - 123,804 - - 123,804 - - - - - (317,664 ) - (317,664 ) - - - - - - (1,384,279 ) (1,384,279 ) - - 132,642,601 $ 132,643 $ 14,684,353 $ (578,088 ) $ (9,364,819 ) $ 4,874,089 250,000 250 40,000 - - 40,250 - - - - 471,837 - - 471,837 146,118 146,118 - - - - - 149,864 - 149,864 - - - - - - 1,956,121 1,956,121 - - 132,892,601 $ 132,893 $ 15,342,308 $ (428,224 ) $ (7,408,698 ) $ 7,638,279 5,000,000 5,000 (50,000,000 ) $ (50,000 ) 45,000 - - - - - - - - (421,960 ) - (421,960 ) - - - - - - (1,174,936 ) (1,174,936 ) 5,000,000 $ 5,000 82,892,601 $ 82,893 $ 15,387,308 $ (850,184 ) $ (8,583,634 ) $ 6,041,383 30,000,000 $ 30,000 71,476,725 $ 71,477 $ 11,949,748 $ 205,875 $ (6,127,827 ) $ 6,129,273 - - - - - 133,121 - 133,121 - - - - - (196,593 ) (196,593 ) 30,000,000 $ 30,000 71,476,725 $ 71,477 $ 11,949,748 $ 338,996 $ (6,324,421 ) 6,065,801 - - 250,000 250 27,250 - - 27,500 - - - - 680,309 - - 680,309 - - - - - (385,684 ) - (385,684 ) - - - - - - (881,919 ) (881,919 ) 30,000,000 $ 30,000 71,726,725 $ 71,727 $ 12,657,307 $ (46,688 ) $ (7,206,340 ) $ 5,506,007 - - - - - 59,450 - 59,450 - - - - 27,294 - - 27,294 - - - - - - (432,429 ) (432,429 ) 30,000,000 $ 30,000 71,726,725 $ 71,727 $ 12,684,601 $ 12,762 $ (7,638,769 ) $ 5,160,322
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| Comprehensive |
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| |||||||||||||||||||||||||
|
| Preferred Shares |
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| Class A Common stock |
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| Class B Common stock |
|
| Paid-In |
|
| Income/ |
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| Accumulated |
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| |||||||||||||||||||
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| Series D |
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| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| (Loss) |
|
| (Deficit) |
|
| Total |
| ||||||||||
Balance at January 1, 2019 |
|
| - |
|
| $ | - |
|
|
| 110,726,726 |
|
| $ | 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 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (317,644 | ) |
|
| - |
|
|
| (317,644 | ) |
Net Loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,384,279 | ) |
|
| (1,384,279 | ) |
Balance at March 31, 2019 |
|
| - |
|
| $ | - |
|
|
| 369,345,040 |
|
| $ | 369,347 |
|
|
| 30,000,000 |
|
| $ | 30,000 |
|
| $ | 45,536,551 |
|
| $ | (2,123,822 | ) |
| $ | (34,727,953 | ) |
| $ | 9,084,123 |
|
See accompanying notes to the unaudited condensed consolidated financial statements
5 |
Table of Contents |
ALTERNUS ENERGY INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2020 and 2019 and 2018
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| March 31, 2020 |
|
| March 31, 2019 |
| ||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Net loss |
| $ | (603,093 | ) |
| $ | (1,510,941 | ) |
| $ | (1,672,109 | ) |
| $ | (1,384,279 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Adjustments to reconcile net loss to net cash used in operations |
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| 831,184 |
| 541,314 |
|
| 509,332 |
| 167,470 |
| ||||||
Stock compensation costs |
| 1,458,114 |
| 27,500 |
|
| 29,150 |
| 161,686 |
| ||||||
Amortization of debt discount |
| 269,922 |
| 707,603 |
|
| - |
| 77,415 |
| ||||||
Change in fair value of derivative liability |
| 132,976 |
| - |
| |||||||||||
Loss on sale of investment in energy asset |
| - |
| 351,723 |
| |||||||||||
Gain on Bargain purchase |
| (4,084,821 | ) |
| - |
| ||||||||||
|
|
|
|
|
| |||||||||||
Changes in assets and liabilities, net of acquisition and disposals: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable and other short-term receivables |
| (650,496 | ) |
| (579,803 | ) |
| 536,017 |
| (20,635 | ) | |||||
Accounts payable & accrued liabilities |
| 1,142,599 |
| 46,862 |
| |||||||||||
Energy incentives earned not yet received |
| 94,523 |
| 427,390 |
| |||||||||||
Vendor deposits & prepayments |
|
| (800,207 | ) |
|
| (41,141 | ) | ||||||||
Accounts payable and accrued liabilities |
| 240,266 |
| 674,486 |
| |||||||||||
Energy incentives earned, not yet received |
| - |
| (52,675 | ) | |||||||||||
Vendor deposits and prepayments |
|
| 40,777 |
|
|
| 243,136 |
| ||||||||
Net Cash Used in Operating Activities |
| (2,209,300 | ) |
| (29,493 | ) |
| (316,567 | ) |
| (133,396 | ) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Additions to construction in process |
| (284,301 | ) |
| - |
| ||||||||||
Cash used for investment in energy asset |
| - |
| (619,723 | ) | |||||||||||
Proceeds from sale of fixed assets |
| - |
| 3,799,615 |
| |||||||||||
Acquisition of solar energy parks |
|
| (6,665,240 | ) |
|
| - |
| ||||||||
Net Cash (Used In) Provided by Investing Activities |
| (6,949,541 | ) |
| 3,179,892 |
| ||||||||||
Cash used for construction in process |
|
| (518,108 | ) |
|
| (726,267 | ) | ||||||||
Net Cash Used In Investing Activities |
| (518,108 | ) |
| (726,267 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from debt, related parties |
| - |
| 10,344 |
|
| - |
| 16,350 |
| ||||||
Payments of debt principal, related parties |
| (98,262 | ) |
| - |
|
| (48,191 | ) |
| - |
| ||||
Proceeds from debt, senior debt |
| 13,618,477 |
| 1,380,009 |
| |||||||||||
Payments on debt principal, senior debt |
| (13,322,287 | ) |
| (3,248,001 | ) | ||||||||||
Net proceeds from lines of credit |
| - |
| 4,969 |
| |||||||||||
Proceeds from debt, senior debt and promissory notes |
| 829,947 |
| 826,772 |
| |||||||||||
Payments on debt principal, senior debt and promissory notes |
| (224,586 | ) |
| (723,575 | ) | ||||||||||
Payments on leased assets, principal |
| (61,782 | ) |
| (50,888 | ) |
|
| (21,190 | ) |
|
| - |
| ||
Restricted cash for future acquisitions |
|
| - |
|
|
| (745,561 | ) | ||||||||
Net Cash Provided by (Used In) Financing Activities |
| 136,146 |
|
| (2,649,128 | ) | ||||||||||
Net Cash Provided by Financing Activities |
| 535,980 |
| 119,547 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Effect of exchange rate on cash |
| (39,165 | ) |
| (2,024 | ) |
| (19,327 | ) |
| (60,016 | ) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
| (9,061,860 | ) |
| 499,248 |
| ||||||||||
Net decrease in cash and cash equivalents |
| (318,022 | ) |
| (680,100 | ) | ||||||||||
Cash, cash equivalents, and restricted cash beginning of the period |
|
| 9,884,499 |
|
|
| 130,366 |
|
|
| 1,426,429 |
|
|
| 1,026,533 |
|
Cash, cash equivalents, and restricted cash end of the period |
| $ | 822,639 |
|
| $ | 629,614 |
|
| $ | 1,108,407 |
|
| $ | 346,433 |
|
See accompanying notes to the unaudited condensed consolidated financial statements
6 |
Table of Contents |
ALTERNUS ENERGY INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED SUPPLEMENTAL STATEMENT OF CASH FLOWS
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2020 and 2019 and 2018
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| March 31, 2020 |
|
| March 31, 2019 |
| ||||
Supplemental Cash Flow Disclosure |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid for interest |
| $ | 1,533,821 |
|
| $ | 130,680 |
|
| $ | 142,818 |
|
| $ | 152,929 |
|
|
|
|
|
|
| |||||||||||
Supplemental Non Cash Disclosure |
|
|
|
|
| |||||||||||
Reclassification of derivative liability |
| $ | 471,837 |
|
|
| - |
|
See accompanying notes to the unaudited condensed consolidated financial statements
7 |
Table of Contents |
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. OnInc.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_01PC-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_02PC-Italia-02 SRL as a wholly owned subsidiary of AE Europe B.V. This Companycompany was incorporated to acquire Italian special purpose vehicles, power plants and/or other assets located in Italy. InDuring the quarter ended March 31, 2017, this company completed the acquisition of the Sant’Angelo Energia S.r.l. in Italy which operates a 702kW PV solar park. Subsequently, 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 monthsyear ended December 31, 2018, the CompanyPCG_HoldCo 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.
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. During the quarter ended December 31, 2019, this company completed the acquisition of Zonnepark Rilland B.V. in the Netherlands, which operates a 11.75MW PV solar park.
8 |
Table of Contents |
Summary:
In summary, Alternus Energy Inc (ALTN) is a holding company that operatedoperates through nineteenthe following twenty operating subsidiaries as of September 30, 2019:March 31, 2020:
Subsidiary | Principal Activity | Date Acquired / Established | ALTN Ownership | Country of Operation |
Power Clouds SRL | SPV | March 31, 2015 | 99.5%* | Romania |
F.R.A.N. Energy Investment SRL | SPV | March 31, 2015 | 99.5%* | Romania |
AE Europe B.V. |
| August 2016 | 100% | Netherlands |
PC-Italia-01 S.R.L. |
| June 2015 | 100% (via PCE) | Italy |
PC-Italia-02 S.p.A. |
| August 2016 | 100% (via PCE) | Italy |
Sant’Angelo Energia S.r.l. | SPV | March 30, 2017 | 100%
| Italy |
PCG_HoldCo GmbH | Holding Company | July 6, 2018 | 100% | Germany |
PCG_GP UG | General Partner (Management Company) | August 30, 2018 | 100% | Germany |
PSM 20 UG | SPV | November 14, 2018 | 100%
| Germany |
PSM 40 UG | SPV | December 28, 2018 | 100%
| Germany |
GRK 17.2 GmbH & Co KG | SPV | November 17, 2018 | 100%
| Germany |
GRT 1.1 GmbH & Co KG | SPV | December 21, 2018 | 100%
| Germany |
ALTN HoldCo UG | SPV | December 14, 2018 | 100% (via PCG HoldCo) | Germany |
Alternus Energy International | European Operational Centre | March 1, 2019 | 100% | Ireland |
CIC Rooftop 2 S.r.l. | SPV | April 23, 2019 | 100% (via PC-Italia-02) | Italy |
CIC RT Treviso S.r.l. | SPV | April 23, 2019 | 100% (via PC-Italia-02) | Italy |
SPV White One S.r.l. | SPV | April 23, 2019 | 100% (via PC-Italia-02) | Italy |
CTS Power 2 S.r.l. | SPV | April 23, 2019 | 100% (via PC-Italia-02) | Italy |
AEN 01 B.V. | SPV | June 13, 2019 | 100% | Netherlands |
Zonnepark Rilland B.V. | SPV | December 20, 2019 | 100% | Netherlands |
Summary:
*Non-controlling interest is not material
2. Basis of Presentation and Going Concern
The unaudited condensed consolidated financial statements include the consolidated balance sheet, consolidated statements of operations, 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 (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 (SEC) regarding interim financial reporting. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s 2019 annual auditedconsolidated financial statements and accompanying notes filed on Form 10-K. 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 months ended March 31, 2020 and 2019 are not necessarily indicative of the operating results for the full fiscal year for any future period.
Going Concern
Our unaudited condensed consolidated financial statements as of March 31, 2020 and 2019 identify the existence of certain conditions that raise substantial doubt about our ability to continue as a going concern for twelve months from the issuance of this report.
9 |
Table of Contents |
2. Liquidity
The accompanying unaudited condensed consolidated 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 settlementsatisfaction of liabilities in the normal course of our business. As reflected in the accompanying financial statements, the Company had net loss of ($603,093)1,672,109) and a net loss of ($1,510,941)1,384,279) for the nine monthsperiods ended September 30,March 31, 2020 and 2019, and 2018, respectively.
The Company had totalaccumulated shareholders’ equity of $6,041,383$2,107,392 and $5,034,365$3,878,161 as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, and a working capital deficit of $13,338,540$25,266,292 and $14,114,723$23,772,002 as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. At September 30, 2019,March 31, 2020, the Company had $822,639$765,679 of cash on hand.
GivenOur operating revenues are insufficient to fund our operations and our assets already are pledged to secure our indebtedness to various third party secured creditor, respectively. The unavailability of additional financing could require us to delay, scale back or terminate our acquisition efforts as well as our own business activities, which would have a material adverse effect on the current level of cash resources, receivablesCompany 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 2019its viability 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.prospects.
As a result,The terms of our indebtedness, including the accompanying financial statements do not include any adjustments related to recoverabilitycovenants and classification of asset carrying amounts or the amountdates on which principal and classification of liabilitiesinterest payments on our indebtedness are due, increases the risk that might result should the companywe will be unable to continue as a going concern. To continue as a going concern over the next twelve months from the date these financial statements are issued, we must make payments on our debt as they come due and comply with the covenants in the agreements governing our indebtedness or, if we fail to do so, to (i) negotiate and obtain waivers of or forbearances with respect to any defaults that occur with respect to our indebtedness, (ii) amend, replace, refinance or restructure any or all of the agreements governing our indebtedness, and/or (iii) otherwise raise additional capital. However, we cannot provide any assurances that we will be successful in accomplishing any of these plans.
The recent outbreak of the corona virus, also known as "COVID-19", has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the corona virus continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. The outbreak and the related mitigation measures may have an adverse impact on global economic conditions as well as on the Company's business activities. The extent to which the corona virus may impact the Company's business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. These events are highly uncertain and as such, the Company cannot determine their financial impact at this time.
3. Summary of Significant Accounting Policies
Basis of consolidation
The unaudited condensed consolidated financial statements as of September 30,March 31, 2020 and 2019 and December 31, 2018for the three months then ended 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 condensed 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.accounting principles generally accepted in the United States of America (U.S. 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.
The Company derives revenues through its subsidiariesas single unit 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 gridcustomers 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.
10 |
Table of Contents |
Disaggregated Revenues
The following table shows the Company’s revenues disaggregated by pricing plans offered to customers:
|
| For the Nine months Ended September 30, |
| |||||
Net Revenue, by Offtake Type |
| 2019 |
|
| 2018 |
| ||
Feed in Tariff |
| $ | 1,519,727 |
|
| $ | 772,429 |
|
Green Certificates |
|
| 522,957 |
|
|
| 658,183 |
|
Energy Offtake Agreements |
|
| 254,280 |
|
|
| 791,825 |
|
Total |
| $ | 2,296,964 |
|
| $ | 2,222,437 |
|
For the Three months Ended September 30 Net Revenue, by Offtake Type 2019 2018 Feed in Tariff Green Certificates Energy Offtake Agreements Total $ 694,331 $ 273,478 227,157 194,519 71,517 343,741 $ 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 3Footnote 2 regarding liquiditygoing concern matters.
Fair Value of Financial Instruments
The Company measures its financial instruments at fair value under GAAP.value. Accounting principles generally accepted in the United States of America (U.S. 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 obligationswhich 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 Change in fair value of derivative liability Reclassification of derivative liability Balance as of September 30, 2019 $ 338,861 132,976 (471,837 ) $ -
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.material
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 incomeDeferred taxes using theare provided on a liability method. Deferredmethod whereby deferred tax assets are recognized for deductible temporary differences, operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the expected tax consequences of temporary differences arising between the tax basesreported amounts of assets and liabilities and their reported amounts for financial reporting purposes. The Company records valuationtax basis. Valuation allowances are established when necessary to reduce its deferred tax assets to the amount expected to be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
As of March 31, 2020 the Company has U.S. federal and state net operating loss carryovers of approximately $4,667,136, which will expire at various dates beginning in 2034 through 2037, if not utilized with exception of loss carryovers generated in 2018 and 2019. As a result of Tax Cuts and Jobs Act, net operating losses generated in 2018 and beyond have indefinite lives, but limited to 80% of taxable income in each year. Additionally, as of March 31, 2020, the Company has U.S. federal capital loss carryovers of approximately $949,875, which will expire at various dates beginning in 2020 through 2022, if not utilized against capital gain income. In accordance with Section 382 of the internal revenue code, deductibility of the Company’s U.S. net operating loss carryovers may be subject to an annual limitation in the event of a change of control as defined under the Section 382 regulations.
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In assessing the adequacyrealization of recorded valuation allowances,deferred tax assets, management considers whether it is more likely than not that some portion or all of the Companydeferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers a variety of factors including the scheduled reversal of deferred tax liabilities, projected future taxable income and prudent and feasible tax planning strategies. strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. As of March 31, 2020 and December 31, 2019 the valuation allowance was $2,512,173.
The Company follows applicable authoritative guidance onevaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes which, among other things,recognized in their financial statements. ASC 740 prescribes a recognition thresholdcomprehensive model for how a company should recognize, present, and measurement attribute fordisclose uncertain positions that the financial statement recognition and measurement ofcompany has taken or expects to take in its return. For those benefits to be recognized, a tax position must be more-likely-than- not to be sustained upon examination by taxing authorities. Differences between two positions taken or expected to be taken in a tax return and provides guidance on derecognition, classification, interest,the benefit recognized and penalties, accounting in interim periods and disclosure. The amount recognized is subject to estimate and management judgment with respectmeasured pursuant to the likely outcome of each uncertain tax position. The amount thatinterpretation are referred to as “unrecognized benefits”. A liability is ultimately sustainedrecognized for an individual uncertainunrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing-authority for a tax position or for all uncertain tax positions inthat was not recognized as a result of applying the aggregate could differ from the amount recognized. Asprovisions 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.ASC 740.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (ASC)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.Accounting Standards Codification. 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,March 31, 2020, the Company had 13,053,235 ofcommon shares underlying warrants, and 9,087,048 of10,137,054 common shares underlying convertible sharesnotes associated with debt issuance. As of September 30, 2018,March 31, 2019, the Company had 6,986,828 of13,543,235 common shares underlying warrants, and 2,772,218 of1,218,681 common shares underlying convertible sharesnotes associated with debt issuance. For both 2020 and 2019, the potentially dilutive shares were excluded since they were anti-dilutive.
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,March 31, 2020 and 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 monthsthree month period ended September 30,March 31, 2020 and 2019, and 2018, the increase (decrease) in accumulated comprehensive gain (loss)loss related to foreign currency translation adjustments was ($589,760)$130,263 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,$317,664, respectively.
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Preferred Stock
We apply the accounting standards for distinguishing liabilities from equity under U.S. 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 ASCAccounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. ThePursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company considers its financial statements issued when they are widely distributed to users, such as through filing them with OTC Markets.the Securities and Exchange Commission. 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. Restricted cash at the end of March 31, 2020 and December 31, 2019 was related to debt service reserve and maintenance reserves required by third party senior lender. 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:
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | 822,639 |
| $ | 1,026,533 |
|
| $ | 765,679, |
| $ | 1,076,995 |
| ||
Restricted cash for future acquisitions |
|
| - |
|
|
| 8,857,966 |
| ||||||||
Restricted cash |
|
| 342,729 |
|
|
| 349,434 |
| ||||||||
Total cash, cash equivalents, and restricted cash |
| $ | 822,639 |
|
| $ | 9,884,499 |
|
| $ | 1,108,407 |
|
| $ | 1,426,429 |
|
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 interimperiod starting on January 1st, 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.
Recent Accounting Standards Not Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishesto increase transparency and comparability among organizations by recognizing a new lease accounting model for lessees. The updated guidance requires an entity to recognize assetsright-of-use asset and liabilities arising from a lease liability on the balance sheet for bothall leases with terms longer than 12 months. Leases will be classified as either operating or financing, and operating leases, along with additional qualitative and quantitative disclosures. In June 2018,such classifications affecting the FASB issuedpattern of expense recognition in the income statement. ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which further clarifies how to apply certain aspects of the new lease standard. Topic 8422016-02 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, withand early adoption is permitted. ASU 2016-02 was recently delayed for emerging growth companies that elected to adopt new accounting standards on the adoption date required for private companies and will be effective for the Company’s annual reporting period in 2022 and interim periods beginning first quarter of 2023. The Company is evaluating the impact ASU 2016-02 will have on its financial statements and associated disclosures.
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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit losses (Topic 326). This new guidance will change how entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments. The update will replace the current incurred loss model with an expected loss model. Under the incurred loss model, a loss (or allowance) is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable (that is has been “incurred”). Under the expected loss model, a loss (or allowance) is recognized upon initial recognitions of the asset that reflects all future events that leads to a loss being realized, regardless of whether it is probable that the future event will occur. The incurred loss model considers past events and conditions, while the expected loss model includes expectations for the future which have yet to occur. ASU 2018-19 was issued in November 2018 and excludes operating leases from the new guidance. The standard will require entities to record a cumulative-effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. As an Emerging Growth Company, the standard is effective for the Company’s 2022 annual reporting period and interim periods beginning first quarter of 2023. The Company is evaluating the impact of ASU 2016-13 will have on its financial statements and associated disclosures.
On December 18, 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (the ASU), as part as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. The FASB’s amendments primarily impact ASC 740, Income Taxes, and may impact both interim and annual reporting periods. The Company is currently evaluating the effect that the adoption of ASU 2016-022019-12 will have on its consolidated financial statement. The guidance is effective January 1, 2021 with early adoption permitted.
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 5th 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.
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.
|
| Total |
| |
Cost of acquisitions |
|
|
| |
Cash paid for assets |
| $ | 6,131,004 |
|
Total acquisition cost |
| $ | 6,131,004 |
|
|
|
|
|
|
Fair value of assets acquired |
|
|
|
|
Investment in energy property |
|
| 9,939,414 |
|
Net working capital acquired |
|
| 384,397 |
|
Asset retirement liability |
|
| (65,114 | ) |
|
| $ | 10,258,697 |
|
|
|
|
|
|
Gain on bargain purchase |
| $ | 4,127,693 |
|
Proforma Results
The following presents the nine months proforma combined results of operations as if the entities were combined on January 1, 2018:
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||
Revenues, net |
| $ | 2,689,306 |
|
| $ | 3,172,912 |
|
Net (loss) |
| $ | (4,495,629 | ) |
| $ | (1,020,891 | ) |
Net (loss) per share |
| $ | (0.04 | ) |
| $(0.01) |
| |
Basic weighted average number of shares outstanding |
|
| 108,370,612 |
|
|
| 71,600,361 |
|
The following presents the three months proforma combined results of operations as if the entities were combined on January 1, 2018:
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||
Revenues, net |
|
| 993,005 |
|
|
| 1,353,882 |
|
Net (loss) |
|
| (1,174,936 | ) |
|
| (685,899 | ) |
Net income (loss) per share |
|
| (0.01 | ) |
|
| (0.01 | ) |
Basic weighted average number of shares outstanding |
|
| 94,216,514 |
|
|
| 71,726,725 |
|
5. Investment in Energy Property and Equipment, Net
As of September 30,March 31, 2020 and December 31, 2019, the Company had $23,205,969 of net investment in energy property, as outlined in the table below.
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
Solar energy facilities operating |
| $ | 25,463,841 |
| $ | 16,278,252 |
|
| $ | 35,440,178 |
| $ | 36,123,412 |
| ||
Less accumulated depreciation and amortization |
|
| (2,257,872 | ) |
|
| (1,538,485 | ) | ||||||||
Less accumulated depreciation |
|
| (3,076,792 | ) |
|
| (2,663,934 | ) | ||||||||
Net Assets |
| $ | 23,205,969 |
|
| $ | 14,739,767 |
|
| $ | 32,362,386 |
|
| $ | 33,459,478 |
|
The estimated useful life remaining on the investment in energy property and intangible asset retirement obligation 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,March 31, 2020 and 2019, was $509,332 and 2018, was $344,980 and $152,079, respectively.$167,471, respectively
The Company leases various equipment under capital leases. Assets held under capital leases are included in property and equipment as follows:
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||
Capitalized costs relating to PV plants |
| $ | 2,249,743 |
|
| $ | 2,358,588 |
|
Less accumulated amortization |
|
| (284,778 | ) |
|
| (208,989 | ) |
Net Assets |
| $ | 1,964,965 |
|
| $ | 2,149,599 |
|
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Finance lease right of use asset |
| $ | 2,251,269 |
|
| $ | 2,311,255 |
|
Less accumulated depreciation |
|
| (341,965 | ) |
|
| (321,821 | ) |
Net Assets |
| $ | 1,909,304 |
|
| $ | 1,989,434 |
|
6.5. Capital Leases
We have acquired equipment through a capital lease obligationsobligation for the Sant’Angelo park in Italy. As of September 30, 2019,March 31, 2020, there was $1,005,526$971,186 remaining on the lease of which $81,387$86,101, net of interest, 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 yearsyear is approximately 4.5% per annum. This interest amount may vary due to future changes in EUR3M index.
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Table of Contents |
Capital lease future minimum payments for each of the next five years and thereafter is as follows:
2019 |
| 34,071 |
| |||||
2020 |
| 136,283 |
|
| 102,992 |
| ||
2021 |
| 136,283 |
|
| 137,322 |
| ||
2022 |
| 136,283 |
|
| 137,322 |
| ||
2023 |
| 136,283 |
|
| 137,322 |
| ||
2024 |
| 137,322 |
| |||||
Thereafter |
| 726,838 |
|
|
| 608,260 |
| |
|
| 1,306,041 |
|
| 1,260,540 |
| ||
Less Interest Expense |
|
| (300,515 | ) |
|
| (289,355 | ) |
|
| $ | 1,005,526 |
|
| $ | 971,185 |
|
7.6. Convertible and NonconvertibleUnconvertible Promissory Notes
The following table reflects the total debt balances of the Company as of September 30, 2019March 31, 2020 and December 31, 2018:2019:
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
Short term line of credit |
| $ | 68,888 |
| $ | 73,560 |
|
| $ | 34,123 |
| $ | 35,120 |
| ||
Promissory notes related parties |
| 104,491 |
| 207,753 |
|
| - |
| 48,821 |
| ||||||
Convertible notes related parties |
| 291,540 |
| 284,000 |
|
| 291,540 |
| 291,540 |
| ||||||
Senior secured debt |
| 9,275,110 |
| 10,192,603 |
|
| 19,243,800 |
| 19,575,794 |
| ||||||
Promissory notes |
| 13,235,466 |
| 13,278,803 |
|
| 15,191,303 |
| 15,478,536 |
| ||||||
Convertible promissory notes |
|
| 1,659,867 |
|
|
| 1,097,289 |
|
|
| 2,430,140 |
|
|
| 2,169,401 |
|
Gross debt |
| 24,635,362 |
| 25,134,007 |
|
| 37,190,906 |
| 37,599,212 |
| ||||||
Debt discount |
|
| (468,224 | ) |
|
| (303,563 | ) |
|
| (444,977 | ) |
|
| (784,130 | ) |
Net debt |
| 24,167,138 |
| 24,830,444 |
|
| 36,745,929 |
| 36,815,082 |
| ||||||
Less current maturities |
|
| (13,779,018 | ) |
|
| (14,510,204 | ) | ||||||||
Less Current Maturities |
|
| (23,107,839 | ) |
|
| (22,705,665 | ) | ||||||||
Long Term Debt, net of current maturities |
| $ | 10,388,120 |
|
| $ | 10,320,240 |
|
| $ | 13,638,090 |
|
| $ | 14,109,418 |
|
Note principal payments next five years and thereafter:
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| Thereafter |
|
| Total |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| Thereafter |
|
| Total |
| ||||||||||||||
Gross debt |
| $ | 14,164,869 |
| $ | 3,979,179 |
| $ | 2,073,586 |
| $ | 248,357 |
| $ | 253,450 |
| $ | 3,915,921 |
| $ | 24,635,362 |
|
| $ | 23,409,856 |
| $ | 1,102,888 |
| $ | 1,108,229 |
| $ | 1,113,219 |
| $ | 1,118,312 |
| $ | 9,338,402 |
| $ | 37,190,906 |
| ||||||||||||
Debt discount |
|
| (385,851 | ) |
|
| (82,373 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (468,224 | ) |
|
| (302,017 | ) |
|
| (142,960 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (444,977 | ) |
Net debt |
| $ | 13,779,018 |
|
| $ | 3,896,806 |
|
| $ | 2,073,586 |
|
| $ | 248,357 |
|
| $ | 253,450 |
|
| $ | 3,915,921 |
|
| $ | 24,167,138 |
|
| $ | 23,107,839 |
|
| $ | 959,928 |
|
| $ | 1,108,229 |
|
| $ | 1,113,219 |
|
| $ | 1,118,312 |
|
| $ | 9,338,402 |
|
| $ | 36,745,929 |
|
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,January 2020, 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.
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,$250,000, and pursuant to which the CorporationCompany 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 (such right commences on the anniversary of the issuance date), a redemption right for the Corporation (provided the Company is listed on a national exchange and its per share value exceeds a $.55 per share, as defined), and convertible at $0.25$0.20 per share.
15 |
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On September 30, 2015,
In January of 2020, ALTN HoldCo UG entered into a construction financing loan with DKB Bank in Germany. This relates to the construction of 6 photovoltaic installations in Germany with an interest rate of 1.74% and a term of one year. As of March 31, 2020 there was $483,183 drawn on this loan. The total loan commitment is approximately $3.1M
In February of 2020, the Corporation entered into a Securities Purchase Agreement with another accredited investor (the “Lender”), in connection with an investment of $105,000, and pursuant to which the Company issued a convertible loanpromissory 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 fixed65% of the lowest trading price of $0.20the Company's Class A Common Stock for the last 15 trading days prior to conversion, commencing in August 2020, and accruing 10% interest 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,annum, 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.February 10, 2021.
8.7. Commitments and Contingencies
Litigation
The Company is not currently involved in or aware of any litigation that could result in a loss. Therematerial loss other than the following: On February 11, 2020 Unisun obtained leave from the interim relief judge of the Court of Amsterdam for three prejudgment attachments on the shares of 3 subsidiaries of Alternus, to secure an outstanding amount owed pursuant to an outstanding loan of EUR 1,689,864 plus interest and agreed penalties. Unisun also started proceedings on the merits to claim the amounts due under this loan and the penalties. The court proceedings commenced on September 16, 2020 and we have until October 28, 2020 to submit our statement of defense. On March 24, 2020, the Company entered into a securities purchase agreement with Ultramar Energy Ltd., an accredited foreign investor, pursuant to which the Company expected to receive gross proceeds of $3.0 million, before deducting transaction costs, fees and expenses. On April 7, 2020 the Company entered into a Settlement Agreement with Unisun to resolve and settle these claims.The Company intended to use a portion of the net proceeds from Ultramar Energy to repay this loan to Unisun in the amount of $2.0 million to resolve and settle the claim. However, as of the date of this filing, the proceeds have not been received from Ultramar Energy Ltd. and 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 ofguarantee that the Company or any of its subsidiaries, threatened against or affectingwill ever receive 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.proceeds; therefore the Settlement Agreement has been terminated.
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 $53,673are $54,226 per annum, to be paid quarterly. Also the Company paid a six month security deposit in the sum of $28,134.$36,820.
OurAs part of the Rilland acquisition, the Company acquired a twenty-five year lease. The annual lease payment is $137,859 for the first fifteen years and $55,969 for years sixteen through twenty five.
The Company’s Romanian operations lease the land for theits solar park.parks. The combined estimated annual cost of $8,871 for 2019 and $7,376 thereafter.$16,042. The leases commenced in 20132012 and run for 2520 years.
|
| Total |
| |
2019 (remaining) |
|
| 15,636 |
|
2020 |
|
| 61,049 |
|
2021 |
|
| 61,049 |
|
2022 |
|
| 61,049 |
|
2023 |
|
| 61,049 |
|
Thereafter |
|
| 379,002 |
|
|
| $ | 638,834 |
|
Minimum Future Lease Payments:
|
| Total |
| |
2020 |
| $ | 156,312 |
|
2021 |
|
| 208,128 |
|
2022 |
|
| 208,128 |
|
2023 |
|
| 208,128 |
|
2024 |
|
| 208,128 |
|
Thereafter |
|
| 2,275,275 |
|
|
| $ | 3,264,099 |
|
Table of Contents |
9. Shareholders’ Deficit8. Shareholder’s Equity
Common Stock Issuances:Stock:
During
In the nine months ended September 30, 2019, 5,855,000first quarter of 2020, the Corporation issued 135,368 shares of Class A common stock were issued to consultants for services rendered, 310,876 shares were issued as fees related to third party investment, and 16,000,00033,250 shares of restricted Class A common stock were issued to officers and directorsa consultant for continued services and performance.rendered. 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.equal to $29,150.
Preferred Stock Issuance:
On August 19, 2019March 20, 2020, the Company received a Stock Exchange Agreement was entered into by and among Alternus Energy Inc. (the “Company”) and its majority shareholder,notice of conversion from 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, a related party of the Company, in exchange for 5,000,000CEO, to convert the entirety of its 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 thea stated value of $0.001 per share, into an aggregate of 50,000,000 shares of the preferred stock.Company’s Class A Common Stock (the “Conversion”). On March 20, 2020, the Company effected the Conversion and issued to GII an aggregate of 50,000,000 shares of Class A Common 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,March 31, 2020, warrants to purchase up to 13,053,235 shares of restricted common stock were issued and outstanding. For the ninethree months ended September 30, 2019,March 31, 2020, 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.did not issue any warrants.
|
| September 30, 2019 |
| |||||
|
|
|
|
| Average |
| ||
|
| Warrants |
|
| Exercise Price |
| ||
|
|
|
|
|
|
| ||
Balance, January 1, 2019 |
| $ | 12,286,213 |
|
| $ | 0.14 |
|
Expired during the period |
|
| (640,000 | ) |
| $ | 0.20 |
|
Granted during the period |
|
| 1,407,022 |
|
| $ | 0.25 |
|
Balance, end of period |
| $ | 13,053,235 |
|
| $ | 0.14 |
|
Exercisable, end of period |
| $ | 13,053,235 |
|
| $ | 0.15 |
|
|
| March 31, 2020 |
| |||||
|
|
|
|
| Average |
| ||
|
| Warrants |
|
| Exercise Price |
| ||
Balance - beginning of period |
|
| 13,053,235 |
|
| $ | 0.15 |
|
Exercised during the period |
|
| - |
|
|
| - |
|
Granted during the period |
|
| - |
|
|
| - |
|
Balance - end of period |
|
| 13,053,235 |
|
| $ | 0.15 |
|
Exercisable - end of period |
|
| 13,053,235 |
|
| $ | 0.15 |
|
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.
11.9. 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.
Revenues |
| Three Months Ended March, 2020 |
|
| Three Months Ended March, 2019 |
| ||
Italy |
| $ | 297,665 |
|
| $ | 160,270 |
|
Romania |
|
| 182,665 |
|
|
| 187,639 |
|
Netherlands |
|
| 197,083 |
|
|
| - |
|
Germany |
|
| 20,290 |
|
|
| 22,222 |
|
Total |
| $ | 697,703 |
|
| $ | 370,131 |
|
|
|
|
|
|
|
|
|
|
Cost of Revenues |
|
|
|
|
|
|
|
|
Italy |
| $ | 130,684 |
|
| $ | 13,432 |
|
Romania |
|
| 90,831 |
|
|
| 143,576 |
|
Netherlands |
|
| 105,359 |
|
|
| - |
|
Germany |
|
| 99 |
|
|
| - |
|
Total |
| $ | 326,973 |
|
| $ | 157,008 |
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
Italy |
| $ | 166,981 |
|
| $ | 146,838 |
|
Romania |
|
| 91,834 |
|
|
| 44,063 |
|
Netherlands |
|
| 91,724 |
|
|
| - |
|
Germany |
|
| 20,191 |
|
|
| 22,222 |
|
Total |
| $ | 370,730 |
|
| $ | 213,123 |
|
For the Nine Months Ended Sep 30 Net Revenue, by Country 2019 2018 Italy Romania Germany Total $ 1,397,061 $ 772,429 777,237 1,450,008 122,666 - $ 2,296,964 $ 2,222,437
|
| For the Nine Months Ended Sep 30 |
| |||||
Cost of Revenue, by Country |
| 2019 |
|
| 2018 |
| ||
Italy |
| $ | 172,079 |
|
| $ | 126,828 |
|
Romania |
|
| 391,700 |
|
|
| 951,605 |
|
Germany |
|
| - |
|
|
| - |
|
Total |
| $ | 563,779 |
|
| $ | 1,078,433 |
|
17 |
Table of Contents |
Investment In Energy Property and Equipment, Net |
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||||
Romania |
| $ | 4,625,777 |
| $ | 4,772,109 |
| |||||||||
Italy |
| 16,489,583 |
| 17,067,553 |
| |||||||||||
Germany |
| 1,608,323 |
| 1,661,516 |
| |||||||||||
Netherlands |
|
| 9,638,703 |
|
|
| 9,958,300 |
| ||||||||
|
| Forthe Nine Months Ended Sep 30 |
|
| $ | 32,362,386 |
|
| $ | 33,459,478 |
| |||||
Gross Profit, by Country |
| 2019 |
| 2018 |
| |||||||||||
Italy |
| $ | 1,224,982 |
| $ | 645,601 |
| |||||||||
Romania |
| 385,537 |
| 498,403 |
| |||||||||||
Germany |
|
| 122,666 |
|
|
| - |
| ||||||||
Total |
| $ | 1,733,185 |
|
| $ | 1,144,004 |
|
For the Three Months Ended Sep 30th Net Revenue, by Country 2019 2018 Italy Romania Germany Total $ 644,132 $ 273,478 298,674 538,260 50,199 - $ 993,005 $ 811,738
|
| For the Three Months Ended Sep 30th |
| |||||
Cost of Revenue, by Country |
| 2019 |
|
| 2018 |
| ||
Italy |
| $ | 98,052 |
|
| $ | 62,566 |
|
Romania |
|
| 147,141 |
|
|
| 311,843 |
|
Germany |
|
| - |
|
|
| - |
|
Total |
| $ | 245,193 |
|
| $ | 374,409 |
|
For the Three Months Ended Sep 30th Gross Profit, by Country 2019 2018 Italy Romania Germany Total $ 546,080 $ 210,912 151,533 226,417 50,199 - $ 747,812 $ 437,329
Investment In Energy Property and Equipment, Net |
| September 30, 2019 |
|
| December 31, 2018 |
| ||
Romania |
| $ | 4,756,936 |
|
| $ | 5,272,802 |
|
Italy |
|
| 16,810,587 |
|
|
| 8,048,477 |
|
Germany |
|
| 1,638,446 |
|
|
| 1,418,488 |
|
|
| $ | 23,205,969 |
|
| $ | 14,739,767 |
|
12.10. Subsequent Events
In accordance with ASC 855, Subsequent Events, we have evaluated subsequent events through the date of issuance of these unaudited condensed financial statements. During this period, we had the following materially recognizable subsequent events.
In April of 2020, the Company entered into a Securities Purchase Agreement with an accredited investor in connection with an investment of $53,000, and pursuant to which the Company issued a promissory note convertible at 65% of the lowest trading price of the Company's Class A Common Stock for the last 15 trading days prior to Common Class B Stock Exchangeconversion, and accruing 10% interest per annum, with a maturity date of April 6, 2021.
On October 9, 2019 a Stock Exchange Agreement wasApril 7, 2020 the Company entered into bya Settlement Agreement with Unisun whereby the Company agreed to pay Unisun $2,000,000 as full settlement for all the outstanding amounts owed under the loan from Unisun and among Company and VestCo Corp. (“VestCo”), a company owned and controlled by Vincent Browne, our Chairman and CEO, whereby VestCo returned 15,000,000 shares of ALTN common stock, which were cancelled and returnedrelated to the total authorized but unissuedacquisition of Zonnepark Rilland, other than a potential earn out. On April 16, 2020, the Company received a Notice of Default from Unisun regarding the Settlement Agreement, and on April 23, 2020 Unisun terminated the Settlement Agreement due to nonpayment.Court proceedings on the merits of Unisun’s claim of the amounts due under this loan and the penalties commenced on September 16, 2020, and we have until October 28, 2020 to submit our statement of defense.
On May 25, 2020 the Company filed a Form 15 with the Securities and Exchange Commission in order to deregister its shares.
On May 22, 2020, the Corporation issued 700,000 shares of Class A common stock to two consultants for services rendered. The total value was based on the closing stock price of our common stock on the various dates of issuance, equals $77,000.
On June 12, 2020, Alternus Energy International Limited (“Alternus” or the “Purchaser”), a wholly owned subsidiary of the Company, and Sycamore Capital (Italy) Limited (the “Seller”) entered into a Share Purchase Agreement (the “SPA”). Pursuant to the terms of the SPA, the Seller agreed to sell to Alternus 100% of the share capital of Solar Sicily S.r.l., an Italian SPV that owns the project rights to develop and construct a 102 MW ground-mounted solar photovoltaic (PV) power plant in Sicily, Italy (the “Project”), in exchange for 15,000,000approximately $15.4 million (€14 million), to be paid on closing (the “Purchase Price”).
In July, the Company incorporated 3 new wholly owned subsidiaries, one in the Netherlands, AEN 02 B.V, and two in Italy, PC-Italia-04 Srl, which is wholly owned by AEN 02 BV, and PC-Italia-03 Srl, which is wholly owned by Alternus Energy International Ltd. These companies were incorporated to acquire various special purpose vehicles (SPVs), project rights and other solar energy assets in various locations across Europe.
On August 12, 2020, the Company issued an option to purchase up to 100,000 shares of Class B Commonrestricted common stock under the Corporation’s 2019 Stock of the Company. The rights of the holders of Class A Common StockIncentive Plan, having a three year vesting schedule and Class B Common Stock shall be identical other than voting rights; the holder of eachexercisable at $0.10 per share of Class B Common Stock shall be entitled to five votes for each such share.with a cashless exercise provision.
On August 12, 2020, the Company guaranteed a 9.15 million RON (equivalent to approximately US$2.0M) promissory note issued by both of its subsidiaries, Power Clouds S.R.L., and F.R.A.N. Energy Investment SRL two Romanian companies to OTP Bank in Romania, which is secured in first position against the Romanian solar parks and customer contracts held, accruing interest annually at a rate of ROBOR 3M + 3.3% and having a term of 10 years.
Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act. Accordingly, we have omitted certain information called for by this Item as permitted by applicable scaled disclosure rules.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2019March 31, 2020 and 2018.2019. You should read this discussion and analysis together with our Condensed Consolidated Financial Statements and related notes and the other financial information included elsewhere in the registration statement. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in the registration statement, our actual results may differ materially from those anticipated in these forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”
Overview
We are a global independent power producer (“IPP”). We develop, own and operate solar PV parks that connect directly to national power grids. Our current revenue streams are generated from long-term, government-mandated, fixed price supply contracts with terms of between 15-20 years in the form of government Feed-In-Tariffs (“FiT”) and other energy incentives. Our current contracts deliver annual revenues, of which approximately 75% are generated from these sources with the remaining 25% deriving from revenues generated under contracted Power Purchase Agreements (“PPA”) with other energy operators and by sales to the general energy market in the countries we operate. In general, these contracts generate an average sales rate for every kWh of green energy produced by our solar parks. Our current focus is on the European solar PV market. However, we are also actively exploring opportunities in other countries outside of Europe.
The Company is not a manufacturer of solar panels or other related equipment but generates 100% of its revenues from energy sales under long term contracts as described above. By design, we currently focus exclusively on energy generation and as a result, we are technology agnostic and can therefore customize our solar parks based on local environmental and regulatory requirements and continue to take advantage of falling component prices over time.
Overall, the current proforma annual revenues contracted by our owned projects is approximately $5.8$4.3 million, which delivers an annual proforma EBITDA of approximately $3.25$3.5 million when the parks are fully operational. Underlying group annual EBITDA is a non-GAAP measure. We measure EBITDA as net income and addback interest, taxes, depreciation and amortization expense.
We use annual contracted revenues as a key metric in our financial management of the business as we feel it better reflects the long-term stability of operations. Annual contracted revenues is defined as the estimated future revenue based on the remaining term, price and estimated production of the offtake contract of the solar park. It must be noted that the actual revenues reported by the Company in a particular year may be lower than the annual contracted revenues because not all parks may be revenue generating for the full year in their first year of operation, and also to allow for timing of acquisitions that take place throughout the financial year.
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Our goal is to grow our asset base and within our operations provide sufficient liquidity for recurring growth capital expenditures and general purposes. We expect to achieve this growth and deliver returns by focusing on the following initiatives:
Value-Oriented Acquisitions:
We focus on sourcing off-market transactions at more attractive valuations than auctiontender processes. We believe that targeting smaller solar projects 1MW to 20 MWs and working withinwith in country developer partners allows us to acquire high quality assets at attractive relative values. We continue to develop an acquisition pipeline across our scope of operations.
Margin Enhancements:
We believe there is significant opportunity to enhance our cash flow through optimizing the performance of our existing assets. As our recently announced long-term service agreementsagreement with BayWa r.e. and AlsoEnergy,, such agreements provide reduction in operations and maintenance expense, provide 24/7 monitoring of our assets and increase revenue through deployment of technology.
Factors that Significantly Affect our Results of Operations and Business
We expect the following factors will affect our results of operations:
Offtake contracts
Our revenue is primarily a function of the volume of electricity generated and sold by our renewable energy facilities as well as, where applicable, the sale of green energy certificates and other environmental attributes related to energy generation. Our current portfolio of renewable energy facilities is generally contracted under long-term FiT program or PPAs with creditworthy counterparties. As of September 30, 2019,March 31, 2020, the weighted average remaining life of our FiT and PPAs was 13 years. Pricing of the electricity sold under these FiT and PPAs is generally fixed for the duration of the contract, although some of our PPAs have price escalators based on an index (such as the consumer price index) or other rates specified in the applicable PPA.
We also generate RECs as we produce electricity. RECs are accounted for as governmental incentives and are considered operational revenue as part of the solar facilities. These RECs are currently sold pursuant to agreements with third parties and the arrangementsrevenue is recognized as the underlying electricity is generated.
Project operations and generation availability
Our revenue is a function of the volume of electricity generated and sold by our renewable energy facilities. The volume of electricity generated and sold by our renewable energy facilities during a particular period is impacted by the number of facilities that have achieved commercial operations, as well as both scheduled and unexpected repair and maintenance required to keep our facilities operational.
The costs we incur to operate, maintain and manage our renewable energy facilities also affect our results of operations. Equipment performance represents the primary factor affecting our operating results because equipment downtime impacts the volume of the electricity that we are able to generate from our renewable energy facilities. The volume of electricity generated and sold by our facilities will also be negatively impacted if any facilities experience higher than normal downtime as a result of equipment failures, electrical grid disruption or curtailment, weather disruptions, or other events beyond our control.
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Seasonality and resource variability
The amount of electricity produced and revenues generated by our solar generation facilities is dependent in part on the amount of sunlight, or irradiation, where the assets are located. As shorter daylight hours in winter months result in less irradiation, the electricity generated by these facilities will vary depending on the season. Irradiation can also be variable at a particular location from period to period due to weather or other meteorological patterns, which can affect operating results. As the majority of our solar power plants are located in the Northern Hemisphere (Europe) we expect our current solar portfolio’s power generation to be at its lowest during the first and fourth quarters of each year. Therefore, we expect our first and fourth quarter solar revenue to be lower than in other quarters. As a result, on average, each solar park generates approximately 15% of its annual revenues in Q1 every year, 35% in each of Q2 and Q3, and the remaining 15% in Q4. Our costs are relatively flat over a year, and so we will always report lower profits in Q1 and Q4 as compared to the middle of the year.
Interest rates on our debt
Interest rates on our senior debt are mostly fixed for the full term of the finance at low interest rates ranging from 1.8% to 4.2%6.3%. The relative certainty of cash flows and the fixed nature of the senior debt payments provide sufficient coverage ratios. Additionally, our senior financing is project specific with no cross-collateralization and with no recourse to the parent. In this environment all free cash flows therefore are available to cover corporate costs and for reinvestment in new projects.
In addition to the project specific senior debt, we use a small amount of promissory notes that reduces, and in some cases eliminates, the requirement for us to provide equity in the acquisition of the projects. As of September 2019, 88%March 31, 2020, 91% of our total liabilitiesdebt was project related debt.
Cash distribution restrictions
In certain cases, we obtain project-level or other limited or non-recourse financing for our renewable energy facilities which may limit our ability to distribute funds to the parent company, Alternus Energy Inc. for corporate operational costs. These limitations typically require that the project-level cash is used to meet debt obligations and fund operating reserves of the operating subsidiary. These financing arrangements also generally limit our ability to distribute funds generated from the projects if defaults have occurred or would occur with the giving of notice or the lapse of time, or both.
Renewable energy facility acquisitions and investments
Our long-term growth strategy is dependent on our ability to acquire additional renewable power generation assets. This growth is expected to be comprised of additional acquisitions across our scope of operations both in our current focus countries and new countries.
Renewable power has been one of the fastest growing sources of electricity generation globally over the past decade. We expect the renewable energy generation segment in particular to continue to offer growth opportunities driven by:
| the continued reduction in the cost of solar and other renewable energy technologies, which we believe will lead to grid parity in an increasing number of markets; |
| distribution charges and the effects of an aging transmission infrastructure, which enable renewable energy generation sources located at a customer’s site, or distributed generation, to be more competitive with, or cheaper than, grid-supplied electricity; |
| the replacement of aging and conventional power generation facilities in the face of increasing industry challenges, such as regulatory barriers, increasing costs of and difficulties in obtaining and maintaining applicable permits, and the decommissioning of certain types of conventional power generation facilities, such as coal and nuclear facilities; |
| the ability to couple renewable energy generation with other forms of power generation and/or storage, creating a hybrid energy solution capable of providing energy on a 24/7 basis while reducing the average cost of electricity obtained through the system; |
21 |
|
Table of Contents |
☐ | the desire of energy consumers to lock in long-term pricing for a reliable energy source; |
| renewable energy generation’s ability to utilize freely available sources of fuel, thus avoiding the risks of price volatility and market disruptions associated with many conventional fuel sources; |
| environmental concerns over conventional power generation; and |
| government policies that encourage development of renewable power, such as country, state or provincial renewable portfolio standard programs, which motivate utilities to procure electricity from renewable resources. |
Access to capital markets
Our ability to acquire additional clean power generation assets and manage our other commitments will likely be dependent on our ability to raise or borrow additional funds and access debt and equity capital markets, including the equity capital markets, the corporate debt markets and the project finance market for project-level debt. We accessed the capital markets several times in 20182019 and 2019,2020, including in connection with long-term project debt, and corporate loans and equity. Limitations on our ability to access the corporate and project finance debt and equity capital markets in the future on terms that are accretive to our existing cash flows would be expected to negatively affect our results of operations, business and future growth.
Foreign exchange
Our operating results are reported in United States Dollars. Our current projects revenue and expenses are generated in other currencies, including the Euro, and the Romanian LEI.RON. This mix may continue to change in the future if we elect to alter the mix of our portfolio within our existing markets or elect to expand into new markets. In addition, our investments (including intercompany loans) in renewable energy facilities in foreign countries are exposed to foreign currency fluctuations. As a result, we expect our revenues and expenses will be exposed to foreign exchange fluctuations in local currencies where our renewable energy facilities are located. To the extent we do not hedge these exposures, fluctuations in foreign exchange rates could negatively impact our profitability and financial position.
EPCEngineer, Procurement and Construction costs for Solar Projects
EPC costs for solar projects include the costs of construction, connection and procurement. The most significant contributor to EPC costs is the cost of components such as modules, inverters and mounting systems. Our supplier and technology, agnosticism, our strong supply chain management and our strong relationships with equipment suppliers have enabled us to historically purchase equipment at relatively competitive technical performance, prices, terms and conditions.
In recent years, the prices of modules, inverters and mounting systems have decreased as a result of oversupply and improving technology. As the costs of our components have decreased, our solar parks have become more cost competitive and our profitability has increased. As a result, our solar parks have begun to offer electricity at increasingly competitive rates, which has increased the attractiveness of our investment return and our revenue. We expect the cost of components will continue to gradually decrease. Moreover, newly commercialized PV technologies are expected to further drive down EPC costs and increase the energy output of PV systems, which will further increase the competitiveness of our solar parks and allow solar energy to achieve grid parity in more and more markets.
Key Metrics
Operating Metrics
We regularly review a number of operating metrics to evaluate our performance, identify trends affecting our business, formulate financial projections and make certain strategic decisions. We consider a solar park operating when it has achieved connection and begins selling electricity to the energy grid.
22 |
Table of Contents |
Operating Nameplate capacity
We measure the electricity-generating production capacity of our renewable energy facilities in nameplate capacity. We express nameplate capacity in direct current (“DC”), for all facilities. The size of our renewable energy facilities varies significantly among the assets comprising our portfolio.
We believe the combined nameplate capacity of our portfolio is indicative of our overall production capacity and period to period comparisons of our nameplate capacity are indicative of the growth rate of our business. The table below outlines our operating renewable energy facilities as of June 30, 2019,March 31, 2020, and December 31, 2018.2019.
|
| As of September 30, |
| As of December 31, |
|
| As of March 31, |
| As of December 31, |
| ||||||
MWs (DC) Nameplate Capacity by Country |
| 2019 |
| 2018 |
|
| 2020 |
|
| 2019 |
| |||||
Romania |
| 6.1 |
| 6.1 |
|
| 6.1 |
| 6.1 |
| ||||||
Italy |
| 7.9 |
| 2.9 |
|
| 7.9 |
| 7.9 |
| ||||||
Germany |
|
| 1.3 |
|
|
| 1.1 |
|
|
| 1.4 |
|
|
| 1.4 |
|
Netherlands |
|
| 11.8 |
|
|
| 11.8 |
| ||||||||
Total |
|
| 15.3 |
|
|
| 10.1 |
|
|
| 27.2 |
|
|
| 27.2 |
|
In addition to the above, as of September 30, 2019, we own an additional 13.7MW of projects that are still under construction.
Megawatt hours sold
Megawatt hours (“MWh”) sold refers to the actual volume of electricity sold by our renewable energy facilities during a particular period. We track kWh sold as an indicator of our ability to realize cash flows from the generation of electricity at our renewable energy facilities. Our kWh sold for renewable energy facilities for the ninethree months ended SeptemberMarch 31, 2020 and 2019, and 2018, were as follows:
kWhs by Country |
| 2019 |
| 2018 |
| |||||||||||
MWhs by Country |
| 2020 |
|
| 2019 |
| ||||||||||
Romania |
| 5,346,886 |
| 5,912,316 |
|
| 1,584.2 |
| 1,074.6 |
| ||||||
Italy |
| 4,508,251 |
| 1,816,717 |
|
| 1,058.1 |
| 528.8 |
| ||||||
Germany |
|
| 933,446 |
|
|
| - |
|
|
| 169.4 |
|
|
| 108.4 |
|
Netherlands |
|
| 1,631.9 |
|
|
| - |
| ||||||||
Total |
|
| 10,788,583 |
|
|
| 7,729,033 |
|
|
| 4,443.6 |
|
|
| 1,711.8 |
|
Our kWh sold for renewable energy facilities for the three months ended September 2019 and 2018, were as follows:
kWhs by Country |
| 2019 |
|
| 2018 |
| ||
Romania |
|
| 2,279,986 |
|
|
| 2,419,110 |
|
Italy |
|
| 1,931,720 |
|
|
| 744,149 |
|
Germany |
|
| 435,012 |
|
|
| - |
|
Total |
|
| 4,646,718 |
|
|
| 3,163,259 |
|
Consolidated Results of Operations
The following table illustrates the consolidated results of operations for the three months ended September 30,March 31, 2020 and 2019, and 2018, and for the nine months ended September 30, 2019 and 2018::
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
|
| For the Three Months Ended March 31 |
| ||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
| 2020 |
|
| 2019 |
| |||||||||
Revenues |
| $ | 993,005 |
| $ | 811,738 |
| $ | 2,296,964 |
| $ | 2,222,437 |
|
| $ | 697,703 |
| $ | 370,131 |
| ||||
Cost of revenues |
|
| (245,193 | ) |
|
| (374,409 | ) |
|
| (563,779 | ) |
|
| (1,078,433 | ) |
|
| (326,973 | ) |
|
| (157,008 | ) |
Gross Profit |
| 747,812 |
| 437,329 |
| 1,733,185 |
| 1,144,004 |
|
| 370,730 |
| 213,123 |
| ||||||||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Selling, general and administrative |
| 926,514 |
| 225,330 |
| 2,978,418 |
| 774,265 |
|
| 868,866 |
| 542,557 |
| ||||||||||
Loss on disposal of asset |
| - |
| 351,723 |
| - |
| 351,723 |
| |||||||||||||||
Depreciation and amortization |
|
| 344,980 |
|
|
| 152,079 |
|
|
| 831,184 |
|
|
| 541,314 |
|
|
| 509,332 |
|
|
| 167,470 |
|
Total Operating Expenses |
| 1,271,494 |
| 729,132 |
| 3,809,602 |
| 1,667,302 |
|
| 1,378,198 |
| 710,027 |
| ||||||||||
Loss from Operations |
| (523,682 | ) |
| (291,803 | ) |
| (2,076,417 | ) |
| (523,298 | ) |
| (1,007,468 | ) |
| (496,904 | ) | ||||||
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Interest expense |
| (563,812 | ) |
| (140,626 | ) |
| (2,478,521 | ) |
| (987,643 | ) |
| (664,641 | ) |
| (887,375 | ) | ||||||
Other income |
| - |
| - |
| (132,976 | ) |
| - |
| ||||||||||||||
Gain on bargain purchase |
|
| (87,442 | ) |
|
| - |
|
|
| 4,084,821 |
|
|
| - |
| ||||||||
Total other income (expense) |
|
| (651,254 | ) |
|
| (140,626 | ) |
|
| 1,473,324 |
|
|
| (987,643 | ) |
|
| (664,641 | ) |
|
| (887,375 | ) |
(Loss) Before Provision for Income Taxes |
| (1,174,936 | ) |
| (432,429 | ) |
| (603,093 | ) |
| (1,510,941 | ) |
| (1,672,109 | ) |
| (1,384,279 | ) | ||||||
Provision for Income Taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Net Loss |
| $ | (1,174,936 | ) |
| $ | (432,429 | ) |
| $ | (603,093 | ) |
| $ | (1,510,941 | ) |
| $ | (1,672,109 | ) |
| $ | (1,384,279 | ) |
Table of Contents |
Major Components of Our Results of Operations
For the three months ended September 30, 2019March 31, 2020 compared to September 30, 2018 and the nine months ended September 30, 2019 compared to September 30, 2018.March 31, 2019.
We generate our revenue from the sale of electricity from our solar parks. The revenue is either from a Feed in Tariff (Fit) program, Power Purchase Agreement (PPA), or Renewable Energy Credit (RECs)
Operating Revenues, net
Operating revenues, net for the for the three months ended September 30,March 31, 2020 and 2019 and 2018, and for the nine months ended September 30, 2019 and 2018 were as follows:
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
|
|
| For the Three Months Ended March 31, |
|
|
| ||||||||||||||||||||||||
Net Revenue, by Country |
| 2019 |
| 2018 |
| Change |
| 2019 |
| 2018 |
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||||||||||
Italy |
| $ | 644,132 |
| $ | 273,478 |
| $ | 370,654 |
| $ | 1,397,061 |
| $ | 772,429 |
| $ | 624,632 |
|
| $ | 297,665 |
| $ | 160,270 |
| $ | 137,395 |
| |||||||
Romania |
| 298,674 |
| 538,260 |
| (239,586 | ) |
| 777,237 |
| 1,450,008 |
| (672,771 | ) |
| 182,665 |
| 187,639 |
| (4,974 | ) | |||||||||||||||
Germany |
|
| 50,199 |
|
|
| - |
|
|
| 50,199 |
|
|
| 122,666 |
|
|
| - |
|
|
| 122,666 |
|
|
| 20,290 |
|
|
| 22,222 |
|
|
| (1,932 | ) |
Netherlands |
|
| 197,083 |
|
|
| - |
|
|
| 197,083 |
| ||||||||||||||||||||||||
Total |
| $ | 993,005 |
|
| $ | 811,738 |
|
| $ | 181,267 |
|
| $ | 2,296,964 |
|
| $ | 2,222,437 |
|
| $ | 74,527 |
|
| $ | 697,703 |
|
| $ | 370,131 |
|
| $ | 327,572 |
|
Net revenue increased for the three and nine months ended 20192020 compared to 2018.2019. The increase was due to the new project acquisitions in ItalyNetherlands which occurred at the end of December 2019, and offset by the lower productionacquisition of Italian assets which occurred in Romania. The lower production in Romania was due to the inverters at oneApril of solar parks not being operational in January of 2019. This was partially offset by Germany revenues which commenced in 2019.
|
| For the Three Months Ended September 30, |
|
|
|
| For the Nine Months Ended September 30, |
|
|
| ||||||||||||||
Net Revenue, by Offtake Type |
| 2019 |
|
| 2018 |
|
| Change |
|
| 2019 |
|
| 2018 |
|
| Change |
| ||||||
Feed in Tariff |
| $ | 694,331 |
|
| $ | 273,478 |
|
| $ | 420,853 |
|
| $ | 1,519,727 |
|
| $ | 772,429 |
|
| $ | 747,298 |
|
Green Certificates |
|
| 227,157 |
|
|
| 194,519 |
|
|
| 32,638 |
|
|
| 522,957 |
|
|
| 658,183 |
|
|
| (135,226 | ) |
Energy Offtake Agreements |
|
| 71,517 |
|
|
| 343,741 |
|
|
| (272,224 | ) |
|
| 254,280 |
|
|
| 791,825 |
|
|
| (537,545 | ) |
Total |
| $ | 993,005 |
|
| $ | 811,738 |
|
| $ | 181,267 |
|
| $ | 2,296,964 |
|
| $ | 2,222,437 |
|
| $ | 74,527 |
|
Cost of Revenues
We capitalize the equipment costs, development costs, engineering and construction related costs. Our cost of revenues with regards to our IPP solar parks primarily is a result of the asset management, operations and maintenance, as well as tax, insurance, and lease expenses. Certain economic incentive programs, such as FiT regimes, generally include mechanisms that ratchet down incentives over time. As a result, we seek to connect our IPP solar parks to the local power grids and commence operations in a timely manner to benefit from more favorable existing incentives. Therefore, we generally seek to make capital investments during times when incentives are most favorable.
Cost of revenues for the three months ended September 30,March 31, 2020 and 2019 and 2018, and for the nine months ended September 30, 2019 and 2018 were as follows:
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
|
|
| For the Three Months Ended March 31, |
|
|
| ||||||||||||||||||||||||
Cost of Revenue, by Country |
| 2019 |
| 2018 |
| Change |
| 2019 |
| 2018 |
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||||||||||
Italy |
| $ | 98,052 |
| $ | 62,566 |
| $ | 35,486 |
| $ | 172,079 |
| $ | 126,828 |
| $ | 45,251 |
|
| $ | 130,684 |
| $ | 13,432 |
| $ | 117,252 |
| |||||||
Romania |
| 147,141 |
| 311,843 |
| (164,702 | ) |
| 391,700 |
| 951,605 |
| (559,905 | ) |
| 90,831 |
| 143,576 |
| (52,745 | ) | |||||||||||||||
Germany |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| 99 |
| - |
| 99 |
| |||||
Netherlands |
|
| 105,359 |
|
|
| - |
|
|
| 105,359 |
| ||||||||||||||||||||||||
Total |
| $ | 245,193 |
|
| $ | 374,409 |
|
| $ | (129,216 | ) |
| $ | 563,779 |
|
| $ | 1,078,433 |
|
| $ | (514,654 | ) |
| $ | 326,973 |
|
| $ | 157,008 |
|
| $ | 169,965 |
|
24 |
Table of Contents |
Cost of revenue decreased by $129,216 for the three months ended September 30, 2019, compared to 2018. This was due to reduction of operating costs in the Romania plant specific to operations and maintenance cost. Gross profit in Italy was significantly higher than Romania due to the fact that in 2018 Romania had higher costs associated with the sale of energy and green certificates, which decreased the profit margin. There were no operating costs in Germany for the first quarter of 2019 as the projects were recently commissioned and the EPC was still responsible for the operating costs.
Cost of revenue decreasedincreased by $514,654$169,965 for the ninethree months ended September 30, 2019,March 31, 2020, compared to 2018. This2019. The increase was due to reductionthe new project acquisitions in Netherlands which occurred at the end of operating costs in the Romania plant specific to operations and maintenance cost. Gross profit in Italy was significantly higher than Romania due to the fact that in 2018 Romania had higher costs associated with the sale of energy and green certificates, which decreased the profit margin. There were no operating costs in Germany for the nine months ended September 30,December 2019, as the projects were recently commissioned and the EPC was still responsible for the operating costs.acquisition of Italian assets which occurred in April of 2019.
Gross profit
Gross profit is equal to revenue less cost of revenues. Our gross profit depends on a combination of factors, including primarily our revenue model, the geographic distribution of the solar parks, the mix of electricity sold during the reporting period, the costs of services outsourced to third-party contractors and management costs.
Gross profit for the three months ended September 30,March 31, 2020 and 2019 and 2018 and for the nine months ended. September 30, 2019 and 2018 were as follows:
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
|
|
| For the Three Months Ended March 31, |
|
|
| ||||||||||||||||||||||||
Gross Profit, by Country |
| 2019 |
| 2018 |
| Change |
| 2019 |
| 2018 |
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||||||||||
Italy |
| $ | 546,080 |
| $ | 210,912 |
| $ | 335,168 |
| $ | 1,224,982 |
| $ | 645,601 |
| $ | 579,381 |
|
| $ | 166,981 |
| $ | 146,838 |
| $ | 20,143 |
| |||||||
Romania |
| 151,533 |
| 226,417 |
| (74,884 | ) |
| 385,537 |
| 498,403 |
| (112,866 | ) |
| 91,834 |
| 44,063 |
| 47,771 |
| |||||||||||||||
Germany |
|
| 50,199 |
|
|
| - |
|
|
| 50,199 |
|
|
| 122,666 |
|
|
| - |
|
|
| 122,666 |
|
|
| 20,191 |
|
|
| 22,222 |
|
|
| (2,031 | ) |
Netherlands |
|
| 91,724 |
|
|
| - |
|
|
| 91,724 |
| ||||||||||||||||||||||||
Total |
| $ | 747,812 |
|
| $ | 437,329 |
|
| $ | 310,483 |
|
| $ | 1,733,185 |
|
| $ | 1,144,004 |
|
| $ | 589,181 |
|
| $ | 370,730 |
|
| $ | 213,123 |
|
| $ | 157,607 |
|
Gross profit increased for the three months ended September 2019 by $310,483March 31by $157,607 compared to 2018, which2019. The increase was due to the new project acquisitions in Netherlands which occurred at the end of December 2019, and the acquisition of Italian assets which occurred in April of 2019. Romania gross profit was higher sales volume and lower cost of revenue in Italy as a resultwell, due to that fact the part of the new acquisition. In January ofsystem was down in 2019, we executed a new operations and maintenance agreement with Baywa, which lowered our operations and maintenance cost in Romania. In 2018 Romania had higher costs associated with2020 the sale of energy and green certificates, which decreased the profit margin. There were no operating costs in Germany for the three months ended as the projects were recently commissioned and the EPCplant was still responsible for the operating costs.fully operational.
Gross profit increased for the nine months ended September 30, 2019 by $589,181 compared to 2018, which was due to higher sales volume and lower cost of revenue in Italy as a result of the new acquisition. In January of 2019, we executed a new operations and maintenance agreement with Baywa, which lowered our operations and maintenance cost in Romania. In 2018 Romania had higher costs associated with the sale of energy and green certificates, which decreased the profit margin. There were no operating costs in Germany for the nine months ended September 2019 as the projects were recently commissioned and the EPC was still responsible for the operating costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended September 30,March 31, 2020 and 2019 and 2018, and for the nine months ended September 30, 2019 and 2018 were as follows:
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
|
|
|
| For the Three Months Ended March 31, |
|
|
| |||||||||||||||||||||||
|
| 2019 |
| 2018 |
| Change |
| 2019 |
| 2018 |
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||||||||||
Selling, General & Admin Expenses |
|
| 926,514 |
|
|
| 225,330 |
|
|
| 701,184 |
|
| 2,978,418 |
|
|
| 774,265 |
|
|
| 2,204,153 |
|
| 868,886 |
|
|
| 542,557 |
|
|
| 326,329 |
| ||
Total |
| $ | 926,514 |
|
| $ | 225,330 |
|
| $ | 701,184 |
| $ | 2,978,418 |
|
| $ | 774,265 |
|
| $ | 2,204,153 |
| $ | 868,886 |
|
| $ | 542,557 |
|
| $ | 326,329 |
|
Selling, general and administrative expenses increased from for the three months ended 2019March 31, 2020 compared to 2018.2019. This was mainly due to additional stock compensation of $134,073, and accounting and consultinglegal fees of $272,066 related to our audits and Form 10 filings.filings, of approximately $150,000 In addition, in the fourth quarter of 2018, the Companywe hired afour additional full time General Counsel and Chief Financial Officer.employees in Ireland that were not there as of March 31, 2019, which totaled approximately 59,000.
Selling, general and administrative expenses increased from for the nine months ended 2019 compared to 2018. This was mainly due to additional stock compensation of $786,262, and accounting and consulting fees of $659,015 related to our audits and Form 10 filings. In addition, in the fourth quarter of 2018, the Company hired a full time General Counsel and Chief Financial Officer.
Acquisition Costs
As discussed in Note 4. Acquisitionsand Dispositions to our consolidated financial statements, the Company acquired four SPVs in April of 2019. These projects were considered business combinations under GAAP and therefore the acquisition costs were expensed and not capitalized. The expenses were included in selling general and administrative expenses.
Acquisition costs were $73,703 for the nine months ended September 30, 2019, and consisted, primarily of advisory fees and professional fees for legal and accounting services. There were no acquisition costs incurred for the three months ended September 30, 2019. There were no acquisition costs incurred for the three or nine months ended September 30, 2018.
Depreciation, Accretion and Amortization Expense
Depreciation, accretion and amortization expense increased by $192,901$341,861 for the three months ended September 30, 2019,March 31, 2020, compared to 2018,2019. The increase was due to the new project acquisitions in Netherlands which occurred at the end of December 2019, and the acquisition of Italian assets which occurred in April of 2019
25 |
Table of Contents |
Interest Expense, Net
|
| For the Three Months Ended March 31, |
|
|
|
| ||||||
|
| 2020 |
|
| 2019 |
|
| Change |
| |||
Interest Expense |
|
| (664,641 | ) |
|
| (887,374 | ) |
|
| (222,733 | ) |
Total |
| $ | (664,641 | ) |
| $ | (887,375 | ) |
| $ | (222,733 | ) |
Interest expense decreased for the three months ended March 31, 2020 compared to 2019, primarily as a result of incremental depreciation, accretion and amortization associated with the acquisition of the Italian renewable energy assetsadditional interest in the second quarter of 2019.
Depreciation, accretion and amortization expense increased by $289,870 for the nine months ended September 30, 2019 compared to 2018, primarily as a result of incremental depreciation, accretion and amortization associated with the acquisition of the Italian renewable energy assets in the second quarter of 2019.
Interest Expense, Net
|
| For the Three Months Ended September 30, |
|
|
|
| For the Nine Months Ended September 30, |
|
|
|
| |||||||||||||
|
| 2019 |
|
| 2018 |
|
| Change |
|
| 2019 |
|
| 2018 |
|
| Change |
| ||||||
Interest Expense |
|
| (563,812 | ) |
|
| (140,626 | ) |
|
| (423,186 | ) |
|
| 2,478,521 |
|
|
| 987,643 |
|
|
| 1,490,878 |
|
Total |
| $ | (563,812 | ) |
| $ | (140,626 | ) |
| $ | (423,186 | ) |
| $ | 2,478,521 |
|
| $ | 987,643 |
|
| $ | 1,490,878 |
|
Interest expense increased for the three months ended September 30, 2019 compared to, 2018, primarily as a result of interest expenses associated with warrant issuance for debt of $98,228. In addition, interest expense increased due to interest on Italy acquisition which includesat 12%, and third party commission on financing.
Interest expense increased for the nine months ended September 30, 2019, compared to 2018, primarily as a result of interest expenses associated with warrant issuance for debt of $261,172. In addition, interest expense increased due to interest on Italy acquisition, which includes third party commission on financing.
Bargain Purchase Gain on Acquisition of Renewable Energy Facilities
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 5th 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.
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 the seller 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 solar park, Alternus Energy signed a letter of intent with the seller 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. Further, at the time of sale, Alternus has no side agreement or other commitment to purchase any assets from the seller. The difference between the bargain purchase gain at acquisition and the amount on the income statement is due to foreign currency translation.
|
| Total |
| |
Cost of acquisitions |
|
|
| |
Cash paid for assets |
| $ | 6,131,004 |
|
Total acquisition cost |
| $ | 6,131,004 |
|
|
|
|
|
|
Fair value of assets acquired |
|
|
|
|
Investment in energy property |
|
| 9,939,414 |
|
Net working capital acquired |
|
| 384,397 |
|
Asset retirement liability |
|
| (65,114 | ) |
|
| $ | 10,258,697 |
|
|
|
|
|
|
Gain on bargain purchase |
| $ | 4,127,693 |
|
Liquidity and Capital Resources
Capital Resources
A key element to our financing strategy is to raise the majority of our debt in the form of project specific non-recourse borrowings at our subsidiaries with investment grade metrics. Going forward, we intend to primarily finance acquisitions or growth capital expenditures using long-term non-recourse debt that fully amortizes within the asset’s contracted life, as well as retained cash flows from operations and issuance of equity securities through public markets.
The following table summarizes the total capitalization and debt as of September 30, 2019March 31, 2020 and December 31, 2018:2019:
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
Short term line of credit |
| $ | 68,888 |
| $ | 73,560 |
|
| $ | 34,123 |
| $ | 35,120 |
| ||
Promissory notes related parties |
| 104,491 |
| 207,753 |
|
| - |
| 48,821 |
| ||||||
Convertible notes related parties |
| 291,540 |
| 284,000 |
|
| 291,540 |
| 291,540 |
| ||||||
Senior secured debt |
| 9,275,110 |
| 10,192,603 |
|
| 19,243,800 |
| 19,575,794 |
| ||||||
Promissory notes |
| 13,235,466 |
| 13,278,803 |
|
| 15,191,303 |
| 15,478,536 |
| ||||||
Convertible promissory notes |
|
| 1,659,867 |
|
|
| 1,097,289 |
|
|
| 2,430,140 |
|
|
| 2,169,401 |
|
Gross debt |
| 24,635,362 |
| 25,134,007 |
|
| 37,190,906 |
| 37,599.212 |
| ||||||
Debt discount |
|
| (468,224 | ) |
|
| (303,563 | ) |
|
| (444,977 | ) |
|
| (784,130 | ) |
Net debt |
| 24,167,138 |
| 24,830,444 |
|
| 36,745,929 |
| 36,815,082 |
| ||||||
Less current maturities |
|
| (13,779,018 | ) |
|
| (14,510,204 | ) |
|
| (23,107,839 | ) |
|
| (22,705,665 | ) |
Long Term Debt, net of current maturities |
| $ | 10,388,120 |
|
| $ | 10,320,240 |
|
| $ | 13,638,090 |
|
| $ | 14,109,418 |
|
Liquidity Position
Given the current level of cash resources, receivables and long-term supply contracts, management believes the Company's current level of operations is sufficientinsufficient to mitigate the uncertainty of The Company's ability to continue as a going concern. The working capital deficit for 20192020 and 20182019 is largely related to the acquisition of long-term assets that are planned to be refinanced with long term debt during 2019. 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. The new financing will recapitalize the existing short term debt and eliminate the working capital deficit.2020.
As a result, the
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.
The following table summarizes corporate liquidity and available capital as of September 30, 2019March 31, 2020 and December 31, 2018:2019:
|
| As of September 30, |
|
| As of December 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
Cash and cash equivalents |
|
| 822,639 |
|
|
| 1,026,533 |
|
Restricted cash for future acquisitions |
|
| - |
|
|
| 8,857,966 |
|
Available Capital |
| $ | 822,639 |
|
| $ | 9,884,499 |
|
|
| As of March 31, |
|
| As of December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Cash and cash equivalents |
|
| 765,679 |
|
|
| 1,076,995 |
|
Restricted cash |
|
| 342,729 |
|
|
| 349,434 |
|
Total cash, cash equivalents, and restricted cash |
| $ | 1,108,408 |
|
| $ | 1,426,429 |
|
26 |
Table of Contents |
The cash wasis restricted for debt service reserve funds at the project level.
Our unaudited condensed consolidated financial statements as of March 31, 2020 and 2019 identify the existence of certain conditions that raise substantial doubt about our ability to continue as a going concern for twelve months from the issuance of this report.
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As reflected in the accompanying financial statements, the Company had net loss of ($1,672,109) and ($1,384,279) for the periods ended March 31, 2020 and 2019, respectively.
The Company had accumulated shareholders’ equity of $2,107,392 and $3,878,161 as of March 31, 2020 and December 31, 2019, respectively, and a working capital deficit of $25,266,292 and $23,772,002 as of March 31, 2020 and December 31, 2019, respectively. At March 31, 2020, the Company had $765,679 of cash on hand.
Our operating revenues are insufficient to fund our operations and our assets already are pledged to secure our indebtedness to various third party secured creditor, respectively. The unavailability of additional financing could require us to delay, scale back or terminate our acquisition efforts as well as our own business activities, which would have a material adverse effect on the Company and its viability and prospects.
The terms of our indebtedness, including the covenants and the dates on which principal and interest payments on our indebtedness are due, increases the risk that we will be unable to continue as a going concern. To continue as a going concern over the next twelve months from the date these financial statements are issued, we must make payments on our debt as they come due and comply with the covenants in the agreements governing our indebtedness or, if we fail to do so, to (i) negotiate and obtain waivers of or forbearances with respect to any defaults that occur with respect to our indebtedness, (ii) amend, replace, refinance or restructure any or all of the 5MWsagreements governing our indebtedness, and/or (iii) otherwise raise additional capital. However, we cannot provide any assurances that we will be successful in accomplishing any of project in Italy that occurred in April of 2019.these plans.
Financing Activities
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.
In May of 2019,January 2020, 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 CorporationCompany entered into a Securities Purchase Agreement with another accredited investor (the “Lender”), in connection with an investment of $500,000,$250,000, and pursuant to which the CorporationCompany 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$0.20 per share.
On September 30, 2015,In January of 2020, ALTN HoldCo UG entered into a construction financing loan with DKB Bank in Germany. This relates to the construction of 6 photovoltaic installations in Germany with an interest rate of 1.74% and a term of one year. As of March 31, 2020 there was $483,183 drawn on this loan. The total loan commitment is approximately $3.1M
In February of 2020, the Corporation entered into a Securities Purchase Agreement with another accredited investor (the “Lender”), in connection with an investment of $105,000, and pursuant to which the Company issued a convertible loanpromissory 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 fixed65% of the lowest trading price of $0.20the Company's Class A Common Stock for the last 15 trading days prior to conversion, and accruing 10% interest 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,annum, with a floor price of $0.20 per share and a maturity date of December 31, 2019. As of September 30, 2019, the remaining principal amount was $244,800.February 10, 2021.
Debt Service Obligations
We remain focused on refinancing near-term facilities on acceptable terms and maintaining a manageable maturity ladder. We do not anticipate material issues in addressing our borrowings through 2020 on acceptable terms and expect to be able to do so opportunistically based on the prevailing interest rate environment.
27 |
Table of Contents |
The aggregate contractual principal payments of long-term debt due after September 30, 2019, including financing lease obligations and excluding amortization of debt discounts, premiums and deferred financing costs, as stated in the financing agreements, are as follows:
Note principal payments next five years and thereafter:
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| Thereafter |
|
| Total |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| Thereafter |
|
| Total |
| ||||||||||||||
Gross debt |
| $ | 14,164,869 |
| $ | 3,979,179 |
| $ | 2,073,586 |
| $ | 248,357 |
| $ | 253,450 |
| $ | 3,915,921 |
| $ | 24,635,362 |
|
| $ | 23,409,856 |
| $ | 1,102,888 |
| $ | 1,108,229 |
| $ | 1,113,219 |
| $ | 1,118,312 |
| $ | 9,338,402 |
| $ | 37,190,906 |
| ||||||||||||
Debt discount |
|
| (385,851 | ) |
|
| (82,373 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (468,224 | ) |
|
| (302,017 | ) |
|
| (142,960 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (444,977 | ) |
Net debt |
| $ | 13,779,018 |
|
| $ | 3,896,806 |
|
| $ | 2,073,586 |
|
| $ | 248,357 |
|
| $ | 253,450 |
|
| $ | 3,915,921 |
|
| $ | 24,167,138 |
|
| $ | 23,107,839 |
|
| $ | 959,928 |
|
| $ | 1,108,229 |
|
| $ | 1,113,219 |
|
| $ | 1,118,312 |
|
| $ | 9,338,402 |
|
| $ | 36,745,929 |
|
Cash Flow Discussion
We use traditional measures of cash flow, including net cash flows from operating activities, investing activities and financing activities to evaluate our periodic cash flow results.
For the NineThree Months Ended September 30, 2019March 31, 2020 compared to September 30, 2018March 31, 2019
The following table reflects the changes in cash flows for the comparative periods:
|
| For the Three Months Ended March 31, |
|
|
| |||||||
|
| 2020 |
|
| 2019 |
|
| Change |
| |||
Net cash used in operating activities |
| $ | (316,567 | ) |
| $ | (133,396 | ) |
| $ | (183,171 | ) |
Net cash used in investing activities |
|
| (518,108 | ) |
|
| (726,267 | ) |
|
| 208,159 |
|
Net cash provided by financing activities |
|
| 535,980 |
|
|
| 119,547 |
|
|
| 416,433 |
|
For the Nine Months Ended September 30, 2019 2018 Change Net cash used in operating activities Net cash (used in) provided by investing activities Net cash provided by (used in) financing activities $ (2,209,300 ) $ (29,492 ) $ (2,179,808 ) (6,949,541 ) 3,179,892 (10,129,433 ) 136,146 (2,649,128 ) 2,785,274
Net Cash (Used In) Provided By Operating Activities
Net cash used in operating activities for the period ended September 30, 2019March 31, 2020 compared to September 30, 2018 decreased2019 increased primarily due to stock compensation that was booked to prepaid expenses that impacted cash flow from operations of 800,207. Also, the Company hadhaving a net loss after adjusting for the bargain purchaseincrease in 2020 of $1.2M$287,830 compared to 2019.
Net Cash Used In Investing Activities
Net cash used in investing activities for the period ended September 30, 2019March 31, 2020 compared to September 30, 2018March 31, 2019 decreased due to investment in the new Italian solar parks. In September of 2018, we sold an Italian asset, which is the positive amount in investing activities.lower cost associated with projects under construction.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the period ended September 30, 2019March 31, 2020 compared to September 30, 2018March 31, 2019 increased due to proceeds from debt issuance associated with the acquisition of the new Italian solar parks. In September of 2018, we sold an Italian asset. Part of the sales proceeds was used to pay down debt associated with the project, which was a majority of the cash outflow in 2018.issuance.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions in certain circumstances that affect amounts reported in our consolidated financial statements and related footnotes. In preparing these consolidated financial statements, we have made our best estimates of certain amounts included in the consolidated financial statements. Application of accounting policies and estimates, however, involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In arriving at our critical accounting estimates, factors we consider include how accurate the estimate or assumptions have been in the past, how much the estimate or assumptions have changed and how reasonably likely such change may have a material impact. Our critical accounting policies are discussed below.
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Business Combinations
We account for business combinations by recognizing in the financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interests in the acquiree at fair value at the acquisition date. We also recognize and measure the goodwill acquired or a gain from a bargain purchase in the business combination and determines what information to disclose to enable users of an entity’s financial statements to evaluate the nature and financial effects of the business combination. In addition, acquisition costs related to business combinations are expensed as incurred. Business combinations is a critical accounting policy as there are significant judgments involved in the allocation of acquisition cost.
When we acquire renewable energy facilities, we allocate the purchase price to (i) the acquired tangible assets and liabilities assumed, primarily consisting of land, plant, and long-term debt, (ii) the identified intangible assets and liabilities, primarily consisting of the value of favorable and unfavorable rate PPAs and REC agreements and the in-place value of market rate PPAs, (iii) non-controlling interests, and (iv) other working capital items based in each case on their fair values in accordance with ASC 805.
We perform the analysis of the acquisition using the various valuation methodologies of replacement cost approach, or an income approach or excess earnings approach. Factors considered by management in its analysis include considering current market conditions and costs to construct similar facilities. We also consider information obtained about each facility as a result of our pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets and liabilities acquired or assumed. In estimating the fair value, we also establish estimates of energy production, current in-place and market power purchase rates, tax credit arrangements and operating and maintenance costs. A change in any of the assumptions above, which are subjective, could have a significant impact on the results of operations.
The allocation of the purchase price directly affects the following items in our consolidated financial statements:
· | The amount of purchase price allocated to the various tangible and intangible assets, liabilities and non-controlling interests on our balance sheet; |
· | The amounts allocated to the value of favorable and unfavorable rate PPAs and REC agreements are amortized to revenue over the remaining non-cancelable terms of the respective arrangement. The amounts allocated to all other tangible assets and intangibles are amortized to depreciation or amortization expense, with the exception of favorable and unfavorable rate land leases and unfavorable rate O&M contracts which are amortized to cost of operations; and |
· | The period of time over which tangible and intangible assets and liabilities are depreciated or amortized varies, and thus, changes in the amounts allocated to these assets and liabilities will have a direct impact on our results of operations. |
Impairment of Renewable Energy Facilities and Intangibles
Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances indicate carrying values may not be recoverable. An impairment loss is recognized if the total future estimated undiscounted cash flows expected from an asset are less than its carrying value. An impairment charge is measured as the difference between an asset’s carrying amount and its fair value. Fair values are determined by a variety of valuation methods, including appraisals, sales prices of similar assets and present value techniques.
Impairment of Goodwill
Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. A reporting unit is either the operating segment level or one level below, which is referred to as a component. The level at which the impairment test is performed requires judgment as to whether the operations below the operating segment constitute a self-sustaining business or whether the operations are similar such that they should be aggregated for purposes of the impairment test.
In assessing goodwill for impairment, we may elect to use a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of our reporting units are less than their carrying amounts. If we determine that it is not more-likely-than-not that the fair value of our reporting units are less than their carrying amounts, we are not required to perform any additional tests in assessing goodwill for impairment. However, if we conclude otherwise or elect not to perform the qualitative assessment, then we are required to perform the quantitative impairment test.
29 |
Table of Contents |
Depreciable lives of Long-lived Assets
We have significant investments in renewable energy facility assets. These assets are generally depreciated on a straight-line basis over their estimated useful lives which range from 15 to 30 years for our solar generation facilities.
The estimation of asset useful lives requires significant judgment. Changes in our estimated useful lives of renewable energy facilities could have a significant impact on our future results of operations. See Note 2. Summary of Significant Accounting Policies to our consolidated financial statements regarding depreciation and estimated service lives of our renewable energy facilities.
Recently Issued Accounting Standards
See Note 2. Summary of Significant Accounting Policies to our consolidated financial statements for both our year end audited financial statements and as updated in our September 30, 2019March 31, 2020 interim financial statements for disclosures concerning recently issued accounting standards.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried outAs of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer and Treasurer (who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure controls and procedures (as defined byin Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act Rules 13a-15(e) or 15d-15(e)) as of September 30, 2019 pursuant to Exchange Act Rule 13a-15.Act). Based upon thatthis evaluation, our PrincipalChief Executive Officer and PrincipalChief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2019 in ensuringdue to the material weakness described below.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company maintains internal controls over financial reporting that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange ActCompany's SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC's rules and forms. This conclusionforms, and that such information is based on findingsaccumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating the internal controls over financial reporting, management recognized that constituted material weaknesses. A material weakness is a deficiency, or a combinationany controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control deficiencies,objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of management, including the Company's principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting such that there is a reasonable possibility that a material misstatementbased on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Company’s interimTreadway Commission (2013). Based on this evaluation, our principal executive officer and principal financial statements willofficer concluded that, as of March 31, 2020 our internal controls over financial reporting were not be prevented or detected on a timely basis.effective at the reasonable assurance level due to the material weakness discussed below.
Table of Contents |
In light of the material weakness described below, we performed additional analysis and other post-closing procedures to ensure that our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this report.
Material Weakness and Related Remediation Initiatives
In performing the above-referenced assessment, management identified the following deficiencies in the design or operation of our internal controls and procedures, which management considers to be material weaknesses:
Insufficient Resources. We have an insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, an effective assessment could not be completed which raises the possibility of a material misstatement of the interim and annual financial statements which could occur and not be prevented or detected on a timely basis.
Failure to Segregate Duties. Management has not maintained adequate segregation of duties within the Company due to its reliance on a few individuals to fill multiple roles and responsibilities. Our failure to segregate duties has been a material weakness for the period covering this report.
Sufficiency of Accounting Resources. We have limited accounting personnel to handle complex accounting transactions. The insufficiency of our accounting resources and systems has caused certain reconciliations not to be completed without an undue effort the which caused a material weakness for the period covering this report.
Our management feels the material weaknesses identified above have not had any material effect on our financial results. However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses, and expect to implement changes in the near term, as resources permit, in order to address thesethis material weaknesses.weakness. Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis, and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds permit.
BecauseInherent Limitations on the Effectiveness of its inherent limitations,Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting may notwill prevent or detect misstatements.all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to the risk thatrisks. Over time, controls may become inadequate because of changes in conditions or thatdeterioration in the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.procedures.
Changes in Internal Control Over Financial Reporting
ThereWith the exception of the hiring of our CFO and General Counsel in the fourth quarter of 208 and one other additional full time employee in the accounting department in the fourth quarter of 2019, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2019fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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From time to time, we are a party to, or otherwiseThe Company is not currently involved in legalor aware of any litigation that could result in a material loss, other than the following: On February 11, 2020 Unisun obtained leave from the interim relief judge of the Court of Amsterdam for three prejudgment attachments on the shares of 3 subsidiaries of Alternus, to secure an outstanding amount owed pursuant to an outstanding loan of EUR 1,689,864 plus interest and agreed penalties. Unisun also started proceedings arisingon the merits to claim the amounts due under this loan and the penalties. The court proceedings commenced on September 16, 2020 and we have until October 28, 2020 to submit our statement of defense. On March 24, 2020, the Company entered into a securities purchase agreement with Ultramar Energy Ltd., an accredited foreign investor, pursuant to which the Company expected to receive gross proceeds of $3.0 million, before deducting transaction costs, fees and expenses. On April 7, 2020 the Company entered into a Settlement Agreement with Unisun to resolve and settle these claims.The Company intended to use a portion of the net proceeds from Ultramar Energy to repay this loan to Unisun in the normalamount of $2.0 million to resolve and ordinary course of business. Although our management cannot predictsettle the ultimate outcome of these legal proceedings with certainty, it believes that the ultimate resolution of our legal proceedings, including any amounts we may be required to pay, will not have a material effect on our unaudited condensed consolidated financial statements. Asclaim. However, as of the date of this report we arefiling, the proceeds have not aware of any proceeding, threatened or pending, against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.been received from Ultramar Energy Ltd. and there is no guarantee that the Company will ever receive the proceeds; therefore the Settlement Agreement has been terminated.
As a smaller reporting company, we are not required to provide the information required by this Item. We note, however, that an investment in our common stock involves a number of very significant risks. Investors should carefully consider the risk factors included in the “Risk Factors” section of our Registration Statement on Form 10 as filed with SEC on August 13, 2019, in addition to other information contained in such Registration Statement and in this Quarterly Report on Form 10-Q, in evaluating the Company and our business before purchasing shares of our common stock. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth our unregistered sales of equity securities during the ninethree months ended September 30, 2019:March 31, 2020:
Date of Issuance | Number of Shares Issued (Cancelled) | Class of Securities | Value of Shares issued at issuance | Individual/ Entity Shares were issued to (entities also have the individual with voting / investment control disclosed) | Consideration Received | Exemption |
1/27/2020
| 107,368
| Class A Common
| 0.19
| Carter, Terry & Company / Timothy Terry
| Financial Services equal to $20,400 based on the market price on the date of issuance
| Reg D Exempt
|
2/17/2020
| 28,000
| Class A Common
| 0.15
| Carter, Terry & Company / Timothy Terry | Financial Services equal to $4,200 based on the market price on the date of issuance
| Reg D Exempt
|
2/17/2020
| 18,667
| Class A Common
| 0.15
| Richard P. Brown Jr. | Financial Services equal to $2,800 based on the market price on the date of issuance
| Reg D Exempt
|
3/20/2020 | 50,000,000 | Class A Common | 0.001 | Growthcap Investments / Vincent Browne | Preferred Series E Shares Conversion equal to $50,000 based on the par value of the shares on the date of issuance | Reg D Exempt |
3/20/2020 | (5,000,000) | Series E Preferred | 0.001 | Growthcap Investments/ Vincent Browne | Preferred Series E Conversion into Class A Common Stock equal to $50,000 based on the par value of the shares on the date of cancellation | Reg D Exempt |
3/20/2020 | 14,583 | Class A Common | 0.12 | Richard P. Browne Jr. | Financial Services equal to $1,750 based on the market price on the date of issuance | Reg D Exempt |
Each of the securities offerings or transactions described above was made to officers or directors of the Company and was exempt from registration under Regulation S, Regulation D or Section 4(a)(2) of the Securities Act. The shares issued in these transactions were restricted (i.e., not freely tradable), and the certificates evidencing such shares contained a legend (1) stating that the shares have not been registered under the Securities Act, and (2) setting forth or referring to the restrictions on transferability and sale of the shares under the Securities Act. |
Date of Issuance Number of Shares Issued (Cancelled) Class of Securities Value of Shares issued at issuance Individual/ Entity Shares were issued to (entities also have the individual with voting / investment control disclosed) Consideration Received Exemption 1/7/2019 2,000,000 Common 0.03 Jean-Marc O’Brien Advisory Services equal to $60,000 based on the market price on the date of issuance Reg D Exempt 1/7/2019 1,000,000 Common 0.03 Joseph Duey Executive incentive equal to $30,000 based on the market price on the date of issuance Reg D Exempt 1/7/2019 1,000,000 Common 0.03 Taliesin Durant Executive Incentive equal to $30,000 based on the market price on the date of issuance Reg D Exempt 1/7/2019 150,000 Common 0.03 Gita Shah Employee Incentive equal to $4,500 based on the market price on the date of issuance Reg S Exempt 1/9/2019 310,876 Common 0.03 Ardour Capital: Kerry Dukes; Walter V. Nasdeo; Jean-Marc O’Brien; Brian J. Greenstein Financial Advisory Services equal to $9,326.28 based on the market price on the date of issuance Reg D Exempt 1/9/2019 3,500,000 Common 0.03 John Gildea Consultancy Ltd. / John Gildea Investor Relations Services equal to $105,000 based on the market price on the date of issuance Reg S Exempt
|
1/17/2019
| 100,000
| Common
| 0.09
| Ionela Cainaru
| Employee Incentive equal to $9,000 based on the market price on the date of issuance
| Reg S Exempt
|
1/31/2019
| 5,000
| Common
| 0.148
| David Yakerson
| Maintenance Consulting Services equal to $740 based on the market price on the date of issuance
| Reg D Exempt
|
2/28/2019
| 10,000,000
| Common
| 0.09
| VestCo Corp. / Vincent Browne
| Executive Incentive equal to $900,000 based on the market price on the date of issuance
| Reg D Exempt
|
3/29/2019
| 675,000
| Common
| 0.07
| John Thomas
| Board Member Services equal to $47,250 based on the market price on the date of issuance
| Reg D Exempt
|
3/29/2019
| 675,000
| Common
| 0.07
| John McQuillan
| Board Member Services equal to $47,250 based on the market price on the date of issuance
| Reg S Exempt
|
3/29/2019
| 2,500,000
| Common
| 0.07
| VestCo Corp. / Vincent Browne
| Chairman of the Board Services equal to $175,000 based on the market price on the date of issuance
| Reg D Exempt
|
5/23/2019 | 100,000
| Common | 0.16 | Austine George | Consulting Services equal to $16,000 based on the market price on the date of issuance | Reg S Exempt |
5/23/2019 | 150,000
| Common | 0.16 | JMR Consultant | Consulting Services equal to $24,000 based on the market price on the date of issuance | Reg S Exempt |
Each of the securities offerings or transactions described above was made to officers or directors of the Company and was exempt from registration under Regulation S, Regulation D or Section 4(a)(2) of the Securities Act. The shares issued in these transactions were restricted (i.e., not freely tradable), and the certificates evidencing such shares contained a legend (1) stating that the shares have not been registered under the Securities Act, and (2) setting forth or referring to the restrictions on transferability and sale of the shares under the Securities Act. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
None.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| ALTERNUS ENERGY INC. |
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Date: | By: | /s/ Vincent Browne | ||
Vincent Browne | ||||
Chief Executive Officer | ||||
(Principal Executive Officer) | ||||
Date: October 13, 2020 | By: | /s/ Joseph Duey |
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| Joseph Duey |
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| Chief Financial Officer |
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| (Principal Financial Officer and Principal Accounting Officer) |
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