Alternus Energy (ALTN) 10-Q 2020 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 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)

(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 ☐

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 ☒     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 ☒

As of October 5, 2020, there were 120,520,492 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 MONTHS ENDED MARCH 31, 2020

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		3
ITEM 1.	Condensed Consolidated Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019 (audited)	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019 (unaudited)	4
	Condensed Consolidated Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2020 and 2019 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	30
ITEM 4.	Controls and Procedures	30
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	32
ITEM 1A.	Risk Factors	32
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
ITEM 3.	Defaults Upon Senior Securities	32
ITEM 4.	Mine Safety Disclosures	32
ITEM 5.	Other Information	32
ITEM 6.	Exhibits	33
SIGNATURES		35

2

PART I – FINANCIAL INFORMATION

ALTERNUS ENERGY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2020 AND DECEMBER 31, 2019

	March 31, 2020			December 31, 2019
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	765,679		$	1,076,995
Accounts receivable		88,502			210,032
Other receivable, sale of asset		29,937			383,819
Prepaid expenses and other current assets, short-term portion		535,102			502,054
Taxes recoverable		528,466			610,919
Total Current Assets		1,947,686			2,783,819
Investment in Energy Property and Equipment, Net		32,362,386			33,459,478
Construction in Process		7,580,763			7,270,194
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	$	43,989,508		$	45,613,562
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	3,952,511		$	3,700,796
Convertible and non-convertible promissory notes, current portion		23,107,839			22,705,665
Capital lease, current portion		86,101			87,785
Taxes payable		69,911			61,575
Total Current Liabilities		27,216,362			26,555,821
Convertible and non-convertible promissory notes, net of current portion		13,638,090			14,109,417
Capital lease, net of current portion		885,085			923,948
Asset retirement obligation		144,965			146,215
Total Liabilities		41,884,502			41,735,401
Commitments and Contingencies
Shareholders' equity
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
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		15,426,099			15,442,118
Other comprehensive loss		(772,877	)		(642,682	)
Accumulated deficit		(12,681,567	)		(11,009,458	)
Total Shareholders' Equity		2,105,007			3,878,161
Total Liabilities and Shareholders' Equity	$	43,989,508		$	45,613,652

See accompanying notes to the unaudited condensed consolidated financial statements

3

ALTERNUS ENERGY INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

	March 31, 2020			March 31, 2019
Revenues	$	697,703		$	370,131
Cost of revenues		(326,973	)		(157,008	)
Gross Profit		370,730			213,123
Operating Expenses
Selling, general and administrative		868,798			542,557
Depreciation and amortization		509,332			167,471
Total Operating Expenses		1,378,130			710,028
Loss from Operations		(1,007,400	)		(496,905	)
Other Expense
Interest expense		(664,641	)		(887,374	)
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	$	(1,672,041	)	$	(1,384,279	)
Basic and diluted loss per share	$	(0.02	)	$	(0.01	)
Weighted average shares outstanding:
Basic and diluted		71,679,845			114,384,791
Comprehensive loss:
Net loss	$	(1,672,041	)	$	(1,384,279	)
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

ALTERNUS ENEGY INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

																		Comprehensive
	Preferred Shares						Class A Common stock				Class B Common stock				Paid-In			Income/			Accumulated
	Series D			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		-		-		(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

															Comprehensive
	Preferred Shares				Class A Common stock				Class B Common stock				Paid-In		Income/			Accumulated
	Series D		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

ALTERNUS ENERGY INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

	March 31, 2020			March 31, 2019
Cash Flows from Operating Activities:
Net loss	$	(1,672,109	)	$	(1,384,279	)
Adjustments to reconcile net loss to net cash used in operations
Depreciation and amortization		509,332			167,470
Stock compensation costs		29,150			161,686
Amortization of debt discount		-			77,415
Changes in assets and liabilities, net of acquisition and disposals:
Accounts receivable and other short-term receivables		536,017			(20,635	)
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		(316,567	)		(133,396	)
Cash Flows from Investing Activities:
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		-			16,350
Payments of debt principal, related parties		(48,191	)		-
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		(21,190	)		-
Net Cash Provided by Financing Activities		535,980			119,547
Effect of exchange rate on cash		(19,327	)		(60,016	)
Net decrease in cash and cash equivalents		(318,022	)		(680,100	)
Cash, cash equivalents, and restricted cash beginning of the period		1,426,429			1,026,533
Cash, cash equivalents, and restricted cash end of the period	$	1,108,407		$	346,433

See accompanying notes to the unaudited condensed consolidated financial statements

6

ALTERNUS ENERGY INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED SUPPLEMENTAL STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019

	March 31, 2020		March 31, 2019
Supplemental Cash Flow Disclosure
Cash paid for interest	$	142,818	$	152,929

See accompanying notes to the unaudited condensed consolidated financial statements

7

ALTERNUS ENERGY INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Formation

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

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

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

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

In June of 2015, ALTN incorporated a company in Italy, PC-Italia-01 S.R.L. (formerly named Power Clouds Wind Italia S.R.L.). This company was incorporated to acquire Italian special purpose vehicles (SPVs), power plants and / or other assets located in Italy.

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

In August of 2016, the Company incorporated a new company in Italy, PC-Italia-02 SRL as a wholly owned subsidiary of AE Europe B.V. This company was incorporated to acquire Italian special purpose vehicles, power plants and/or other assets located in Italy. During 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.

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 year ended December 31, 2018, PCG_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

In summary, Alternus Energy is a holding company that operates through the following twenty operating subsidiaries as of 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.	Holding Company	August 2016	100%	Netherlands
PC-Italia-01 S.R.L.	Sub-Holding	June 2015	100% (via PCE)	Italy
PC-Italia-02 S.p.A.	SPV	August 2016	100% (via PCE)	Italy
Sant’Angelo Energia S.r.l.	SPV	March 30, 2017	100% (via PC_Italia_02)	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% (via PCG_HoldCo)	Germany
PSM 40 UG	SPV	December 28, 2018	100% (via PCG_HoldCo)	Germany
GRK 17.2 GmbH & Co KG	SPV	November 17, 2018	100% (via PCG_HoldCo)	Germany
GRT 1.1 GmbH & Co KG	SPV	December 21, 2018	100% (via PCG_HoldCo)	Germany
ALTN HoldCo UG	SPV	December 14, 2018	100% (via PCG HoldCo)	Germany
Alternus Energy International Ltd.	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

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 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 consolidated financial statements as of March 31, 2020 and 2019 and for 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 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

The Company derives revenues as 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 customers 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

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 Footnote 2 regarding going concern matters.

Fair Value of Financial Instruments

The Company measures its financial instruments at fair 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 which are not 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

Deferred taxes are provided on a liability method 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 differences between the reported amounts of assets and liabilities and their tax basis. Valuation allowances are established when necessary to reduce 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.

11

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred 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 the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning 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 evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in their financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company 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 the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”. A liability is recognized for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing-authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with 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 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 March 31, 2020, the Company had 13,053,235 common shares underlying warrants, and 10,137,054 common shares underlying convertible notes associated with debt issuance. As of March 31, 2019, the Company had 13,543,235 common shares underlying warrants, and 1,218,681 common shares underlying convertible notes 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 March 31, 2020 and 2019, respectively. The foreign currency exchange gains and losses are included as a component of general and administrative expenses in the accompanying Consolidated Statements of Operations and Comprehensive Loss. For the three month period ended March 31, 2020 and 2019, the increase in accumulated comprehensive loss related to foreign currency translation adjustments was $130,263 and $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 Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant 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 the Securities and Exchange Commission. No subsequent events required disclosure except for those in Note 11.

Recent Accounting Standards

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:

	March 31, 2020		December 31, 2019
Cash and cash equivalents	$	765,679,	$	1,076,995
Restricted cash		342,729		349,434
Total cash, cash equivalents, and restricted cash	$	1,108,407	$	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 period starting on January 1^st, 2019. The ASU No. 2018-07 adoption 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 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either operating or financing, with such classifications affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019, and 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 2019-12 will have on its consolidated financial statement. The guidance is effective January 1, 2021 with early adoption permitted.

4. Investment in Energy Property and Equipment, Net

As of March 31, 2020 and December 31, 2019, the Company had net investment in energy property, as outlined in the table below.

	March 31, 2020			December 31, 2019
Solar energy facilities operating	$	35,440,178		$	36,123,412
Less accumulated depreciation		(3,076,792	)		(2,663,934	)
Net Assets	$	32,362,386		$	33,459,478

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

Depreciation expense for the three months ended March 31, 2020 and 2019, was $509,332 and $167,471, respectively

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

	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

5. Capital Leases

We have acquired equipment through a capital lease obligation for the Sant’Angelo park in Italy. As of March 31, 2020, there was $971,186 remaining on the lease of which $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 year is approximately 4.5% per annum. This interest amount may vary due to future changes in EUR3M index.

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

2020		102,992
2021		137,322
2022		137,322
2023		137,322
2024		137,322
Thereafter		608,260
		1,260,540
Less Interest Expense		(289,355	)
	$	971,185

6. Convertible and Unconvertible Promissory Notes

The following table reflects the total debt balances of the Company as of March 31, 2020 and December 31, 2019:

	March 31, 2020			December 31,  2019
Short term line of credit	$	34,123		$	35,120
Promissory notes related parties		-			48,821
Convertible notes related parties		291,540			291,540
Senior secured debt		19,243,800			19,575,794
Promissory notes		15,191,303			15,478,536
Convertible promissory notes		2,430,140			2,169,401
Gross debt		37,190,906			37,599,212
Debt discount		(444,977	)		(784,130	)
Net debt		36,745,929			36,815,082
Less Current Maturities		(23,107,839	)		(22,705,665	)
Long Term Debt, net of current maturities	$	13,638,090		$	14,109,418

Note principal payments next five years and thereafter:

	2020			2021			2022		2023		2024		Thereafter		Total
Gross debt	$	23,409,856		$	1,102,888		$	1,108,229	$	1,113,219	$	1,118,312	$	9,338,402	$	37,190,906
Debt discount		(302,017	)		(142,960	)		-		-		-		-		(444,977	)
Net debt	$	23,107,839		$	959,928		$	1,108,229	$	1,113,219	$	1,118,312	$	9,338,402	$	36,745,929

In January 2020, the Company entered into a Securities Purchase Agreement with an accredited investor (the “Lender”), in connection with an investment of $250,000, and pursuant to which the Company 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 $0.20 per share.

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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 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 conversion, commencing in August 2020, and accruing 10% interest per annum, with a maturity date of February 10, 2021.

7. Commitments and Contingencies

Litigation

The Company is not currently involved in or 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 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 guarantee that the Company will ever receive the 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 are $54,226 per annum, to be paid quarterly. Also the Company paid a six month security deposit in the sum of $36,820.

As 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 its solar parks. The combined estimated annual cost of $16,042. The leases commenced in 2012 and run for 20 years.

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

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8. Shareholder’s Equity

Common Stock:

In the first quarter of 2020, the Corporation issued 135,368 shares of Class A common stock as fees related to third party investment, and 33,250 shares of restricted Class A common stock were issued to a consultant for services rendered. The total value was based on the closing stock price of our common stock on the various dates of issuance, and equal to $29,150.

On March 20, 2020, the Company received a notice of conversion from Growthcap Investments Inc. (“GII”), a related party of the CEO, to convert the entirety of its shares of Series E Convertible Preferred Stock, with a stated value of $0.001 per share, into an aggregate of 50,000,000 shares of the 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.

Warrants:

As of March 31, 2020, warrants to purchase up to 13,053,235 shares of restricted common stock were issued and outstanding. For the three months ended March 31, 2020, the Company did not issue any warrants.

	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

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

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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
	$	32,362,386	$	33,459,478

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 conversion, and accruing 10% interest per annum, with a maturity date of April 6, 2021.

On April 7, 2020 the Company entered into a 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 related to the acquisition 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 approximately $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 restricted common stock under the Corporation’s 2019 Stock Incentive Plan, having a three year vesting schedule and exercisable at $0.10 per 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.

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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 months ended March 31, 2020 and 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 $4.3 million, which delivers an annual EBITDA of approximately $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 tender processes. We believe that targeting smaller solar projects 1MW to 20 MWs and working with 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 agreement with BayWa r.e., 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 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 revenue 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 interest rates ranging from 1.8% to 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 March 31, 2020, 91% of our total debt 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;

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☐ 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 2019 and 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 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.

Engineer, 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.

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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 March 31, 2020, and December 31, 2019.

	As of March 31,		As of December 31,
MWs (DC) Nameplate Capacity by Country	2020		2019
Romania		6.1		6.1
Italy		7.9		7.9
Germany		1.4		1.4
Netherlands		11.8		11.8
Total		27.2		27.2

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 three months ended March 31, 2020 and 2019, were as follows:

MWhs by Country	2020		2019
Romania		1,584.2		1,074.6
Italy		1,058.1		528.8
Germany		169.4		108.4
Netherlands		1,631.9		-
Total		4,443.6		1,711.8

Consolidated Results of Operations

The following table illustrates the consolidated results of operations for the three months ended March 31, 2020 and 2019,:

	For the Three Months Ended March 31
	2020			2019
Revenues	$	697,703		$	370,131
Cost of revenues		(326,973	)		(157,008	)
Gross Profit		370,730			213,123
Operating Expenses
Selling, general and administrative		868,866			542,557
Depreciation and amortization		509,332			167,470
Total Operating Expenses		1,378,198			710,027
Loss from Operations		(1,007,468	)		(496,904	)
Other Income (Expense)
Interest expense		(664,641	)		(887,375	)
Total other income (expense)		(664,641	)		(887,375	)
(Loss) Before Provision for Income Taxes		(1,672,109	)		(1,384,279	)
Provision for Income Taxes		-			-
Net Loss	$	(1,672,109	)	$	(1,384,279	)

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Major Components of Our Results of Operations

For the three months ended March 31, 2020 compared to 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 March 31, 2020 and 2019 were as follows:

	For the Three Months Ended March 31,
Net Revenue, by Country	2020		2019		Change
Italy	$	297,665	$	160,270	$	137,395
Romania		182,665		187,639		(4,974	)
Germany		20,290		22,222		(1,932	)
Netherlands		197,083		-		197,083
Total	$	697,703	$	370,131	$	327,572

Net revenue increased for the three months ended 2020 compared to 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.

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 March 31, 2020 and 2019 were as follows:

	For the Three Months Ended March 31,
Cost of Revenue, by Country	2020		2019		Change
Italy	$	130,684	$	13,432	$	117,252
Romania		90,831		143,576		(52,745	)
Germany		99		-		99
Netherlands		105,359		-		105,359
Total	$	326,973	$	157,008	$	169,965

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Cost of revenue increased by $169,965 for the three months ended March 31, 2020, compared to 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.

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 March 31, 2020 and 2019 were as follows:

	For the Three Months Ended March 31,
Gross Profit, by Country	2020		2019		Change
Italy	$	166,981	$	146,838	$	20,143
Romania		91,834		44,063		47,771
Germany		20,191		22,222		(2,031	)
Netherlands		91,724		-		91,724
Total	$	370,730	$	213,123	$	157,607

Gross profit increased for the three months ended March 31by $157,607 compared to 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. Romania gross profit was higher as well, due to that fact the part of the system was down in 2019, and in 2020 the plant was fully operational.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2020 and 2019 were as follows:

	For the Three Months Ended March 31,
	2020		2019		Change
Selling, General & Admin Expenses		868,886		542,557		326,329
Total	$	868,886	$	542,557	$	326,329

Selling, general and administrative expenses increased from for the three months ended March 31, 2020 compared to 2019. This was mainly due to accounting and legal fees of related to our audits and Form 10 filings, of approximately $150,000 In addition, we hired four additional full time employees in Ireland that were not there as of March 31, 2019, which totaled approximately 59,000.

Depreciation, Accretion and Amortization Expense

Depreciation, accretion and amortization expense increased by $341,861 for the three months ended March 31, 2020, compared to 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

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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 additional interest in 2019 due to interest on Italy acquisition at 12%, and third party commission on financing.

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 March 31, 2020 and December 31, 2019:

	March 31, 2020			December 31, 2019
Short term line of credit	$	34,123		$	35,120
Promissory notes related parties		-			48,821
Convertible notes related parties		291,540			291,540
Senior secured debt		19,243,800			19,575,794
Promissory notes		15,191,303			15,478,536
Convertible promissory notes		2,430,140			2,169,401
Gross debt		37,190,906			37,599.212
Debt discount		(444,977	)		(784,130	)
Net debt		36,745,929			36,815,082
Less current maturities		(23,107,839	)		(22,705,665	)
Long Term Debt, net of current maturities	$	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 insufficient to mitigate the uncertainty of The Company's ability to continue as a going concern. The working capital deficit for 2020 and 2019 is largely related to the acquisition of long-term assets that are planned to be refinanced with long term debt during 2020.

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 March 31, 2020 and December 31, 2019:

	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

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The cash is 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 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.

Financing Activities

In January 2020, the Company entered into a Securities Purchase Agreement with another accredited investor (the “Lender”), in connection with an investment of $250,000, and pursuant to which the Company 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 $0.20 per share.

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 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 conversion, and accruing 10% interest per annum, with a maturity date of 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.

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Note principal payments next five years and thereafter:

	2020			2021			2022		2023		2024		Thereafter		Total
Gross debt	$	23,409,856		$	1,102,888		$	1,108,229	$	1,113,219	$	1,118,312	$	9,338,402	$	37,190,906
Debt discount		(302,017	)		(142,960	)		-		-		-		-		(444,977	)
Net debt	$	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 Three Months Ended March 31, 2020 compared to March 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

Net Cash (Used In) Provided By Operating Activities

Net cash used in operating activities for the period ended March 31, 2020 compared to 2019 increased primarily due the Company having a net loss increase in 2020 of $287,830 compared to 2019.

Net Cash Used In Investing Activities

Net cash used in investing activities for the period ended March 31, 2020 compared to March 31, 2019 decreased due to lower cost associated with projects under construction.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the period ended March 31, 2020 compared to March 31, 2019 increased due to proceeds from debt 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

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 March 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

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due 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 in the Company's SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated 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 any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control 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 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2020 our internal controls over financial reporting were not effective at the reasonable assurance level due to the material weakness discussed below.

30

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 this material 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.

Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect 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 risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control Over Financial Reporting

With 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 fiscal 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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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is not currently involved in or 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 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 guarantee that the Company will ever receive the proceeds; therefore the Settlement Agreement has been terminated.

ITEM 1A. RISK FACTORS

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 three months ended 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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

		Incorporated by Reference			Filed or Furnished
Exhibit #	Exhibit Description	Form	Date Filed	Number	Herewith
3.1	Amended and Restated Certificate of Incorporation of Alternus Energy Inc.	10	8/13/19	3.1
3.2	Amended and Restated Bylaws of Alternus Energy Inc.	10	8/13/19	3.2
3.3	Certificate of Designation of Series E Convertible Preferred Stock	10/A	11/6/19	3.3
3.4	Amended Articles of Incorporation of Alternus Energy Inc.	10/A	11/6/19	3.4
4.1	Form of Certificate of Common Stock of Alternus Energy Inc.	10	8/13/19	4.1
4.2	Form of Warrant to purchase up to a total of 1,257,022 shares of common stock issued in February of 2019	10	8/13/19	4.8
4.3	Form of Warrant to purchase up to a total of 150,000 shares of common stock issued in May and June of 2019	10	8/13/19	4.9
10.1	Employment Agreement dated October 1, 2018 between Joseph E. Duey and the Registrant	10	8/13/19	10.7
10.2	Employment Agreement dated December 1, 2018 between Taliesin Durant and the Registrant	10	8/13/19	10.9
10.3	Professional Consulting Agreement dated February 28, 2019 between VestCo Corp. and the Registrant	10	8/13/19	10.10
10.4	Sale and Purchase Agreement between PC Italia 02 and Risen Energy dated March 19, 2019	10	8/13/19	10.22
10.5	Form of Convertible Note totaling $300,000 issued in February of 2019 to 4 accredited investors	10	8/13/19	10.23
10.6	Form of Securities Purchase Agreement dated February of 2019 entered into with 4 accredited investors	10	8/13/19	10.24
10.7	Form of Note totaling $150,000 issued in May of 2019 to 4 accredited investors	10	8/13/19	10.25
10.8	Form of Securities Purchase Agreement dated May of 2019 entered into with 4 accredited investors	10	8/13/19	10.26
10.9	$500,000 Convertible Note issued May 30, 2019	10	8/13/19	10.27
10.10	Securities Purchase Agreement related to the $500,000 Convertible Note dated May 30, 2019	10	8/13/19	10.28
10.11	$9,806,939 Bond Agreement dated June 2019	10	8/13/19	10.30
10.12	Subordination Agreement related to the $9,806,939 Bond dated June 2019	10	8/13/19	10.31
10.13	Sale and Purchase Agreement by and among Risen Energy PV Holding Italy GmbH, Risen Energy (Hongkong) Co., Limited, PC-Italia-02 S.r.l. and the Registrant dated March 19, 2019	10	8/13/19	10.32
10.14	Share Purchase Agreement dated July 29, 2019 by and among PCG_HoldCo UG, Coöperatie Unisun Energy U.A. and Zonnepark Rilland B.V.	10/A	11/6/19	10.34
10.15	Share Exchange Agreement dated August 19, 2019 by and among the Registrant and Growthcap Investments Inc.	10/A	11/6/19	10.35

33

10.16	Share Exchange Agreement dated October 9, 2019 by and among the Registrant and VestCo Corp.	10/A	11/6/19	10.36
10.17	Form of Convertible Loan Note Extension from June 2019 to December 31, 2019	10/A	12/13/19	10.39
10.18	Form of Convertible Note issued November 2019	10/A	12/13/19	10.40
10.19	Addendum to the Share Purchase Agreement dated December 20, 2019 by and among PCG_HoldCo UG, AEN 01 BV, Coöperatie Unisun Energy U.A. and Zonnepark Rilland B.V.	8-K	12/27/19	10.1
10.20	Bond Subscription Agreement dated December 20, 2019	8-K	12/27/19	10.2
10.21	Security Agreement dated December 20, 2019	8-K	12/27/19	10.3
10.22	Call Option Agreement dated December 20, 2019	8-K	12/27/19	10.4
10.23	Loan Agreement by and among AEN 01 BV, Alternus Energy Inc. and Coöperatie Unisun Energy U.A. dated December 20, 2019	8-K	12/27/19	10.5
10.24	$250,000 Convertible Promissory Note issued January 2020	10-K	10/1/20	10.24
10.25	Securities Purchase Agreement related to the $250,000 Convertible Promissory Note issued January 2020	10-K	10/1/20	10.26
10.26	$105,000 Convertible Promissory Note issued February 2020	10-K	10/1/20	10.26
10.27	Securities Purchase Agreement related to the $105,000 Convertible Promissory Note issued February 2020	10-K	10/1/20	10.27
10.28	$3,000,000 Securities Purchase Agreement executed on March 24, 2020	10-K	10/1/20	10.28
10.29	Settlement Agreement by and among the Company and Unisun dated April 7, 2020	10-K	10/1/20	10.29
10.30	$53,000 Convertible Promissory Note issued April 2020	10-K	10/1/20	10.30
10.31	Securities Purchase Agreement related to the $53,000 Convertible Promissory Note issued April 2020	10-K	10/1/20	10.31
14	Code of Ethics	10	8/13/19	14
21.1	List of Subsidiaries	10/A	11/6/19	21.1
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				Filed
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				Filed
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				Filed
32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				Filed
99.1	Audit Committee Charter	10/A	11/6/19	99.1

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SIGNATURES

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.

	ALTERNUS ENERGY INC.
Date: October 13, 2020	By:	/s/ Vincent Browne
		Vincent Browne
		Chief Executive Officer
		(Principal Executive Officer)
Date: October 13, 2020	By:	/s/ Joseph Duey
		Joseph Duey
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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