Alternus Clean Energy(ALCE) - 2023 Q4 - Annual Report

Part I Business Alternus Clean Energy develops and operates utility-scale solar PV parks in North America and Europe, focusing on long-term asset ownership - The company operates as an independent clean energy producer, focusing on developing, installing, and operating utility-scale solar PV parks for long-term ownership[61] - On December 22, 2023, the company completed a business combination with Clean Earth Acquisitions Corp. (CLIN), subsequently listing on Nasdaq as Alternus Clean Energy, Inc[63][166] Operational Status (as of April 2024) | Metric | Value | | :--- | :--- | | Operating Parks | ~8 | | Total MWp in Operation | 44 MWp | | Recurring Annual Revenues | ~$16 million | - The business model is vertically integrated, covering the entire project lifecycle from greenfield development to long-term operation, designed to capture value and reduce capital expenditure[64][71] Owned and Contracted Portfolio Overview (MWp) | Country | Installed & Operational | In Development & Construction | Total (MW) | | :--- | :--- | :--- | :--- | | Romania | 40.1 | -- | 40.1 | | Italy | -- | 210.0 | 210.0 | | Spain | -- | 257.0 | 257.0 | | United States | 3.8 | 59.2 | 63.0 | | Total | 43.9 | 526.2 | 570.1 | - The company's strategy includes acquiring solar projects, expanding its pan-European and US portfolio, and reinvesting project cash flows to self-fund organic growth[80][81][174] Risk Factors Significant debt, covenant breaches, and internal control weaknesses raise substantial doubt about the company's future - The company's auditor has expressed substantial doubt about its ability to continue as a going concern due to its need to raise additional working capital and its history of losses[489][490][491] - As of December 31, 2023, the company had $198.4 million in outstanding short-term borrowing, and this substantial indebtedness could adversely affect its financial condition and operations[492] - A subsidiary, Solis, breached financial covenants on its Green Bonds, and failure to repay could result in the transfer of ownership of most operating assets to bondholders[658][659][660] - The business is heavily dependent on government subsidies and economic incentives, and their reduction or elimination could harm the business[501][502][581] - The company has identified material weaknesses in its internal control over financial reporting, which could result in a loss of investor confidence and adversely impact its stock price[358][359] - Operations are subject to seasonality, with power generation and revenue expected to be lowest in the first and fourth quarters due to shorter daylight hours in the Northern Hemisphere[508][433] Unresolved Staff Comments The company has no unresolved staff comments from the Securities and Exchange Commission - None[372] Cybersecurity Alternus employs a multilayered cybersecurity approach based on NIST framework, overseen by the Audit Committee - The company's cybersecurity approach is based on the National Institute of Standards and Technology (NIST) framework[103] - The Audit Committee of the board of directors provides enterprise-level oversight of cybersecurity risks, receiving quarterly updates[104] - The Chief Information Officer (CIO), with over 20 years of experience, has primary responsibility for the cybersecurity team and policies[105] - To date, cybersecurity risks have not materially affected the company, although it has experienced threats such as malware, phishing, and computer virus attacks[109] Properties The company's principal executive offices are in Fort Mill, SC, with solar facilities primarily in Romania - Principal executive offices are located at 360 Kingsley Park Drive, Suite 250, Fort Mill, South Carolina 29715[110] Solar Generating Facilities by Country | COUNTRY | MEGAWATTS INSTALLED | Percentage | | :--- | :--- | :--- | | Romania | 40.1 | 91.3% | | United States | 3.8 | 8.7% | | Total | 43.9 | 100% | Legal Proceedings The company faces a $5.9 million arbitration claim in Poland related to a failed share purchase agreement - In May 2023, Solartechnik filed an arbitration claim against the company and its subsidiaries for approximately $5.9 million (PLN 24,980,589) related to a failed share purchase agreement[113] - The company has accrued a liability of approximately $5.9 million for this loss contingency but is unable to estimate potential additional losses from costs, fees, and interest[113] Mine Safety Disclosures This item is not applicable to the company - Not applicable[114] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq (ALCE); no cash dividends paid, with an approved equity plan - The company's common stock trades on the Nasdaq Capital Market under the symbol "ALCE"[118] - The company has not paid any cash dividends on its common stock to date[119] - The 2023 Equity Incentive Plan was approved, reserving 8,000,000 shares of common stock for future awards, though no awards have been granted yet[120] - On December 22, 2023, the company issued 57,500,000 shares to Alternus Energy Group Plc and various other unregistered securities as part of its business combination[122] [Reserved]](index=56&type=section&id=Item%206.%20%5BReserved%5D) As a smaller reporting company, Alternus Clean Energy is not required to provide this information - The Company is a smaller reporting company and is not required to provide the information required under this item[126] Management's Discussion and Analysis of Financial Condition and Results of Operations Substantial doubt exists about the company's going concern due to working capital deficiency and debt Results of Operations Revenue increased 18% to $20.1 million in 2023, but net loss widened to $53.7 million Consolidated Results of Operations (in thousands) | | Year Ended 2023 | Year Ended 2022 | | :--- | :--- | :--- | | Revenues | $20,084 | $17,089 | | Total operating expenses | (25,652) | (25,287) | | Loss from continuing operations | (5,568) | (8,198) | | Total other expenses | (48,069) | (10,371) | | Net loss from continuing operations | (53,652) | (18,569) | | Net income/(loss) from discontinued operations | (15,812) | 120 | | Net loss for the period | (69,464) | (18,449) | Revenue from Continuing Operations by Country (in thousands) | Country | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Italy | $3,360 | $3,354 | $6 | 0% | | Romania | $16,608 | $13,710 | $2,898 | 21% | | United States | $116 | $25 | $91 | 364% | | Total | $20,084 | $17,089 | $2,995 | 18% | - Selling, general and administrative (SG&A) expenses increased by $5.5 million (96%) in 2023, primarily due to higher compensation from additional headcount, growth initiatives, and business combination-related fees[258] - Development costs decreased by $10.6 million (93%) in 2023, as 2022 included significant costs from the abandonment of the Solartechnik project in Poland[262] - Total other expenses increased by $37.7 million, driven by an $11.2 million Solis bond waiver fee, a $16.6 million valuation loss on a Forward Purchase Agreement asset, and an $8.3 million increase in interest expense[269][313] Liquidity and Capital Resources Liquidity is severely constrained with $198.4 million in current debt, raising going concern doubt - The company's financial statements identify conditions that raise substantial doubt about its ability to continue as a going concern[383][591] Total Debt (in thousands) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Senior Secured Green Bonds | $166,122 | $149,481 | | Senior Secured debt and promissory notes | $32,312 | $13,486 | | Total debt | $198,434 | $162,967 | | Less current maturities | (198,434) | - | | Long term debt | $0 | $162,967 | - As of December 31, 2022, the company's subsidiary, Solis, was in breach of three financial covenants under its Green Bond terms, leading to waivers and extensions from bondholders[385][594] - In late 2023 and early 2024, Solis sold its assets in Italy, Poland, and the Netherlands to raise funds to repay a portion of the outstanding bonds[389][390][600] Cash Flow Summary (in thousands) | | Year Ended 2023 | Year Ended 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $13,212 | ($7,390) | | Net cash from investing activities | ($758) | ($17,402) | | Net cash from financing activities | $3,930 | $12,331 | Quantitative and Qualitative Disclosures About Market Risk The company faces foreign currency risk from multi-currency operations and interest rate risk - The company is exposed to foreign currency risk as its revenues and expenses are generated in currencies like the Euro (EUR), Romanian Lei (RON), and Polish Zloty (PLN), while reporting in U.S. Dollars (USD)[469][191] - Interest rate risk exists due to a mix of fixed and floating rate debt instruments, where fluctuations can impact financing activities[473] - The company has no derivative financial instruments or derivative commodity instruments[468] Financial Statements and Supplementary Data Audited financial statements show a $69.5 million net loss and $63.3 million shareholders' deficit in 2023 - The auditor's report expresses substantial doubt about the Company's ability to continue as a going concern, citing operating losses, insufficient cash flows, an accumulated deficit, and pledged assets[527][534] Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $114,955 | $11,864 | | Total Assets | $185,286 | $178,315 | | Total Current Liabilities | $247,091 | $10,254 | | Total Liabilities | $248,540 | $180,897 | | Total Shareholders' Deficit | ($63,254) | ($2,582) | Consolidated Statement of Operations Data (in thousands) | | Year Ended 2023 | Year Ended 2022 | | :--- | :--- | :--- | | Revenues | $20,084 | $17,089 | | Loss from operations | ($5,568) | ($8,198) | | Net loss from continuing operations | ($53,652) | ($18,569) | | Net loss | ($69,464) | ($18,449) | | Net loss per share, basic & diluted | ($0.93) | ($0.32) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company changed auditors to Mazars USA in December 2023, reporting no disagreements - On December 22, 2023, the company dismissed BDO USA P.C. and engaged Mazars USA as its auditor for 2023[216] - The company has not had any disagreements with its accountants on accounting and financial statements[216] Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses in internal financial controls - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[218] - Identified material weaknesses include: a lack of sufficient professionals with appropriate accounting knowledge, ineffective controls for communicating information internally, ineffective controls over related-party transactions, and a lack of formal accounting policies and procedures[221][223][225][229] - The company is taking measures to remediate these weaknesses, including increasing qualified financial personnel, implementing monthly reviews, formalizing intercompany documentation, and working with external consultants[222][224][226][230] Other Information There is no other information to report under this item - None[276] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[277] Part III Directors, Executive Officers and Corporate Governance This section details the company's directors and executive officers, board structure, and committee composition - The company's leadership includes Vincent Browne as Chairman and CEO, and Joseph E. Duey as CFO[279][280][283] - The Board of Directors consists of seven members, divided into three classes with staggered three-year terms[917] - Four of the seven directors (Nicholas Parker, Tone Bjornov, Candice Beaumont, and Mohammed Javade Chaudhri) have been determined to be independent[896] - The Board has three standing committees: Audit, Compensation, and Nominating and Corporate Governance[897] Executive Compensation This section details executive and director compensation, including employment agreements and compensation tables Summary Compensation Table (2023) | Name and Principal Position | Salary ($) | Bonus ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Vincent Browne, CEO | 192,000 | 193,000 | - | 385,000 | | Joseph E. Duey, CFO | 250,000 | 193,000 | 18,000 | 461,000 | | Taliesin Durant, CLO | 190,000 | 133,000 | 54,305 | 244,305 | - Employment agreements are in place for key executives, outlining base salary, bonus potential, and severance terms for termination without cause or upon a change in control[927][928][929] - As of December 31, 2023, there were no outstanding equity awards for any named executive officers[956] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section discloses beneficial ownership, with three entities holding over 5% of common stock Beneficial Ownership of Greater than 5% Stockholders | Name of Beneficial Owner | Number of Shares | Percentage | | :--- | :--- | :--- | | Alternus Energy Group Plc | 57,500,000 | 71.8% | | Clean Earth Acquisitions Sponsor LLC | 8,781,667 | 11.0% | | Nordic ESG and Impact Fund SCSp | 7,765,000 | 9.7% | - None of the individual named executive officers or directors beneficially owned more than 1% of the company's common stock[833] Certain Relationships and Related Transactions, and Director Independence This section details related party transactions with major shareholders and consulting agreements - The company has significant relationships with its 71.8% shareholder, Alternus Energy Group Plc (AEG), and its 11.0% shareholder, Clean Earth Acquisitions Sponsor LLC[936][937] - A company controlled by CEO Vincent Browne, VestCo Corp., has a professional consulting agreement with a US subsidiary for a monthly fee of $16,000[963][201] - Director John Thomas has a consulting services agreement with a US subsidiary for a monthly fee of $11,000[939][201] - The company has adopted a policy for the review and approval of related person transactions by the audit committee[979] Principal Accountant Fees and Services The company incurred $1.4 million in audit fees in 2023, with the Audit Committee pre-approving all services Accountant Fees (in thousands) | Fee Category | 2023 | 2022 | | :--- | :--- | :--- | | Audit fees | $1,398,977 | $153,973 | | Audit-related fees | - | - | | All other fees | - | - | | Total fees | $1,398,977 | $153,973 | - The Audit Committee's policy is to pre-approve all audit and non-audit services provided by the independent auditor[842] Part IV Exhibits, Financial Statement Schedules This section lists key legal and financial documents filed with the report, including agreements and certifications - Lists key legal and financial documents filed with the report, including the Amended and Restated Business Combination Agreement, Certificate of Incorporation, Bylaws, and various debt and employment agreements[857][844] - Includes required certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act[858] Form 10-K Summary The company has elected not to include summary information under this optional item - The Company has elected not to include summary information[986]