UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-SA
SEMI-ANNUAL REPORT PURSUANT TO
REGULATION A
For the fiscal semi-annual period ended:
(Commission File Number)
ENERGEA PORTFOLIO 2 LLC
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
84-4611704
(I.R.S. Employer Identification No.)
(Full mailing address of principal
executive offices)
(Issuer's telephone number, including area
code)
Class A Investor Shares
(Title of each class of securities issued pursuant to Regulation A)
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Page 2
PART II
Caution Regarding
Forward-Looking Statements
We make
statements in this Semi-Annual Report on Form 1-SA ("Semi-Annual Report") that
are forward-looking statements within the meaning of the federal securities
laws. The words "outlook," "believe," "estimate," "potential," "projected,"
"expect," "anticipate," "intend," "plan," "seek," "may," "could" and similar
expressions or statements regarding future periods are intended to identify
forward-looking statements. These forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause our
actual results, performance or achievements, or industry results, to differ
materially from any predictions of future results, performance or achievements
that we express or imply in this Semi-Annual Report or in the information
incorporated by reference into this Semi-Annual Report.
The
forward-looking statements included in this Semi-Annual Report are based upon
our current expectations, plans, estimates, assumptions, and beliefs that
involve numerous risks and uncertainties. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
our control. Although we believe that the expectations reflected in such
forward-looking statements are based on reasonable assumptions, our actual
results and performance could differ materially from those set forth in the
forward-looking statements. Factors which could have a material adverse effect
on our operations and future prospects include, but are not limited to:
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our ability to effectively deploy the proceeds raised in our
offering (the "Offering");
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ability to attract and
retain members to the online investment platform located at www.energea.com (the
"Platform");
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risks associated with breaches of our data security;
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public health crises,
pandemics and epidemics, such as those caused by new strains of viruses
such as H5N1 (avian flu), severe acute respiratory syndrome (SARS) and, most
recently, the novel coronavirus (COVID-19);
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climate change and natural disasters that could adversely
affect our Projects and our business;
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changes in economic
conditions generally and the renewable energy and securities markets
specifically;
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limited ability to dispose
of assets because of the relative illiquidity of renewable energy Projects;
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our failure to obtain necessary outside financing;
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risks associated with
derivatives or hedging activity;
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intense competition in the
Brazilian renewable energy market that may limit our ability to attract or
retain energy offtakers;
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defaults on or non-renewal of Subscribers;
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increased interest rates
and operating costs;
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the risk associated with
potential breach or expiration of a ground lease, if any;
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our failure to successfully
operate or maintain the Projects;
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exposure to liability
relating to environmental and health and safety matters;
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Projects to yield
anticipated results;
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our level of debt and the
terms and limitations imposed on us by our debt agreements;
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our ability to retain our
executive officers and other key personnel of our Manager;
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expected rates of return
provided to investors;
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the ability of our Manager
to source, originate and service our loans;
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the ability for our
engineering, procurement and construction contractors and equipment
manufacturers to honor their contracts including warranties and guarantees;
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or regulatory changes impacting
our business or our assets (including changes to the laws governing the
taxation of corporations and Securities and Exchange Commission ("SEC")
guidance related to Regulation A ("Regulation A") of the Securities Act of
1933, as amended (the "Securities Act"), or the Jumpstart Our Business
Startups Act of 2012 (the "JOBS Act"));
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changes in business
conditions and the market value of our Projects, including changes in
interest rates, prepayment risk, operator or borrower defaults or bankruptcy,
and generally the increased risk of loss if our investments fail to perform
as expected;
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our ability to implement
effective conflicts of interest policies and procedures among the various
renewable energy investment opportunities sponsored by our Manager;
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our compliance with
applicable local, state and federal laws, including the Investment Advisers
Act of 1940, as amended (the "Advisers Act"), the Investment Company Act of
1940, as amended, and other laws; and
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changes to U.S. generally
accepted accounting principles ("U.S. GAAP").
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Page 3
Any of
the assumptions underlying forward-looking statements could be inaccurate. You
are cautioned not to place undue reliance on any forward-looking statements
included in this Semi-Annual Report. All forward-looking statements are made as
of the date of this Semi-Annual Report and the risk that actual results will
differ materially from the expectations expressed in this Semi-Annual Report
will increase with the passage of time. Except as otherwise required by the
federal securities laws, we undertake no obligation to publicly update or
revise any forward-looking statements after the date of this Semi-Annual
Report, whether because of new information, future events, changed
circumstances or any other reason. Considering the significant uncertainties
inherent in the forward-looking statements included in this Semi-Annual Report,
including, without limitation, the those named above and those named under "Risks
of Investing" in the Offering Circular, the inclusion of such forward-looking
statements should not be regarded as a representation by us or any other person
that the objectives and plans set forth in this Semi-Annual Report will be
achieved.
Given The Risks and Uncertainties, Please Do Not Place Undue Reliance on
Any Forward-Looking Statements.
Business
Energea Portfolio 2 LLC ("Company")
is a limited liability company, treated as a corporation for tax purposes, and organized
under the laws of Delaware. The Company and its day-to-day operations are
managed by Energea Global LLC ("Manager"). The Company was created to
invest in the acquisition, development, and operations of community solar
energy projects in Brazil (each a "Project"). The Projects will be
rented to groups of residential households and to businesses (which we collectively
refer to as "Subscribers") for monthly payments based on the amount of
electricity produced by the Project credited to them. Although some Subscribers
will default, we expect them to be replaced quickly by others, allowing the
Projects to produce a stable and predictable stream of cash flow.
Projects will be owned by
special-purpose entities (each, an "SPE"). Each SPE is organized as a Brazilian
Limitada or Ltda, the Brazilian equivalent of a U.S. limited liability company.
Under Brazilian law, the assets and liabilities of a Ltda are distinct. Thus,
the liabilities of a Project held in one SPE will not affect the assets of
another Project held in a different SPE.
Typically, the Company owns
100% of each SPE, although there could be instances where the Company is a
partner in a SPE with another party, such as the Development Company (defined
below). In all cases, the Company exercises complete management control over
the SPE.
Each of our Projects are
structured around five main contracts which the Manager causes the SPE to enter
into:
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Land Lease: The SPEs lease (rather than buy) the land where
the Project is located, pursuant to a contract we refer to as a "Land
Lease."
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Construction Contract: To build the Projects, the SPE hires a third party
to provide engineering, procurement, and construction services pursuant to a
contract we refer to as a "Construction Contract."
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Project Rental Contract: In all cases, the SPEs rent the Projects to
Subscribers (so that the Subscriber is, in form, generating its own solar
power) pursuant to a contract we refer to as a "Project Rental Contract."
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Operations and
Maintenance Contract: As the SPE
rents the Project to a Subscriber pursuant to a Project Rental Contract, the
Subscriber simultaneously hires the SPE to operate and maintain the Project
pursuant to a contract referred to as an "Operations and Maintenance
Contract."
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Project Maintenance
Contract: The SPE then hires a
third party to operate and maintain the Projects pursuant to a contract we
refer to as a "Project Maintenance Contract." In some cases, the SPE
may hire a subsidiary of Energea to operate and maintain the Projects.
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Each of these contracts are
bi-lingual, both in English and in Portuguese, the national language of Brazil.
Although the final terms and conditions might differ from Project to Project,
the rights and obligations of the parties will generally be consistent across
all of the Projects.
The revenue from our Projects
consists primarily of the payments we receive from Subscribers under Project
Rental Contracts and Project Operations and Maintenance Contracts. The Projects
will make a profit if their revenues exceed their expenses.
Currently,
the Company plans to hold the Projects indefinitely, creating a reliable stream
of cash flow for Investors. Should the Company decide to sell one or more
Projects, however, the Manager's experience in the industry suggests that the
Projects could be sold for a profit:
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Yield and Cashflow: Many investment funds look for reliable cashflows
generating a targeted yield. From the perspective of such a fund, any of the
Projects or indeed the entire portfolio of Projects would be an attractive
investment. With both revenue and most expenses locked in by contract, the
cash flow should be predictable and consistent for as long as 20 years.
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Project Consolidation: Some of the Projects will be too small or unusual
for institutional buyers to consider on their own. The Company could package
these Projects into a larger, more standardized portfolio that will be
attractive to these larger, more efficiency-focused players. In the
aggregate, the portfolio of Projects is expected to generate 50+ megawatts of
power with relatively uniform power contracts, engineering standards, and
underwriting criteria. A portfolio of that size can bear the fees and diligence
associated with an institutional-grade transaction or securitization.
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Cash Flow Stabilization: When the Company buys a Project, it will typically
share the construction risk with the development company that originated the
Project. Larger investors are generally unwilling to take on construction
risk and will invest only in projects that are already generating positive
cash flow, referred to as "stabilization." Thus, the Company will acquire
Projects before stabilization and sell them after stabilization.
Institutional investor interest in the Portfolio should increase as the
portfolio stabilizes.
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Increase in Residual
Value: When the Company acquires a
Project, the appraisal is based solely on the cash flows projected from
executed Project Rental Contracts, with no residual value assumed for the
Project. There is a high probability that a Project will continue to create
revenue after its initial contract period in the form of a contract
extension, repositioning, or sale into the merchant energy markets. This
creates a sort of built-in "found value" for our Projects, which may be
realized upon sale.
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Item 1. Management Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion
contains forward-looking statements that reflect our plans, estimates, and
beliefs. Our actual results could differ materially from those discussed in
the Caution Regarding Forward-Looking Statements. Unless otherwise
indicated, the latest results discussed below are as of June 30, 2023.
Offering
Results
On August 13, 2020, the
Company commenced its offering to the public of limited liability company
interests denominated as Class A Investor Shares under Regulation A (the "Offering")
and an Offering Circular dated June 30, 2020, as updated and amended from time
to time (the "Offering Circular"). The Offering Circular is available
through the SEC's EDGAR site (LINK), and
may also be obtained on the Platform or by contacting the Manager. We refer to
the purchasers of Class A Investor Shares as "Investors".
We initially offered up to
$50 million in our Class A Investor Shares in our Offering. The SEC has since
adopted an amendment to increase the maximum offering amount under Tier 2 of
Regulation A from $50 million to $75 million per rolling twelve-month period.
This amendment was effective March 15, 2021, and the Company intends to utilize
this increased offering amount in the future. The Offering is being conducted
as a continuous offering pursuant to Rule 251(d)(3) of Regulation A, meaning
that while the offering of securities is continuous, active sales of securities
may occur sporadically over the term of the Offering. As of June 30, 2023, we
had raised total offering proceeds of
$8,224,365, net of stock issuance costs of $157,509, from settled subscriptions
resulting from the sale of 10,201,781 Investor Shares.
We expect to offer Class A
Investor Shares in our Offering until we raise to the amount of capital needed
to afford the capital expenses of all Projects approved by the Investment
Committee. If we have fully-funded the cost of all Projects through the Offering,
we will stop raising money until a new Project is approved for investment by
the Company.
Share
Price Calculation
The
price for a Class A Investor Share in the Company is computed on the Platform
to equalize Investors in response to differences between them that could arise
from buying Class A Investor Shares at different times. For example, changes in
the value of the Company and/or the Projects at different times could result
from:
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changes
in USD/BRL FX rate that differ from the FX rates we estimated when the
initial share price was calculated;
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changes
in U.S. and Brazilian inflation rates that differ from the rates we estimated
when the initial share price was calculated;
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investing
in new Projects or selling Projects would change the projected cash flow for
the Company;
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distributions
received by earlier investors;
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changes
in baseline assumptions like Project costs, expenses and/or changes in tax
rates or electric rates.
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Page 5
To
determine the share price for a Class A Investor Share of the Company, we
compute an algorithm that resolves:
rIRR
= pIRR
Where:
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rIRR
= Realized IRR of all existing Class A Investor Shares;
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pIRR
= Projected lifetime IRR of a hypothetical $1 investor at share price "x".
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Below
is a table of the price of Class A Investor Shares (the only class of investor
shares) at the close of each month since the initial offering.
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Date
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Share Price
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Initial Share Price
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$1.00
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08 / 2020
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$0.91
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09 / 2020
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$0.86
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10 / 2020
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$0.87
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11 / 2020
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$0.91
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12 / 2020
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$0.94
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01 / 2021
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$0.89
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02 / 2021
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$0.91
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03 / 2021
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$0.93
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04 / 2021
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$0.94
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05 / 2021
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$0.96
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06 / 2021
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$0.78
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07 / 2021
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$0.79
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08 / 2021
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$0.78
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09 / 2021
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$0.78
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10 / 2021
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$0.78
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11 / 2021
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$0.78
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12 / 2021
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$0.78
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01 / 2022
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$0.78
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02 / 2022
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$0.78
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03 / 2022
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$0.79
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04 / 2022
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$0.79
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05 / 2022
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$0.80
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06 / 2022
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$0.81
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07 / 2022
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$0.81
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08 / 2022
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$0.82
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09 / 2022
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$0.82
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10 / 2022
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$0.82
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11 / 2022
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$0.83
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12 / 2022
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$0.83
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01 / 2023
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$0.84
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02 / 2023
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$0.85
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03 / 2023
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$0.85
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04 / 2023
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$0.86
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05 / 2023
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$0.86
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06 / 2023
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$0.87
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07 / 2023
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$0.87
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08 / 2023
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$0.88
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09 / 2023
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$0.89
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Distributions
Provided we
have sufficient available cash flow, we authorize and declare distributions
based on net income for the preceding month minus any amounts held back for
reserves.
While we are
under no obligation to do so, we have in the past and expect in the future to
declare and pay distributions monthly; however, our Manager may declare other
periodic distributions as circumstances dictate. Below is a table depicting the
distributions made from the company during the first half of 2023:
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Distribution Date
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Amount
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Management Fees*
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Carried Interest*
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01/27/2023
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$22,479.53
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$1,291.53
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$1,225.71
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02/24/2023
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$25,264.57
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$1,250.71
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$3,474.91
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03/27/2023
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$30,931.40
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$1,250.71
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$2,755.98
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04/28/2023
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$30,974.00
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$1,290.71
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$2,735.20
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05/30/2023
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$32,817.29
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$1,290.71
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$2,891.48
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06/26/2023
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$40,191.00
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$1,290.71
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$3,518.57
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Total
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$182,657.79
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$7,665.08
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$16,601.85
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*Note: Energea reserves the
right to reduce its Asset Management Fees and Promoted Interest payments for
any reason or to protect the desired cash yield to Investors.
Page 6
Operating
Results
For the semi-annual period
ending June 30, 2023, the Company invested a total of $8,948,161 and has
generated a total of $188,559 in operational revenue.
As
of June 30, 2023, the Company has assets totaling $12,571,023 on its balance
sheet, including Projects currently owned by the Company valued at $8,867,159,
net of depreciation, current assets of $2,687,963 and operating lease right-of
use assets of $1,008,313 and non-current assets of $7,589. As of June 30, 2023,
the Company has liabilities and members equity totaling $12,571,023, including
current liabilities of $243,328, operating lease liability of $1,131,945,
non-current liabilities of $4,553,001 and members equity of $6,642,749.
Our Investments
In June 2023, the Company
sold seven solar Projects; Aparecida do Taboado I, Frei Inocencio, Monte Sião,
Nova Lacerda, Formiga II, Naque and Itabapoana. We had invested $711,434 into
the seven Projects and sold them for $894,014, with a profit of $182,580.
Currently, the Company plans to sell one more project and hold the other
Projects indefinitely, creating a reliable stream of cash flow for Investors.
After the sale in June 2023,
the Company owns eleven (11) Projects, each of which were described more fully
in the Offering Circular and in various filings with the SEC since the date our
Offering was qualified by the SEC (e.g. August 13, 2020).
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Project Name
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Total Invested through 06/30/23
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Total Estimated Cost
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Project Memo
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Iguatama
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$2,507,752
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$2,507,752
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Pedra do Indaiá
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$3,846,376
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$3,921,154
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Divinopolis III
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$280,263
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$3,264,236
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Araxa I
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$263,216
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$3,509,397
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Araxa II
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$263,772
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$3,524,007
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Corumbaiba
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$252,377
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$3,745,367
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Divinopolis II
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$1,019,026
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$3,462,274
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Micros I
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$150,915
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$997,571
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Diamantina II
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$113,680
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$3,384,828
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Formiga I
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$138,357
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$3,430,480
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Aparecida do
Taboado II
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$112,427
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$3,365,194
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Total
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$8,948,161
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$35,112,260
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Liquidity and Capital Resources
We are dependent upon the net
proceeds from the Offering to conduct our proposed investments. We will obtain
the capital required to purchase new Projects and conduct our operations from
the proceeds of the Offering and any future offerings we may conduct, from
secured or unsecured financings from banks and other lenders and from undistributed
funds from our operations. As of June 30, 2023, the Company had $796,350 of
cash on hand which will be used to pay for the remaining costs of constructing
the Pedra do Indaia Project and the Divinopolis II Project. As we continue to
raise capital from the offering, we expect to commence construction of the
Divinopolis III Project, Araxá I Project and Araxá II project into the first
half of 2024. To the extent that capital raised from the Offering is
insufficient to construct the Projects, we may borrow additional capital from
the Lender to make up the difference.
Outlook and
Recent Trends
One
recurring trend we have experienced while constructing the Projects in Brazil has
been delays in interconnecting our Projects to the utility-owned grid.
Interconnecting our larger-format Projects requires a tremendous level of
coordination between the utility company, contractors, construction management
to run lines for miles, install significant electrical infrastructure and shut
portions of the grid down for periods of time. To date, the Company has
experienced abnormal delays in this process, delays that exceed our schedule
when commencing construction. Fortunately, long term financial impact of these
delays has been immaterial and modeled projection have been adjusted to reflect
this trend.
Other
than the trends described above and factors that will impact the Company's
success discussed in this semi-annual report, in the Annual Report, and in the
"Risks of Investing," section of
the Offering Circular,
the Company is not aware of any trends, uncertainties,
demands, commitments, or events that are reasonably likely to have a material
adverse effect on our revenues, income from continuing operations,
profitability, liquidity, or capital resources. We caution, however, that any
of the items in this semi-annual report, in the Annual Report, and in the
Risks of Investing," section of the
Offering Circular could have a material adverse impact.
That
said, we believe that the solar market in Brazil for community solar projects
remains one of the most attractive markets to develop solar projects anywhere
in the world. Recent improvements to the laws that enable this type of project
development have increased demand for these assets while the Company's
experience in the market, and that of the Manager, continue to result in
additional deal flow and promising prospects for long term cash flow.
Method of
Accounting
The
compensation described in this section was calculated using the accrual method
of accounting.
Page 7
<a name=
"_Item_2._Other"
Item 2. Other Information
As of June 30, 2023, there
have been no fundamental changes to our offering.
Item 3.
Financial Statements
Balance Sheet
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6/30/23
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12/31/22
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Assets
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Current assets:
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|
Cash and cash equivalents
|
$ 796,350
|
$ 1,237,923
|
|
Accounts
receivable
|
1,109,247
|
174,061
|
|
Prepaid expenses and other current assets
|
680,759
|
55,577
|
|
Loan
receivable, related party
|
101,607
|
64,651
|
|
Total current assets
|
2,687,963
|
1,532,212
|
|
|
|
|
Property and
equipment, net
|
|
|
|
Property
and equipment
|
2,507,752
|
2,457,753
|
|
Construction in progress
|
6,440,409
|
4,357,702
|
|
Total
property and equipment
|
9,048,162
|
6,815,455
|
|
Less accumulated depreciation
|
(81,003)
|
34,700
|
|
Total
property and equipment, net
|
8,867,158
|
6,780,755
|
|
|
|
|
Other noncurrent assets:
|
|
|
|
Operating lease right-of-use assets
|
1,008,313
|
629,475
|
|
Due
from related party
|
7,589
|
9,949
|
|
Total other noncurrent assets
|
1,015,902
|
639,424
|
|
|
|
|
Total assets
|
$ 12,571,023
|
$ 8,952,391
|
|
|
|
|
Liabilities
and members' equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued expenses
|
$ 207,014
|
$ 80,038
|
|
Operating
lease liabilities, current portion
|
3,785
|
1,976
|
|
Due to related party
|
32,529
|
1,255
|
|
Total
current liabilities
|
243,328
|
83,269
|
|
|
|
|
Non-current liabilities:
|
|
|
|
Operating lease liabilities, long-term portion
|
1,131,945
|
644,569
|
|
Line
of credit note payable
|
4,553,001
|
4,075,001
|
|
Total current liabilities
|
5,684,946
|
4,719,570
|
|
|
|
|
Total liabilities
|
5,928,274
|
4,802,839
|
|
|
|
|
Members' equity
|
|
|
|
Total
shares and accumulated deficit
|
6,978,023
|
4,412,778
|
|
Total accumulated other comprehensive loss
|
(335,274)
|
(263,226)
|
|
|
|
|
Total members' equity
|
6,642,749
|
4,149,552
|
|
|
|
|
Total liabilities and members' equity
|
$ 12,571,023
|
$ 8,952,391
|
Page 8
Consolidated Statement of
Operations
|
6/30/23
|
12/31/22
|
|
|
|
|
Revenue
|
$ 147,387
|
$ 40,051
|
|
|
|
|
Portfolio operating
expenses:
|
|
|
|
Professional fees
|
45,782
|
45,366
|
|
Advertising
and marketing
|
|
4,848
|
|
Software subscription
|
1,650
|
2,443
|
|
Taxes
|
857
|
4,951
|
|
Other general and administrative expenses
|
29,890
|
40,261
|
|
Total
portfolio operating expenses
|
78,179
|
97,869
|
|
|
|
|
Projects operating
expenses:
|
|
|
|
Professional fees
|
960
|
1,994
|
|
Travel
|
3,603
|
3,423
|
|
Taxes
|
36,930
|
87,036
|
|
Operation
and Maintenance
|
69,338
|
3,143
|
|
Other general and administrative expenses
|
24,973
|
39,877
|
|
Total
projects operating expenses
|
135,804
|
135,473
|
|
|
|
|
Loss
from operations
|
(66,596)
|
(193,291)
|
|
|
|
|
Other income/(expense):
|
|
|
|
Realized foreign currency loss
|
(3,192)
|
(2,266)
|
|
Gain
on sale of projects
|
182,580
|
-
|
|
Financing administrative fees
|
(4,780)
|
(4,000)
|
|
Depreciation
|
(38,413)
|
(34,700)
|
|
Interest income
|
63,362
|
10,413
|
|
Interest
expense
|
(193,904)
|
(63,116)
|
|
Miscellaneous expense
|
10,102
|
(469)
|
|
Total
other income/(expense)
|
15,754
|
(94,138)
|
|
|
|
|
Net
loss
|
(50,842)
|
(287,429)
|
|
|
|
|
Other comprehensive loss
|
|
|
|
Unrealized foreign currency exchange loss
|
(72,049)
|
(112,255)
|
|
|
|
|
Comprehensive loss
|
$ (122,891)
|
$ (399,684)
|
Page 9
Statement of Change in Members Equity
|
Common Shares
|
Investor Shares
|
Accumulated Deficit
|
Accumulated Other Comprehensive Loss
|
Total Members' Equity
|
|
|
Shares
|
Amount
|
Shares
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
$ -
|
438,150
|
$ 392,763
|
$ (146,194)
|
$ (13,460)
|
$ 233,109
|
|
|
|
|
|
|
|
|
|
Issuance of investor
shares
|
-
|
-
|
2,370,691
|
1,887,167
|
-
|
-
|
1,887,167
|
|
Non-dividend distributions
|
-
|
-
|
-
|
-
|
(296,140)
|
-
|
(296,140)
|
|
Net loss
|
-
|
-
|
-
|
-
|
(78,728)
|
-
|
(78,728)
|
|
Unrealized foreign currency
translation loss
|
-
|
-
|
-
|
-
|
-
|
(137,511)
|
(137,511)
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
-
|
2,808,841
|
2,279,930
|
(521,062)
|
(150,971)
|
1,607,897
|
|
|
|
|
|
|
|
|
|
Issuance of investor
shares, net of stock issuance costs of $138,384
|
-
|
-
|
4,091,954
|
3,150,840
|
-
|
-
|
3,150,840
|
|
Non-dividend
distributions
|
-
|
-
|
-
|
-
|
(210,340)
|
-
|
(210,340)
|
|
Net loss
|
-
|
-
|
-
|
-
|
(287,429)
|
-
|
(287,429)
|
|
Cumulative
translation adjustment
|
-
|
-
|
-
|
-
|
839
|
-
|
839
|
|
Unrealized foreign currency
translation loss
|
-
|
-
|
-
|
-
|
-
|
(112,255)
|
(112,255)
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
$ -
|
6,900,795
|
$ 5,430,770
|
$ (1,017,992)
|
$ (263,226)
|
$ 4,149,552
|
|
|
|
|
|
|
|
|
|
Issuance of investor
shares, net of stock issuance costs of $19,125.30
|
-
|
-
|
3,300,986
|
2,793,595
|
-
|
-
|
2,793,595
|
|
Non-dividend
distributions
|
-
|
-
|
-
|
-
|
(182,661)
|
-
|
(182,661)
|
|
Net loss
|
-
|
-
|
-
|
-
|
(50,842)
|
-
|
(50,842)
|
|
Cumulative translation
adjustment
|
-
|
-
|
-
|
-
|
5,154
|
-
|
5,154
|
|
Unrealized foreign currency
translation loss
|
-
|
-
|
-
|
-
|
-
|
(72,049)
|
(72,049)
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
$ -
|
10,201,781
|
$ 8,224,365
|
$ (1,246,341)
|
$ (335,275)
|
$ 6,642,749
|
Page 10
Consolidated Statement of Cash
Flow
|
6/30/23
|
12/31/22
|
|
|
|
|
Cash flows from
operating activities:
|
|
|
|
Net loss
|
$ (50,842)
|
$ (287,429)
|
|
Depreciation
|
38,413
|
34,700
|
|
Non-cash lease expense
|
110,345
|
14,465
|
|
Changes
in assets and liabilities:
|
-
|
-
|
|
Accounts receivable
|
(935,186)
|
(178,118)
|
|
Prepaid
expenses and other current assets
|
(625,182)
|
(55,463)
|
|
Loan receivable interest added to principal
|
(36,956)
|
(9,712)
|
|
Due
from related party
|
2,360
|
6,655
|
|
Accounts payable and accrued expenses
|
126,976
|
(349,084)
|
|
Due
to related party
|
31,274
|
(1,288)
|
|
Total cash flows from operating activities
|
(1,338,797)
|
(825,274)
|
|
|
|
|
Cash flows
from investing activities:
|
|
|
|
Property
and equipment
|
(2,124,815)
|
(2,312,202)
|
|
Loan receivable, related party
|
-
|
-
|
|
Total
cash flows from investing activities
|
(2,124,815)
|
(2,312,202)
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Advances on line of credit
|
478,000
|
400,000
|
|
Issuance
of investor shares
|
2,793,595
|
3,150,840
|
|
Non-dividend distribution
|
(182,661)
|
(210,340)
|
|
Total
cash flows from financing activities
|
3,088,934
|
3,340,500
|
|
|
|
|
Effect of exchange rate
changes on cash
|
(66,895)
|
(38,741)
|
|
|
|
|
Increase in cash
|
(441,573)
|
164,283
|
|
|
|
|
Cash at the beginning of
the period
|
1,237,923
|
1,073,640
|
|
|
|
|
Cash at the end of the
period
|
$ 796,350
|
$ 1,237,923
|
|
|
|
|
Supplemental disclosure of
non-cash activities:
|
|
|
|
Non-cash operating and investing activities:
|
|
|
|
Construction
in progress in accounts payable
|
$ -
|
$ -
|
|
Adoption of ASC No. 2016-02:
|
|
|
|
Operating
lease right-of-use asset
|
$ 1,008,313
|
$ 648,373
|
|
Operating lease liability
|
$ 1,135,731
|
$ 648,373
|
Page 11
Notes
to Consolidated Financial Statements
Note 1 - Organization, Operations and Summary of
Significant Accounting Policies
Business organization
and operations
Energea Portfolio 2 LLC is a Delaware Limited Liability
Corporation formed to develop, own and
manage a portfolio of renewable energy projects in Brazil. The consolidated
financial statements include the accounts of Energea Portfolio 2 LLC and its
wholly owned Brazilian single purpose entities ("SPEs"): Energea Iguatama
Aluguel de Equipamentos e Manutençao Ltda, Energea Pedra do Indaia Ltda,
Energea Divinopolis II Ltda, Divinopolis III Ltda, Energea Formiga I Ltda, ,
Energea Diamantina II Ltda, Energea Micros I Ltda, Energea Corumbaiba Ltda,
Energea Araxa I Ltda, Energea Araxa II Ltda, Energea Aparecida do Taboado Ltda,
Energea Portfolio Holding Ltda and Energea Portfolio Holding de Conexoes Ltda
All intercompany transactions have been eliminated in consolidation. The
Company and its day-to-day operations are managed by Energea Global LLC
("Manager"). The Company works in close cooperation with stakeholders, project
hosts, industry partners and capital providers to produce best-in-class
results.
The Company's activities consist principally of
organization and pursuit costs, raising capital, securing investors and project
development activity. The Company's activities are subject to significant risks
and uncertainties, including the inability to secure funding to develop its
portfolio. The Company's operations are funded by the issuance of membership
interests and debt at the Company level. There can be no assurance that any of
these strategies will be achieved on terms attractive to the Company. During
2021, the Company initiated a Regulation A Offering for the purpose of raising
capital to fund ongoing project development activities. As of June 30, 2023,
the Company has invested in its eleven projects. The Company is offering to
sell interests designated as Investor Shares to the public up to $75,000,000.
The initial price of the Investor Shares was $1.00 per share. Through June 30,
2023, the Company had raised total offering proceeds of $8,224,365, net of
stock issuance costs of $157,509, from settled subscriptions resulting from the
sale of 10,201,781 Investor Shares.
Basis of
presentation
The consolidated financial statements have been prepared
on the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States of America ("US GAAP").
Use of estimates
The preparation of the financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statement. Actual results could differ from those estimates.
Cash and cash
equivalents
Cash and cash equivalents include cash on hand, deposits
at commercial banks and short-term cash equivalents maturing within 90 days.
Capitalization and investment in project assets
A project has four basic phases: (i) development, (ii)
financing, (iii) engineering and construction and (iv) operations and
maintenance. During the development phase, milestones are created to ensure
that a project is financially viable. Project viability is obtained when it
becomes probable that costs incurred will generate future economic benefits
sufficient to recover those costs.
Examples of milestones required for a viable project
include the following:
- The identification,
selection and acquisition of sufficient area required for a project;
- The confirmation of a
regional electricity market;
- The confirmation of
acceptable electricity resources;
- The confirmation of the
potential to interconnect to the electric transmission grid;
- The determination of limited
environmental sensitivity; and
- The confirmation of local
community receptivity and limited potential for organized opposition.
All project costs are expensed during the development
phase. Once the milestones for development are achieved, a project is moved
from the development phase into the engineering and construction phases. Costs
incurred in these phases are capitalized as incurred, included within
construction in progress ("CIP"), and not depreciated until placed into
commercial service. Once a project is placed into commercial service, all
accumulated costs are reclassified from CIP to property and equipment and
become subject to depreciation or amortization over a specified estimated life.
Property and Equipment
Property and equipment costs of projects completed and is stated
at cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which range
from 20 to 30 years. Additions, renewals, and betterments that significantly
extend the life of the asset are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred.
The Company reviews long-lived assets for impairment whenever
events or circumstances indicate that the carrying value of such assets may not
be fully recoverable. During the period ended June 30, 2023 and the year ended
December 31, 2022,
there was no impairment losses recognized for long-lived assets.
Page 12
Revenue recognition
All
of the SPE's have Equipment Rental Agreements. These rental agreements are with
various subscribers who will pay a monthly fee for the renewable energy upon
completion of the projects. Projects are considered complete when they are
tested, commissioned, interconnected to the grid and capable of producing
electricity as designed. Revenue will be recognized as it is earned on a
monthly basis. The agreements are in effect for twenty-five years from the
completion date and are expected to have a combined gross revenue $156,852,140
from all projects when operational.
Comprehensive Loss
GAAP
requires the reporting of "comprehensive loss" within general purpose financial
statements. Comprehensive income/(loss) is comprised of two components, net
income/(loss) and comprehensive income/(loss). For the period ended June 30,
2023 and the year ended December 31, 2022, the Company had foreign currency
exchange losses relating to currency translation from Brazilian real to U.S.
dollar reported as other comprehensive loss.
Income taxes
Effective January 1, 2021, the Company has elected to be
taxed as a C-Corporation for Federal, State and local income tax reporting
purposes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets, including tax loss and credit carryforwards, and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established to reduce deferred tax
assets to the amount expected to be realized. As of December 31, 2022 and 2021,
deferred taxes of approximately $159,712 and $76,444, respectively, have been
fully reserved by a valuation allowance. Any income taxes currently due are not
material to the consolidated financial statements for the year ended December
31, 2022 or 2021.
The Company also concluded that there are no uncertain
tax positions that would require recognition in the consolidated financial
statements. Interest on any income tax liability is reported as interest
expense and penalties on any income tax liability are reported as income taxes.
The Company's conclusions regarding uncertain tax positions may be subject to
review and adjustment at a later date based upon ongoing analysis of tax laws,
regulations and interpretations thereof, as well as other factors.
Leases
Adoption
- ASU No. 2016-02, Leases (Topic 842) -
The amendments in this update require lessees to recognize, on the balance
sheet, assets and liabilities for the rights and obligations created by leases.
The guidance was effective for the Company on January 1, 2022. The adoption
requires either a modified retrospective transition where the lessees and
lessors are required to recognize and measure leases at the beginning of the
earliest period presented, or a cumulative effect adjustment as of the date of
adoption. The Company adopted this new guidance on January 1, 2022 and as a
result, the Company recorded a lease right-of-use asset and lease liability of
$648,373 through a cumulative effect adjustment as of that date. In July 2018,
the FASB issued ASU No. 2018-11, which provided a practical expedient package
for lessees. The Company elected to use the expedient package and did not
reassess whether any existing contracts contain leases; did not reassess the
lease classification for existing leases; and did not reassess initial direct
costs for any existing leases. As a result, all leases are considered operating
leases.
The
Company determines if an arrangement is a lease at inception. Lease
right-of-use ("ROU") assets represent the Company's right to use an underlying
asset for the lease term and operating lease liabilities represent the
Company's obligation to make lease payments arising from the lease. Lease ROU
assets and lease liabilities are recognized at commencement date based on the
present value of lease payments over the lease term. As the Company's leases do
not provide an implicit rate, the Company uses its incremental borrowing rate
based on the information available at commencement date in determining the
present value of lease payments. The lease ROU asset also includes any lease
payments made and excludes lease incentives. The lease terms may include options
to extend or terminate the lease when it is reasonably certain that the Company
will exercise that option. Lease expense for lease payments is recognized on a
straight-line basis over the lease term. The Company has lease agreements with
lease and non-lease components, which are generally accounted for separately.
Foreign Currency Exchange
Transactions
Purchases
of products and services for the Brazilian subsidiaries are transacted in the
local currency, Brazilian real (R$), and are recorded in U.S. dollar
translated at historical exchange rates prevailing at the time of the
transaction. Balances are translated into U.S. dollar using the exchange rates
at the respective balance sheet date. Realized exchange gains and losses are
included in foreign currency exchange loss on the accompanying consolidated
statements of operations and comprehensive loss. Unrealized exchange gains and
losses are included in other comprehensive loss on the accompanying
consolidated statements of operations and comprehensive loss. Unrealized
translation losses for the period ended June 30, 2023 and years ended December
31, 2022 and 2021 were $72,049, $112,255 and $137,511, respectively. Realized
translation losses for the period ended June 30, 2023 and years ended December
31, 2022 and 2021 were $ 3,192, $2,266 and $-0-, respectively.
Page 13
Concentrations
Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents. The Company maintains
its cash and cash equivalents in bank deposits at high credit quality financial
institutions. The balances, at times, may exceed federally insured limits. Each
bank account held in Brazil has a revolving line of credit associated with it
intended to cover any shortfall in the cash accounts and carry interest at
13.99% per month. The lines have credit limits of $209 to $10,438.50. There
were no draws on these lines of credit during the period ended June 30, 2023 or
year ended December 31, 2022.
Extended Transition Period
Under
Section 107 of the Jumpstart Our Business Startups Act of 2012, the Company is
permitted to use the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act for complying with new or revised accounting standards.
This permits the Company to delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies. The Company
has elected to use the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting
standards that have different effective dates for public and private companies
until the earlier of the date that the Company (i) is no longer an emerging
growth company or (ii) affirmatively and irrevocably opt out of the extended
transition period provided in Section 7(a)(2)(B). By electing to extend the
transition period for complying with new or revised accounting standards, these
consolidated financial statements may not be comparable to companies that adopt
accounting standard updates upon the public business entity effective dates.
Subsequent events
In
connection with the preparation of the consolidated financial statements, the
Company monitored and evaluated subsequent events for the period ended June 30,
through September 29, 2023, the date on which the consolidated financial
statements were available to be issued.
There are no material subsequent events that require disclosure.
Note 2 - Construction in Progress
The Company is in the process of developing and
constructing renewable energy facilities in Brazil. All project costs are being
capitalized and include hard costs, such as equipment and construction
materials, and soft costs, such as engineering, architectural, legal, permits,
developer fees and other costs. The balance of CIP on June 30, 2023 and
December 31, 2022 was $ 6,551,091 and $4,357,702, respectively. The Company
expects to incur an additional $12,141,150 of costs to complete the projects
that have not yet completed or begun construction which include the projects
owned by Energea Araxá I Ltda, Energea Araxá II Ltda, and Energea Divinopolis
II Ltda, Energea Divinopolis III Ltda, and Energea Micros I Ltda, Energea Pedra
do Indaia Ltda.
Note 3 - Line of Credit
In
October 2020, the Company, along with its majority member-manager, entered into
a revolving credit agreement (the "Agreement") with a debt provider to provide
funding for the construction projects in Brazil. The Agreement calls for a line
of credit with total availability of $5,000,000 to be used solely to finance
the purchase, development and construction of the two Brazilian projects.
Interest is payable in quarterly installments at an annual rate of 15% through
the date of maturity of September 30, 2023.
The
Company may elect to defer up to 50% of each quarterly interest installment,
provided that such deferred interest will be treated as principal and repaid in
accordance with the Agreement. The line of credit is secured by a pledge of the
Manager's Class A Investor Shares and Common Shares in the Company as well as a
fiduciary lien on the assets owned by Energea Iguatama Aluguel de Equipamentos
e Manutençao Ltda and Energea Pedra do Indaia Ltda.
The
Company may repay or prepay outstanding revolving notes with prior approval of
the lender. In addition, the Company is required to repay outstanding principal
with the proceeds of any sales of the projects within ten days following
receipt of the sales proceeds, or in the event a project is canceled or unable
to be completed.
If
any projects have completed construction prior to the line of credit maturity
date, the Company may elect to convert the revolving line of credit to a term
loan, subject to certain limitations, provided the Company has met all
financial covenants and other requirements, as defined. Term loans require
quarterly repayments of principal plus interest at 13% per annum, in advance,
over a term of ten years. The company intends to exercise this option, so the
line of credit is recorded as long-term on the accompanying consolidated
balance sheets.
The
Company's balance outstanding under the line of credit on June 30, 2023 and
December 31, 2022 was $4,553,001 and $4,075,001, respectively. Interest
incurred during the construction phase is capitalized as CIP. Interest
capitalized and paid during the period ended June 30, 2023 was $292,456.
Interest capitalized and paid at the year ended December 31, 2022 was $766,631.
Page 14
Note 4 - Related Party Transactions
The
Company has transactions between related companies from time to time. At June
30, 2023 and December 31, 2022, the Company had $32,529 and $1,255,
respectively, payable to a company with common ownership At June 30, 2023 and
December 31, 2022, the Company had $ 7,589 and $9,949 respectively, receivable
from related companies with common ownership, which are included due to/from
related parties on the accompanying consolidated balance sheets.
As of June 30, 2023 and December 31, 2022, the Company
entered into one and seven, respectively, construction management agreements
with the Manager, one for each project, to pay developer fees for services of
supervision of the construction of the projects. During the period ended June
30, 2023 and year ended December 31, 2022, the Company paid total developer
fees to the Manager of $239,696 and $603,801, respectively, which were
capitalized to CIP.
During November 2021, the Company loaned an affiliate
with common ownership $53,955. The loan matured in November 2022. An amended
loan was signed in January 2023 with new maturity date in November 2023. The
loan has an annual interest rate of 18%. As of June 30, 2023, the loan
receivable balance consists of $53,955 of principal and $15,552 of accrued
interest. On December 31, 2022, the loan receivable balance consists of $53,955
of principal and $10,696 of accrued interest.
During February 2023, the Company loaned an affiliate
with common ownership $30,000. The loan mature date is in February 2024, with
an annual interest rate of 18%. As of June 30, 2023, the loan receivable
balance consists of $30,000 of principal and $ 2,100 of accrued interest.
Note 5 - Leases
The
Company has a land lease for the Energea Iguatama Aluguel de Equipamentos e
Manutençao Ltda property with an annual rent of approximately $13,233 expiring
in January 2049. The monthly base rent increases each lease year by the General
Market Price Index.
A
second lease for the Energea Pedra do Indaiá Ltda with an annual rent of
$8,907.68 and will expire in April 2047. The monthly base rent increases each
lease year by the Brazilian Extended National Consumer Price Index.
A
third lease for the Divinopolis III Ltda property with an annual rent of
$21,925 and will expire in June 2047. The monthly base rent increases each
lease year by the Brazilian Extended National Consumer Price Index.
A
fourth lease for the Energea Araxa I Ltda property with an annual rent of
$21,199 and will expire in January 2047. The monthly base rent increases each
lease year by the Brazilian Extended National Consumer Price Index.
A
fifth lease for the Energea Araxa II Ltda property with an annual rent of
$21,199 and will expire in January 2047. The monthly base rent increases each
lease year by the Brazilian Extended National Consumer Price Index.
A
sixth lease for the Energea Formiga I Ltda property with an annual rent of
$37,578.60 and will expire in January 2047. The monthly base rent increases
each lease year by the Brazilian Extended National Consumer Price Index.
A
seventh lease for the Energea Divinopolis II Ltda property with an annual rent
of $17,537 and will expire in March 2048. The monthly base rent increases each
lease year by the Brazilian Extended National Consumer Price Index.
An
eighth lease for the Energea Corumbaiba Ltda property with an annual rent of
$26,055 and will expire in January 2048. The monthly base rent increases each
lease year by the Brazilian Extended National Consumer Price Index
Total
land rental costs for the period ended June 30, 2023 and December 31, 2022 were
$100,690 and $ 69,848 respectively, which have been capitalized and included in
CIP on the accompanying consolidated balance sheets.
The
lease cost and other required information for the period ended June 30, 2023
are:
Future
minimum estimated lease payments based on the exchange rate at June 30, 2023
are as follows for the period ending June 30, 2023:
Page 15
Note 6 - Commitments
The
Company has three Solar Engineering, Procurement and Construction ("EPC")
contracts for three of the projects with an original combined total contracted
cost of $5,836,661 As of June 30, 2023, $1,985,208 had been incurred and has an
expected remaining amount of $4,151,357, totaling $6,136,565, which includes a
cost overrun of $299,904.
The
Company has three Interconnection Engineering, Procurement and Construction
("EPC") contracts for three of the projects with an original total combined
total expected cost of $345,671. As of June 30, 2023, $112,716 had been
incurred and has an expected remaining amount of $318,323, totaling $431,039,
which includes a cost overrun of $85,368.
As of
June 30, 2023 one of the SPE's entered into Operation and Maintenance Service
Agreement ("O&M Agreements") with a company related through common
ownership to perform continued maintenance on the project. The agreement is in
effect for ten years from the initial signature date. The SPEs a service fee
defined in the agreement is $ 4,280. The Price shall be adjusted on the first
(1st) anniversary of the Order of Service, and each anniversary
thereafter, in accordance with IPCA, in the respective period, or any other
index which might be determined by law for such effects.
Note 7 - Members' Equity
Common Shares
The
Company authorized 1,000,000 common shares, which as of June 30, 2023 and 2022,
1,000,000 are issued and outstanding. The shares represent membership
interests in the Company.
Investor Shares
The
Company authorized 19,000,000 investor shares, which as of June 30, 2023 and
2022, 10,201,781 and, 6,900,795, respectively, are issued and outstanding. The
shares represent membership interests in the Company.
Item 4.
Exhibits
Certificate of Formation **
Authorizing Resolution **
Form Investment Agreement **
Form Auto-Investing Agreement
**
Form Auto-Reinvesting
Agreement **
Operating Agreement **
Operating Agreement - First
Amendment *
Form Operations and
Maintenance Agreement **
Iguatama Project **
Pedro do Indaia Project **
Divinopolis III Project **
Araxa I Project **
Araxa II Project **
Sale of Salinas, Pedrinopolis
and Itaguai III Projects **
Change in Tax ID **
Change in Accountant **
Corumbaiba Project**
Divinopolis III Project **
Micros I Project**
Diamantina II, Formiga I,
Formiga II, Naque Project**
Purchase and Sale of Projects
(Aparecida do Taboado II)**
Page 16
Signatures
Pursuant
to the requirements of Regulation A, the issuer has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Energea
Portfolio 2 LLC
By: Energea
Global LLC
By MICHAEL
SILVESTRINI
Name: Mike Silvestrini
Title: Co-Founder and
Managing Partner
Pursuant
to the requirements of Regulation A, this report has been signed below by the
following persons on behalf of the issuer and in the capacities and on the
dates indicated.
By MICHAEL
SILVESTRINI
Name: Mike Silvestrini
Title:
Co-Founder and Managing Partner
Page 17
