UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 1-K
ANNUAL REPORT PURSUANT TO REGULATION A OF THE SECURITIES
ACT OF 1933
For the fiscal year ended December 31, 2025
ENERGEA PORTFOLIO 2 LP
(Exact name of issuer as specified in its charter)
Delaware
(State or other
jurisdiction of incorporation or organization)
84-4611704
(I.R.S. Employer Identification No.)
52 Main Street,
Chester, CT 06412
(Full
mailing address of principal executive offices)
860-316-7466
(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 i
Caution Regarding Forward-Looking Statements
We make statements in this Annual
Report that are forward-looking statements. 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
Annual Report or in the information incorporated by reference into this Annual
Report.
The forward-looking statements
included in this 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, those described in this Annual
Report and in the section titled "Risk Factors" in the Offering Circular.
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 Annual
Report. All forward-looking statements are made as of the date of this Annual
Report, and the risk that actual results will differ materially from the
expectations expressed herein will increase with the passage of time. We
undertake no obligation to publicly update or revise any forward-looking
statements after the date of this 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 Annual Report, including, without limitation, those
described above and those referenced under "Risk Factors" 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 Annual Report will be achieved.
Item 1.
Description of Business
The Offering
Energea Portfolio 2 LP (the "Company", "us", "we",
"our" and similar terms) is a limited partnership organized under the laws of
Delaware to invest in the acquisition, development, and operation of solar
energy projects in Brazil (each a "Project"). The Company may also lend
money to Development Companies and use solar projects as collateral rather than
acquiring Projects for direct ownership (each a "Loan"). The Company's
day-to-day operations are managed by Energea Global LLC (the "General
Partner" and together with its affiliates "Energea Global").
The Company is currently offering up to $50.0 million in
limited partnership interests designated as "Class A Investor Shares"
(the "Offering") pursuant to Regulation A ("Regulation A") of the
Securities Act of 1933, as amended (the "Securities Act"). The current
price of the Class A Investor Shares is $1.07 per Class A Investor Share, and
the minimum initial investment is $100.
Offices
and Employees
The Company's offices are located at 52 Main Street,
Chester, CT 06412. The Company itself has no employees. Rather, the Company has
engaged the General Partner to manage the Company and utilizes employees and
services provided by the General Partner as described more fully in the section
"
Directors, Executive Officers & Significant Employees".
Page 1
Company
Overview
Energea Portfolio 2 LP is a limited partnership, treated as
a "C" corporation for United States federal and state income tax purposes, and
organized under the laws of Delaware as of January 13, 2020. The Company and
its day-to-day operations are managed by Energea Global LLC (the "General
Partner"). The Company was created to invest in the acquisition,
development, construction and operation of solar energy Projects in Brazil
(each a "Project"). Subscribers make monthly payments based on the
amount of electricity produced by the Project and credited to them. The Company
may also lend money and use solar projects as collateral rather than acquiring
Projects for direct ownership (each a "Loan"). The most likely entities
the Company intends to lend to are Development Companies ("Borrowers").
To date, the Company has not issued any Loans due to the large volume of
high-quality Project investment opportunities in the Brazilian solar market
today.
Projects are each owned by a single-purpose entities ("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.
As of the date of this Annual Report, 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 (as defined
below). In all cases, the Company will exercise management control over the SPE.
The revenue from our Projects consists of the payments we
receive from Subscribers each month. Revenue from Loans and Company Investments
come from the interest earned while cash is invested. The Company will make a
profit if cash flow from Projects, Loans and Company Investments exceed our
expenses (see "Our Operating Costs and Expenses").
While we have opportunistically sold Projects in the past
(see "Projects Sold"), the Company generally plans to hold the Projects
indefinitely, creating a reliable stream of cash flow for Investors. Should the
Company decide to sell Projects in the future, however, the General Partner
would consider the following factors:
·
Yield and Cashflow: Many investment funds look for
reliable cashflows generating a targeted yield. With both revenue and most
expenses locked in by contract, the cash flow from any Project should be
predictable and consistent for as long as 25 years.
·
Project Consolidation: Some of the Projects will be too
small or unusual for institutional buyers to consider purchasing 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, a portfolio of Projects might be 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.
·
Cash Flow Stabilization: When the Company buys a Project,
it will typically share the construction or repowering 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 may acquire Projects before stabilization and sell them after
stabilization. Institutional investor interest in the Portfolio should increase
as the portfolio stabilizes.
·
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 of energy into the merchant energy markets. This creates
a sort of built-in "found value" for our Projects, which may be realized upon
sale.
Page 2
Investment Strategy
Development Companies
The Company sources most of its Projects from third parties
in Brazil who specialize in developing solar projects ("Development
Companies"). Energea Brasil Operações Ltda ("Energea Brazil"), an
affiliate of the General Partner, is a Development Company. The Company's
relationship with Development Companies may take several different forms. A
Development Company might identify a potential project and permit, engineer and
construct it. It might provide operations and maintenance support for a Project
after it is built or might sell a Project to us and exit entirely.
Development Companies are compensated for their work and
their risk. This compensation may take the form of an origination fee or a
continued economic interest in the SPE. As of the date of this Annual Report,
no Development Companies have any economic interest in the SPEs. Where a
Project is originated through Energea Brazil, Energea Brazil will cap the
related-party origination fee at 5.0% of the overall Project's cost, which we
believe is below the standard market rate for developing a Project (see "Compensation
of General Partner").
Projects
We believe that we will be able to continue to source new
Projects in Brazil for several reasons, including the fact that the cost of
electricity in Brazil has risen over time. We believe this rise in energy costs
has occurred for several reasons:
·
Even with the relatively low rates of economic growth Brazil has
experienced in recent years, as compared to other developing countries, its
energy needs continue to grow as the country modernizes and increases its use
of electronic devices.
·
Brazil has relied extensively on electricity generated from
hydropower. Hydroelectricity fluctuates with the seasons and most large
hydroelectric projects have already been developed, so new projects come online
at more expensive pricing.
·
Previous governments subsidized energy costs for decades. Recent
changes in government have removed some of these subsidies, so the true cost of
energy is now being passed through to end-users.
We seek a price for electricity that is simultaneously high
enough to be profitable for our Investors and low enough to attract
Subscribers. In markets where solar equipment is installed directly on a
customer's property, larger discounts are generally required to provide
adequate incentive for a deal. In Brazil, where solar energy is generated
remotely and with little or no inconvenience to the Subscriber, we have
historically provided Subscribers a discount off energy provided by the utility
company between 15-25%. As of the date of this Annual Report, the Company has 1,166
Subscribers with an average discount rate of 28.03% which is higher than our
target.
We primarily invest in Projects with the following
characteristics:
·
Locations: We select locations based primarily on:
o
Brazilian states which have the most advantageous tax and energy
economics;
o
Efficient access for maintenance;
o
Interconnection points with the electricity grid;
o
Solar irradiance; and
o
Acceptable security risks. The Company tries to avoid
selecting Projects in locations with high crime areas which could expose the
Project to an increased risk of theft and vandalism.
·
Right to Land: Typically, we lease the land where the
Projects are built, pursuant to a lease that continues for at least the
duration of the Project Rental Contract and gives us, as tenant, the right to
extend.
·
Subscribers: A SPE will rent each Project to Subscribers
through a Project Rental Contract (see "Summary of
Supporting Contracts"). The Subscribers for a given Project will be
private households and small businesses. Subscribers may opt out of a Project
at any time and will be replaced by other Subscribers from a waiting list.
Subscribers are entitled to a credit on their electric bill administrated
through the local utility company and managed by Energea Brazil. The General
Partner allocates energy to each Subscriber each month by submitting a Ratio
to the interconnecting utility.
Page 3
·
Operation and Maintenance: Each SPE will hire a company to
perform some or all of the services necessary to maintain each Project in good
working order. This includes preventative maintenance (such as inverter
diagnostics, cleaning inverter fans and string testing), emergency maintenance
(which is when a technical crew is dispatched to a Project to address an
unexpected issue that occurred in the field), modules cleaning, site security
and landscaping. In some cases, Energea Brazil will provide operations and
maintenance services to the Projects (see "Compensation of General Partner").
·
Connecting Projects to the Local Electric Grid: Projects
will not be connected directly to Subscribers. Instead, they will be connected
to the local electric grid.
·
Minimum Technical Requirements ("MTR"): All
technical aspects of each Project we invest in must meet the Company's MTR. The
MTR is a comprehensive list of all venders and equipment makes/models which
have gotten through the General Partner's due diligence process and are
acceptable for use in the Projects. We analyze venders and the equipment they
make to predict the field performance of the equipment and the financial
strength behind warranties and guarantees. In addition to tracking venders and
materials used in the construction, we also track best installation practices
through the MTR. Each Project leaves lessons learned, and those lessons are
incorporated into the collective memory of the General Partner by being added
to the best practices component of the MTR.
·
Compliance with Brazilian Laws Applicable to Solar Projects:
Each Project will comply with Normative Resolution ANEEL n° 482/2012 ("Ren
482"), the primary law governing community solar electricity systems in
Brazil.
·
When the Company Invests in Projects: Normally, the
Company will not invest in a Project until certain conditions are satisfied.
Among these:
o
The SPE has executed contracts for the lease of the underlying
land, for engineering, and for the construction of the Project, for the rental
of the Project to a "Consortium", a full list of committed Subscribers
and for operations and maintenance;
o
The electric utility has confirmed that the Project can connect
with the electric grid;
o
All environmental and installation permits have been obtained;
o
We have executed installation service agreements (e.g.,
for all civil and site work, electrical installation, installation of racking,
etc.); and
o
We have obtained insurance.
Thus, in most cases Investors are not exposed to significant
Project-level risks until all these conditions are satisfied. However, the
General Partner might make exceptions for exceptionally promising Projects. The
General Partner will have sole discretion over whether to acquire or invest in
a Project.
Loans
The Company may provide Loans to
Borrowers in Brazil. These Loans are designed to finance the development of new
solar energy projects while relying on the credit of existing projects that
rest on the balance sheet of the Borrower. Each time a new project reaches
commercial operation; it contributes to the Borrower's overall collateral which
allows the Company to extend additional credit to the Borrower.
·
Loan Issuance: As the Company raises capital through the Offering, the
General Partner may lend some or all of it to Borrowers each month. Each
disbursement is amortized on a separate amortization schedule which adheres to
the terms and conditions of the Loan Agreement (see "Summary of Supporting
Contracts").
·
Collateral: The Loans are senior debt and collateralized by a pledge
of the shares in the Borrower's enterprise which includes solar projects held
on the corporate balance sheet. Thus, by serving as the sole lender to a
Borrower, the solar projects act as the primary form of collateral. As Loans
are issued, the Borrower uses the loan proceeds to develop and construct more
projects which are added to the overall collateral calculations.
Page 4
As the
Projects achieve commercial operation, Subscribers begin to make payments to
our Borrower for energy produced by the Projects. In some cases, payments from
the Subscribers to our Borrower are made directly to a segregated account
controlled by the Company. As a condition to close a Loan, the Borrower grants
the Company controlling rights to the collateralized assets, in the event of a
default, the General Partner can easily step into the Borrower's cash flow to
prevent revenue leakage during a default event. We believe the Company is
particularly well-suited to issue Loans when solar projects act as collateral
due to our General Partner's extensive experience owning and operating solar
projects.
·
Loan Management: The General Partner will oversee the performance and
compliance of Borrowers and the associated collateral. Their responsibilities
include continuous monitoring of construction progress, energy production and
cash flows to help ensure that loan terms are met. By working closely with the
Borrowers and their projects, we mitigate risks associated with project delays
and underperformance which could impair the Borrower. Close scrutiny of
underlying projects during due diligence and loan servicing also ensures an
efficient step-in during a default scenario.
Investment Committee
When we find a Project or Loan that meets the fundamental
criteria described above, we consider the opportunity at a multi-disciplinary
committee of experienced renewable energy executives of the General Partner ("Investment
Committee"). To approve a Project or Loan for funding, a unanimous approval
of the investment by the Investment Committee is required to move forward. A
copy of the memorandum prepared by the General Partner for each Project or Loan
is provided to Investors on the Platform and in our filings with the SEC
through Form 1-U and 253(g)(2) filings. As of the date of this Annual Report,
the Investment Committee consists of the members outlined in the table below:
|
Name
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Title
|
Due Diligence Responsibility
|
|
Arthur Issa
|
Financial Analyst
|
Reviews historical financials
and prepare projections for each Project and Loan incorporating cash flow,
tax, technical and energy market variables.
|
|
Dave Rutty
|
Project Analyst
|
Compiles the IC Memos for Projects.
|
|
Francielle Assis
|
HR & HSEC Legal Coordinator
|
Examines the area where a
Project is located for environmental, emergency services and
community-related risk factors.
|
|
Isabella Mendonca
|
General Counsel
|
Examines and/or prepares all documents related to a
Project or Loan to ensure contracts meet Energea Global's requirements.
|
|
Juan Carvajales
|
Loan Analyst
|
Compiles the IC Memo for Loans.
|
|
Julio Cezar dos Santos de Morais
|
Electrical Engineer
|
Ensures all Projects meet our MTR. Produces a "punch list"
of failures to be remedied if necessary.
|
|
Mike Silvestrini
|
Managing Partner
|
Originates and negotiates most
investment opportunities.
|
|
Paulo Vieira
|
Director of Operations & Maintenance
|
Confirms the cost and strategy for operating and
maintaining Project investments.
|
Competition
Our net income depends, in large
part, on our ability to source, acquire and manage investments with attractive
risk-adjusted yields. We compete with many other entities engaged in renewable
energy in the Brazilian market, including individuals, corporations and private
funds, many of which have greater financial resources and lower costs of
capital than we have.
There are numerous companies with
investment objectives similar to ours. That said, the industry is going through
a consolidation phase where a large pool of market participants is being
consolidated into a smaller group of "successful" enterprises. Thus, we believe
that we will have fewer competitors today than we would have had five years
ago, but those competitors are generally larger and more sophisticated than
those that have folded or sold their position in the market.
Page 5
Competitive variables include
market presence and visibility, amount of capital to be invested per Project
and underwriting standards. To the extent that a competitor is willing to risk
larger amounts of capital in a particular transaction or to employ more liberal
underwriting standards when evaluating potential investments than we are, our
investment volume and profit margins could be impacted. Our competitors may
also be willing to accept lower returns on their investments and may succeed in
buying the Projects that we have targeted for acquisition.
Although we believe that we are
well-positioned to compete effectively in each facet of our business, there is
competition in the market and there can be no assurance that we will compete
effectively or that we will not encounter increased competition in the future
that could limit our ability to grow the portfolio in the future and conduct
our business effectively.
Our Revenue and Income
The revenue comes from payments from our Subscribers in our
Projects and the interest portion that we receive from Borrowers on our Loans.
For the fiscal years ended December 31, 2025 and 2024, respectively, the
Company's total revenue was $1,567,914 and $692,328, respectively, which is
broken down below:
|
Revenue Recognition
|
Amount
as of 12/31/2025
|
Amount
as of 12/31/2024
|
|
Project Revenue
|
$1,567,914
|
$692,328
|
|
Loan Revenue
|
$0
|
$0
|
In addition to the revenue described above, the company may
also earn additional income from Company Investments and gains from the sale of
Projects. For the fiscal years ended December 31, 2025 and 2024, respectively,
the Company's total other income was $577,299 and $69,665, respectively, which
is broken down below:
|
Other Income Recognition
|
Amount as of
12/31/2025
|
Amount as of
12/31/2024
|
|
Company Investments
|
$577,299
|
$69,665
|
|
Sale of Projects
|
$0
|
$0
|
Our Revenue Recognition Policy follows ASC-606 which is a
five-step procedure:
|
Procedure
|
Example
|
|
Step 1 - Identify the Contract
|
Project Rental Contract or Loan
Agreement
|
|
Step 2 - Identify the Performance Obligations
|
Delivery of electricity from solar plant
|
|
Step 3 - Determine the
Transaction Price
|
Amount contractually signed with
Subscriber or Borrower
|
|
Step 4 - Allocate the Transaction Price
|
Obligation is satisfied by transferring control of the
electricity produced to the Subscriber
|
|
Step 5 - Recognize Revenue
|
At a point in time when the
Subscriber or Borrower is invoiced
|
Our Operating Costs and Expenses
The Company incurs a variety of costs and expenses ("Company
Operating Expenses"), including:
·
banking fees;
·
legal expenses;
·
payments to the General Partner for fees;
·
fees to wire money from Brazil to the U.S.;
·
payments to U.S. states to comply with their respective
securities law ("Blue Sky Laws");
·
debt service and transactional payments (where we borrow money at
the Company level);
Page 6
·
annual financial audit expenses;
·
depreciation; and
·
U.S. and Brazilian taxes, some of which may not be eligible for a
foreign tax credit in the United States.
The Projects also incur a variety of costs and expenses ("Project
Operating Expenses"), including:
·
payments to third parties to operate and maintain the Projects;
·
lease payments to landowners;
·
debt service and transactional payments (where we borrow money at
the Project level);
·
utilities;
·
on-site security;
·
payments to the third party that manages Subscriber electric bill
credits;
·
Brazilian taxes, some of which may not be eligible for a foreign
tax credit in the United States due to the absence of a tax treaty between the
United States and Brazil;
·
banking fees;
·
depreciation; and
·
Project insurance.
The Company's total operating expenses for the fiscal year
ended December 31, 2025 were $1,653,246.
U.S. and Brazilian Taxes
This report is not providing, or purporting to provide, any
tax advice to Investors. Every potential Investor is advised to seek the
advice of his, her or its own tax professionals before making this investment.
The securities sold in the Offering may have issues related to taxation at many
levels, including tax laws and regulations at the state, local and federal
levels in the United States, and at all levels of government in non-U.S.
jurisdictions.
It is impractical to comment on all aspects of federal,
state and local, and foreign tax laws that may affect the tax consequences of
participation in the Company. Therefore, each prospective Investor should
satisfy himself, herself or itself as to the tax consequences of participating
in the Company by obtaining independent advice from his, her or its own tax
advisers. Furthermore, while the Company will furnish to you any information
required to be provided to you under applicable tax laws, preparation and
filing of each Investor's tax returns shall be such Investor's responsibility.
The following summarizes the most significant Brazilian
taxes that will be imposed on the SPEs and the Company, as well as the Federal
income tax consequences of acquiring Class A Investor Shares. This summary is
based on the current tax laws of Brazil, the U.S. Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations promulgated
thereunder ("Regulations"), and current administrative rulings and court
decisions, all as of the date hereof. These authorities may be changed,
possibly retroactively, so as to result in United States federal income tax
consequences different from those set forth below.
This is only a summary, applicable to a generic Investor.
Your personal situation could differ. We encourage you to consult with your own
tax advisor before investing.
Page 7
Brazilian Taxes
Brazilian
Taxes on Projects
Like the United States, taxes in Brazil are imposed at the
federal, state, and local level. The federal government will impose the
following taxes which are paid for by each SPE. It is important to note that
each SPE elects to be paid on a real profit tax regime or a presumed profit tax
regime each calendar year. Each year, the General Partner runs an analysis as
to which tax regime they feel will be the most tax efficient for each SPE and
makes the election accordingly on behalf of the SPE. Tax rates which are
affected by this election are noted below:
·
A corporate income tax ("IRPJ") equal to (i) 15% of the
SPE's taxable income, plus (ii) 10% of the SPE's taxable income per month in
excess of R$20,000.
·
A social contribution tax ("CSLL") equal to 9% of the
taxable income of the SPE.
·
A social integration tax ("PIS") equal to 1.65% (real) or
.65% (presumed) of the SPE's gross sales revenue.
·
A social security tax ("COFINS") equal to 7.6% (real) or
3% (presumed) of the SPE's gross sales revenue.
·
A financial operations tax ("IOF") equal to 3.5% on
non-dividend foreign transactions and 0.38% on dividend transactions between
the Company and the SPE.
The SPEs which elect for a real profit tax regime will be
entitled to depreciation deductions with respect to certain equipment. Under a
presumed profit tax regime, taxable income is set as 32% of total gross
revenue, so no deductions apply.
At the state level, each SPE will be subject to a tax on
purchased goods ("ICMS"). The ICMS rates vary by state but will
typically be imposed at 18%.
At the local level, many municipalities impose a tax on
revenues from services provided. These taxes are typically imposed at a rate of
5%.
NOTE: Brazil does not impose a tax on the Company itself or
on Investors, nor does it require SPEs to withhold any taxes from distributions
to the Company.
Brazilian Taxes on Loans
If the Company issues a Loan to a Borrower
in Brazil, the transaction will be executed directly between the Company and
the Borrower, without the use of a SPE. In such cases, the Company will be
subject to the following taxes on the interest portion of the revenues
generated from the Loan:
·
An
IOF tax equal to:
·
0.0041%
per day on the principal balance for loans to corporate borrowers;
·
0.0082%
per day on the principal balance for loans to individual borrowers;
·
An
additional flat rate of 0.38% applies to both corporate and individual
borrowers.
·
An
IRRF tax equal to:
·
22.5%
for loans with a term of up to 180 days;
·
20%
for loans with a term of 181 to 360 days;
·
17.5%
for loans with a term of 361 to 720 days;
·
15%
for loans with a term exceeding 720 days.
Brazilian Taxes on Company Investments
If the Company makes a Company Investment
in Brazil, it will be subject to the following taxes on interest income,
depending on the duration of the investment:
Page 8
·
An
IOF tax equal to:
·
3%
of interest earned from investments held less than 29 days;
·
0%
(exempt) if the investment is held for 30 days or more.
·
An
income withholding tax ("IRRF") on interest earned equal to:
·
22.5%
on interest earned from investments held for up to 180 days;
·
20%
for investments held between 181 and 360 days;
·
17.5%
for investments held between 361 and 720 days;
·
15%
for investments held for more than 720 days.
U.S.
Federal Income Taxes
As used herein, the term "U.S. Holder" means a
beneficial owner of the Class A Investor Shares that is, for U.S. federal
income tax purposes, an individual citizen or resident of the United States, a
corporation (or any other entity taxable as a corporation for U.S. federal
income tax purposes) created or organized in or under the laws of the United
States or any state or political subdivision thereof or the District of
Columbia, an estate the income of which is subject to U.S. federal income
taxation regardless of its source, or a trust, if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more U.S. persons control all of the substantial decisions of
the trust or if a valid election is in place to treat the trust as a U.S.
person.
In addition, if a partnership, including any entity or
arrangement, domestic or foreign, classified as a partnership for United States
federal income tax purposes, holds Class A Investor Shares, the tax treatment
of a partner generally will depend on the status of the partner and upon the
activities of the partnership. Accordingly, partnerships that hold Class A
Investor Shares, and partners in such partnerships, should consult their tax
advisors.
Classification as a Corporation
The Company is a Delaware limited partnership but has
affirmatively elected to be treated as a corporation under Subchapter C of the
Code for federal income tax purposes. Thus, the Company will be taxed at
regular corporate rates on its income before making any distributions to
holders of Class A Investor Shares as described below.
The General Intangible Low-Tax Income ("GILTI") tax on foreign
investments is more favorable to our investors under a corporate tax structure
as opposed to a partnership, where the tax on international assets would be
levied on individuals. Under a partnership an investor would be responsible for
37% of all foreign profits generated from an international investment. A
corporate tax structure allows the corporation to realize foreign tax credits.
Under this corporate tax reporting structure, the corporate entity would only
pay 21% tax on 50% of the foreign profits after foreign tax credits have been
applied.
Taxation of Dividends Received From SPEs
The income of the Company will consist primarily of cash
available for distribution ("CAFD") received from the SPEs in the form
of a dividend. Because the SPEs will be foreign corporations, these dividends
will be "non-qualified dividends" within the meaning of the Code and therefore
subject to tax at ordinary income tax rates ("qualified dividends," including
dividends from most U.S. corporations, are subject to tax at preferential
rates).
Page 9
Foreign Tax Credit
The Company, but not the Investors, might be entitled to
credits for taxes paid by the SPEs in Brazil. Taxes imposed in Brazil which are
not imposed on income may not receive a foreign tax credit.
Taxation of Distributions to Investors
Distributions to U.S. Holders out of the Company's current
or accumulated earnings and profits, if any, will be taxable as dividends. A
non-corporate U.S. Holder who receives a distribution constituting "qualified
dividend income" may be eligible for reduced federal income tax rates. U.S.
Holders are urged to consult their tax advisors regarding the characterization
of corporate distributions as "qualified dividend income." Dividends received
by a corporate U.S. Holder may be eligible for the corporate dividends-received
deduction if certain holding periods are satisfied. Distributions in excess of
the Company's current and accumulated earnings and profits will not be taxable
to a U.S. Holder to the extent that the distributions do not exceed the
adjusted tax basis of the U.S. Holder's Class A Investor Shares. Rather, such
distributions will reduce the adjusted basis of such U.S. Holder's Class A
Investor Shares. Distributions in excess of current and accumulated earnings
and profits that exceed the U.S. Holder's adjusted basis in its Class A
Investor Shares will be taxable as capital gain in the amount of such excess if
the Class A Investor Shares are held as a capital asset. In addition, Section
1411 of the Code imposes on individuals, trusts and estates a 3.8% tax on
certain investment income (the "3.8% NITT").
Taxation Upon the Sale or Exchange of Class A
Investor Shares
Upon any taxable sale or other disposition of Class A
Investor Shares, a U.S. Holder will recognize gain or loss for federal income
tax purposes on the disposition in an amount equal to the difference between
the amount of cash and the fair market value of any property received on such
disposition; and the U.S. Holder's adjusted tax basis in the Class A Investor
Shares. A U.S. Holder's adjusted tax basis in the Class A Investor Shares
generally equals his or her initial amount paid for the Class A Investor Shares
and decreased by the amount of any distributions to the Investor in excess of
the Company's current or accumulated earnings and profits. In computing gain or
loss, the proceeds that U.S. Holders receive will include the amount of any
cash and the fair market value of any other property received for their Class A
Investor Shares, and the amount of any actual or deemed relief from
indebtedness encumbering their Class A Investor Shares. The gain or loss will
be long-term capital gain or loss if the Class A Investor Shares are held for
more than one year before disposition. Long term capital gains of individuals,
estates and trusts currently are taxed at a maximum rate of 20% (plus any
applicable state income taxes) plus the 3.8% NIIT.
Alternative Minimum Tax
The Code imposes an alternative minimum tax on individuals
and corporations. Certain items of the Company's income and loss may be
required to be taken into account in determining the alternative minimum tax
liability of Investors.
Taxable
Year
The Company will report its income and losses using the
calendar year.
Tax
Returns and Information; Audits; Penalties; Interest
The Company will furnish each Investor with the information
needed to be included in his or her federal income tax returns, if any;
provided, however, the Investors shall be responsible for determining their
adjusted basis in their respective Class A Investor Shares. Each Investor is
personally responsible for preparing and filing all personal tax returns that
may be required as a result of his purchase of Class A Investor Shares. The tax
returns of the Company will be prepared by accountants selected by the Company.
If the tax returns of the Company are audited, it is
possible that substantial legal and accounting fees will have to be paid to
substantiate our position and such fees would reduce the cash otherwise
distributable to Investors.
Each Investor must either report Company items on his or her
tax return consistent with the treatment on the information return of the
Company or file a statement with his tax return identifying and explaining the
inconsistency. Otherwise the IRS may treat such inconsistency as a
computational error and re-compute and assess the tax without the usual
procedural protections applicable to federal income tax deficiency proceedings.
The Code imposes interest and a variety of potential
penalties on underpayments of tax.
Page 10
Other
U.S. Tax Consequences
The foregoing discussion addresses only selected issues
involving Federal income taxes and does not address the impact of other taxes
on an investment in the Company, including federal estate, gift, or
generation-skipping taxes, or State and local income or inheritance taxes.
Prospective Investors should consult their own tax advisors with respect to
such matters.
Summary of Supporting Contracts
Project Contracts
The Company will cause the SPEs to enter into five (5) main
contracts for each Project:
·
Land Leases: The SPE will lease (rather than buy) the land
where the Project is located, pursuant to a contract we refer to as a "Land
Lease".
·
Project Rental Contracts: In all cases, the SPEs will rent
the Projects to Subscribers (so that the Subscribers are, in form, generating
their own solar power) pursuant to a contract we refer to as a "Project
Rental Contract".
·
Construction Contracts: To build the Projects, the SPE
will hire a third party to provide engineering, procurement, and construction
services pursuant to a contract referred to as a "Construction Contract".
·
Project Maintenance Contracts: The SPE will then hire a
company, and in some cases Energea Brazil, to operate and maintain the Projects
pursuant to a contract referred to as a "Project Maintenance Contract"
(see "Interest of Management and Others in Certain Transactions" and "Compensation
of General Partner").
·
Credit Management Agreements: Each Project produces energy
credits. To convert those energy credits into revenue, the SPE must hire a
service provider to onboard Subscribers and administrate the allocation of
energy to each Subscriber on a monthly basis. In most cases, these services are
performed by Energea Brazil under the terms and conditions set forth in a "Credit
Management Agreement" (see "Interest of Management and Others in Certain
Transactions" and "Compensation of General Partner").
Each of these contracts are bi-lingual, both in English and
in Portuguese, the national language of Brazil. Although the final terms and
conditions and contract title will most likely differ from Project to Project,
we will attempt to ensure that the rights and obligations of the parties will
generally be consistent across all of the Projects. However, there is no
assurance that we will be able to negotiate consistent terms, and the terms and
conditions of each contract may contain material differences.
Loan Contracts
The Company will enter into three (3) main contracts when
making a Loan to a Borrower:
·
Loan Agreement: A Loan Agreement ("Loan Agreement")
is a contract where the Lender provides funds to a Borrower up to a specified
limit over a set borrowing period. The Borrower uses these funds to construct
new solar projects. The Borrower grants the Lender a first-priority lien on all
its assets as collateral, including the solar projects. The agreement includes
conditions for advances, default triggers, and remedies for the Lender, with
covenants ensuring compliance and asset segregation when appropriate.
·
Collateral Agreements: The "Collateral Agreements"
are a collection of agreements and instruments designed to secure obligations
under a Loan Agreement between a Borrower and the Company. These documents
collectively establish, and perfect the Company's security interests in various
assets and equity interests of the Borrower and related parties. They may
include personal guarantees, corporate guarantees, promissory notes outlining
repayment terms, and pledge agreements granting the Company priority liens on
specific collateral. Supporting resolutions and certificates confirm the
Borrower's authorization and compliance. The Collateral Agreements address
repayment conditions, default remedies, rights over collateral, and ensure the
Company's enforcement capabilities while defining limits on recourse where
applicable.
Page 11
·
Trust Agreement: Some, but not all, Loans will also have a
"Trust Agreement". In circumstances where the General Partner requires
more fiscal oversite over a Borrower, we will set up a trust which will receive
all of the Borrowers revenue (usually payments for energy from their
Subscribers). The General Partner will instruct the Trustee to pay principal
and/or interest payments owed to the Company prior to distributing the
remaining cash to the Borrower for their use in operations.
Material Legal Proceedings
In March 2023, two of the Company's SPEs, Energea Pedra do
Indaiá Ltda ("Pedra do Indaia") and Energea Iguatama Aluguel de
Equipamentos e Manutenção Ltda ("Iguatama"), initiated legal action
against Alexandria Indústria de Geradores S.A. ("Contractor") due to
breaches of the terms and conditions stipulated in the Construction Contracts.
The Contractor's failure to fulfill its obligations under
both Construction Contracts resulted in the accrual of "Liquidated Damages"
owed to the SPEs of Pedra do Indaia and Iguatama. Prior to legal action, a
Confession of Debt was executed between the Company and the Contractor. This
Confession of Debt imposed strict personal and corporate responsibility upon
the Contractor to guarantee the owed amount to the SPEs. Regrettably, the
Contractor failed to meet the payment obligations outlined in the Confession of
Debt.
Subsequently, the Construction Contracts were terminated and
the General Partner promptly initiated legal proceedings. The Company sought an
injunction from the Courts of Rio de Janeiro to secure the payment, including
the freezing of the Contractor's corporate bank accounts as a means to compel
compliance.
The presiding Judge initially granted the injunction,
compelling the Contractor to remit all Liquidated Damages, interest on overdue
payments, and legal fees as specified in the Confession of Debt, within a
three-day timeframe. Shortly thereafter, the proceedings were further
complicated when the Contractor filed for bankruptcy protection and other
secured creditors entered the process of collecting unpaid amounts. The lawsuit
is still in process and may take several years to reach a final verdict.
Factors Likely to Impact the Performance of the
Company
A comprehensive discussion on risks of investing in the
Company can be found at the beginning of the Company's Offering Circular. Below
are risks that we believe deserve specific attention as they have the highest
likelihood of impacting Investor returns. Following each risk is a brief
description of mitigating strategies employed by the General Partner:
·
Foreign Country: There is an inherent risk when doing business in a foreign
country. Foreign country risks include unexpected fees and taxes, unfair contract
disputes, policy changes and other risks which may negatively affect estimated
internal rate of return ("IRR").
o
Mitigating Strategy: Energea Global has a strong local presence in Brazil
through our Rio de Janeiro office which employs approximately 35 Brazilian
nationals. Foreign country risk is highest when we start doing business in a
new foreign country and diminishes as we gain experience, diversify our local
partnerships and develop best practices for dealing with unique challenges
specific to a country. The General Partner has been operating energy
investments in Brazil for over 7 years.
·
Foreign Exchange Rates: The revenue contracts for the Projects are paid in BRL.
Exchange rates could worsen creating reduced dividends to our investors which
are paid in U.S. dollars USD.
o
Mitigating Strategy: First, our long-term financial projections include a
perpetual weakening of the BRL versus USD, so we expect a continuation of that
phenomenon but can tolerate some level of FX softening while still maintaining
our targeted returns. Second, Project Rental Contracts with Subscribers
fluctuate each year based on changes in the energy price being charged by the
interconnecting utility. Thus, if the BRL were to weaken substantially, it is
likely that the cost of energy in Brazil would increase substantially and the
Projects would generate more BRL per kWh delivered to Subscribers, thereby
offsetting a portion of our exposure to FX risk.
Page 12
·
Construction: There is a risk that
the Project could encounter unforeseen delays or costs during the construction
phase that could potentially delay dividends and result in a lower-than
expected IRR.
o
Mitigating Strategy: Energea
Global builds in liquidated damages whenever possible into contracts with our
construction contractors. Liquidated damages hold the contractor responsible
for any lost revenue resulting from construction delays. The General Partner
also employs a team of construction managers who oversee the construction of
Projects and ensure Projects meet our MTR.
·
Customer Default: Subscribers save
10-20% on their electric bills for each energy credit they receive from the
Project. They have the option of unsubscribing any time they want, without
penalty.
o
Mitigating Strategy: The Projects provide electricity to thousands of small
Subscribers instead of a single, large, Subscriber. If one or several
Subscribers don't pay their invoice or defect from the Project, the impact of
projected returns is very small. We estimate a 4% default rate when projecting
the cash flow from a Project, while historical default rates for utilities in
the region are actually closer to 1%.
·
Theft / Damage: The equipment may be
subject to theft or damage which is beyond the Company's control.
o
Mitigating Strategy: The Projects carry insurance to protect against major
loss. We carry property insurance to cover theft or unexpected damage to the
equipment, general liability insurance to protect us from incidents or injuries
that could occur on site and business interruption insurance to cover lost
revenue if a Project is out of operation for an extended period of time.
·
Solar Irradiance: The General Partner
forecasts the energy production of each Project based on historical weather
patterns. A deviation from historical weather patterns could result in
lower-than-expected electrical production and decreased dividends. Projected
returns use a P-50 production estimate. P-50 is an estimate of electrical
production where there is a 50% statistical probability that the Project will
produce more electricity and a 50% probability that the Project will produce
less. This is an industry standard method of weather prediction and production
estimating.
o
Mitigating Strategy: Diversifying across many Projects and geographical
locations helps to mitigate the solar irradiance risk of any one specific
Project. Loans also carry a lower exposure to solar irradiance than Project
ownership.
·
Materials / Equipment: Equipment may fail
or break down resulting in lower than anticipated production or unplanned
additional operating expenses.
o
Mitigating Strategy: Equipment used in the Projects come with warranties
(usually for 25 years) that protect against failure or lower than anticipated
output. The General Partner also accounts for light-induced degradation when
projected energy production from a Project and sets aside a contingency reserve
for unforeseen mechanical issues that may arise.
Description of Property
The only property owned by the Company are the Projects. To
date, the Company has not issued any Loans.
Projects Acquired
As
of the date of this Annual Report, the Company had acquired a total of 24
Projects.
Page 13
|
Project Name
|
Entity Name
|
Project Size (AC)
|
Acquisition
Date
|
Amount Invested*
|
|
Salinas
|
|
5.0 MW
|
4/15/19
|
$265,148
|
|
Itaguai III
|
Energea Itaguai III
Aluguel de Equipamentos e Manutenção Ltda.
|
1.0 MW
|
3/6/20
|
$35,707
|
|
Iguatama
|
Energea Iguatama
Aluguel de Equipamentos e Manutencao Ltda.
|
2.3 MW
|
10/12/20
|
$2,298,122
|
|
Pedrinopolis
|
Energea Pedrinopolis Ltda.
|
2.3 MW
|
5/21/21
|
$118
|
|
Pedra do Indaiá
|
Energea Pedra do
Indaiá Ltda.
|
2.3 MW
|
10/1/21
|
$4,574,847
|
|
Divinópolis III
|
Energea Divinopolis Ltda.
|
2.3 MW
|
12/23/21
|
$3,092,185
|
|
Araxa I
|
Energea Araxa I Ltda
|
2.5 MW
|
12/23/21
|
$326,307
|
|
Araxa II
|
Energea Araxa II Ltda
|
2.5 MW
|
12/23/21
|
$326,849
|
|
Divinópolis II
|
Energea Divinopolis II Ltda
|
2.5 MW
|
1/4/22
|
$4,220,711
|
|
Corumbaíba
|
Energea Corumbaíba Ltda
|
2.5 MW
|
9/9/22
|
$2,852,457
|
|
Diamantina II
|
Energea Diamantina II Ltda
|
2.5 MW
|
10/17/22
|
$133,417
|
|
Formiga I
|
Energea Formiga I Ltda
|
2.5 MW
|
10/17/22
|
$201,778
|
|
Formiga II
|
Energea Formiga II Ltda
|
1.5 MW
|
10/17/22
|
$73,236
|
|
Naque
|
Energea Naque Ltda
|
1.5 MW
|
10/17/22
|
$123,330
|
|
Micros I
|
Energea Micros I Ltda
|
1.1 MW
|
12/29/22
|
$1,094,017
|
|
Itabapoana
|
Energea Itabapoana Ltda
|
2.5 MW
|
12/29/22
|
$94,590
|
|
Aparecida do Taboado II
|
Energea Aparecida do
Taboado II Ltda
|
2.5 MW
|
4/12/23
|
$172,292
|
|
Frei Inocêncio
|
Energea Frei Inocêncio Ltda
|
2.5 MW
|
4/12/23
|
$95,567
|
|
Nova Lacerda
|
Energea Nova Lacerda Ltda
|
2.5 MW
|
4/12/23
|
$73,611
|
|
Monte Sião
|
Energea Portfolio
Geração de Projetos MG II Ltda
|
2.5 MW
|
4/17/23
|
$95,833
|
|
Aparecida do Taboado I
|
Energea Aparecida do
Taboado I Ltda
|
2.5 MW
|
5/24/23
|
$155,176
|
|
Iguatama II
|
Energea Iguatama II Ltda
|
2.5 MW
|
12/20/24
|
$2,029,141
|
|
Micros II
|
Energea Micros II Ltda
|
750kW
|
11/11/24
|
$549,961
|
|
Pains
|
Energea Pains Ltda.
|
1 MW
|
11/28/25
|
$1,318,799
|
|
TOTAL
|
|
|
$23,502,326
|
* as of December 31, 2025
Projects
Sold
As of the date of this Annual Report, the Company has sold
10 Projects.
|
Project Name
|
Entity Name
|
Project Size (AC)
|
Date Sold
|
Sale Price Net of Taxes
|
|
Salinas
|
Project Salinas
Geracao S.A.
|
5.0 MW
|
05/11/2021
|
$147,717
|
|
Pedrinopolis
|
Energea Pedrinopolis Ltda.
|
2.3 MW
|
05/11/2021
|
$150,379
|
|
Itaguai III
|
Energea Itaguai III
Aluguel de Equipamentos e Manutencao Ltda.
|
1.0 MW
|
05/19/2021
|
$44,408
|
|
Aparecida do Taboado I
|
Energea Aparecida do
Taboado I Ltda
|
2.5 MW
|
06/06/2023
|
$136,029
|
|
Frei Inocêncio
|
Energea Frei Inocêncio Ltda
|
2.5 MW
|
06/06/2023
|
$124,925
|
|
Monte Sião
|
Energea Portfolio
Geração de Projetos MG II Ltda
|
2.5 MW
|
06/06/2023
|
$126,224
|
|
Nova Lacerda
|
Energea Nova Lacerda Ltda
|
2.5 MW
|
06/06/2023
|
$93,427
|
|
Formiga II
|
Energea Formiga II Ltda
|
1.5 MW
|
06/06/2023
|
$100,344
|
|
Naque
|
Energea Naque Ltda
|
1.5 MW
|
06/06/2023
|
$178,011
|
|
Itabapoana
|
Energea Itabapoana Ltda
|
2.5 MW
|
06/06/2023
|
$133,061
|
|
TOTAL
|
|
|
$1,234,525
|
Page 14
Projects Owned
As of the date of this Annual Report, the Company holds
11 Projects that are operational or under construction. The table below lists
the total amount the Company invested into each Project and the estimated
Project cost. Please refer to the links in the column labeled "Form 1-U"
for the Project Memo which gives in-depth information regarding each Project
such as its location, the system size, contractors used to construct the
Project, information about other stakeholders, information about the buyer of
the energy and environmental commodities and the estimated economics of the
Project. The Project Memos can also be found on the Platform.
|
Project Name
|
Entity Name
|
Project Size (AC)
|
Estimated
Projected Cost
|
Amount Invested*
|
Form
1-U
|
|
Iguatama
|
Energea Iguatama
Aluguel de Equipamentos e Manutencao Ltda.
|
2.3 MW
|
$2,488,413
|
$2,298,121
|
|
|
Pedra do Indaiá
|
Energea Pedra do
Indaiá Ltda.
|
2.3 MW
|
$4,574,847
|
$4,574,848
|
|
|
Divinopolis III
|
Energea Divinopolis Ltda.
|
2.3 MW
|
$3,506,835
|
$3,092,185
|
|
|
Araxa I
|
Energea Araxa I Ltda
|
2.5 MW
|
$340,851
|
$326,307
|
|
|
Araxa II
|
Energea Araxa II Ltda
|
2.5 MW
|
$344,359
|
$326,849
|
|
|
Corumbaíba
|
Energea Corumbaíba Ltda
|
2.5 MW
|
$3,376,840
|
$2,852,457
|
|
|
Divinópolis II
|
Energea Divinopolis II Ltda
|
2.5 MW
|
$4,352,328
|
$4,220,712
|
|
|
Micros I
|
Energea Micros I Ltda
|
1.1 MW
|
$1,137,448
|
$1,094,017
|
|
|
Iguatama II
|
Energea Iguatama II Ltda
|
2.5 MW
|
$2,074,598
|
$2,029,141
|
|
|
Micros II
|
Energea Micros II Ltda
|
750kW
|
$627,787
|
$549,961
|
|
|
Pains
|
Energea Pains Ltda.
|
1 MW
|
$1,314,777
|
$1,318,799
|
|
|
|
TOTAL
|
|
$24,139,083
|
$22,683,397
|
|
* as of December 31, 2025
Projects Not
Pursued
As of the date of this Annual Report, the Company has
determined not to pursue the development of certain Projects due to changes in
regulatory and economic conditions in Brazil. Specifically, certain Projects
lost eligibility for GD1 classification, resulting in reduced projected returns
that no longer meet the Company's investment criteria. The Projects affected
are summarized in the table below.
|
Project Name
|
Entity Name
|
Status
|
Investment
|
Loss Recognized
|
|
Aparecida do Taboado II
|
Energea Aparecida do
Taboado II Ltda
|
Terminated
|
$172,292
|
$172,292
|
|
Diamantina II
|
Energea Diamantina II Ltda
|
Impaired
|
$133,417
|
$133,417
|
|
Formiga I
|
Energea Formiga I Ltda
|
Impaired
|
$201,778
|
$201,778
|
|
|
TOTAL
|
|
|
$507,487
|
Summary of
Class A Investor Shares
The Company offers Class A Investor Shares representing
limited partnership interests governed by the Limited Partnership Agreement and
the related Authorizing Resolution. These shares are offered at a price based
on the Company's net asset value ("NAV"), derived from the net present
value of projected cash flows from its investments.
Holders of Class A Investor Shares are passive Investors
with no voting or management rights, except in limited circumstances. The
Company is managed by the General Partner, which is responsible for making
investment, operational, and distribution decisions in accordance with the
Limited Partnership Agreement.
Distributions to Investors depend on available cash flow and
are not guaranteed to be made. Investors are not required to make additional
capital contributions and are not personally liable for the Company's
obligations.
Page 15
There is no established public market for the Class A
Investor Shares. Transfers are subject to restrictions, including the Company's
right of first refusal, which may limit an Investor's ability to resell shares.
The Company has adopted a Redemption Plan that may provide
limited liquidity; however, Redemption Requests are subject to holding periods,
timing and volume limitations, and the discretion of the General Partner. There
can be no assurance that Redemption Requests will be honored.
Additional information regarding the Class A Investor
Shares, including detailed terms and conditions, is set forth in the Company's
Offering Circular.
Item 2. Management Discussion and Analysis of
Financial Condition and Result of Operations
The following discussion of our financial condition and
results of operations should be read in conjunction with our financial
statements and the related notes thereto contained in this Annual Report. The
following discussion contains forward-looking statements that reflect our
plans, estimates, and beliefs. Our actual results could differ materially from
those discussed herein (see "Caution Regarding Forward-Looking Statements"
and "Risk Factors" in the Offering Circular). Unless otherwise indicated,
the latest results discussed below are as of December 31, 2025.
Summary of Key Accounting Policies
Investments
For financial statement purposes, the Company accounts for
investments in Projects under ASC 360. The Projects are carried at cost and
will be depreciated on a straight-line basis over the estimated useful life of
the related assets.
Impairment
The Company evaluates for impairment under ASC 360,
utilizing the following required steps to identify, recognize and measure the
impairment of a long-lived asset to be held and used:
·
Indicators of impairment - Consider whether indicators of
impairment are present.
· Test
for recoverability - If indicators are present, perform a recoverability test
by comparing the sum of the estimated undiscounted future cash flows
attributable to the long-lived asset in question to its carrying amount (as a
reminder, entities cannot record an impairment for a held and used asset unless
the asset first fails this recoverability test).
·
Measurement of an impairment - If the undiscounted cash flows
used in the test for recoverability are less than the carrying amount of the
long-lived asset, determine the fair value of the long-lived asset and
recognize an impairment loss if the carrying amount of the long-lived asset
exceeds its fair value.
Revenue Recognition
The Company follows ASC 606
guidelines for revenue recognition. To apply this principle, the standard
establishes five key steps:
· Step
1: Recognize the contract with the Subscriber/Borrower
· Step
2: Specify performance obligations
· Step
3: Establish transaction price
· Step
4: Allocate transaction price to performance obligations
· Step
5: Recognize revenue
Page 16
Market Outlook and Recent Trends
Brazil's distributed generation solar market continues to
represent a large opportunity for the Company, but has transitioned from a
phase of rapid expansion to one defined by consolidation and operational
smoothing. While installed capacity has grown significantly in recent years,
the pace of new development has slowed as grid constraints, interconnection
delays, changes in tax law and evolving regulatory dynamics has caused some
market participants to exit the segment.
These conditions are driving a shift toward consolidation.
As the market matures, scale has become increasingly important, with larger
platforms better positioned to navigate grid constraints, optimize asset
portfolios across concession areas, and operate efficiently at lower Subscriber
acquisition and financing costs. As a result, smaller developers and fragmented
portfolios are increasingly seeking liquidity through asset sales, contributing
to a growing pipeline of acquisition opportunities.
At the same time, Brazilian real estate investment funds (fundos
de investimento imobiliário, or "FIIs") have emerged as a meaningful
source of capital for operating DG solar assets. These vehicles are beginning
to provide a repeatable pathway for aggregating portfolios and accessing public
market equity capital, supported by contracted, long-duration cash flows. FIIs
have arrived as the main competitor for the Company as both are pursuing the
same project inventory. There are currently three known operating FIIs.
In parallel, certain foreign utilities and large energy
companies have selectively reduced or rebalanced their exposure to Brazilian
distributed generation as part of broader capital allocation priorities. This
has further increased the availability of assets for acquisition by specialized
operators with a dedicated focus on distributed solar.
Taken together, these trends reflect a market that is
evolving from a fragmented development landscape into a more consolidated and
capital-efficient sector. We believe this transition favors disciplined
operators with the ability to combine origination, portfolio management, and
access to scalable sources of capital. The Company is well situated to compete
in a market where the number of available acquisitions far outweighs the
available capital for consolidation.
Calculating
Distributions
The Company intends to make distributions monthly, to the
extent the General Partner, in its discretion, determines that cash flow is
available for distributions and in a manner consistent with the Authorizing
Resolutions. Any other distributions shall be made pursuant to the terms of the
LP Agreement which gives the General Partner broad discretion whether to make
any distributions. Below are the activities of the Company that generate the
cash flow which could be used to fund distributions:
Sources of Distributable Cash Flow
·
Net income received from the Projects;
·
Interest payments received from the Borrowers;
·
Interest payments received from Company Investments;
·
Net Proceeds from Capital Transactions;
o
Originates from the sale or refinancing of Projects;
o
Net proceeds are the gross proceeds of the capital transaction
minus associated expenses, including debt repayment; and
·
Liquidated Damages from Construction Agreements;
o
Penalties paid by EPC Contractors when Projects are delivered
behind schedule;
o
Liquidated Damages are not booked as revenue but are considered
distributable cash flow.
When the Company has distributable cash flow and the General
Partner determines to make a distribution, here is an overview of how these
distributions are allocated and calculated:
Page 17
Allocation of Distributions
Distributable cash flow, if any, is distributed to the
Preferred Equity Investors, on a pari passu basis, and the General
Partner in the following order of priority:
·
First, the Preferred Return;
·
Thereafter, any additional cash flow shall be distributed 80% to
Preferred Equity Investors and the Carried Interest to the General Partner.
Calculation of Preferred Return
The General Partner discounts each month of Estimated NOI
(see "Price of Class A Investor Shares" in the Offering Circular) by the
same discount rate until the cash flow results in an internal rate of return ("IRR")
of 7% ("Adjusted NOI"). The IRR is calculated using the XIRR function
and is based upon the price an Investor paid per Class A Investor Share. The
resulting Adjusted NOI is the monthly distribution that would need to be paid
to Investors for them to receive their Preferred Return. Since all months of
Estimated NOI are discounted evenly, the Adjusted NOI maintains the same
seasonality curve as the Estimated NOI. If the actual NOI for any month is less
than the Adjusted NOI, the Investors receive all the cash distributed that
month and the shortfall is carried forward so that Investors catch up on their
Preferred Return prior to any Carried Interest being paid. The IRR is
calculated based upon the price an Investor paid per Class A Investor Share,
and not on any revenue or profit achieved by the Company. To the extent the
Company has distributable cash flow but has no current or accumulated earnings
and profit, such distributions are considered a return of capital for U.S.
federal income tax purposes to the extent that the distributions do not exceed
the adjusted tax basis of the U.S. Holder's Class A Investor Shares.
Calculation
of Carried Interest
If the General Partner determines that a distribution can be
made with distributable cash flow, and the amount of distributable cash flow is
greater than the Adjusted NOI for the month (and the Investors are therefore on
track to receive their Preferred Return), the General Partner will receive a
Carried Interest. Any distributable cash flow that is greater than the Adjusted
NOI (plus any shortfall from previous months) will be divided between the
General Partner and the Preferred Equity Investors where the General Partner
will get 20% of the excess and Preferred Equity Investors will get 80% of the
excess.
Distributions
Provided we have distributable
cash flow (see "Sources of Distributable Cash Flow"), we will authorize
and declare distributions based on the Projects' net income, interest paid on
Loans and interest earned on Company Investments during the preceding month
minus any amounts held back for reserves.
While we are under no obligation
to do so, our General Partner may declare other periodic distributions as
circumstances dictate.
To the extent the Company has
distributable cash flow but has no current or accumulated earning and profit,
such distributions are considered a return of capital for U.S. federal income
tax purposes to the extent that the distributions do not exceed the adjusted
tax basis of the U.S. Holder's Class A Investor Shares and reported to
Investors on a Form 1099-B. To the extent the Company makes distributions from
profits in the future, such distributions will be classified as dividends and
reported to Investors on a Form 1099-DIV.
Please
note that in some cases, Investors have cancelled their purchase of Class A
Investor Shares after distributions were made. In that case, the distribution
allocated to that Investor is returned to the Company and the bookkeeping is
updated to reflect the change in cash distributed. Thus, all figures below are
subject to change.
Below is a table depicting the fees paid and distributions
made from the Company since inception. Note that whenever the table shows that
the General Partner has received its Carried Interest, the Investors have
received their full Preferred Return, as defined in "Allocations of
Distributions". In those cases where the General Partner does not receive
its Carried Interest, distributions were not sufficient to distribute to
Investors their Preferred Return.
Page 18
|
Distribution Date
|
Distributable Cash Flow
|
Preferred Return
|
Additional Cash Flow (80%)
|
Carried Interest* (20%)
|
Class A Investor Distributions**
|
Cash on Cash Yield***
|
|
5/20/21
|
137,235.23
|
50,103.18
|
82,716.23
|
4,415.82
|
132,819.41
|
20.18%
|
|
6/24/21
|
34,398.08
|
11,331.28
|
22,183.64
|
883.16
|
33,514.92
|
2.99%
|
|
7/24/21
|
33,961.13
|
8,663.79
|
24,414.18
|
883.16
|
33,077.97
|
2.74%
|
|
8/26/21
|
20,320.88
|
6,615.89
|
12,821.83
|
883.16
|
19,437.72
|
1.40%
|
|
9/23/21
|
20,320.79
|
6,829.13
|
12,608.50
|
883.16
|
19,437.63
|
1.27%
|
|
10/27/21
|
20,320.80
|
6,951.10
|
12,486.54
|
883.16
|
19,437.64
|
1.09%
|
|
11/30/21
|
20,320.80
|
7,054.00
|
12,383.64
|
883.16
|
19,437.64
|
1.02%
|
|
12/24/21
|
18,977.20
|
13,651.91
|
5,325.29
|
0.00
|
18,977.20
|
0.84%
|
|
2021 Total
|
$305,854.91
|
$111,200.28
|
$184,939.85
|
$9,714.78
|
$296,140.13
|
31.53%
|
|
1/26/22
|
10,973.59
|
3,316.66
|
5,890.61
|
1,766.32
|
9,207.27
|
0.32%
|
|
2/24/22
|
8,787.12
|
3,020.41
|
4,883.55
|
883.16
|
7,903.96
|
0.27%
|
|
3/29/22
|
9,860.27
|
3,957.94
|
5,019.17
|
883.16
|
8,977.11
|
0.28%
|
|
4/29/22
|
7,068.65
|
3,351.29
|
3,717.36
|
0.00
|
7,068.65
|
0.22%
|
|
5/31/22
|
7,068.14
|
2,992.40
|
4,075.74
|
0.00
|
7,068.14
|
0.21%
|
|
6/30/22
|
24,999.75
|
10,725.17
|
14,274.58
|
0.00
|
24,999.75
|
0.68%
|
|
7/29/22
|
25,000.10
|
6,134.70
|
18,865.40
|
0.00
|
25,000.10
|
0.66%
|
|
8/27/22
|
24,073.19
|
20,127.59
|
3,156.48
|
789.12
|
23,284.07
|
0.56%
|
|
9/27/22
|
23,677.18
|
10,506.53
|
10,536.52
|
2,634.13
|
21,043.05
|
0.48%
|
|
10/27/22
|
23,774.37
|
10,254.62
|
10,815.80
|
2,703.95
|
21,070.42
|
0.72%
|
|
11/29/22
|
33,759.97
|
14,656.27
|
15,282.96
|
3,820.74
|
29,939.23
|
0.44%
|
|
12/28/22
|
27,897.02
|
12,302.77
|
12,475.40
|
3,118.85
|
24,778.17
|
0.70%
|
|
2022 Total
|
$226,939.35
|
$101,346.35
|
$108,993.57
|
$16,599.43
|
$210,339.92
|
5.54%
|
|
1/27/23
|
23,705.24
|
10,855.76
|
11,623.77
|
1,225.71
|
22,479.53
|
0.39%
|
|
2/24/23
|
28,739.48
|
12,192.29
|
13,072.28
|
3,474.91
|
25,264.57
|
0.41%
|
|
3/27/23
|
33,687.38
|
15,314.18
|
15,617.22
|
2,755.98
|
30,931.40
|
0.48%
|
|
4/28/23
|
33,709.20
|
15,474.53
|
15,499.47
|
2,735.20
|
30,974.00
|
0.44%
|
|
5/30/23
|
35,708.77
|
16,432.24
|
16,385.05
|
2,891.48
|
32,817.29
|
0.43%
|
|
6/26/23
|
43,709.57
|
20,252.44
|
19,938.56
|
3,518.57
|
40,191.00
|
0.48%
|
|
7/25/23
|
98,709.19
|
45,896.06
|
44,891.16
|
7,921.97
|
90,787.22
|
0.95%
|
|
8/28/23
|
33,708.43
|
15,668.70
|
15,333.77
|
2,705.96
|
31,002.47
|
0.31%
|
|
9/27/23
|
85,715.70
|
41,000.83
|
38,007.64
|
6,707.23
|
79,008.47
|
0.76%
|
|
10/27/23
|
88,636.35
|
35,620.88
|
45,063.15
|
7,952.32
|
80,684.03
|
0.72%
|
|
11/24/23
|
83,704.70
|
40,601.46
|
36,637.08
|
6,466.16
|
77,238.54
|
0.67%
|
|
12/26/23
|
79,097.93
|
38,374.75
|
34,613.45
|
6,109.73
|
72,988.20
|
0.59%
|
|
2023 Total
|
$668,831.94
|
$307,684.12
|
$306,682.60
|
$54,465.22
|
$614,366.72
|
6.63%
|
|
1/26/24
|
57,055.87
|
26,770.27
|
25,742.36
|
4,543.11
|
52,512.63
|
0.41%
|
|
2/27/24
|
58,167.84
|
34,041.33
|
22,678.83
|
1,447.68
|
56,720.16
|
0.41%
|
|
3/26/24
|
67,053.57
|
32,587.99
|
32,397.48
|
2,068.10
|
64,985.47
|
0.46%
|
|
4/26/24
|
50,056.17
|
25,750.84
|
24,305.33
|
0.00
|
50,056.17
|
0.35%
|
|
5/24/24
|
50,361.60
|
26,356.09
|
24,005.48
|
0.00
|
50,361.57
|
0.34%
|
|
6/27/24
|
52,259.23
|
24,629.08
|
24,314.24
|
3,315.62
|
48,943.32
|
0.32%
|
|
7/26/24
|
72,671.64
|
37,364.11
|
35,306.85
|
0.00
|
72,670.96
|
0.47%
|
|
8/26/24
|
111,083.25
|
55,830.45
|
50,252.39
|
5,000.00
|
106,082.84
|
0.61%
|
|
9/27/24
|
112,739.23
|
53,582.40
|
50,282.70
|
8,873.52
|
103,865.10
|
0.57%
|
|
10/28/24
|
122,722.56
|
65,708.06
|
39,889.80
|
17,104.35
|
105,597.86
|
0.50%
|
|
11/26/24
|
131,924.48
|
68,088.72
|
55,506.92
|
8,298.65
|
123,595.64
|
0.57%
|
|
12/24/24
|
137,163.19
|
75,732.81
|
59,884.78
|
1,535.76
|
135,617.59
|
0.62%
|
|
2024 Total
|
$1,023,258.63
|
$526,442.15
|
$444,567.16
|
$52,186.79
|
$971,009.31
|
5.63%
|
|
1/24/25
|
92,252.30
|
54,300.15
|
37,952.14
|
0.00
|
92,252.30
|
0.41%
|
|
2/25/25
|
100,850.44
|
63,545.60
|
37,304.84
|
0.00
|
100,850.44
|
0.39%
|
|
3/27/25
|
100,000.00
|
67,246.88
|
32,753.12
|
0.00
|
100,000.00
|
0.37%
|
|
4/24/25
|
130,000.00
|
85,438.11
|
44,561.89
|
0.00
|
130,000.00
|
0.47%
|
|
5/23/25
|
127,195.89
|
84,823.22
|
42,372.66
|
0.00
|
127,195.89
|
0.43%
|
|
6/23/25
|
124,883.80
|
82,786.87
|
42,096.93
|
0.00
|
124,883.80
|
0.41%
|
|
7/29/25
|
145,803.72
|
98,210.93
|
47,592.79
|
0.00
|
145,803.72
|
0.45%
|
|
8/26/25
|
158,672.26
|
107,478.77
|
51,193.49
|
0.00
|
158,672.26
|
0.49%
|
|
9/26/25
|
150,309.48
|
102,743.28
|
47,566.20
|
0.00
|
150,309.48
|
0.40%
|
|
10/24/25
|
212,000.00
|
138,103.43
|
73,896.57
|
0.00
|
212,000.00
|
0.55%
|
|
11/26/25
|
216,581.60
|
138,334.16
|
78,247.44
|
0.00
|
216,581.60
|
0.54%
|
|
12/23/25
|
215,223.34
|
145,726.89
|
69,496.45
|
0.00
|
215,223.34
|
0.53%
|
|
2025 Total
|
$1,773,772.83
|
$1,168,738.30
|
$605,034.53
|
$0.00
|
$1,773,772.83
|
5.44%
|
|
1/27/26
|
226,549.90
|
152,037.96
|
74,511.94
|
0.00
|
226,549.90
|
0.54%
|
|
2/26/26
|
253,444.85
|
170,750.82
|
82,694.03
|
0.00
|
253,444.85
|
0.58%
|
|
3/29/26
|
201,050.47
|
135,648.95
|
65,401.52
|
0.00
|
201,050.47
|
0.44%
|
|
2026 Total
|
$681,045.22
|
$458,437.73
|
$222,607.49
|
$0.00
|
$681,045.22
|
1.56%
|
|
TOTAL
|
$4,679,702.88
|
$2,673,848.93
|
$1,877,887.72
|
$127,966.22
|
$4,546,736.65
|
56.33%
|
Page 19
*Note: The General Partner reserves the right to reduce
its Management Fees and/or Carried Interest
payments for any reason or to protect the desired cash yield to Investors. For
more information regarding the Management Fees and Carried
Interest paid to our General Partner, see "Compensation of General
Partner".
***Note: Monthly cash-on-cash yield values are calculated
by dividing the Investor Distributions amount by the total cost basis of all
outstanding shares at the time the distribution is issued. Year-end
cash-on-cash yields are calculated by summing all monthly cash-on-cash yields
for the respective year.
Past Operating Results
Since the Company's inception in 2020, it has grown each
year with the construction and acquisition of new Projects. In 2022, the
Company turned its first Project on: Iguatama. In 2023, the Company added
Micros I. In 2024, we completed Pedra do Indaiá and Divinópolis II, and
acquired an operational project, Iguatama II, which contributed to operating
results in 2025. In 2025, construction in Micros II was completed and we
acquired another operational project, Pains. Construction on Divinópolis III
and Corumbaíba, is expected to be completed in early 2026. In addition to
completing the construction Projects, the Company intends to acquire additional
fully operational Projects to accelerate cash flow generation.
During the construction phase, the Company has experienced
challenges that required strategic adjustments to maintain targeted cash yield.
These challenges have primarily related to construction execution and
interconnection delays. Many of the Company's Projects are located in remote
regions of Brazil, where sourcing experienced contractors and coordinating with
utility providers can be difficult. For example, Pedra do Indaiá reached
mechanical completion in July 2023 but was not interconnected until May 2024.
To mitigate the impact of such delays on cash flow, the Company supplemented
its portfolio with operational assets, selectively divested certain Projects
(see "Description of Property"), and collected liquidated damages from
contractors (see "Material Legal Proceedings").
In addition, the Company discontinued or elected not to
pursue certain Projects where changes in regulatory and economic conditions in
Brazil reduced expected returns below the Company's investment criteria. These
actions included the termination of Aparecida do Taboado II, for which the
Company recognized a loss, and the decision not to advance Diamantina II and
Formiga I, which will be terminated in 2026. These decisions reflect the
Company's ongoing portfolio optimization and disciplined approach to capital
allocation.
As a result of these actions, the overall returns of the
Company have held firmly within our targeted range of 14-16% after fees paid to
the General Partner and delivered distributions on schedule every month. As the
construction of the remaining Projects is completed and a greater portion of
the portfolio becomes operational, the company expects cash flows to further
stabilize and distributions to continue on a consistent basis.
Page 20
The Company has elected to defer construction of Araxá I and
Araxá II in order to prioritize capital toward the completion of late-stage
Projects and the acquisition of operating assets.
During 2025, the Company continued to grow its asset base
and revenues while investing in the completion and integration of its Projects.
Although the period resulted in a net loss, this was primarily driven by
construction-phase expenses and the timing mismatch between capital deployment
and revenue generation. The completion of Micros II and the acquisition of
Pains, together with the Company's existing operating Projects, reflect
continued progress toward a more fully operational portfolio and position the
Company for improved cash flow generation and profitability as remaining
Projects reach commercial operation.
Operating
Results for Fiscal Years ended December 31, 2025 and 2024
As of December 31, 2025 and
2024, the Company had total assets of $33,763,816 and $25,649,364,
respectively. Current assets consisted of cash and cash equivalents of
$2,250,759 and $4,593,375, held-to-maturity debt securities of $5,565,346 and
$0, and other current assets of $84,591 and $375,914, respectively. Property
and equipment, net of depreciation, was $21,819,588 and $19,417,432,
respectively. Non-current assets consisted of operating lease right-of-use
assets of $1,018,851 and $1,262,643 and held-to-maturity debt securities,
long-term, of $2,933,681 and $0, respectively. Total liabilities and
partners'/members' equity were $33,763,816 and $25,649,364, respectively,
consisting of total liabilities of $6,022,372 and $7,844,317 and equity of
$27,741,444 and $17,805,047, respectively.
The increase in total assets was
primarily driven by continued investment in projects under construction and the
acquisition of operating assets, funded by additional capital raised from
Investors.
For the fiscal years ended
December 31, 2025 and 2024, the Company generated revenue of $1,567,914 and
$692,328, respectively. The increase was primarily attributable to the addition
of operating projects.
Portfolio-level operating
expenses were $728,278 and $338,973 for 2025 and 2024, respectively, while
project-level operating expenses were $924,968 and $527,917, respectively. The
increase in operating expenses reflects the expansion of the Company's
portfolio, including newly constructed and acquired projects.
Loss from operations was $85,332
for 2025, compared to $174,262 for 2024. Total other expenses were $995,494 and
$539,056 for 2025 and 2024, respectively, resulting in net losses of $1,080,826
and $713,318.
While revenue increased as
additional projects reached commercial operation, results continue to reflect
the timing difference between when projects come online and when they reach
full subscription. As the Portfolio continues to mature, the Company expects
revenue and cash flow generation to improve.
Leverage
The Company might borrow money to invest in Projects,
depending on the circumstances at the time. If the Company needs to move
quickly on a Project and has not yet raised enough capital through the Offering
(or other concurrent offerings), it might make up the shortfall through
borrowing. The General Partner will make this decision on an as-needed basis.
On October 5, 2020, the Company entered into a third-party
Credit Agreement with Lattice Energea Global Revolver I, LLC ("Lender"),
which is unaffiliated with the General Partner. This Agreement extends up to
$5,000,000 of credit to the Company which can be used to construct Projects.
After construction, the amounts owed convert into long-term project finance for
a 10-year term. As of December 31, 2025, the Company had $2,778,000 outstanding
under the line of credit and $1,598,227 outstanding under the term loan.
Page 21
On December 22, 2023, the parties amended the above
described Credit Agreement to release the General Partner and establish the
Company as the sole borrower. This included certain underlying Projects as
collateral: Iguatama, Pedra do Indaiá, Divinopolis II, Divinopolis III, and
Micros I.
Since the interest rate on this loan is lower than the
anticipated IRR of the Projects, we expect this loan to lever returns to
Investors while providing liquidity necessary to accelerate through
construction to achieve distributions to Investors faster.
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 to issue Loans 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, from short term advances
from the General Partner and from undistributed funds from our operations. As
of December 31, 2025, the Company had $2,250,759 of cash on hand and
equivalents, which will be used to pay for the remaining costs of constructing
Divinopolis III, and Corumbaíba.
Method of
Accounting
The compensation described in this section was calculated
using the accrual method in accordance with U.S. GAAP.
Item 3. Directors, Executive Officers &
Significant Employees
Names, Positions, Etc.
The Company itself has no officers or employees. The
individuals listed below are the Managing Partners, Executive Officers, and
Significant Employees of Energea Global, the General Partner of the Company.
|
Name
|
Position with General Partner
|
Age
|
Term of Office
|
Approximate Hours Per Week If Not Full Time (1)
|
|
Executive Officers
|
|
|
|
|
|
Mike Silvestrini
|
Managing Partner
|
45
|
01/01/2017 - Present
|
Full Time
|
|
Chris Sattler
|
Managing Partner
|
45
|
01/01/2017 - Present
|
Full Time
|
|
Gray Reinhard
|
Managing Partner, CTO
|
40
|
01/01/2020 - Present
|
Full Time
|
|
Isabella Mendonça
|
Managing Partner, General
Counsel
|
33
|
10/02/2020 - Present
|
Full Time
|
|
|
|
|
|
|
|
Significant Employees
|
|
|
|
|
|
Arthur Issa
|
Financial Analyst
|
30
|
05/23/2018 - Present
|
Full Time
|
|
Paulo Vieira
|
Director of O&M
|
38
|
01/29/2024 - Present
|
Full Time
|
|
Francielle Assis
|
HR & HSEC Legal Coordinator
|
33
|
07/24/2023 - Present
|
Full Time
|
|
Marta Coelho
|
Controller, Global
|
52
|
12/07/2018 - Present
|
Full Time
|
|
Dave Rutty
|
Project Analyst
|
35
|
06/13/2022 - Present
|
Full Time
|
|
Julio Cezar dos
Santos de Morais
|
Electrical Engineer
|
35
|
09/25/2023 - Present
|
Full Time
|
|
Juan Carvajales
|
Loan Analyst
|
52
|
08/01/2023 - Present
|
Full Time
|
(1) The above
listed employees do not record specific hours to each company managed by
Energea Global. Rather, the employees focus their full-time and energy to each
Project, Loan, or process as needed. The General Partner cannot estimate number
of hours per week spent managing this or any particular company as the
employees are salaried. The work required to manage the Company and other
companies managed by Energea Global changes from time to time depending on the
number and frequency of Projects resulting from the amount they raise in each
Offering. As the companies grow, dedicated staff are brought in to exclusively
manage a specific company. As of December 31, 2025, there are no staff members
exclusively dedicated to the Company and it is managed by the General Partner's
executive team and certain significant employees.
Page 22
Family Relationships
Marta Coelho, the General Partner's Controller, is the
sister-in-law of Mike Silvestrini, the Managing Partner. There are no other
family relationships among the executive officers and significant employees of
the General Partner.
Ownership of Related Entities
Energea Global, the General Partner of the Company, is
majority owned by Mike Silvestrini, a resident of Chester, Connecticut. Energea
Brazil, our affiliated Development Company in Brazil, is owned by Energea
Global.
Business Experience
Mike is an accomplished professional with over 15 years of
experience in the solar energy industry. He has played an executive key role in
the development of over 500 solar projects across the United States, Brazil,
and Africa while being directly responsible for nearly one billion of combined
solar project finance.
Since 2017, Mike has been the Co-Founder & Managing
Partner at Energea Global LLC. In his capacity as Co-Founder & Managing
Partner of the General Partner, Mike directs the Investment Committee which
determines the investment strategy for all funds managed by the business. To
date, Energea Global manages four funds formed to acquire and operate solar
power projects: the Company, Energea Portfolio 3 Africa LP, Energea Portfolio 4
USA LP, and Energea Portfolio 5 LATAM LP. See "Other Solar Energy Funds"
below for the status each fund's offerings.
Since 2015, Mike has served as a Board Member of the Big
Life Foundation, an organization dedicated to preserving over 1.6 million acres
of wilderness in East Africa. Through community partnerships and conservation
initiatives, Big Life protects the region's biodiversity and promotes
sustainable practices.
From 2008 to 2017, Mike co-founded and served as the CEO of
Greenskies Renewable Energy LLC, a leading provider of turnkey solar energy
services. His expertise contributed to the development, financing, design,
construction, and maintenance of solar projects across the United States.
Notably, he was involved in solar installations on Target Corporation stores
and distribution centers, Wal-Marts and Sam's Clubs, Amazon distribution
centers, capped municipal landfills, and many schools and universities.
Mike's track record in renewable energy, his involvement in
hundreds of solar projects worldwide, and his dedication to environmental
sustainability position him as a driving force in managing investments in solar
generating assets.
Chris Sattler
Chris is a seasoned energy entrepreneur with a proven track
record in building and scaling companies in the renewable and retail energy
sectors. Most recently, he served as Chief Executive Officer of IVI Energia, a
joint venture between Energea Global and Brookfield Asset Management. Over his
18-month tenure, he led the company from inception to a $280 million valuation
before returning to his role at Energea Global.
Earlier in his career, Chris co-founded North American Power
and served as Chief Operating Officer. Under his leadership, the company
expanded into more than 35 utility markets across the U.S., serving over one
million residential and small commercial customers. In 2017, the company was
acquired by Calpine Corporation with annual gross sales exceeding $850 million.
Chris holds a Bachelor's degree in Real Estate and Urban
Economics from the University of Connecticut School of Business and is an
alumnus of Harvard Business School's Program for Leadership Development. He
currently resides in Rio de Janeiro.
Page 23
Gray Reinhard
Gray is an experienced software engineer specializing in
business intelligence tools across multiple industries. Early in Gray's career,
he worked primarily in E-Commerce where he built and supported sites for over
20 brands including several Fortune 500 companies. From there, Gray moved into
renewable energy where he developed the project management software for the
country's largest commercial solar installer, Greenskies. This custom platform
managed everything from sales and financing to the construction, maintenance,
and performance monitoring of over 400 solar projects owned by the company.
Prior to joining Energea Global in January 2020, Gray served
as the CTO of Dwell Optimal Inc. which assists businesses providing employees
with travel accommodations.
Gray studied at Princeton University.
Isabella Mendonça
Isabella is a corporate lawyer with experience in
cross-border M&A transactions and the drafting and negotiation of highly
complex contracts and corporate acts in different sectors, such as energy, oil
& gas and infrastructure. Isabella has previously worked as an attorney for
Deloitte and Mayer Brown in Brazil, where she was an associate in the Energy
group, working in regulatory, contractual and corporate matters related to
renewable energy project development.
From 2016 until she joined Energea Global, Isabella was an
associate in the corporate and securities practice at Mayer Brown in the Rio de
Janeiro office.
Isabella studied law at Fundacão Getulio Vargas, in Brazil
and has a master's degree (LLM) from the University of Chicago.
Arthur Issa
Arthur Issa was one of the first employees at Energea
Global, starting in May, 2018. Over the course of his time with the business,
Arthur has participated in the successful closing of more than 100 MW of solar
projects and developed the financial models that support more than $300mm of
AUM. Arthur is responsible for financial modeling of all Projects and Loans at
Energea Global. He also supports the company's corporate financial planning
through detailed financial modelling, reporting and cash flow management. As an
integral part of the team, he provides the tools necessary for management to
make investment decisions for Energea Global and the Company. Arthur has a B.S.
in Production Engineering from University Candido Mendes in Rio de Janeiro,
Brazil.
Paulo Vieira
Paulo is an accomplished electrical engineer with a master's
degree in Energy Resources Engineering and over 5 years of leadership
experience in the renewable energy sector. He currently serves as the Global
O&M Manager at Energea Global, where he oversees operations and maintenance
across a global portfolio of photovoltaic assets spanning the USA, Brazil, and
South Africa. Paulo is a member of Energea Global's Investment Committee.
Specializing in solar energy systems, Paulo has led the
operations of more than 2.2 GW of solar projects. His expertise includes
O&M strategy development, performance optimization, technical team
leadership, and cost control initiatives aimed at improving operational KPIs
and financial performance. His professional journey includes strategic roles at
Recurrent Energy, Enel Green Power, COMERC Energia, Solarig, and AKTOR SA,
where he managed large-scale solar assets and drove operational excellence through
data-driven decision-making and cross-functional coordination.
Paulo also brings a strong academic foundation, with a
postgraduate specialization in Photovoltaic Solar Systems and international
experience through Brazil's Scientific Mobility Program in the U.S., where he
studied at The University of Texas at El Paso. He is deeply committed to
advancing clean energy and delivering high-impact, data-driven solutions in the
solar power sector.
Page 24
Francielle Assis
Francielle has over five years of professional legal
experience with a focus on labor and corporate law within large-scale corporate
environments. Since September 2024, she has served as HR & HSEC Legal
Coordinator at Energea Global. In that capacity, she ensures compliance with
labor laws and regulations for all corporate Human Resources and oversees the
company's Health, Safety, Environment and Community ("HSEC") compliance
and risk mitigation. Her responsibilities include managing labor litigation,
advising on employment law matters, and coordinating with regulatory agencies
and external legal counsel. She also attends site visits for each Project to
opine on the community and security risk prior to investment and sits on
Energea Global's Investment Committee.
Prior to joining Energea Global, Francielle was a Senior
Strategic Labor Attorney at CPFL Energia, one of Brazil's largest energy
companies. There, she led complex employment litigation strategies and advised
on collective labor issues. She also served as Labor Attorney at CPFL,
supporting operational and strategic labor matters across the company's various
business units.
Earlier in her career, Francielle worked in both private law
firms and governmental institutions, handling labor and civil litigation. Her
experience includes managing procedural strategies and representing corporate
clients in both individual and collective labor disputes, demonstrating a high
level of legal and operational competence.
Marta Coelho
Since its inception in 2018, Marta Coelho has served as the
Controller at Energea Global, bringing with her a wealth of experience and
expertise in finance and accounting. As the global Controller, Marta plays a
crucial role in managing all financial aspects, including account management,
taxation, and audits, for Energea Global's diverse range of operating entities
and projects across Africa, Brazil, and the USA. Marta leads a team of
subordinate controllers and accountants at Energea Global and coordinates with
a bench of third-party accounting firms across our jurisdictions of operation.
Dave Rutty
Dave is a highly experienced solar professional with over 12
years of hands-on experience building, maintaining, and managing solar
projects. As a Project Analyst at Energea Global, he plays a pivotal role in
overseeing construction and maintenance operations across all markets, ensuring
projects are executed with precision, safety, and technical excellence. Dave is
responsible for preparing Investment Committee memos across Energea Global's
multidisciplinary team of experts to ensure all investments meet the company's
stringent compliance requirements.
From 2020 to 2022, Dave served as a Managing Partner at
SRES, a solar contracting company based in the northeastern U.S. Prior to that,
Dave was served as the Vice President of Operations and Maintenance at
Greenskies Renewable Energy LLC.
Julio Cezar dos Santos de Morais
Julio is an experienced electrical engineer specializing in
photovoltaic systems, currently serving as an Electrical Engineer at Energea
Global since October 2023. He oversees project design, field and factory
inspections, and engineering analysis for distributed generation systems. His
technical expertise includes tools such as PVSyst, AutoCAD, and protection
design for medium-voltage applications.
Over the past nine years, Julio has held engineering roles
at CPFL Renováveis, Deode Energia, MEPEN Energia, and others, where he managed
solar projects exceeding 100 MW of combined solar power generation capacity.
Julio led technical teams and performed system simulations and commissioning.
He holds both bachelor's and master's degrees in Electrical Engineering from
the Federal University of Technology - Paraná (UTFPR), with academic research
published in the field of power electronics.
Juan Carvajales
Juan is a seasoned business development professional with
over 15 years of experience in the renewable energy sector across U.S. and
Latin American markets. Since August 2023, he has worked as a Loan Analyst at
Energea Global, where he supports investment strategies and portfolio
architecture, leveraging his background in project development, financing, and
cross-border renewable energy transactions to identify private credit
opportunities.
Page 25
Before joining Energea Global, Juan held key leadership
roles including Director of Business Development at GeneraSol (2007-2023) and
Board Member at SUA Power Company (2021-2023), where he focused on structuring
and executing solar PV and off-grid energy projects. He has also led
utility-scale solar development at Grupo BAZ and has a foundational background
in project and operations management. Juan holds a BBA from Politécnico Costa
Atlántica and additional certifications in solar energy and environmental
science.
Legal
Proceedings Involving Executives and Directors
Within the last five years, no Director, Executive Officer,
or Significant Employee of the Company has been convicted of, or pleaded guilty
or no contest to, any criminal matter, excluding traffic violations and other
minor offenses.
Within the last five years, no Director, Executive Officer,
or Significant Employee of the Company, no partnership of which an Executive
Officer or Significant Employee was a general partner, and no corporation or
other business association of which an Executive Officer or Significant
Employee was an executive officer, has been a debtor in bankruptcy or any
similar proceedings.
Other Solar Energy Funds
Energea Global, the General Partner of the Company, is also
the general partner of two other funds formed to acquire and operate solar
power projects, each of which is conducting an offering under Regulation A:
·
Energea Portfolio 3 Africa LP ("Portfolio 3"), which was
formed to acquire and operate projects with located in Africa.
·
Energea Portfolio 4 USA LP ("Portfolio 4"), which was
formed to acquire and operate projects located in the United States.
·
Energea Portfolio 5 LATAM LP ("Portfolio 5"), which was
formed to acquire and operate projects located in Latin America.
The status of each of the Company's, Portfolio 3's,
Portfolio 4's, and Portfolio 5's current and prior offerings, as of December
31, 2025, is below:
|
|
Energea
Portfolio 2 LP
|
Energea
Portfolio 3 Africa LP
|
Energea
Portfolio 4 USA LP
|
Energea
Portfolio 5 LATAM LP
|
|
Date of Initial Qualification
|
08/13/2020
|
08/2/2021
|
07/01/2021
|
02/05/2026
|
|
Date of Current Qualification
|
03/26/2026
|
03/26/2026
|
03/26/2026
|
02/05/2026
|
|
Offering Amount Raised Through
12/31/25*
|
$36,540,098
|
$8,966,847
|
$7,167,127
|
$169,150**
|
|
Solar Projects Operating or Constructing
|
Eleven
|
Seventeen
|
Five
|
-
|
|
Current Maximum Offering Amount
|
$50,000,000
|
$50,000,000
|
$50,000,000
|
$50,000,000
|
*Gross of stock issuance costs
**Amount raised through the General Partner
Page 26
Compensation
of General Partner
Our General Partner is compensated when the Company pays the
fees described in the table below ("Fees"):
|
Type of Fee
|
Timing of Fee
|
Description
|
|
Reimbursement of Marketing
Expenses
|
Ongoing
|
The Company must reimburse the
General Partner for expenses the General Partner incurs while promoting the
Company to potential investors. The maximum reimbursable amount is 5% of the
total amount raised. Types of costs that will be reimbursed by the Company to
the General Partner for marketing expenses include digital and conventional
advertisements, marketing personnel and third-party costs, promotional events
and any other cost associated with communicating the Offering to the general
public. If the Company were to raise the $50,000,000 we hope to raise through
the Offering, we would estimate the marketing costs and reimbursements to be
approximately (and not over) $2,500,000 (1).
|
|
Management Fees
|
Ongoing
|
The General Partner will charge the Company a monthly
management fee equal to 0.167% of the aggregate capital that has been
invested into the Company.
|
|
Carried Interest
|
When the distributions exceed
the Preferred Return
|
The General Partner will receive
20% of all distributed cash flow above the monthly amount necessary for
Preferred Equity Investors to receive their Preferred Return. For more
detail, see "Carried Interest" below
|
|
Origination Fees
|
When Projects and Loans are originated
|
The General Partner might originate and develop Projects
and Loans that are acquired by the Company. If so, the General Partner shall
be entitled to compensation that is no greater than 5.0% of the Project's
cost or the Loan's outstanding balance.
|
|
O&M and Credit Management
Services ("Ancillary Services")
|
Ongoing as services are rendered
according to contract
|
Energea Brazil provides O&M
and Credit Management services to some of the Projects owned by the Company.
After an extensive search to identify third parties to provide these
services, the General Partner concluded that the nascent solar market in Brazil
lacked cost-effective and experienced options for these tasks. Energea
Brazil, on the other hand, agreed to provide these services at prices that
were lower than those offered through the competitive search process and has
extensive experience providing these services to hundreds of projects across
multiple global markets.
|
|
Interest on Loans
|
Whenever due and payable
|
The General Partner might lend to the Company to fund the
acquisition or investment in Projects and Loans or for other purposes. Such a
loan will bear interest at market rates. The amount of interest will depend
on the amount and term of any such loans.
|
(1) The estimated
amount of "marketing costs and reimbursements" represents a "not-to-exceed"
estimate for organization, offering, and marketing reimbursements. This figure
is a cap only. Actual reimbursements are tied to actual expenses incurred and
may be substantially lower.
Page 27
Deferment of Fees
While the General Partner is not entitled to any
compensation other than the Fees as described above, it may defer some or all
of Fees at any time based on the General Partner's assessment of the cash flow
at the Company. Some Fees may be deferred indefinitely at the discretion of the
General Partner. To date, the General Partner (and, in the case of Ancillary
Services) Energea Brazil have provided services without charging the full
amount owed by the Company. As the Company and its cash flow stabilize, the
General Partner may charge for deferred Fees ("Deferred Fees") - see "Fees
Paid to General Partner" for more information.
Fees Paid to
General Partner
As the Company grows, markets, exceeds Preferred Returns and
requires the General Partner for Ancillary Services, fees are accrued to the
General Partner, some of which are deferred, as described above. Below is a
table which calculates the total amounts paid to the General Partner from all
possible fees, which have been paid as of December 31, 2025:
|
Fee Type
|
Fees Paid to General Partner in 2025
|
Fees Paid Since Inception (including 2025)
|
|
Reimbursement of Marketing
Expenses
|
$1,540,522.00
|
$1,540,522.00
|
|
Management Fee
|
$614,558.94
|
$716,142.31
|
|
Carried Interest
|
$0.00
|
$133,032.04
|
|
Origination Fees
|
$240,398.57
|
$1,158,905.40
|
|
Ancillary Services
|
$61,093
|
$191,413.90
|
|
Interest on Loans
|
$0.00
|
$0.00
|
|
TOTAL
|
$2,456,572.48
|
$3,740,015.65
|
Co-Investment
The General Partner and its affiliates might purchase Class
A Investor Shares. If so, they will be entitled to the same distributions as
other Preferred Equity Investors. If such investment is made to facilitate the
Company's acquisition of or investment in Projects before there are sufficient
offering proceeds, the General Partner will be entitled to redeem its Class A
Investor Shares from additional Offering proceeds as they are raised. As of
December 31, 2025, the General Partner purchased and owned 232,613 Class A
Investor Shares which was 0.59% of all outstanding shares as of that date.
Item 4. Security Ownership of General Partner and
Certain Securityholders
The individuals named below, as well as other employees of
the General Partner, may own Class A Investor Shares that they purchased
privately through the Platform in the same manner as any Investor.
The following table sets forth the approximate beneficial
ownership of our Class A Investor Shares as of December 31, 2025, for each
person or group that holds more than 10.0% of our Class A Investor Shares, and
for each director and executive officer of our General Partner and for the
directors and executive officers of our General Partner as a group.
|
Name of
Beneficial Owner (1)(2)
|
Number of
Shares Beneficially Owned
|
Amount and
Nature of Beneficial Ownership Acquirable
|
Percent of All
Shares
|
|
Energea Global LLC
|
232,613
|
N/A
|
0.5885%
|
|
Michael Silvestrini
|
18,184(3)
|
N/A
|
0.0460%
|
|
Christopher Sattler
|
112(3)
|
N/A
|
0.0003%
|
|
Gray Reinhard
|
2,751
|
N/A
|
0.0070%
|
|
All directors and executive
officers of our General Partner as a group (3 persons)
|
21,047
|
N/A
|
0.0532%
|
(1) Under SEC
rules, a person is deemed to be a "beneficial owner" of a security if that
person has or shares "voting power," which includes the power to dispose of or
to direct the disposition of such security. A person also is deemed to be a
beneficial owner of any securities which that person has a right to acquire
within 60 days. Under these rules, more than one person may be deemed to be a
beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which he or she has no economic or
pecuniary interest.
(2) Each listed
beneficial owner, person or entity has an address in care of our principal
executive offices at 52 Main Street, Chester, CT 06412.
(3) Includes shares
beneficially owned by Energea Global LLC, under the control of its Class A
Shareholders. Notably, Michael Silvestrini and Chris Sattler, as the largest
principal shareholders, hold 41.10% and 32.10% of the shares of Energea Global
LLC, respectively. (As of December 31, 2025)
Page 28
Item 5.
Interest of Management and Others in Certain Transactions
The Company might enter into other transactions with related
parties. If so, any compensation paid by the Company to the related party shall
be (i) fair to the Company, and (ii) consistent with the compensation that
would be paid to an unrelated party.
By "related party" we mean:
·
The General Partner or a subsidiary of the General Partner;
·
Any director, executive officer, or significant employee of the
Company or the General Partner;
·
Any person who has been nominated as a director of the Company or
the General Partner;
·
Any person who owns more than 10% of the voting power of the
Company or the General Partner; and
·
An immediate family member of any of the foregoing.
The Company has not, and does not intend to, enter into any
related party transaction with the General Partner or its subsidiaries or any
other related party other than those transactions described above in "Compensation
of General Partner". As discussed above, the Company may pay or reimburse
the General Partner for marketing expenses, management fees, Carried Interest,
Ancillary Services and interest on loans. There are no other expenses, nor will
there be other expenses in the future, where the Company pays a related party
other than the Fees.
Certain Fees are substantiated by a contract between the
related parties. Those contracts are described in the table below. Other Fees
(such as marketing reimbursements, management fees, Carried Interest or
origination fees) are not supported by a specific contract and are instead due
and payable as described in this Annual Report. For a detailed description of
the amounts paid by the Company to the General Partner and its subsidiaries,
please see "Compensation of General Partner".
Contracts Currently Signed with
Related Parties
|
Project
|
Related Party
|
Contract
|
Date Signed
|
|
Iguatama
|
Energea Brazil
|
Operations and Maintenance
Contract
|
August 22, 2023
|
|
|
Energea Brazil
|
Credit Management Agreement
|
August 22, 2023
|
|
|
|
|
|
|
Pedra do Indaiá
|
Energea Brazil
|
Operations and Maintenance Contract
|
July 1, 2024
|
|
|
Energea Brazil
|
Credit Management Agreement
|
June 1, 2024
|
|
|
|
|
|
|
Divinopolis II
|
Energea Brazil
|
Operations and Maintenance
Contract
|
March 26, 2025
|
|
|
|
|
|
|
Micros I
|
Energea Brazil
|
Operations and Maintenance
Contract
|
April 30, 2024
|
|
|
Energea Brazil
|
Credit Management Agreement
|
April 30, 2024
|
|
|
|
|
|
|
Iguatama II
|
Energea Brazil
|
Operations and Maintenance Contract
|
March 21, 2025
|
|
|
Energea Brazil
|
Credit Management Agreement
|
April 22, 2025
|
Page 29
Item 6. Other Information
None.
Item 7.
Financial Statements
Index to Financial Statements
|
Section
|
Page
|
|
|
F-1
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6 - F-15
|
Page 30
Notes to
Consolidated Financial Statements
December 31, 2025 and 2024
Note 1 - Organization, Operations and Summary of
Significant Accounting Policies
Business organization and operations
Energea Portfolio 2 LP (the "Company"), formerly known as Energea
Portfolio 2 LLC is a Delaware limited partnership 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
LP and its wholly owned Brazilian single purpose entities ("SPEs"): Energea
Iguatama Aluguel de Equipamentos e Manutençao Ltda; Energea Iguatama II Ltda;
Energea Pedra do Indaia Ltda; Energea Araxá I Ltda; Energea Araxá II Ltda; and
Energea Divinopolis II Ltda, Energea Divinopolis III Ltda, Energea Formiga I
Ltda, Energea Diamantina II Ltda, Energea Micros I Ltda, Energea Micros II
Ltda; Energea Corumbaiba Ltda and Energea Pains Ltda. The
Company and its day-to-day operations are managed by Energea Global LLC
("General Partner"). The Company
commenced operations on January 13, 2020.
Effective June 3, 2025,
the Company converted from a Limited Liability Company (LLC) to a Limited
Partnership (LP). The conversion was undertaken for alignment of management and
ownership structure. As a result of this change, the Company's legal form and
ownership structure were modified. However, its classification for U.S. federal
income tax purposes remains unchanged, the Company continues to be treated as a
corporation. Management has determined that the conversion does not constitute
a change in the reporting entity. Accordingly, comparative financial
information for periods prior to the conversion has not been restated and
reflects operations under the LLC structure.
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 have been funded by
the issuance of membership interests (prior to conversion). There can be no
assurance that any of these strategies will be achieved on terms attractive to
the Company. During 2021, the Company initiated an offering of its Class A
Investor Shares (the "prior offering") under Regulation A of the Securities Act
of 1933, as amended, to support ongoing project development. As of December 31,
2025, the Company had raised a total of $36,540,868 through this offering.
After deducting issuance costs of $1,958,167, net proceeds totaled $34,582,701.
Since inception, the Company has distributed $3,865,473 to investors as
non-dividend returns of capital.
Basis of presentation
The consolidated financial statements include the
accounts of the Company and its subsidiaries and have been prepared on the accrual basis of accounting in accordance
with accounting principles generally accepted in the United States of America
("US GAAP").
Basis of Consolidation
The consolidated financial
statements include the financial statements of the Company, as well as wholly
owned SPEs. The accounting policies of the Company's SPEs are consistent with
the Company's accounting policies, and all intercompany transactions have been
eliminated in consolidation.
Use of estimates
The preparation of the
consolidated financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and revenues and expenses
of the period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits
at commercial banks, and highly liquid investments with original maturities of
90 days or less.
Held to maturity debt securities
Held to maturity debt securities consist of fixed-rate
Brazilian bonds denominated in Brazilian reais (R$). The Company has the
positive intent and ability to hold these investments to maturity and,
accordingly, classifies them as held-to-maturity. These investments are
recorded at amortized cost, adjusted for the amortization of premiums and
accretion of discounts over the contractual term of the securities.
Because these investments are denominated in a foreign
currency, the carrying amounts are remeasured into U.S. dollars at period-end
exchange rates, with resulting realized and unrealized foreign currency gains
and losses recognized in earnings. Interest income is recognized using the
effective interest method and included in interest income in the consolidated
statements of operations.
For held-to-maturity debt securities, the Company
measures expected credit losses on an individual security basis. Management
evaluates whether the decline in fair value has resulted from credit losses or
other factors. In making this assessment, management considers the extent to
which fair value is less than amortized cost, any changes to the rating of the
security by a rating agency, and adverse conditions specifically related to the
security, among other factors. If this assessment indicates that a credit loss
exists, the present value of cash flows expected to be collected from the
security is compared to the amortized cost basis of the security. If the
present value of cash flows expected to be collected is less than the amortized
cost basis, a credit loss exists and an allowance for credit losses is recorded
for the credit loss, limited by the amount that the fair value is less than the
amortized cost basis. Losses related to non-credit-related factors will be
recorded in other comprehensive income. Changes in the allowance for credit
losses are recorded as a provision for (or reversal of) credit loss expense.
Losses are charged against the allowance when management believes the
uncollectibility of a held-to-maturity security is confirmed or when either of
the criteria regarding intent or requirement to sell is met.
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 consist of
investments in solar projects. The Company
accounts for investments in solar projects under ASC 360. The property and
equipment are carried at cost and are depreciated on a straight-line basis over
the estimated useful life of the related assets, which range from 25 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.
Impairment of
long-lived assets
The Company reviews long-lived
assets for impairment in accordance with ASC 360 whenever events or
changes in circumstances indicate that the carrying amount of an asset or asset
group may not be recoverable. An impairment evaluation is performed by
comparing the carrying amount of the asset or asset group to the estimated
undiscounted future cash flows expected to result from the use and eventual
disposition of the asset or asset group. If the carrying amount is not
recoverable, an impairment loss is recognized in an amount equal to the excess
of the carrying amount over fair value.
The Company recorded an
impairment loss of $335,196 on property and equipment during the year ended
December 31, 2025. No impairment loss was recorded during 2024.
Revenue recognition
To date, all of the SPEs have Equipment Rental Agreements
and Operation and Maintenance Service Agreements ("O&M
Agreements"). The Company does not currently have any land lease
arrangements with customers.
These agreements are with various subscribers who will pay a
monthly fee for 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.
The Company recognizes revenue from both Equipment Rental
Agreements and O&M Agreements concurrently using the same revenue
recognition procedures when a single invoice is issued to the customer.
Accordingly, revenue is not allocated between the Equipment Rental Agreement
and O&M Agreement and is recognized as a single revenue stream.
The agreements are in effect for twenty-five years from the
completion date and are expected to generate combined gross revenues of
approximately $202,230,763 (unaudited) from all projects when operational.
The Company's revenue recognition policy follows ASC-606
which is a five-step procedure:
|
Procedure
|
Example
|
|
Step 1 - Identify the Contract
|
Project Rental Contract
|
|
Step 2 - Identify the Performance Obligations
|
Delivery of electricity from solar plant
|
|
Step 3 - Determine the
Transaction Price
|
Amount contractually signed with
Subscriber
|
|
Step 4 - Allocate the Transaction Price
|
Obligation is satisfied by transferring control of the
electricity produced to the Subscriber
|
|
Step 5 - Recognize Revenue
|
At a point in time when the
Subscriber is invoiced
|
Comprehensive Income/(Loss)
US GAAP requires the reporting of "comprehensive
income/(loss)" within general purpose financial statements. Comprehensive
income/(loss) is comprised of two components, net income/(loss) and
comprehensive income/(loss). For the years ended December 31, 2025 and 2024 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
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.
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
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.
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.
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. dollars translated at historical exchange rates prevailing at
the time of the transaction. Balances are translated into U.S. dollars using
the exchange rates at the respective balance sheet date.
Foreign currency remeasurement losses and foreign exchange
transaction costs are recorded in the period incurred. These balances are
included in other income/(expense) on the accompanying consolidated statements
of operations and comprehensive loss.
Foreign currency translation adjustments are included in
other comprehensive loss on the accompanying consolidated statements of
operations and comprehensive loss. These translation adjustments do not affect
net income until the related foreign operations are sold or substantially
liquidated.
For the years ended December 31, 2025 and 2024:
- Foreign currency remeasurement losses were $109,626 and
$15,650 respectively.
- Foreign exchange transaction costs were $166,961 and $0,
respectively.
- Foreign currency translation adjustments were losses of
$17,987 and $254,690, respectively.
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.
Reclassification
Certain prior year amounts have been reclassed to conform to
the current year presentation.
Subsequent events
In connection with the preparation of the consolidated
financial statements, the Company monitored and evaluated subsequent events for
the years ended December 31, 2025, through April 30, 2026, the date on which
the consolidated financial statements were available to be issued. There are no material subsequent events that
require recording or disclosure in the consolidated financial statements.
F-6
Note 2 - Held to Maturity Debt Securities
The Company invests in debt
securities for which management has the positive intent and ability to hold to
maturity. Accordingly, these investments are classified as held-to-maturity and
are carried at amortized cost, net of any allowance for credit losses.
The amortized cost, gross
unrealized gains and losses, and fair value of the Company's held to maturity
securities are as follows at December 31, 2025:
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Fair
Value
|
|
|
|
|
|
|
Foreign government
|
|
|
|
|
|
|
|
|
|
bonds
|
|
$ 8,590,027
|
|
$ 8,692
|
|
$ (32,712)
|
|
$ 8,566,007
|
Interest income
Interest income on
held-to-maturity debt securities is included in interest income in the
consolidated statements of operations. For the year ended December 31, 2025,
total interest income recognized on these investments was $442,811.
Contractual maturities of
held-to-maturity debt securities
The amortized cost and
estimated fair value of held-to-maturity debt securities by contractual
maturity as of December 31, 2025, were as follows:
|
Amortized
Cost
|
|
Fair
Value
|
|
|
|
Due within one year
|
$ 5,656,346
|
|
$ 5,662,371
|
|
Due after one year through five years
|
1,042,102
|
|
1,044,769
|
|
Due after five years through ten years
|
1,891,579
|
|
1,858,867
|
|
$ 8,590,027
|
|
$ 8,566,007
|
Unrealized loss positions
As of December 31, 2025, certain
held-to-maturity securities were in an unrealized loss position, and all such
securities were in an unrealized loss position for less than one year. These
unrealized losses were primarily attributable to changes in market interest
rates and not to credit deterioration. All unrealized loss positions have
existed for less than one year. Management has the intent and ability to hold
these securities to maturity and does not expect to be required to sell the
securities before recovery of their amortized cost basis.
Credit
losses
The Company evaluates
held-to-maturity debt securities for expected credit losses in accordance with
ASC 326. As of December 31, 2025, no allowance for credit losses was recorded,
as the securities are backed by the Brazilian treasury and are considered to
have minimal credit risk.
F-7
Note 3 - Construction in Progress
The Company is in the
process of developing and constructing renewable energy facilities in Brazil.
All project costs after the development phase 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 December 31, 2025 and 2024 was $6,597,798 and $5,638,740,
respectively. The Company expects to incur an additional $931,992 of costs to
complete the projects owned by Energea Corumbaiba Ltda and Energea Divinopolis
III Ltda.
F-8
Note 4 - Property and equipment
The Company's property and equipment as of December 31, 2025
and 2024, is outlined in the following roll-forward summary:
|
|
2025
|
|
2024
|
|
|
|
|
|
|
|
Beginning property and equipment
|
|
$ 19,815,352
|
|
$ 13,626,838
|
|
Additions
|
|
3,387,343
|
|
6,188,514
|
|
Impairment loss on property and equipment
|
|
(335,196)
|
|
-
|
|
Loss on liquidation of subsidiary
|
|
(172,292)
|
|
-
|
|
Ending property and equipment
|
|
22,695,207
|
|
19,815,352
|
|
|
|
|
|
|
|
Beginning accumulated depreciation
|
|
(397,920)
|
|
(119,007)
|
|
Depreciation expense
|
|
(477,699)
|
|
(278,913)
|
|
Ending accumulated depreciation
|
|
(875,619)
|
|
(397,920)
|
|
Property and equipment, net
|
|
$ 21,819,588
|
|
$ 19,417,432
|
F-9
Note 5 - Line of Credit and Term Loan Notes Payable
In October 2020, the Company, along with its majority
member-manager, entered into a revolving credit agreement (the "Agreement")
with a debt provider to finance construction projects in Brazil. The Agreement
provides for a line of credit with total availability of $5,000,000 to be used
solely for the purchase, development, and construction of three Brazilian
projects. Interest on the line of credit is payable in quarterly installments
at an annual rate of 15% through the date of conversion to a term loan.
The Company may elect to defer up to 50% of each quarterly
interest installment; however, any deferred interest is 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 of Energea Iguatama Aluguel
de Equipamentos e Manutenção Ltda, Energea Pedra do Indaiá Ltda, and Energea
Divinópolis II Ltda. As of December 31, 2025 and 2024, the Company had not
deferred any interest or capitalized interest into principal.
The Company may repay or prepay outstanding borrowings with
prior approval of the lender. Additionally, the Company is required to repay
outstanding principal using proceeds from project sales within ten days of
receipt, or if a project is canceled or cannot be completed.
Upon completion of construction, the Company may elect to
convert amounts outstanding under the line of credit into a term loan, subject
to compliance with financial covenants and other requirements.
During 2024, the Company converted $1,775,000 of outstanding
borrowings under the line of credit into a term loan. The term loan bears
interest at an annual rate of 13%. Under the terms of the credit agreement, the
term loan is contractually due within 30 months of issuance and may be settled
through an exchange for equity interests in the related joint venture. However,
the Company has been making periodic payments of principal and interest and
expects to repay the term loan in cash over time.
As of December 31, 2025 and 2024, total borrowings consisted
of $2,778,000 outstanding under the line of credit for both years and
$1,598,227 and $1,703,843, respectively, outstanding under the term loan.
Interest incurred during the construction phase is
capitalized as construction-in-progress (CIP) and included in property and
equipment on the consolidated balance sheet. Total capitalized interest as of
December 31, 2025 and 2024 was $0 and $1,329,039, respectively. Interest
incurred during the operating phase is expensed.
Interest expense for the years ended December 31, 2025 and
2024 was $601,785 and $450,116, respectively.
As of December 31, 2025, the scheduled future principal
payments on the Company's term note payable were as follows:
|
2026
|
|
$ 119,344
|
|
2027
|
|
134,859
|
|
2028
|
|
152,391
|
|
2029
|
|
172,202
|
|
2030
|
|
194,588
|
|
2031-2034
|
|
824,843
|
|
Total future principal payments
|
|
$ 1,598,227
|
The line of credit note payable matures on June 30, 2036.
F-10
Note 6 - Related Party Transactions
The Company has transactions between related companies from
time to time. As of December 31, 2025 and 2024, the Company
had payables of $17,843 and $28,306, respectively, to an entity
under common ownership. As of the same dates, the Company had no
receivables from related entities. These amounts are presented as due
to/from related parties on the accompanying consolidated balance sheets.
As of December 31, 2025 and 2024, the SPEs with operational
projects entered into an O&M Agreement with a related party to perform
continued maintenance on the projects. The agreement is in effect for ten years
from the date of issuance of the Order of Service. The price is fixed based on
the size of the project, adjusted on the first (1st) anniversary of the Order
of Service, and each anniversary thereafter, in accordance with General Market
Price Index. For the years ended December
31, 2025 and 2024, the Company incurred total O&M fees of $67,421 and
$77,427, respectively, of which $51,462 and $64,860, respectively, were charged
by a related party affiliated with the General Partner. These amounts were
recognized as expense and are included within total operation and maintenance
expenses in the consolidated statements of operations.
As of December 31, 2025 and 2024, the SPEs with operational
projects entered into a 20-year Credit Management Agreement with a related
party affiliated with the General Partner to manage the Consortium responsible
for commercializing project-generated energy. Services include customer
onboarding, invoicing, collections, credit control, and reporting. The price is
fixed based on the size of the project, adjusted on the first (1st) anniversary
of the contract signature, and each anniversary thereafter. For the years ended
December 31, 2025 and 2024, the Company incurred credit management fees of
$9,631 and $11,850, respectively, recognized as expense in the consolidated
statement of operations.
The Company pays a
monthly management fee to the General Partner. For the years ended December 31,
2025 and 2024, the Company paid management fees of $614,559 and $128,038,
respectively, which are included in operating expenses in the accompanying
consolidated statements of operations.
For the years ended
December 31, 2025 and 2024, the Company incurred total stock issuance costs of
$1,670,522 and $82,222, respectively. Of these amounts, $1,540,522 and $0,
respectively, related to marketing costs reimbursed to the General Partner.
These amounts are
included as a reduction of capital raised in the consolidated statements of
changes in partners'/members' equity.
F-11
Note 7 - Leases
The Company has a land lease for the Energea Iguatama
Aluguel de Equipamentos e Manutenção Ltda property with an annual rent of
approximately $11,869, expiring in February 2049. The monthly base rent
increases each lease year by the General Market Price Index.
The Company has a second lease for Energea Iguatama II Ltda
property with an annual rent of approximately $25,018, expiring in July 2047.
The monthly base rent increases each lease year by the General Market Price
Index.
The Company has a third lease for the Energea Pedra do
Indaiá Ltda with an annual rent of approximately $17,719, expiring in April
2047. The monthly base rent increases each lease year by the Brazilian Extended
National Consumer Price Index.
The Company has a fourth lease for the Divinopolis III Ltda
property with an annual rent of approximately $20,177, expiring in June 2047.
The monthly base rent increases each lease year by the Brazilian Extended
National Consumer Price Index.
The Company has a fifth lease for the Energea Araxa I Ltda
property with an annual rent of approximately $18,871, expiring in January
2047. The monthly base rent increases each lease year by the Brazilian Extended
National Consumer Price Index.
The Company has a sixth lease for the Energea Araxa II Ltda
property with an annual rent of approximately $18,871, expiring in January
2047. The monthly base rent increases each lease year by the Brazilian Extended
National Consumer Price Index.
The Company has a seventh lease for the Energea Corumbaiba
Ltda property with an annual rent of approximately $25,698, expiring in January
2048. The monthly base rent increases each lease year by the Brazilian Extended
National Consumer Price Index.
The Company has an eighth lease for the Energea Divinopolis
II Ltda property with an annual rent of approximately $15,667, expiring in
March 2048. The monthly base rent increases each lease year by the Brazilian
Extended National Consumer Price Index.
The Company has a ninth lease for the Energea Micros I Ltda
property with an annual rent of approximately $17,945, expiring in May 2048.
The monthly base rent increases each lease year by the Brazilian Extended
National Consumer Price Index.
The Company has a tenth lease for the Energea Micros II Ltda
property with an annual rent of approximately $15,481, expiring in February
2050. The monthly base rent increases each lease year by the Brazilian Extended
National Consumer Price Index.
The Company has an eleventh lease for the Energea Pains Ltda
property with an annual rent of approximately $5,226, expiring in February
2052. The monthly base rent increases each lease year by the Brazilian Extended
National Consumer Price Index.
For the projects under construction, the total land rental
costs for the years ended December 31, 2025 and 2024 were $101,144 and
$214,403, respectively, which have been capitalized and included in CIP on the
accompanying consolidated balance sheets.
For the operating projects, the total land rental expense
for the years ended December 31, 2025 and 2024 were $115,312 and $58,227,
respectively, which have been included in the accompanying consolidated
statements of operations.
The lease costs and other required disclosures as of and for
the years ended December 31, 2025 and 2024 are:
|
2025
|
|
2024
|
|
|
|
|
|
|
Operating lease cost
|
$ 330,352
|
|
$ 221,403
|
|
Cash paid for amounts in the measurement of lease
|
|
|
|
|
liabilities -
operating cash flows from operating leases
|
$ 271,733
|
|
$ 234,236
|
|
Weighted-average remaining lease term - operating leases
|
246 months
|
|
275 months
|
|
Weighted-average
discount rate - operating leases
|
17.90%
|
|
17.90%
|
In March 2025, the Company derecognized right-of-use assets
and lease liabilities totaling $284,083 in connection with early lease
terminations for Energea Formiga I Ltda, Energea Diamantina II Ltda, and
Energea Aparecida do Taboado II Ltda. During the same period, the Company
entered into new lease agreements for Energea Micros II Ltda, Energea Iguatama
II Ltda, and Energea Pains Ltda and recorded adjustments related to lease
escalations on existing contracts.
These activities, including lease additions and
terminations, affected the Company's lease portfolio during the years ended
December 31, 2025 and 2024. The Company recognized total operating lease cost
of $330,352 and $221,403 for the years ended December 31, 2025 and 2024,
respectively.
Future lease payments, translated at the exchange rate in
effect as of December 31, 2025, are as follows:
|
2026
|
|
$ 193,135
|
|
2027
|
|
193,135
|
|
2028
|
|
193,135
|
|
2029
|
|
193,135
|
|
2030
|
|
193,135
|
|
Thereafter
|
|
3,229,575
|
|
Total future
undiscounted lease payments
|
|
4,195,250
|
|
Less interest
|
|
(3,064,758)
|
|
Lease liabilities
|
|
$ 1,130,492
|
F-12
Note 8 - Commitments
During 2024, the Company had four Engineering, Procurement
and Construction ("EPC") contracts in place for four projects, with a combined
total expected cost of $1,237,425. As of December 31, 2024, $125,350 had been
incurred under these EPC contracts.
During 2025, three of the EPC contracts were completed and
fully settled. As of December 31, 2025, the Company had one remaining EPC
contract, with a total expected cost of $525,837. As of December 31, 2025,
$504,080 had been incurred under the remaining EPC contract
F-13
Note 9 - Partners' Equity
On June 3, 2025, the
Company converted from a Delaware limited liability company to a Delaware
limited partnership and is now governed by the Limited Partnership Agreement of
Energea Portfolio 2 LP. This conversion was undertaken to enhance structural flexibility
for capital raising and investor participation, including enabling the creation
of additional classes of investor shares, supporting the continuation of the
ongoing Regulation A offering, and aligning the entity's governance with its
long-term growth strategy. In connection with the conversion, the Company
retained its election to be treated as a C-corporation for U.S. federal income
tax purposes. All outstanding equity interests previously designated as common
shares and Class A investor shares were automatically converted into
corresponding Common Shares and Class A Investor Shares under the new
partnership structure.
As of the date of this
report, the Partnership has authorized 2,501,000,000 limited partnership
interests (the "Shares"). Of these, 1,000,000 are designated as Common Shares,
and 2,500,000,000 are designated as Investor Shares. The Investor Shares, which
represent limited partnership interests, are further divided into various
classes, as described below.
Common Shares
The Partnership has
authorized 1,000,000 Common Shares, all of which were issued and outstanding as
of December 31, 2025 and 2024. These shares are held by Energea Global LLC, the
General Partner, and represent its general partnership interest in the Partnership.
Investor Shares
The Partnership has
authorized 2,500,000,000 Investor Shares, all of which represent limited
partnership interests. Of this amount, 500,000,000 have been designated as
Class A Investor Shares. As of December 31, 2025 and 2024, 39,526,938 and
25,097,066 Class A Investor Shares, respectively, were issued and outstanding.
The remaining
2,000,000,000 Investor Shares have been designated as Class B Investor Shares,
Class C Investor Shares, Class D Investor Shares, and Class I Investor Shares.
As of December 31, 2025, none of these additional classes of Investor Shares
were issued or outstanding.
All shares are
uncertificated unless otherwise determined by the General Partner and are
governed by the rights, powers, and preferences set forth in the applicable
authorizing resolutions referenced in the Limited Partnership Agreement.
F-14
Note 10 - Income Taxes
Income tax expense (benefit) is comprised of the following
for the years ended December 31, 2025 and 2024:
|
2025
|
|
2024
|
|
Federal:
|
|
|
|
|
Current
|
$
-
|
|
$
-
|
|
Deferred
|
(246,270)
|
|
(144,610)
|
|
|
(246,270)
|
|
(144,610)
|
|
State:
|
|
|
|
|
Current
|
-
|
|
-
|
|
Deferred
|
(87,955)
|
|
(51,646)
|
|
|
(87,955)
|
|
(51,646)
|
|
Income tax expense (benefit)
|
(334,225)
|
|
(196,256)
|
|
Change
in valuation allowance
|
334,225
|
|
196,256
|
|
Net Income tax expense (benefit)
|
$ -
|
|
$ -
|
A reconciliation of the
U.S. Federal and Connecticut statutory rate to our effective income tax rate is
shown in the table below for the years ended December 31, 2025 and 2024:
|
2025
|
|
2024
|
|
|
|
|
|
|
Statutory rate applied
to pre-tax income - Federal
|
21.00%
|
|
21.0%
|
|
Statutory rate applied to pre-tax income - State
|
7.50%
|
|
7.5%
|
|
Permanent differences -
penalties
|
0.00%
|
|
-0.09%
|
|
Change in valuation allowance
|
-28.50%
|
|
-28.41%
|
|
Effective tax rate
|
0.00%
|
|
0.00%
|
As of December 31,2025,
and 2024, the significant components of the Company's deferred tax assets and
liabilities were as follows:
|
2025
|
|
2024
|
|
Deferred tax assets:
|
|
|
|
|
Net
operating losses
|
$ 777,171
|
|
$ 445,424
|
|
Impairment loss on property and equipment
|
95,531
|
|
-
|
|
Total
deferred tax assets
|
872,702
|
|
445,424
|
|
|
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
|
Depreciation
|
191,805
|
|
149,580
|
|
Unrealized
gain on foreign exchange
|
50,829
|
|
-
|
|
Total deferred tax liabilities
|
242,633
|
|
149,580
|
|
Net deferred tax
assets, before valuation allowance
|
630,069
|
|
295,844
|
|
Less: Valuation allowance
|
(630,069)
|
|
(295,844)
|
|
Total
deferred tax assets, net
|
$
-
|
|
$
-
|
Deferred income taxes
reflect the net tax effects of net operating loss ("NOL")
carryforwards and temporary differences between the carrying amounts of assets
and liabilities for financial reporting and the amounts used for income tax
purposes. The Company's deferred tax assets relate mainly to NOL carryforwards
which may be used to reduce tax liabilities in future years (subject to an 80%
taxable income limitation for federal tax purposes), and an impairment loss on
property, plant and equipment. At December 31, 2025 and 2024, the Company had
federal NOL carryforwards totaling $2,747,241 and $1,596,329, respectively. At
December 31, 2025 and 2024, the Company had state NOL carryforwards totaling
$2,670,010 and $1,469,273, respectively. The state NOL carryforwards are
subject to a 50% taxable income limitation. At December 31, 2025 and 2024, the
Company had a Federal and state impairment loss on property, plant, and
equipment of $335,196 and $0, respectively.
The Company reduces the
carrying amounts of deferred tax assets if, based on the evidence available, it
is more-likely-than-not that such assets will not be realized. At December 31,
2025 and 2024, the Company had net deferred tax assets totaling $630,069 and
$295,844, respectively, which are reduced by a full valuation allowance. The
Company has elected to treat income of approximately $90,000 subject to the
rules of Global Intangible Low-Taxed Income ("GILTI") as a period cost under
ASC 740 and therefore does not recognize deferred taxes related to temporary
differences of foreign subsidiaries subject to GILTI
In making the assessment
under the more-likely-than-not standard, appropriate consideration must be
given to all positive and negative evidence related to the realization of
deferred tax assets. This assessment considers, among other matters, the
nature, frequency and severity of current and cumulative losses, forecasts of
future profitability, the duration of statutory carry-forward periods by
jurisdiction, unitary versus stand-alone state tax filings, loss carry forwards
not expiring unutilized, and all tax planning alternatives that may be
available. A valuation allowance has been recorded against the deferred tax
assets as management cannot conclude that it is more-likely-than-not that these
assets will be realized.
During the years ended
December 31, 2025 and 2024, the Company did not have any unrecognized tax
benefits related to uncertain tax positions.
F-15
