Summer Energy Holdings (SUME) Risk Analysis

On December 18, 2018, the Company signed a single payment note (the "Note") with Comerica Bank (the "Bank") in the amount of $2,900,000.   The Note has a maturity date of June 11, 2020, with interest thereon at a per annum rate equal to the "Prime Referenced Rate" plus the "Applicable Margin."   The "Prime Referenced Rate" means, for any day, a per annum interest rate which is equal to the "Prime Rate" in effect on such day, but in no event and at no time shall the "Prime Reference Rate" be less than the sum of the Daily Adjusting LIBOR rate for such day plus two and one-half percent (2.5%) per annum.   "Prime Rate" means the per annum rate established by the Bank as its prime rate for its borrowers at any such time.   "Applicable Rate" means 0.25% per annum.  Accrued and unpaid interest on the unpaid principal balance outstanding on the Note is payable monthly on the first day of each month, commencing on February 1, 2019. On December 9, 2019, the Note was converted from a single payment note to a master revolving note (the "Revolver Note"), which is payable in full on demand from the Bank.  The Revolver note provides for advances, repayments and re-advances from time to time.  Interest thereon at a per annum rate equal to the "Prime Referenced Rate" plus the "Applicable Margin."   The "Prime Referenced Rate" means, for any day, a per annum interest rate which is equal to the "Prime Rate" in effect on such day, but in no event and at no time shall the "Prime Reference Rate" be less than the sum of the Daily Adjusting LIBOR rate for such Guaranty of the Revolver Note has been made by four members of the Company's board of directors ("Guarantors").  The Company agreed to issue the four Guarantors shares of the Company's common stock on a monthly basis depending on the outstanding balance due and owing under the Revolver Note for agreeing to act as a Guarantor. For the Three Months Ended March 31,     2020   2019 Comerica Revolver Note interest expense $                         34,236 $                         36,497

Effective February 12, 2018, the Board of Directors of the Company approved and adopted the Summer Energy Holdings, Inc. 2018 Stock Option and Stock Award Plan ("2018 Plan"), which was established to advance the interest of the Company and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company. The Company's named executive officers are eligible for grants or awards under the 2018 Plan.   The Company's stockholders approved the 2018 Plan on June 8, 2018. The maximum aggregate number of (i) shares of stock that may be issued under the 2018 Plan and (ii) shares of stock with respect to which stock appreciation rights may be granted, is 1,500,000 and consists of authorized but unissued or reacquired shares of stock or any combination thereof.  Such number of shares of stock may be issued under the 2018 Plan pursuant to incentive stock options, non-statutory stock options, restricted stock grants, restricted stock units, stock appreciation right grants or any combination thereof, so long as the aggregate number of shares so issued does not exceed such number of shares, as adjusted. The 2018 Plan or any increase in the maximum aggregate number of shares of stock issuable thereunder shall be approved by the stockholders of the Company within twelve months of the date of adoption by the Board.  Awards granted prior to stockholder approval of the 2018 Plan shall become exercisable no earlier than the date of stockholder approval of the 2018 Plan. The 2018 Plan continues in effect until the earlier of its termination by the Board or the date on which all shares of stock available for issuance under the 2018 Plan have been issued and all restrictions on such shares under the terms on the 2018 Plan and the agreement evidencing awards granted under the 2018 Plan have lapsed.  However, all awards shall be granted, if at all, within ten years from the earlier of the date the 2018 Plan is adopted by the Board or the date the 2018 Plan is duly approved by the stockholders of the Company. During the three months ended March 31, 2020, the Company granted under the 2018 Plan a total of 40,000 stock options to key employees.   The stock options had an exercise price of $2.00, a one-year vest period and an approximate fair value of $29,742 determined using the Black Scholes option pricing model. The weighted average assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.70% (ii) estimated volatility of 124.16% (iii) dividend yield of 0.00% and (iv) expected life of all options averaging eight years. exercise price of $2.50 to a key employee as compensation.   The options granted to the non-employee members of the Company's Board of Directors vested immediately on the date of grant, and the 2,500 options granted to the key employee vest one-year from the date of grant.   The total 56,250 stock options granted during the quarter ended March 31, 2019 had an approximate fair value of $107,960 determined using the Black Scholes option pricing model. The weighted average assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 2.21% (ii) estimated volatility of 147.94% (iii) dividend yield of 0.00% and (iv) expected life of all options averaging eight years. During the three-month periods ended March 31, 2020 and 2019, respectively, the Company recognized total stock compensation expense for the vesting of options issued from the 2018 Plan as follows: For the Three Months Ended March 31,     2020   2019 2018 Stock Plan $ 238,170 $ 137,951 As of March 31, 2020, the unrecognized expense for vesting of options issued from the 2018 Plan is $761,193 relating to 735,000 of unvested shares expected to be recognized over a weighted average period of approximately 6.97 years. As of March 31, 2020, the Company had outstanding granted stock options under the 2018 Plan, net of forfeitures to purchase 1,371,250, and 128,750 shares remaining available for issuance.

On March 18, 2020, pursuant to the aforementioned grant agreements, the Company granted a total of 53,750 nonqualified stock options with an exercise price of $2.25 to six non-employee board members of the Company as compensation.  The total 53,750 stock options granted during the quarter ended March 31, 2020 had an approximate fair value of $57,760 determined using the Black Scholes option pricing model. The weighted average assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.66% (ii) estimated volatility of 124.16% (iii) dividend yield of 0.00% and (iv) expected life of all options averaging eight years. As of March 31, 2020, the stock compensation expense associated with the non-qualified stock options issued outside of a stock option or stock award plan was $57,760.

During the three months ended March 31, 2020, the Company accepted a subscription from an accredited investor to purchase 30,000 shares of common stock in exchange for cash proceeds in the amount of $45,000. During the three months ended March 31, 2019, the Company commenced a private placement offering (the "2019 Offering") to certain investors with whom the Company, its management and/or agents have a pre-existing relationship during the year ended December 31, 2019.   The 2019 Offering was to accredited investors to purchase shares of the Company's common stock at a purchase price of $1.50 per share. The 2019 Offering resulted in the issuance of 3,180,000 shares of common stock in exchange for cash proceeds in the amount of $4,770,000.

The Company has issued warrants to purchase shares of the Company's common stock associated with various agreements and has vested warrants from a previously terminated Master Marketing Agreement. On March 12, 2020, the Company issued a warrant for 250,000 shares of the Company's common stock under the agreement with Digital Lending (Note 7).  The five-year warrant has an exercise price of $1.50 per share and is subject to adjustment as set for in the Warrant. The fair value of warrant was $245,337 determined using the Black-Scholes option-pricing model and was expensed during the quarter ended March 31, 2020.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.66%, (ii) estimated volatility of 123.91%, (iii) dividend yield of 0.00%, and (iv) expected life of the warrant of 5 years. As of March 31, 2020, the Company had outstanding warrants to purchase up to 991,212 shares of the Company's common stock, of which 725,975 are fully vested.

The Company entered into a line of credit agreement (the "Leibman Line") with Mr. Leibman ("Lender Leibman").   The line of credit allows the Company to borrow a maximum principal amount of $1,000,000 to be used by the Company for working capital and other purposes determined by the board of directors of the Company.    During the term of the Leibman Line, Lender Leibman may make periodic loans as requested by the Company so long as the aggregate principal amount outstanding at any time does not exceed the maximum amount of the Leibman Line.   Simple interest shall accrue on the unpaid principal balance outstanding under the Leibman Lines at the rate of 5% per annum and interest will be calculated on the basis of a 365-day year.  Any unpaid principal and all accrued but unpaid interest shall be due and payable in full by the Company no later than May 15, 2023. The Company entered into a line of credit agreement (the "LaRose Line") with LaRose Holdings, LLLP ("Lender LaRose").   The line of credit allows the Company to borrow a maximum principal amount of $1,000,000 to be used by the Company for working capital and other purposes determined by the board of directors of the Company.    During the term of the LaRose Line, Lender LaRose may make periodic loans as requested by the Company so long as the aggregate principal amount outstanding at any time does not exceed the maximum amount of the LaRose Line.   Simple interest shall accrue on the unpaid principal balance outstanding under the LaRose Line at the rate of 5% per annum and interest will be calculated on the basis of a 365-day year.  Any unpaid principal and all accrued but unpaid interest shall be due and payable in full by the Company no later than May 15, 2023.

On January 15, 2020, the Company executed a promissory note in the amount of $600,000 to evidence an advance by Mr. Leibman for purposes of short-term financing.  The promissory note accrued interest at a rate of 5% per annum based upon 365 days in a year and had a maturity date of April 14, 2020. On March 13, 2020, the Company paid in full the outstanding balance of the loan from Mr. Leibman with interest in the amount of $4,849.  As of March 31, 2020, the balance of the loan from Mr. Leibman was $0. On December 18, 2019, the Company executed a promissory note in the amount of $590,000 to evidence an advance by Mr. Leibman for purposes of short-term financing.  The promissory note accrued interest at a rate of 5% per annum based upon 365 days in a year and had a maturity date of March 18, 2020. On December 20, 2019, the Company paid in full the outstanding balance of the loan from Mr. Leibman with interest in the amount of $242.  As of March 31, 2020, the balance of the loan from Mr. Leibman was $0. On November 8, 2019, the Company executed a promissory note in the amount of $850,000 to evidence an advance by Mr. Leibman for purposes of short-term financing.  The promissory note accrued interest at a rate of 5% per annum based upon 365 days in a year and had a maturity date of February 6, 2020.  On February 6, 2020, the Company amended such promissory note to extend the maturity date of such note to May 7, 2020 with all other provisions of the original note remaining in full force and effect.  On March 13, 2020, the Company paid Mr. Leibman in full the outstanding balance of the loan with interest in the amount of $8,384.   As of March 31, 2020, the balance of the loan from Mr. Leibman was $0. On November 8, 2019, the Company executed a promissory note in the amount of $1,000,000 to evidence an advance by LaRose Holdings LLLP, an entity controlled by Al LaRose, for purposes of short-term financing.  Mr. LaRose is a director of the Company. The promissory note accrued interest at a rate of 5% per annum based upon 365 days in a year and had a maturity date of February 6, 2020.  On February 6, 2020, the Company amended such promissory note to extend the maturity date of such note to May 7, 2020 with all other provisions of the original note remain in full force and effect.   On March 13, 2020, the Company paid LaRose Holdings in full the outstanding balance of the loan with interest in the amount of $10,000.   As of March 31, 2020, the balance of the loan from LaRose Holdings LLLP was $0. On January 7, 2019, the Company entered into a promissory note in the amount of $473,000 for an advance by Mr. O'Leary, a member of the Company's board of directors, for purposes of short-term financing.    The promissory note accrued interest at a rate of 5% per annum based upon 365 days in a year and had a maturity date of July 7, 2019.  On February 7, 2019, the Company paid back in full the loan from Mr. O'Leary with interest in the amount of $2,009.  As of March 31, 2020 and 2019, the balance of the loan from Mr. O'Leary was $0, respectively. On January 7, 2019, the Company entered into a promissory note in the amount of $25,000 for an advance by Messrs. O'Leary and Leibman for purposes of short-term financing. The promissory note accrued interest at a rate of 5% per annum based upon 365 days in a year and had a maturity date of July 7, 2019. On February 7, 2019, the Company paid back in full the loan from Messrs. O'Leary and Leibman with interest in the amount of $106.   As of March 31, 2020 and 2019, the balance of the loan from Messrs. O'Leary and Leibman was $0, respectively. The following table summarizes interest paid to related parties on promissory notes for the three months ended March 31, 2020 and 2019 is as follows: For the Three Months Ended March 31,   Original Date of Note   2020   2019 Related party interest expense for $600,000 note 1/15/2020 $                           4,849 $                                 -    Related party interest expense for $590,000 note 11/8/2019                                   -                                      -    Related party interest expense for $850,000 note 11/8/2019                             8,384                                   -    Related party interest expense for $1,000,000 note 11/8/2019                           10,000                                   -    Related party interest expense for $473,000 note 1/7/2019                                   -                                2,009 Related party interest expense for $25,000 note 1/7/2019                                   -                                   106 Total   $ 23,233 $ 2,115

Effective May 2017, the Company began offering an Employee Stock Purchase Plan (the "ESPP") whereby eligible employees may elect to purchase common stock of the Company through a registered broker/dealer.   Eligible employees who so elect may authorize payroll deductions for contributions to the ESPP up to a maximum of $25,000 each calendar year. The Company will match 10% of eligible employee contributions up to an aggregate maximum of $24,000 for all ESPP participants (not each individual ESPP participant). The employer match for the three months ended March 31, 2020 and 2019 is follows: For the Three Months Ended March 31,     2020   2019 Employee Stock Purchase Plan $ 690 $ 927

On May 1, 2018, Summer Energy Holdings, Inc. (for purposes of this Note, "SEH"), together with its subsidiaries Summer LLC and Summer Northeast (collectively the "Company") closed a transaction with EDF Energy Services, LLC and EDF Trading North America, LLC (collectively, "EDF").  As part of the transaction, Summer LLC, Summer Northeast and EDF entered into an Energy Services Agreement (the "Energy Services Agreement") pursuant to which Summer LLC and Summer Northeast agreed to purchase their electric power and associated services requirements from EDF, and EDF agreed to provide Summer LLC and Summer Northeast with certain credit facilities to assist Summer LLC and Summer Northeast in the purchase of their electric power and associated service requirements (such transaction with EDF, the "Original Transaction").  The terms of the Energy Services Agreement are governed by the ISDA Master Agreement, as well as a Schedule and Power Annex thereto and the Credit Support Annex thereto. In conjunction therewith, the Company and EDF also entered into a Security Agreement (the "Security Agreement"), a Pledge Agreement (the "Pledge Agreement") and a Guaranty (the "Guaranty") in favor of EDF.  The Energy Services Agreement has a term of three years, and automatically renews for successive one-year periods unless either party provides written notice of termination 180 days prior to the renewal date. In addition to the market-based commodity price charged by EDF for each underlying commodity transaction, the Company will pay a "Commodity Fee" for each megawatt hour ("MWh") of power that the Company requests for delivery from EDF during the term of the Energy Services Agreement.  In addition, the Company is responsible for other mutually agreed upon fees incurred by EDF on its behalf.  The Company is also responsible for any reasonable transmission or transportation costs incurred in connection with power transactions.  Monthly supply obligations will accrue interest at a rate equal to three-month LIBOR plus 6% per annum.  Any additional credit support will bear interest at the per annum rate equal to the lesser of (i) a rate per annum equal to three-month LIBOR rate plus 3% per annum, and (ii) the maximum rate of interest permitted by applicable law. In consideration of the services and credit support provided by EDF to Summer LLC and Summer Northeast, and pursuant to the Security Agreement, Summer LLC and Summer Northeast agreed to, among other things (i) grant a priority security interest to EDF in all of their assets, equipment and inventory; (ii) require their customers to remit monthly payments into a lockbox account over which EDF has a security interest; and (iii) deliver monthly and annual forecasted and audited statements to EDF. Pursuant to the Pledge Agreement, SEH pledged to EDF, and granted to EDF a security interest in, all of the membership interests of Summer LLC and Summer Northeast owned by SEH as well as all additional membership interests of such subsidiaries from time to time acquired by SEH.  Pursuant to the Guaranty, SEH agreed to guaranty the obligations of Summer LLC and Summer Northeast under the Energy Services Agreement. The foregoing is only a brief description of the material terms of the transaction with EDF and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the text of the Energy Services Agreement, the ISDA Master Agreement, the Security Agreement, the Pledge Agreement and the Guaranty, which are filed as Exhibits 10.1 through 10.5, respectively, to our quarterly report on Form 10-Q filed with the SEC on August 14, 2018. On June 19, 2019, the Company closed a transaction (the "Amendment Transaction") with EDF Trading North America, LLC ("EDFTNA") in order to amend and/or restate certain of the agreements with EDF entered into in the Original Transaction. Pursuant to the Amendment Transaction, the Company and EDFTNA entered into an Amended and Restated Energy Services Agreement, which amended and restated the Energy Services Agreement (the "Amended Energy Services Agreement"), an amendment to ISDA Master Agreement which amends the ISDA Agreement (the "Amended ISDA Agreement"), an Omnibus Amendment to Pledge Agreement and Security Agreement and Joinder, which amends both the Security Agreement and the Pledge Agreement (the "Omnibus Amendment") and an Amended and Restated Guaranty, which amends and restates the Guaranty (the "Amended Guaranty").  In general, the Amended Energy Services Agreement, the Amended ISDA Agreement, the Omnibus Amendment and the Amended Guaranty amend and/or restate the documents from the Original Transaction to (i) remove EDF Energy Services, LLC as a party to the agreements and (ii) add an additional subsidiary of SEH, Summer Midwest, as a party to the agreements, such that Summer Midwest is able to purchase its electric power and associated services requirements from EDFTNA and also utilize EDFTNA's credit support.   The term, pricing and interest payable under the Amended Energy Services Agreement are unchanged from the original Energy Services Agreement. Pursuant to the Omnibus Amendment, in consideration of the services and credit support provided by EDFTNA to the Company, Summer Midwest agreed to, among other things (i) grant a priority security interest to EDFTNA in all of its assets, equipment and inventory; and (ii) require its customers to remit monthly payments into a lockbox account over which EDFTNA has a security interest.  The security interest previously granted by Summer LLC and Summer Northeast is unchanged, except that EDFTNA is now the sole secured party.  Also pursuant to the Omnibus Amendment, SEH pledged to EDFTNA, and granted to EDFTNA a security interest in, all of SEH's membership interest in Summer Midwest. The previous pledge by SEH of its membership interest in Summer LLC and Summer Northeast is unchanged, except that EDFTNA is now the sole secured party.   Pursuant to the Guaranty, SEH agreed to guaranty the obligations of Summer LLC, Summer Northeast and Summer Midwest under the Amended Energy Services Agreement. The foregoing is only a brief description of the material terms of the Amendment Transaction and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the text of the Amended Energy Services Agreement, the Amended ISDA Master Agreement, the Omnibus Amendment and the Amended Guaranty, which are filed as Exhibits 10.1 through 10.4, respectively, to our Quarterly Report on Form 10-Q filed with the SEC on August 14, 2019. As of March 31, 2020 and December 31, 2019, EDF has provided credit support in the amount of $5,361,006 and $4,511,006, respectively, for cash collateral as well as to secure letters of credit (Note 4) and surety bonds (Note 5) for the benefit of the Company. The Company incurred interest expense to EDF for the three months ended March 31, 2020 and 2019 as follows: For the Three Months Ended March 31,     2020   2019 EDF interest $ 264,264 $ 192,765 Office Space The Company leases office space and equipment.  Leases with an initial term of 12 months or less are not recorded on the balance sheet.  Lease expense is recognized on a straight-line basis over the term of the lease.  For leases beginning in 2019 and later, the Company accounts for lease components separately from the non-lease components.  Most leases include one or more options to renew.  The exercise of the lease renewal options is at the sole discretion of the Company.  Certain leases also include options to purchase the leased property.  The depreciable life of the assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Summer LLC assumed an operating lease for office space on November 1, 2011 at 800 Bering Drive, Suite 260, Houston, Texas, under a non-cancellable lease obligation that expired on August 31, 2016. The Sixth Amendment to the office space lease extended the obligation to October 31, 2019. Summer Northeast entered into a sublease agreement with PDS Management Group, LLC ("PDS") on October 31, 2017 at 800 Bering Drive, Suite 250, Houston, Texas, under a non-cancellable lease obligation that expired on February 28, 2020.  On September 1, 2018, PDS subleased 800 Bering Drive, Suite 250, Houston, Texas to an outside party, and Summer Northeast receives a monthly credit in the amount of $1,698 until the end of the lease obligation on February 28, 2020.  The monthly base rent is $3,727 for the period of November 1, 2017 to February 2018 and $3,904 until August 31, 2018.  Beginning on September 1, 2018 through the termination of the lease on February 28, 2020, the monthly rent, net of credit, is $2,255. As of March 31, 2020 and December 31, 2019, the operating lease right-of-use assets and operating lease liabilities were $940,339 and $979,185, respectively. The long-term portion of the operating lease liabilities as of March 31, 2020 and December 31, 2019 in the amounts of $797,769 and $834,283, respectively, was included in long-term obligations. As of March 31,2020, the weighted-average remaining lease term for operating leases was 5.68 years.  As of March 31, 2020, the weighted-average discount rate for operating leases was 6.5%. Operating lease future minimum payments together with their present values as of March 31, 2020 are summarized as follows: Operating Leases 2020 $ 149,622 2021   199,494 2022   199,494 2023   197,294 2024   190,694 Thereafter   190,693 Total future minimum lease payments   1,127,291 Less amounts representing interest   (186,952) Present value of lease liability $ 940,339       Current-portion operating lease liability   (142,570)       Long-term portion operating lease liability $ 797,769 Lease expense for the office space for the three months ended March 31, 2020 and 2019, respectively, was included in operating expenses on the consolidated statements of operations as follows: For the Three Months Ended March 31,     2020   2019 Operating Lease expense $ 38,846 $ 76,323

On April 9, 2020, the Company issued 101,112 shares of the Company's common stock as payment for the accrued interest for the personal guarantees of the Comerica Bank Master Revolver Note (Note 9) and the Comerica Bank Single Payment Note (Note 10). On April 20, 2020, the Company received $2,342,300 in loan funding from the SBA PPP, established pursuant to the recently enacted CARES Act. The unsecured loan (the "Loan") is evidenced by a promissory note issued by the Company (the "Note") in favor of Frost Bank (the "Bank"), as lender. The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed.  No assurance is provided that the Company will obtain forgiveness of the Loan in whole or in part. On April 24, 2020, the irrevocable standby letter of credit in the amount of $500,000 issued to the State of New Hampshire Public Utilities Commission (Note 4) was amended to reflect and expiration date of May 1, 2021. On April 28, 2020, the Company paid in full the $1,000,000 of the principal advanced from the Leibman Line (Note 20) on April 8, 2020 and paid Mr. Leibman $2,877 of accrued interest.

March 31, 2020   December 31, 2019 ASSETS          Current assets:          Cash $ 872,086 $ 814,360  Restricted cash   2,772,823   3,197,708  Accounts receivable, net   43,001,479   41,847,949  Prepaid and other current assets   4,446,884   3,612,607  Total current assets   51,093,272   49,472,624            Property and equipment, net   61,532   58,418            Deferred financing cost, net   507,768   3,125            Operating lease right-of-use assets, net   940,339   979,185            Intangible asset, net   689,094   984,420            Total assets $ 53,292,005 $ 51,497,772           LIABILITIES AND STOCKHOLDERS' EQUITY          Current liabilities:          Accounts payable $ 1,553,242 $ 1,496,461  Accrued wholesale power purchased   15,043,859   17,538,120  Accrued transportation and distribution charges   6,284,797   5,320,851  Accrued expenses   5,477,485   4,809,533  Related party loans                                  -      1,850,000  Current-portion operating lease obligation   142,570   144,902  Current-portion of obligations   5,000,000   5,038,397  Total current liabilities   33,501,953   36,198,264           Long-term liabilities:          Long-term obligations, net of current portion   15,158,775   10,265,289            Total liabilities   48,660,728   46,463,553            Commitments and contingencies                    Stockholders' equity         Common stock - $.001 par value, 100,000,000 shares authorized, 31,562,486 and 31,532,486 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively   31,562   31,531   Subscription receivable   (52,000)   (52,000)   Additional paid-in capital   31,475,796   30,879,055   Accumulated deficit   (26,824,081)   (25,824,367)   Total stockholders' equity   4,631,277   5,034,219           Total liabilities and stockholders' equity $ 53,292,005 $ 51,497,772 See accompanying notes to the condensed consolidated financial statements.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.  These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission ("SEC") on March 27, 2020. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period.  Actual results may differ from these estimates. Uses and Sources of Liquidity The condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial statements. Estimating liquidity requirements is highly dependent on then-current market conditions, including impacts of the COVID-19 pandemic, weather events, forward prices for electricity, market volatility and our then existing capital structure and requirements. Revenue and Cost Recognition Direct energy costs are recorded when the electricity is delivered to the customer's meter. Cost of goods sold ("COGS") within the Texas market include electric power purchased and pass through charges from the transmission and distribution service providers ("TDSPs") in the areas serviced by the Company.  TDSP charges are costs for metering services and maintenance of the electric grid.  TDSP charges are established by regulation of the PUCT.   COGS within the Independent System Operator ("ISO") for the New England market is comprised of wholesale costs based upon the wholesale power tariff rate for volumes purchased during the delivery month and scheduling fees.  Summer Midwest began flowing electricity within the Pennsylvania, New Jersey, Maryland Power Pool ("PJM") market in July 2019, and the COGS for the PJM market is comprised of wholesale costs based upon the wholesale power tariff for volumes purchased during the delivery month as well as scheduling fees. The energy portion of our COGS is comprised of two components: bilateral wholesale costs and balancing/ancillary costs.  These two cost components are incurred and recognized differently as follows: Bilateral wholesale costs are incurred through contractual arrangements with wholesale power suppliers for firm delivery of power at a fixed volume and fixed price.  We are invoiced for these wholesale volumes at the end of each calendar month for the volumes purchased for delivery during the month, with payment due 20 days after the end of the month. Balancing/ancillary costs are based on the customer load and are determined by the Electric Reliability Council of Texas ("ERCOT"), ISO New England and PJM through a multiple-step settlement process.  Balancing costs/revenues are related to the differential between supply that we provided through our bilateral wholesale supply and the supply required to serve our customer load.  The Company endeavors to minimize the amount of balancing/ancillary costs through our load forecasting and forward purchasing programs. Restricted cash in the amount of $2,772,823 as of March 31, 2020 and $3,197,708 as of December 31, 2019 represents funds held in escrow for customer deposits, funds held in a controlled account by the wholesale provider (Note 11) and funds securing irrevocable stand-by letters of credit (Note 4). March 31, 2020   December 31, 2019 Cash $ 872,086 $ 814,360 Restricted cash:          Escrow for customer deposits   518,731   511,461  Funds securing letters of credit   750,000   750,000  Funds controlled by wholesale provider   1,504,092   1,936,247  Total restricted cash   2,772,823   3,197,708           Total cash and restricted cash $ 3,644,909 $ 4,012,068 Basic and Diluted Income (Loss) Per Share Basic income/(loss) per share are computed by dividing net income/(loss) applicable to the weighted-average number of shares outstanding during the period.  Diluted income per share is determined using the weighted-average number of shares outstanding during the period, adjusted for the dilutive effect of share equivalents, using the treasury method, consisting of shares that might be issued upon exercise of share equivalents. In periods where losses are reported, the weighted average number of shares excludes share equivalents, because their inclusion would be anti-dilutive. For the three months ended March 31, 2020, the Company had potentially dilutive securities totaling approximately 307,783 and the weighted average number of shares outstanding for the three months ended March 31, 2020 excludes share equivalents, because their inclusion would be anti-dilutive.   For the three months ended March 31, 2019, the net income amount used to calculate both basic and diluted net income per share was the same. The 985,478 weighted average share difference between basic and diluted was due to dilutive stock options and stock warrants. New Accounting Standards Recently Adopted In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 requires entities to use a current expected credit loss ("CECL") model, which is a new impairment model based on expected losses rather than incurred losses on financial assets, including trade accounts receivables. The model requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We adopted ASU 2016-13 and the related amendments effective January 1, 2020, and there was no material impact to our condensed consolidated financial statements. Standards Not Yet Adopted In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, which reduces the complexity of FASB ASC Topic 740, "Income Taxes" as part of the FASB's Simplification Initiative.  The amendments in this guidance simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.  The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.  This guidance is effective for annual reporting periods ending after December 15, 2020, with early adoption permitted, and should be applied on either a retrospective basis for all periods presented or a modified retrospective basis.   Management is still assessing the impact this might have on the Company's consolidated financial statements. The Company has reviewed all other recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that no other pronouncements will have a significant effect on its financial statements.

As of March 31, 2020 and December 31, 2019, Summer LLC had no outstanding secured irrevocable stand-by letters of credit.  As of March 31, 2020 and December 31, 2019, the cash deposits held by various local utilities in the ERCOT market totaled at $1,025,525 and $1,004,059, respectively. As of March 31, 2020 and December 31, 2019, Summer Northeast had two secured irrevocable stand-by letters of credit totaling $750,000 with a financial institution.  The letters of credit were issued for the benefit of the following parties: Connecticut Department of Public Utility Control in the amount of $250,000 expiring on May 26, 2020 with automatic extension provisions and the State of New Hampshire Public Utilities Committee in the amount of $500,000 expiring on May 1, 2020.   As of March 31, 2020 and December 31, 2019, Summer Northeast had cash collateral posted with ISO New England in the amount of $1,392,066 and $1,387,181, respectively. As of March 31, 2020 and December 31, 2019, Summer Midwest had no secured irrevocable stand-by letters of credit.  As of March 31, 2020 and December 31, 2019, Summer Midwest had cash collateral held by various local utilities in the PJM market totaling $1,863,000 and $713,000, respectively. As of March 31, 2020, none of the letters of credit issued on behalf of the Company were drawn upon. As of March 31, 2020, Summer Midwest had a surety bond in the amount of $500,000 issued to the Illinois Commerce Commission and a surety bond in the amount of $250,000 issued to the Pennsylvania Public Utility Commission.   Both bonds are secured with $375,000 in cash held by the surety bond company.

On December 20, 2019, the Company signed a Single Payment Note (the "Single Note") with Comerica Bank in the amount of $2,100,000.  The Note has a maturity date of June 20, 2020, with interest thereon at a per annum rate equal to the "Prime Referenced Rate" plus the "Applicable Margin."   The "Prime Referenced Rate" means, for any day, a per annum interest rate which is equal to the "Prime Rate" in effect on such day, but in no event and at no time shall the "Prime Referenced Rate" be less than the sum of the Daily Adjusting LIBOR Rate for such day plus two and one-half percent (2.5%) per annum.   "Prime Rate" means the per annum rate established by Comerica Bank as its prime rate for its borrowers at any such time.  "Applicable Margin" means 0.25% per annum.   Accrued and unpaid interest on the unpaid principal balance outstanding on the Note shall be payable monthly on the twentieth day of each month, commencing on January 20, 2020.  As of March 31, 2020, the interest rate was 3.50%. Guaranty of the Single Note has been made by four members of the Company's board of directors ("Guarantors").  The Company agreed to issue the four Guarantors shares of the Company's common stock on a monthly basis depending on the outstanding balance due and owing under the Note for agreeing to act as a Guarantor of the Single Note. As of March 31, 2020 and December 31, 2019, the outstanding balance of financing on the Comerica Single Note was $2,100,000. Interest expense for the three months ended March 31, 2020 and 2019 was as follows: For the Three Months Ended March 31,     2020   2019 Comerica Single Note interest expense $                         24,792 $                                 -

The amount of available credit under the Loan is $10,000,000.  The Loan is revolving in nature and is evidenced by a Revolving Promissory Note (the "Note").  The maturity date of the Loan is March 11, 2023.  The Loan bears interest at a rate of 12.75% per annum, with monthly installment payments of accrued interest only.  The principal balance of the Loan may be prepaid at any time at the option of the Borrower, subject to certain prepayment charges. The Loan was used by the Company to repay indebtedness owed to Blue Water (Note 8) and additional indebtedness, as well as for working capital and other general corporate purposes In connection with the Agreement, the Borrower made certain customary representations and warranties, and agreed that while the Loan amount remains outstanding, it would not take certain actions, including that it will not incur certain debts (as defined in the Agreement); create, assume, or suffer to exist any lien on any property or asset of the Borrower, except those set forth in and allowed by the Agreement; consolidate or merge with any other entity; or sell, lease, or transfer all or substantially all of the assets of the Borrower. Also, in connection with the Agreement, the Borrower made certain affirmative and negative covenants, and agreed to designate a representative of Digital Lending to attend the Company's board of directors' meetings in a non-voting, observer capacity. As of March 31, 2020, Summer LLC was in compliance with the covenants of the Agreement. In connection with the Agreement, the Borrower and Digital Lending also entered into a Security Agreement (the "Security Agreement"), and Summer Energy Holdings, Inc. executed a Guaranty (the "Guaranty") and issued a Common Stock Purchase Warrant ("Warrant") in favor of Digital Lending. Security Agreement Guaranty Pursuant to the Guaranty, the Company agreed to guaranty the Borrower's obligations under the Agreement and Note. Warrant As of March 31, 2020, the outstanding balance of the Digital Lending loan was $9,000,000 and the accrued interest for the periods ended March 31, 2020 and 2019 was as follows: For the Three Months Ended March 31,     2020   2019 Digital Lending interest expense $ 63,750 $                                 -

The amount of available credit under the Loan was $5,000,000.  The Loan was revolving in nature and is evidenced by a Revolving Promissory Note (the "Note").  The maturity date of the Loan was June 30, 2018.  On June 27, 2018, Summer LLC entered into an amendment to the agreement (the "Amendment") with Blue Water with respect to the Agreement. On March 12, 2020, simultaneous with the closing of the loan from Digital Lending (Note 7), the outstanding debt due and owing to Blue Water was paid in full. As of March 31, 2020 and December 31, 2019, the outstanding balance of financing from Blue Water Capital was $0 and $4,920,000, respectively. Interest expense for the three months ended March 31, 2020 and 2019 was: For the Three Months Ended March 31,     2020   2019 Blue Water interest expense $ 167,900 $ 126,075

Long-term obligations of the Company are comprised as follows: March 31, 2020   December 31, 2019 Financing from First Insurance Funding (Note 6) $                                   - $                        38,397 Financing from Digital Lending Services US Corp. (Note 7)               9,000,000                                   - Financing from Blue Water Capital Funding, LLC (Note 8)   -                  4,920,000 Comerica Bank Master Revolving Note (Note 9)               2,900,000                  2,900,000 Comerica Bank Single Payment Note (Note 10)                2,100,000                   2,100,000 Wholesale Power Purchase Agreement with EDF collateral credit support (Note 11)              5,361,006                    4,511,006 Operating lease obligations (Note 12)                    940,339                       979,185 Total obligations $           20,301,345 $              15,448,588           Less current portion of obligations             (5,000,000)                (5,038,397) Less current portion operating lease obligations (Note 12)   (142,570)                    (144,902) Long-term portion of obligations $            15,158,775 $              10,265,289 For the three months ended March 31, 2020 and 2019, respectively, interest expense consists of the following on obligations: For the Three Months Ended March 31,     2020   2019 Financing from First Insurance Funding (Note 6) $                      1,365 $                            -    Financing from Digital Lending Services US Corp. (Note 7)                      63,750                              -    Financing from Blue Water Capital Funding, LLC (Note 8)                    167,900                    126,075 Comerica Master Revolving Note (Note 9)                      34,236                      36,497 Comerica Bank Single Payment Note (Note 10)                      24,792                              -    Wholesale Power Purchase Agreement with EDF (Note 11)                    264,264                    192,765 Related Party Promissory Loans (Note 21)                      23,233                        2,115 Related Party Guarantors (Note 22)                    151,667                      76,167 Other interest                           312                             84 Total interest expense $                  731,519 $                  433,703           Interest income   5,837   15,231           Interest expense, net $ 725,682 $ 418,472 During 2012, the Company approved the 2012 Stock Option and Stock Award Plan ("2012 Plan") established to advance the interest of the Company and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company. The maximum aggregate number of (i) shares of stock that may be issued under the 2012 Plan, and (ii) shares of stock with respect to which stock appreciation rights may be granted, is 785,000 and consists of authorized but unissued or reacquired shares of stock or any combination thereof.  Such number of shares of stock may be issued under the 2012 Plan pursuant to incentive stock options, nonstatutory stock options, restricted stock grants, stock appreciation right grants or any combination thereof, so long as the aggregate number of shares so issued does not exceed such number of shares, as adjusted. The 2012 Plan continues in effect until the earlier of its termination by the Board or the date on which all the shares of stock available for issuance under the 2012 Plan have been issued and all restrictions on such shares under the terms on the 2012 Plan and the agreement evidencing awards granted under the 2012 Plan have lapsed.  However, all awards shall be granted, if at all, within ten (10) years from the earlier of the date the 2012 Plan is adopted by the Board or the date the 2012 Plan is duly approved by the stockholders of the Company. During the three months ended March 31, 2020 and 2019, the Company granted no stock options under the 2012 Plan and recognized no stock compensation expense relating to the vesting of stock options issued from the 2012 Plan. As of March 31, 2020, there are 2,000 shares that remain available for issuance under the 2012 Plan. During the year ended December 31, 2015, the Company's stockholders approved the 2015 Stock Option and Stock Award Plan ("2015 Plan"), which was established to advance the interest of the Company and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company. The maximum aggregate number of (i) shares of stock that may be issued under the 2015 Plan, and (ii) shares of stock with respect to which stock appreciation rights may be granted, is 1,500,000 and consists of authorized but unissued or reacquired shares of stock or any combination thereof.  Such number of shares of stock may be issued under the 2015 Plan pursuant to incentive stock options, nonstatutory stock options, restricted stock grants, stock appreciation right grants or any combination thereof, so long as the aggregate number of shares so issued does not exceed such number of shares, as adjusted. The 2015 Plan continues in effect until the earlier of its termination by the Board or the date on which all the shares of stock available for issuance under the 2015 Plan have been issued and all restrictions on such shares under the terms on the 2015 Plan and the agreements evidencing awards granted under the 2015 Plan have lapsed.  However, all awards shall be granted, if at all, within ten years from the earlier of the date the 2015 Plan is adopted by the Board or the date the 2015 Plan is duly approved by the stockholders of the Company. During the three months ended March 31, 2020 and 2019, respectively, the Company recognized total stock compensation expenses for vesting options issued from the 2015 Plan as follows: For the Three Months Ended March 31,     2020   2019 2015 Stock Plan $ 10,490 $ 16,433 As of March 31, 2020, the unrecognized expense for vesting of options issued from the 2015 Plan is $76,922 relating to 150,000 of unvested shares expected to be recognized over a weighted average period of approximately 6.71 years. As of March 31, 2020, there are 19,000 shares that remain available for issuance under the 2015 Plan.